The use of new financial technology, or fintech, promises a number of benefits to consumers, including cost reduction and increased convenience in the way banking services are provided. Another, less often discussed, advantage is the possibility of financial inclusion. Alex Kong, founder and CEO of TNG, estimates that there are two million people around the world who do not have access to a bank account, including people in the UK. “There are 1.6 million unbanked working adults in the UK”, he says. TNG offers a number of financial services through its smartphone app, and is only waiting for the regulator’s approval to enter the UK market. “If we can make it in Hong Kong, we can make it in the UK”, he adds. Kong spoke with LSE Business Review’s managing editor, Helena Vieira, on 8 November, during Web Summit, in Lisbon.
What does TNG do?
TNG stands for The Next Generation. We’re here to provide the next generation of financial inclusion, financial services to the unbanked population around the world. There are more than two billion unbanked people in the world. It’s a very serious social problem. The traditional bank tends to shy away from serving this low-income group of people. We feel there’s a huge gap to be filled. If a country wants to get out of poverty it needs to provide financial inclusion to the poor. That’s what we do and who we are. So we’re like a virtual bank, a bank without branches that operates globally. Today you can use our wallet across 14 countries to buy goods and services locally. You can withdraw cash locally in 190 thousand locations across 14 countries. No bank can do that. No single e-wallet can do that today.
Seems more or less like a credit card.
No, like a bank, much more than a bank. It takes 30 seconds for you to open an account with us. Once you open it, you have to put money in the wallet through internet banking, an ATM, a credit card charge, or by walking into any convenience store and making a cash deposit. You present your QR code to the staff, give them the money, and it will be deposited in your TNG wallet in real time. Now that you have money in here, you can go shopping. You can also pay at the counter of retail shops. They scan it and deduct money from your wallet.
Can you link your bank account to your TNG account?
Yes, you can link your bank account. For instance, we make it easy to split a restaurant bill. My friends can scan my code and transfer the money to me in real time. They just need to click and scan my code, and instantly transfer. If I’m away, I can browse all my contacts in this phone to see who amongst my friends are already TNG users. One click and I can send them the money remotely. Now that I have the money I can also transfer it to my bank account, withdraw cash from the post office, from convenience shops like 7-Eleven, a pawn shop, money changers, many locations worldwide. More than 190 thousand locations today. You can also transfer money to another country. We’re like a bank and do remittances too. No one wallet can do that. We can allow you to send money across to many different countries in real time.
And you’re essentially in Asia right now?
Yes, we operate in 14 countries in the Asia-Pacific region. And we want to bring it to the UK. It’ll be the first entry point to the European market. We want to try the UK market first, before we consider whether to use the UK as a gateway to other European countries.
How far along are you in this process of entering the UK?
We need a licence with the FCA. That’s all we need now. We have all the infrastructure, solutions and network ready. We can send and transfer money to any bank in the UK now. We have just acquired a company licenced to operate in the UK, but in order to change the ownership, it’ll take up to six months for the regulators to approve, to make sure the ultimate shareholder, which is myself, is fit and proper. I’m already fit and proper in many countries. But still it’ll take me about six months.
Your site mentions “stored value facilities”…
It’s another word for deposit taking. The only difference between stored value and deposit taking is that a deposit-taking institution is allowed to pay interest on a savings deposit. We’re not allowed to do that. If, imagine, we offered a 2 or 5 per cent interest rate to the people who are depositing money with us, it would destruct the traditional bank. So the regulators have two concerns before they issue the stock value licence. The first objective is to protect the interests of the consumer. With that I totally agree. Somehow they have a second objective, which is to protect the interests of the incumbents, the traditional banks. If they allowed us to give out interest on the savings from people’s deposit in the e-wallet, we would destruct their business. So that’s the difference between stored value and deposit taking. But the function and the meaning is the same, except we can’t pay interest.
You’re competing with banks…
Yes. All the services that we have today are just like banking services. But we have two things we’re not allowed to do today: one, like I said, is to give out interest. Second, we’re not allowed to lend money. Giving out interest would attract a lot of deposit into our company. Lending, we would be in direct competition with traditional banks.
But your core target is the poor population, who is not traditionally served by banks…
And right now they’re being exploited terribly around the world. Charging or paying, in the case of Hong Kong, between 50 and 54 per cent interest rate on a loan. That is huge exploitation. Because they couldn’t open a bank account, and therefore they can’t borrow money from a traditional bank, so they go for loan sharks, who charge 50 to 60 per cent interest. I feel sorry for them, actually. These are low-income earners. They travel overseas to work as domestic helpers, leaving their countries and their families behind. They work very hard, and yet they’re exploited everywhere they go. We want to help them on this.
Your site says that you use blockchain and cryptocurrencies?
Yes, we do. We want to disintermediate US dollars. Let’s say we want to transfer money from Hong Kong to Indonesia, or from Singapore to the Philippines. Why do we need to use Hong Kong dollars to buy US dollars, then use the US dollars to buy rupiahs or pesos? Why not buy the Philippines peso directly? Because the US dollar has become the medium of exchange, to buy and sell US dollars you incur in a 1.4 per cent foreign exchange loss. We’re moving billions every month in terms of money flow. If we can save that 1.4 per cent, that will be tremendous savings to the users. In order to disintermediate US dollars, we’re planning to use cryptocurrencies, and we can move cryptocurrencies from one wallet to another. You see, here’s a Hong Kong wallet. I use Hong Kong dollars, one click and I buy the cryptocurrency in TLX (talent coin), and I can send it across the flipping to a Singapore wallet, and our Singapore wallet user, with one click converts back to Sin dollars and cash out locally, with no cost, everything in real time, no need to go through US dollars. This is what is slowing down bank efficiency. We want to make it more frictionless.
Now if you want to send money across to another country, and that involves buying US dollars, and you end up going through a correspondent bank, like JP Morgan, they can sit on it for many days before they release the funds. That’s why nowadays when you do global money transfers it takes 2 to 5 business days, sometimes up to ten business days, which is ridiculous. Moving money between countries, not in or out of the US, why do we need to use US dollars? Moving money should be at the speed of thought, not being held up by some major bank in the States that earn FX charges for doing nothing.
One criticism against it is that it makes it easier to have money laundering…
No, not true. We’re basically disintermediating US dollars and at the same time for all the transactions we will have to meet the AML (anti-money laundering) regulation counter-terrorist financing ongoing, real time, screening process. It’s just like a bank. It’s got nothing to do with whether we convert to US dollars or not.
You offer wealth management too, right? But for poor people?
Yes, poor people have no retirement, no insurance protection, so we wanted to offer them financial education and to help them do some investment, even though if they only have one dollar or 10 dollars, if they save on Starbuck coffee, they can use the money to click and buy other cryptocurrencies in the form of investment. They can also create their own pension accounts. Multiple pension accounts if they wish to. So they can set out their financial goals, let’s say 50 thousand dollars, over a period of time, and we will automatically deduct their contribution from their wallets and into their pension accounts, so they can have a retirement plan, for the first time in their life. No one is offering that because banks are always going after high net worth individuals. Nobody is looking after the small guys. We want to offer this and also insurance, to give them insurance protection, so on and so forth.
But you would use cryptocurrencies for that?
No, we don’t need to. It’s their local currency. They earn in local currency, they use local currency, but they can convert it to cryptocurrency if they want to. They can buy in, they can sell out, anytime they want, 24 hours a day. If you ask them to invest in a mutual fund, or to invest in stocks, the value tends to be very high, and they don’t have so much money to invest in those stocks. But cryptocurrencies trade 24/7, and you can even buy as low as 10 cents. Although it’s a fraction of the cryptocurrency, you can still invest.
There are many critics of cryptocurrencies. They think not a whole lot of people understand how the technology works, and poor people tend to be even less financially literate. Isn’t it risky for them?
No, you will be surprised. The more educated you are, the more risk averse you are. People fear the unknown. You’re very educated. Have you bought any cryptocurrency yourself? Why not? Because you’re critical and there are a lot of considerations in your mind, whether you should trust this… Poor people have fewer considerations. Their minds works in a more simple way. This is something in which I may make money, and they will just invest. If their friends buy it, they’ll buy it.
Isn’t that a risk, a higher risk for them?
The risk of not investing is everything. They now earn zero in savings every month, actually they have no savings, because they don’t have a bank account, and they don’t have investment options. They spend all their money anyways. Now that we offer them insurance, and pension, and a way to invest, at least they have something. Otherwise, every month, they spend all their money anyway.
My confusion initially was that you seemed to have different audiences, but now I understand you’re focused on the unbanked.
Yes. From our experience it’s a very high switching cost to convince you, people like yourself, to switch to use our services, because you are already well banked. And you have many considerations. I’m already using Barclay’s, or HSBC, why should I trust you? I already trusted my bank for so many years. Why should I lose trust and faith in them and switch to other, unknown, new companies? So, to switch you to another service, it comes with a very high switching cost. So we said no, we want to address the needs of the unbanked. There’s no switching cost. They have no other option anyway.
When you start your business in the UK, is this the type of people you’re looking for?
Is there an unbanked population in the UK?
1.6 million unbanked working adults. Just do a Google search, it’s the official publication.
Is that because they don’t make enough money?
Either they don’t make enough money or they went bankrupt before, there are many reasons. Sometimes it’s because they live in a rural area, too far from the nearest bank branch.
And you would offer them the same services you already offer in your 14 other countries?
Yes. We already have so much experience. Hong Kong and the UK are very similar. Not because Hong Kong was colonised by the UK for a long time, but the legal system, the financial system and income levels are very similar. Except that in the UK the numbers are ten times bigger than in Hong Kong. If we can make it in Hong Kong, we can make it in the UK, because the market is ten times bigger than in Hong Kong.
Will you expand into Europe too?
We want to. For the European market we want to try out the UK first. If we can make good in the UK, then it will be the gateway to expand to other European regions.
Will the new financial regulation coming into effect in Europe be a barrier?
We don’t care. We look at the UK as one country and we have to use the UK to justify our investment there. Whether there’s any Brexit, it’s immaterial to us.
So Brexit doesn’t matter?
It does matter, but we don’t want to make it a factor in determining whether we want to enter the UK or not. We have to justify the UK market by itself, and it’s good enough for us, even without Europe.
With start-ups like yours, is there a future for traditional banks?
Yes, of course, they will continue to do what they’re doing, but they will lose business from millennials. The younger generation doesn’t like to bank with traditional banks anymore. Look at China, look at Kenya. The younger generation would like something like this. Their mind is still very fresh and young. They don’t have a 50-year relationship with a traditional bank, so there is a much lower switching cost.
It took traditional banks a long time to realise the power of fintech. Now they’re buying fintech start-ups, investing in them. Do you see a future in which you would join up with a bank?
The options are always open. What we see is that three or five years from now, the traditional bank will be a very different bank than who they are today. They’re now trying to transform themselves drastically.
Will they look more like a fintech company?
Yes, more like a fintech. You will see more developers, more tech people in the traditional bank. The ratio will increase substantially from less than 5 per cent or less than 10 per cent, it’ll probably increase to 50 per cent in the next five years.
And there will be no branches in the future?
No branches. You don’t need branches. We already have 193 thousand branches which aren’t owned by us. They’re the post office, the convenience stores, they’ve become our branches. We don’t have to incur high rental and salaries, and they’re already operating 24/7. We keep the costs low and pass the savings to the consumers. Sounds too good to be true, but it’s true. It’s happening!
- This Q&A is part of a series of interviews during the Web Summit conference in Lisbon, 6-9 November 2017. The conversation was edited for clarity.
- The post gives the views of the interviewee, not the position of LSE Business Review or of the London School of Economics and Political Science.
- Featured image credit: Courtesy of TNG. Not under a Creative Commons licence. All rights reserved.
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