Fintech business idea: SmartDeposit

I have a fintech idea ‒ actually I have more than one, but I will publish only this one as a start.

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The environment of low interest rates has pushed many investors to hunt for a yield, and this has led many super-risky asset prices to skyrocket.

Especially, the extended period of ultra-low interest rates has hit pension funds and insurance companies hard, since they have to generate a certain level of income to ensure their sustainability and the ability to pay their liabilities.

High-net-worth individuals and retail clients are not happy either, since their capital is not working for them for the first time in history. Some of them are even paying banks to deposit currencies such as the euro, yen and Swiss franc, since banks are demanding that these investors are charged interest instead of receiving interest from them.

There is nothing new until now …

Everybody who follows the financial markets knows these facts very well.

What if these investors still want to invest simply in plain vanilla deposits but are happy to take higher credit risks in countries such as Brazil, Turkey, Russia or India?

Because of their counterparts’ risk parameters, these pension funds and insurance companies are mainly stuck with high-credit banks, such as all tier 1 global banks, and tier 1 global banks cannot offer any sexy interest rates.

Here, my idea kicks in ‒ what if they could place their deposits with low-investment-grade banks or even banks with junk credit quality that pay a much higher level of interest if they are happy with the risk?

The reams of paperwork for all different types of different banks and the regulatory requirements are a big hassle at the moment.

What if we could create a platform that can place deposits with many different banks without opening an account in each bank and simply shift the deposits from one to another when another bank in the world becomes more attractive?

It may be hard to attract institutional money in the first instance, but I believe high-net-worth (HNW) individuals and retail clients would be happy to test the proposition.

To visualize the idea, let us say that we open an account with ICICI in India, Garantibank in Turkey, VTB in Russia and BTG in Brazil. Assuming that ICICI offers 2.5% p.a., Garanti offers 3% p.a., VTB offers 3.25% p.a. and BTG offers 4% p.a., we can compare these with a tier 1 bank’s 0.30% p.a. deposit rate.

The investor can choose to place his deposit with any institution on the platform, so the availability of different institutions is an important factor to be attractive to investors. Clients will be able to place a deposit in India for a month and then shift it to Brazil in the next month.

The platform would enable emerging market banks to have a diversified deposit base and access to non-conventional HNW and retail investors from all around the world.

Since we are not advising clients and the deposits are held in segregated accounts for the tech company, how should our fintech be regulated? Just like banks or differently? I believe we should be much more lightly regulated.

It is a kind of UBER of finance ‒ simply a technology company facilitating a service rather than a bank.

The main challenge for this fintech would be the KYC (know your customer). It should be possible to know who is placing deposits and that the funds are coming from legitimate sources. We can overcome this hurdle with the help of blockchain technology, which will enable each investor’s details and transactions to be stored safely.

In addition, there is a new business opportunity here to create a global KYC company in which the banks are also stakeholders so that a verified KYC could be used between different banks instead of providing each different bank with thick sets of paper.

Regulators are really the key in this business idea, and they will be the key in any fintech ideas. They will decide whether to kill the fintechs in favour of conventional banks or help them to thrive. Many regulators, such as those in Singapore, the UK and Switzerland, are really helping this industry to excel, so I am quite optimistic.

I will publish another fintech idea for retail clients next week. If you would like to exchange ideas and/or simply discuss matters, please keep in touch through my blog, twitter or email.

All the best from Singapore,

Sukru Haskan
Twitter: sukru_haskan

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Book Review: Prisoners of Geography by Tim Marshall

Whilst I was in London last month, one of the books that I bought was “Prisoners of Geography” by Tim Marshall. Tim Marshall tells us how the leaders of the world are restricted by their geographies and how their decisions are influenced by it. It is a great book that looks at historical turning points of different nations and helps us understand why they behaved in a certain way. His book is divided into ten sections: Russia, China, USA, Western Europe, Africa, the Middle East, India and Pakistan, Korea and Japan, Latin America, and the Arctic.

The book contains a lot of anecdotes about each region.

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Russia:

Russia covers eleven time zones and, even now, it takes six days to cross it by train. Russians were fighting on average in and around the North European Plain once every thirty-three years. By 2004, just fifteen years after 1989, every single former Warsaw Pact state bar Russia was in NATO or the European Union. Russia is the biggest country in the world, twice the size of the US or China, five times the size of India, twenty-five times the size of the UK. Although 75 per cent of Russian territory is in Asia, only 22 per cent of its population lives there.

China:

Xinjiang is the largest province of China. It is the twice the size of Texas, and you can fit the UK, France, Germany, Austria, Switzerland, the Netherlands, and Belgium in it and still have room for Luxembourg. Xinjiang is too strategically important to allow an independence movement to get off the ground: it not only borders eight countries – thus buffering the heartland – but it also has oil and is home to China’s nuclear weapons testing sites.

Large-scale migration south to north can be expected, which will, in turn, give China more leverage in its relations with Russia.

China intends to become a two-ocean power. This is China’s way of reducing its overreliance on the Strait of Malacca, through which almost 80 per cent of its energy supplies pass.

USA:

By 1814 the British had gone and the French had given up on Louisiana. In 1867 Alaska was bought from Russia. Many US government foreign policy strategists are persuaded that the history of the twenty-first century will be written in Asia and the Pacific. Half of the world’s population lives there, and if India is included it is expected to account for half of the global economic output by 2050.

Western Europe:

There are unprovable theories that the domination of Catholicism in the south has held it back, whereas the Protestant work ethic has propelled the northern countries to greater heights.

France is the only European country to be both a Northern and Southern power.

Geographically, The Brits are in a good place. Good farmland, decent rivers, excellent access to seas and their fish stocks, close enough to the European Continent to trade and yet protected by dint of being an island race. There is a theory that the relative security of the UK over the past few hundred years is the reason it has experienced more freedom and less despotism than the countries across the Channel.

Africa:

We are all from Africa since that’s where homo sapiens originated 2,000 years ago. Challenge is the rivers ince parts of it navigable by shallow boats, but there are parts that do not interconnect, thus limiting the transportation of cargo. The ethnic conflicts within Sudan, Somalia, Kenya, Angola, the Democratic Republic of the Congo, Nigeria, Mali and elsewhere are evidence that the European idea of geography did not fit the reality of Africa’s demographics.

About a third of China’s oil imports come from Africa. South Africa is one of the very few African countries that do not suffer from the curse of malaria, as mosquitoes find it difficult to breed there. Is it a coincidence that European colonialists chose to settle there and that South Africa is the biggest African economy today?

Middle East:

Prior to Sykes-Picot, there was no state of Syria, no Lebanon, nor was there a Jordan, Iraq, Saudi Arabia, Kuwait, Israel, or Palestine. Lebanon’s most recent civil war lasted for fifteen years and, at times, it remains close to another one. Syria may suffer a similar fate.

The Mongols were the last force to make any progress through Persian territory in 1219–1221 and since then attackers have ground themselves into dust trying to make headway across the mountains.

Turkey granted its women the vote two years ahead of Spain and fifteen years ahead of France.

India – Pakistan:

There is an approximately 1,900 mile long border between the countries. Pakistan received just 17 per cent of the financial reserves that had been controlled by the pre-partition government.

In the spring of 2015, the two countries agreed to a USD 46 billion deal to build a superhighway of roads, railways, and pipelines running 1,800 miles from Gwadar to China’s Xinjiang region. This would make it possible to bypass the Strait of Malacca.

The Afghan-Pakistani border is known as the Duran line. Sir Mortimer Durand, the Foreign Secretary of the colonial government of India, drew it in 1893 and the then ruler of Afghanistan agreed to it.

Korea – Japan:

Satellite images and witness testimony suggest that at least 150,000 political prisoners are held in giant work and re-education camps.

The territory of the Japanese islands together make up a country that is bigger than the two Koreas combined, or in European terms bigger than Germany.

Latin America:

The Latin American population, including the Caribbean, is over 600 million, and yet their combined GDP is equivalent to that of France and the UK, which together comprise about 125 million people.

In 1914 the newly built, 50 mile long, American controlled Panama canal opened, thus saving an 8,000 mile journey from the Atlantic to the Pacific oceans and leading to economic growth in the canal region.

The Texas-based geopolitical intelligence company stratfor.com estimates that Brazil’s seven largest ports combined can handle fewer goods per year than the single American port of New Orleans.

The Arctic:

The Arctic Ocean is 5.4 million square miles; this might make it the world’s smallest ocean but it is still almost as big as Russia, and one and a half times the size of the USA.

I highly recommend that you have this book on your bookshelf, as it will not only enhance your vision, but also make you understand where the world is going. Prisoners of Geography is the kind of book that you could easily go back to many times as a good source for references.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

 

 

 

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Israel – Turkey – GCC Union?

Whilst I was studying as an undergraduate in Turkey in 2003, I was asked by my professor to present an alternative plan to the EU for Turkey.

Back then, Turkey was struggling to start accession talks with the EU on the back of several issues.

My very basic plan then was to bring Turkey together with Israel and the GCC—the Cooperation Council for the Arab States of the Gulf (Kuwait, Qatar, Bahrain, Saudi Arabia, Oman and the UAE)— and I named this project Sukru’s Utopian Alliance.

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When I presented my plan, it received some attention from my fellow students and the professor, but I have to say that they were not truly fascinated by the idea.

While I was on holiday for two weeks 13 years later, my brain somehow started again to ponder on the same project, and this time I am more equipped to address the issues concerned.

When we look at the reasons for the foundation of the EU (formerly the EEC), we see that it was necessary to form bonds between European countries such as France and Germany to make sure that their economic interests were aligned in order to avoid another world war in the coming decades.

Even though the EU has suffered in the last couple of years, at least the aims of bringing economic interests onto one platform and preventing another world war have succeeded.

The EU does not want to allow Turkey into the Union, at least for the foreseeable future. The GCC and Israel have no chance of joining the EU since their lands are located entirely in the Middle East.

Turkey and Israel have long historical, economic and cultural ties. In fact, Turkey was one of the first countries to recognise Israel. Furthermore, Turkey has fairly good relations with the GCC. In this equation, Turkey can play a key role in bringing Israel and the GCC into a union.

The part of the equation which is clearly hard to solve is how can Israel and the GCC agree to be on the same economic platform?

From Israel’s point of view, the country has developed economically and reached around USD 40,000 per capita. This is a tremendous success without any natural resources. In the meantime, there is a continuous security threat which reduces the country’s true potential and Israel, like any other nation, does not want to fight continuously with its neighbours.

From the GCC point of view, the USA is already rapidly diversifying its energy needs and they are very likely not to need as much oil from the Middle East as is currently the case. We can already see the effects of this, as the USA does not show the same level of interest as previously.

If the GCC is not able to diversity its income sources, it faces a big potential economic threat. Places such as Dubai and Qatar are trying to achieve this diversity fast, but since human capital is mainly imported, I personally do not see the current system as sustainable.

And the GCC does not really function very well alone. Interestingly, there are also some internal conflicts. It is no secret that Qatar and Saudi Arabia do not get along very well.

Turkey has relatively cheap labour, massive land and a skilled white collar work force. Israel has a huge talent pool, where the proportion of university graduates in the country is the highest amongst the developed world. Furthermore, not only does it have a wealth of graduates, but it supports a culture with an entrepreneurial attitude.

The GCC has an extensive land area, and still valuable natural resources such as oil and gas, but it lacks human capital. These different parts of the equation can combine to help create an economic union to leverage their potential.

A potential union will not only help us to solve the conflicts between the countries quickly, but also could potentially draw people closer and help them to understand each other better.

I know it sounds like a utopia, but big achievements always grow from what many believe to be impossible.

Of course, we also need politicians with clear intentions, no hidden agendas and international support to establish this platform.

A project on this scale would be a stepping stone for the Middle East and the end of its bloody history.

So why not try?

Best regards from Singapore,

Sukru Haskan

 

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