00:14:13 · Doug Ricket
[00:14:13] S1: Yeah, great question. So we've been doing this since we started in 2015. Originally it was just our own security software. Like I had been a Google engineer and I had played with the first Android phones and you know, had my fingers kind of deep in the operating system. And the first demo, I used this to recruit my uh my first co-founder, uh guy named Mark Hainen, who also worked at Stellar. Hi, Mark, if you're watching this. Uh and you know, I I showed him this first phone that uh I could sit at my laptop five feet away and boop, click and disable his phone. And you know, he could try re-reflashing it, re-wiping the operating system, but no, it was secured. It was, you know, probably the first version of the PageOi lock. Uh probably someone really dedicated could have found a way. But it it doesn't have to be 100% invulnerable, it just has to be 99.9 to work almost all the time and keep the majority of hackers out. And so a few years in, we we took our software, our security software, we packaged it up into a platform, uh, a product that we then license to the smartphone manufacturers. And so, you know, these are all the major smartphone brands around the world. And, you know, I went to China with the team in 2018 to launch this thing. And I honestly thought, hey, why is any major brand, why is Xiaomi or Appo or Honor or Huawei or Motorola or anyone, why are they going to use our security code? That sounds crazy. We're a tiny little startup. And I think the answer was the mobile industry is so competitive that if we can help you know your brand in Brazil sell another 500,000 phones, that's really meaningful. And being able to provide credit on good terms to a customer is really helpful in selling phones. Just like, you know, if you think of uh at our economic level, buying cars, like I think a lot of people do some kind of financing or release on their car. It's the same thing for our customers getting smartphones. And so um, we built up this security platform over time. We work with the manufacturers, and then at the point of sale, you know, a customer in a physical retail store buying a phone uh will find that phone comes preloaded with the Page security APIs in the operating system. And then if they're financing it with PageOI, they download the Page Roy app at the point of sale.
00:16:26 · Doug Ricket, Oliver Smith
It connects kind of like a you know receptor there to the APIs, and uh and it becomes strongly secured. Uh not it doesn't have to be perfect. Occasionally we find jailbreak vulnerabilities, we patch them. That's the name of the game in security, is kind of an arms race. Uh, but we've been able to do it, and the result is you know, honest customers, it helps keep them honest, it helps them paying on time, and it blocks out the fraudsters who would uh you know, sign the contract. Sure. So they'll sign a thousand contracts all day saying they promise to pay us, and organized crime will bring a thousand people, take a thousand phones and never pay back and disappear. And that's really what we're blocking so that we can serve the honest customer who's gonna pay us 90% of the time. Occasionally something's going on and they'll be late for a couple days, but they'll come back and pay in full. And so, really, by by blocking that fraud is really the key thing that the mobile security does. Interesting. Interesting. [00:17:24] S0: Um, I I'm gonna ask you a little bit more about that. But first, you're you're you're creating this secondary market essentially by by allowing those those tokens to be traded. What what are your expectations when when that becomes more liquid? Do you expect that's gonna bring a different class of an investor into the mix? What what do you think will emerge from that?
00:17:45 · Doug Ricket
[00:17:45] S1: Yeah, so our uh our chief risk officer is a guy named Brad Pennington, who was previously at Prosper. And you know, I remember Prosper and Lending Club Club kind of inventing this concept of you know mass crowdfunding, of capital for loans. And so I take a little inspiration from what they did in the previous decade. Uh I don't think we need to go to hundreds of thousands of individual investors. That's not on the roadmap right now. We actually moved in the other direction, which is we started with you know, people again writing those kind of million dollar checks uh and then it went up to the institutional investors. However, I like you know, we we didn't shut down the the high net worth investors, we kept them, and I think they're a nice diversification. So that's about uh 100, 150 individuals who make up about a third of the fund. Uh you know, call it a couple hundred million dollars, uh, with checks ranging from half a million to two million, three million, kind of on the higher end. Uh and they're a nice diversification. So they behave like a group or a crowd. Uh they don't all you know want to redeem at once. I guess that would be if there's some mass macro event, we have provisions to deal with that. But I like having that group and I think it becomes better for them. I mean, I I'm one of those, you know, 150. And uh, you know, if we have some financial thing we want to take care of, uh, hey, we want to, you know, invest in something or like buy house or whatever, uh, having that liquidity just overnight, I think, will make it easier to put money in. I mean, like I think, and I think this is good, I'm not gonna put money in that I might need tomorrow. But if it's liquid, like liquid for tomorrow, then it it would open up what uh the ability of what I could put in there. I'd be more willing to put more in. So I I think the net result will be you know the the investor side becomes even more attractive. It's easier to put money in because you know you can get liquidity to get it out anytime.
00:19:54 · Oliver Smith
[00:19:54] S0: I like the um the sort of peer-to-peer lending sort of connection there, uh inspired by some of that earlier work. And maybe with tokenization now, it unlocks um yeah, new new parts of that opportunity which weren't ex- you know, didn't exist a decade ago when when that all started. Um I I want to also ask you a little bit about what uh happens when things go a bit wrong. So if uh a borrower, you know, who's who's collateralized their phone but defaults regardless, does tokenizing the loan cre you know, create change the risk there a little bit? Who who sort of holds that risk?
00:20:33 · Doug Ricket
[00:20:33] S1: Yeah. So this is another place where we're different than what London Club and Prosper did a decade ago. Uh which is we're not tokenizing the individual loan. Uh so we're not keeping track of uh you know, PageOI overall has reached uh close to 23 million borrowers cumulatively. So we don't have 23 million individual loan tokens. Uh and these things can be, you know, $200 each is a typical size. Uh but we're tokenizing on the investor side. And so basically all the loans get pooled into the pageway asset fund. There's a giant pool of collateral. Uh and then uh because it's it's kind of law of large numbers, it behaves statistically very predictably. So uh, you know, borrowers will have a one-time uh finance charge, a one-time fee that gets added to the principal at the start. So that could be 30%, 50%, 80%. It's always it's in double digits, it's not in triple digits. Uh and if you go to these countries and you need to borrow and you don't have credit, you're talking triple digits at least uh from a informal money lender. So we're bringing down the cost. Uh we're cheaper than other new banks, uh neo banks for the same customer. And uh then uh because of that, uh the tokenization is really at the investor level. So the we Can recycle the capital and we can earn 100% yield, for example. And if the fund gets right now, the rate is 15% target, and we've never missed that, the fund gets the first 15%. The excess goes to Page, the tech company. And so the people who are defaulting, you know, that's the difference. Are we earning 90% or 100% or 110% kind of asset return on our cycling capital? So the tokenization really comes in where if you've invested a million dollars in the fund, you can trade your million dollar stake to someone else same day. And we don't have to set up the infrastructure like London Club and Prosper did to connect you to Manuel Rodriguez, age 35 in Guatemala, who borrowed $187 in each individual payment. But that's where the attestation comes in. Because it's not at that individual loan level, you have to believe in the pool of capital or the pool of uh the pool of loans. That's the collateral, the pool of collateral. And what we publish, you know, we'll publish one giant loan tape on kind of a quarterly basis saying, here are all the loans.
00:23:05 · Doug Ricket, Oliver Smith
You know, here's why the Pedro Asset Fund has $500 million of capital uh pledged against or against $600 million of collateral. Like, should you believe that? You know, are we doing any funny business with that? That's where the attestation comes in. And we're able to do it all at once in one giant loan tape that is audited by a third party and published and immutable. Um so we've solved that problem kind of en masse in one big step rather than the individual uh Lenin Club and Prosper style. [00:23:37] S0: Aaron Powell Understood. Understood. And does the fund have a sort of a loss provision to take some of the default cost? Or is that does the default cost ever get passed over to the lender, I guess? That's the sort of question.