How a VC views the bank-fintech battle (hint: banks are losing)
A revolution is coming, and banks need to up their game if they want to survive it.
So says Minal Hasan, one of relatively few female venture capitalists in Silicon Valley, and the founder and managing partner at K2 Global, which invests in tech firms. She started her career as a corporate attorney who represented Twitter, Uber and Square and other tech startups, but more recently she's been an adviser to the digital currency exchange Coinbase, the trading app provider Robin Hood, the mobile wallet company PayTM, the cryptofinance company Circle and Digital Currency Group.
In a recent interview, Hasan was critical of banks' efforts to date to keep up with changing technology.
"They are so technologically behind," she said. "I use several banks to do inbound and outbound wires. All their interfaces are unmanageable and unusable."
But Hasan also says there's a chance for banks to catch up, and even become leaders again. Following is a Q&A in which she offers her views on that as well as women in venture capitalism, what she looks for in firms and her view of the cryptocurrency field.
The last I looked, there weren’t a ton of female founders of venture capital firms in Silicon Valley. How has that been for you? Do you come across a lot of bro culture, or are people generally respectful?
MINAL HASAN: There are almost no women VCs running their own venture firm. I can probably count them on one hand. There are only 9% women in actual partner or decision-making roles in the venture capital industry, which is an incredibly low number. Most of those women are at venture firms run by men.
But no, it has not been a problem. The key is to not focus on that and assume people will treat you the same way they treat anyone else. Sometimes it can take a little longer for people to understand what you do and that your competence level is equivalent to any number of other people, but you just have to be patient. It’s a big enough world that even if there are a few people who don’t want to work with you, there are a million other people who do want to work with you, so let’s not fixate on the few opportunities that were lost and focus instead on the things that you can do. And then once you build enough traction and people start looking at what you’re doing and think those are really interesting investments, you’re able to change your own narrative and eventually you don’t have those same problems.
How did you go from being a lawyer to venture capital?
I felt I wasn’t solving big enough problems when I was in law. Oftentimes in law, while you’re supporting startup founders, you’re not helping to come up with the solution on a strategic level. I wanted to be in the game, if you will.
What do you look for in companies and founders?
The No. 1 thing is grit and perseverance. I can pretty much tell off the bat if someone has what it takes. You get that sense of fire from some people: They have a sense of urgency, they need to get something done, they want to prove something. With other people, you just don’t get that feeling. They seem more casual and relaxed about it. Not to say that a calmer, quieter personality is a bad thing. You can be a quiet person but still feel that sense of urgency.
And obviously you have to have a strong vision of what you’re trying to accomplish; you have to have an idea of a product you think there’s a market for.
Often entrepreneurs have the fire you were talking about and the ideas, but they end up being a little wild, like Travis Kalanick at Uber or Mike Cagney at SoFi. Later, they’re replaced by a more experienced, compliance-oriented person who probably doesn’t have that fire you’re looking for. So what’s the ideal personality type for a founder?
It’s an age-old issue in tech. There’s always this tension between do you get that founder who is brilliant and creative and a little bit out of control, or do you get this sophisticated, refined, compliant CEO? In some cases, the founders are able to effectively make that transition to large company CEO. You always hope they will grow and mature as the company grows and matures.
Sometimes they can’t. That’s just part of the natural tension of what it takes to build these highly destructive, innovative companies.
In some cases, the psychology is this: VCs perceive that CEO as their rocket ship. They’re thinking, this guy will help us make our fund, will lead me to prominence, everybody will have heard of me, it will help me build my legacy. When the CEO starts to get out of control, they’re too scared to speak up and say something to the CEO for fear of getting booted from the board, because that would tarnish their legacy. So they end up staying quiet when they should put their foot down and help create parameters and guidelines and boundaries for the CEO.
Are there certain fintech sectors you’re bullish on?
I’ve invested in some payment companies, like Paytm in India. Mobile payments is still a huge idea. There are many emerging markets where mobile payments can still be a game changer. Paytm is a perfect example of that. They have over 200 million users, mostly in India.
In India, no matter how poor a person is, almost everybody has a mobile phone. They’re more likely to have a mobile phone than to have proper shoes or to be able to eat properly. In countries like India you have a lot of people living in rural areas, where their mobile phone is their only access point to what’s going on in the rest of the world.
In the U.S. mobile wallet adoption has been slower. Banks and others have for years tried to push digital wallets on people with limited success. Do you think that’s going to change in this country?
The reason banks haven’t been able to push this idea is because they are so technologically behind. I use several banks to do inbound and outbound wires. All their interfaces are unmanageable and unusable. So for banks to lead the charge, they first have to get up to speed technologically. The interfaces have to change. A number of them have mobile apps, but the apps are very poor quality.
What are the differences between the bank apps and Wechat or Paytm?
It’s the simplicity of use. You can access your account and see how much is in there, then it’s easy to select a source to transfer to and just do it. Whereas at my bank I have multiple accounts and I only have online or mobile transfer services for one account. They have Zelle, but it has a $500 limit per month. That’s impossible. Anyone running a business or having to pay a nanny or pay rent has to transfer more than $500. You also can’t select a store on your app and transfer money to it. Banks are nowhere near doing what Wechat or Paytm do.
What kinds of cryptocurrency startups are you investing in? And what do you look for there?
I made investments several years ago in cryptocurrency startups that are now doing well. I’m seeing more crypto startups in Silicon Valley than any other type of startup at this point.
My main concern with cryptocurrency is while the potential is huge, crypto is still too technologically far behind to work in any practical application. To give you an example, Bitcoin can only transact about four transactions per second. Banks do hundreds of thousands of transactions per second. So if our long-term goal is for cryptocurrency to open up opportunities around personal financial services, where people can have their own crypto wallet and use those crypto wallets to conduct financial services, the speed issue has to be figured out.
I’m investing in the lower stack. How do we build up an infrastructure that will support the applications people are going to need? Everyone will have to come together — the technical minds and the money — to develop this out to the point where it can actually be usable.
Then there are other issues like how do you take cryptocurrency out of the crypto world and into the dollar world? The kinds of ups and downs we’re seeing in that market are driven by emotional investing. People are just trading their bitcoin or Ether through applications like Coinbase. There are very few ways to actually apply the crypto to real-life financial transactions.
When you say you’re investing in the lower stack and the infrastructure that will support the applications, are you talking about things like Hyperledger and Ethereum? Or the things IBM and Microsoft are doing in the cloud to support blockchain technology?
All those things contribute to the cryptocurrency infrastructure issues. Ethereum is probably more advanced than bitcoin, so a lot of people are trying to figure out what to build on top of Ethereum to make it more efficient. I’m investing in things like custodian applications.
The other big issue in cryptocurrency right now is security. There have been so many reports of people’s cryptocurrency being stolen, that’s a huge opportunity.
When you think about the whole fintech movement with startups trying to pick at different pieces of the financial services infrastructure, will this break down the banking industry as we know it today?
We will see a complete revolution in access to financial services worldwide. The bottom line is going to be access for big percentages of the overall global population to financial services.
For banks, there are two ways this is going to pan out: Either long term the influence and impact and scale of the banking industry will drop and be replaced to a large extent by this decentralized system of financial services or alternatively, the banks are going to have to adapt to the changing world, keep up with what tech startups are doing, and evolve, perhaps by buying tech startups.
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