The Fintech-ification of Non-Fintech Industries
Conversation with Jakub Zakrzewski of Kraken Digital Asset Exchange
Six years ago, Ant Financial was a small company spun off from Alibaba as Alipay. Today, this spinoff from an ecommerce platform is one of the largest financial institutions globally. Ant Financial’s current market capitalisation is $300 billion, making it more than 50% bigger than Goldman Sachs (with a market capitalisation of $130 billion).
This success story of non-fintech companies expanding into fintech services is not a one-off situation and companies are paying attention. Last year Grab announced the formation of Grab Financial Group to provide financial services to its users, while this year Douyin (chinese version of TikTok) acquired a payment license to form Douyin Pay.
I had the opportunity to speak to Jakub Zakrzewski, who was listed on Forbes 30 under 30 in 2018. He was an early employee of Lazada Singapore (acquired by Alibaba for US$1B). Starting from an ecommerce company, he made his way into the world of fintech as the APAC market launcher for Revolut, one of the largest fintech companies in Europe. Now he is the Managing Director of Kraken Digital Asset Exchange, the first cryptocurrency exchange to be approved for a SPDI charter, that makes it equivalent to a bank.
In this interview Jakub discusses trends he is excited about in the fintech space, particularly the fintech-ification of seemingly non-fintech industries. He also talks about the future of crypto and his perception on the digital assets industry entering the mainstream financial market.
Let’s start with your background and how you got interested in fintech, as well as the cryptocurrency space?
Looking at it retrospectively, it was all a chain of events building on top of each other. I was very lucky after business school to join Lazada which was an early stage ecommerce company, that got me into the venture building space. That was extremely exciting because I was building something meaningful surrounded by some of the smartest people, while being given pretty big responsibilities at a very young age. To me, that was much more fun than going the classic route of consulting, investment banking or working at a big corporation. After Lazada, I wanted to continue working on building companies and moved to Hong Kong to join my two friends from Lazada to build an ecommerce logistics company. I joined this company at a much earlier stage than Lazada so here I learnt how to build companies from almost scratch in terms of growth, operations and product.
When I was in Hong Kong, I first-hand experienced massive problems in financial services when I had trouble opening a bank account. The process took a long time and I was working long hours so I didn’t even have time to visit the bank branch too often. At the time, I had to use my Singapore card in Hong Kong. That was obviously a very expensive decision to make because I had to pay a lot of spreads on FX and a very high ATM fee. This led me to search for a better banking experience. Being in venture building and having graduated with a MSc in Finance, I thought it would be really cool to combine these two worlds. It was also then that a friend introduced me to Revolut and I thought it was a really great product. I reached out to the CEO on LinkedIn and six interviews later, I was on my way back to Europe to join Revolut in London.
And from Revolut, I got into the cryptocurrency space. Revolut launched crypto at the end of 2017 and I got to learn a little bit more about what digital assets are and the potential that the industry has. I wanted to understand the industry better and so when Kraken came as an opportunity, I thought it would be a great way to continue this learning curve that I had at Revolut.
This is a nice chain of events that looks very logical in hindsight but at the time each decision was really made to continue learning and to do things that are pretty nascent. That was very important to me because I believe that it is at a nascent stage where you can actually have a big impact.
So you started with a non fintech background but now you work in fintech. What is your perception of fintech-ification of industries that are seemingly non-fintech, with companies like Alibaba starting Alipay, Douyin getting a banking licence and Grab’s Grab Financial Group (GFG) raising a USD300M Series A round in the beginning of 2021?
I think this trend will definitely continue — in Asia with the companies you’ve mentioned but also in Europe. The reason for this is that these big companies already have a very big user base. Fintech is just a way to grab even more attention of the current user base to upsell them to products with higher margins, and services that being a fintech enables these companies to offer. Moreover with the transactional data, companies are able to actually tailor not only marketing efforts but also other product recommendations. So to me it seems like a very logical step, especially because the cost of customer acquisition is almost non-existent. And add to that — the operational efficiencies that can be achieved when you do things in-house versus versus outsourcing them, I think it’s fair to assume that all companies would want to increase their sources of monetization.
And what are some trends that you particularly are excited about in fintech?
So I would definitely say to your point, the embedded finance space will be getting much more attention. This means that there’ll be more big companies that are going to be including fintech or financial services as their business line. There will also be more fintech companies that are going to be providing B2B embedded finance services. This basically opens up a two way stream — the big incumbent offering the services and the B2B embedded fintech companies selling their solutions to larger corporations.
The second big trend I’m excited about is something that is present in Europe but is yet to be a massive success in Asia is open banking. This is something that is coming in Europe from the regulators (PSD2) and it will definitely change how personal finance works and how we’re thinking about financial services in general. It will be great to see how APAC will adopt open banking standards in the region, knowing that it’s much more scattered compared to Europe, which is more homogeneous.
The third trend is decentralised finance. In general, if you think about it from a perspective that by using just a protocol or an algorithm, you’re able to facilitate borrowing, lending or exchange of goods in a market that is decentralised without anyone being in the centre of it, that’s extremely powerful. And we’ll see many more use cases that are going to be coming up from this, which are going to be extremely disruptive in many areas of financial services.
Zooming into the cryptocurrency space, do you believe that in the future they would be an asset or also be used for commerce (as actual money)?
So I don’t have a 100% certain answer but I’m a very firm believer that digital assets in general are going to be solving many problems that we’re currently facing everywhere in financial services. Just a couple of examples — Bitcoin is solving the problem of storing of value because people in our generation view storing of value in a different paradigm, and would much rather invest in Bitcoin than say gold. Then there are cryptocurrencies solving the problem of money transfers by trying to make the process as efficient as sending a text message. A third example, as I previously mentioned is that of decentralised finance companies that are trying to facilitate the way the borrowing, lending and exchange of goods is happening without a third party.
What keeps me most excited about crypto or digital assets is that I don’t really look at it from a perspective of the price going up 10% one week or going down 20% the other week. I’m much more interested in what these projects are trying to solve in the world of traditional finance. Looking at it from this lens, I think it’s going to be a very exciting couple of years ahead of us.
I would say it’s fair to assume that that money will be on blockchain in the future whether it’s peer-to-peer like Bitcoin or it’s backed by central governments. This is yet to be unfolded but it’s a pretty safe bet to make that blockchain technology is here to stay when it comes to money. We are already seeing the boom with NFTs when it comes to technology solving the problem of digital ownership and there are plenty of other use cases I’m definitely very excited about.
Within this particular race, there are a couple of horses that I would put my bet on, all of them solving a particular problem within financial services. If we look at financial services in the 21st century, technology has made so much advancement in this field but when it comes to paying with cash, it’s exactly the same as it has been for many years. So it’s my own perception that a change in paying with cash is inevitable in that we’ll be using money that is on blockchain which is probably going to be a combination of decentralised money and a component of centralised money coming from central banks.
And I think this is going to be a trend similar to how companies are using fintech as a line of business to monetize their user base, crypto is a natural way for a lot of them to keep the users within their own ecosystem. I don’t see it very far away where for example we have coffee chains that are going to be having their own cryptocurrencies being used as loyalty points. So to me this world is so fascinating and a completely different way of thinking about money.
And do you see any difference in the digital asset industry between Asia and the West or that doesn’t really come into play because the nature of the industry is that it’s global from day one?
It is global from day one but a lot of the biggest players are US-based when it comes to digital assets so it feels like the whole industry is a little bit more mature over there. When I look at APAC, it is catching up very quickly so I wouldn’t be surprised if some of the biggest companies within the digital assets space come out of this region in the near future. I also think there’s a big need in the region. Drawing a parallel from ecommerce — we saw a lot of Southeast Asian countries leapfrogging ecommerce and going directly from retail to mobile commerce and then even to social commerce (inventing the different ways of buying and selling products). And we’re going to see something similar when it comes to fintech. A lot of people in this region are unbanked which may lead them to leapfrogging directly to digital wallets and using digital assets for payments. This would not be surprising to me and I’m sure that APAC is going to be one of the fastest growing regions for the industry.
Lastly, what is your perception on the digital assets industry entering the mainstream financial market as well as, the significance of Kraken and being the first SPDI?
So Kraken being the first SPDI is sending a pretty big and strong message that we are already seen as a part of an established industry because we want to play by the same rules that the banks are playing with in the US. This definitely had a big impact and it was a vote of confidence for the whole industry, not just for Kraken itself.
I think crypto is already mainstream — it feels like everyone has heard about it and everyone has an opinion about it. Many people actually own digital assets so it’s definitely different from what it was in 2014 or even 2017. And especially what is different is that we are seeing the more established financial institutions incorporating digital assets into their businesses. We are seeing big financial institutions, big banks and tech companies buying up Bitcoin. I think we are at an early phase of mass adoption, so right now is definitely great to be a part of it. With the vote of confidence from the more established companies, it further legitimises that this is the right space to be looking at and that this industry is actually the future. I’m definitely very fortunate to be at the centre of this industry, surrounded by people that live and breathe digital assets, for me to understand and learn more about how we’re thinking about the future of finance.
