Invest Like the Best with Patrick O'Shaughnessy
· William Hockey, Patrick O'Shaughnessy
[00:00:00] S1: They operate in a world where there's actually relatively large markets. DRC, I think as an example, is one of the largest exporters, if not the largest exporter of some critical minerals in the world. So there is a lot of money flowing through there. It's a massive exporter. It's a place where there's a lot of Chinese investment. Africa broadly has had more Chinese investment than anywhere else in the world outside of Pakistan. And so there is money and there's a lot of people doing things and the population growth is absolutely bananas. I mean, the population growth in Africa is probably larger than Western Europe, North America and parts of Asia combined. And so while they may be GDP per capita quite small, there's still a lot going on. Where there is, there are founders that are building super cool things. The large companies actually tend to be quite innovative and I can kind of talk about that in a second. And so you just talk to them. I meet a ton of people. I'm meeting CEOs of the largest multinational companies there. I'm meeting founders on the ground and I'm talking them through like, what are you building? What is your perception of America? What is your perception of American financial services? How can we be helpful? Honestly, I spend a lot of my time walking around, ideating, taking in the scenes. And sometimes, a quarter of the time I come up with a really interesting idea that ends up with us building a cool product or just a good market. [00:00:00] S0: What's an example of that?
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: What's an example of that? [00:00:00] S1: I've probably had 90% of my ideas either in the shower or walking around in a random emerging markets country. It kind of expands your senses a little bit. If I'm walking down the Marina Green, I'm walking to The Mission in San Francisco, the only thing I'm thinking about is like, oh my gosh, how is AI gonna change things? Because you can't walk around San Francisco and just not get completely hit with AI FOMO 24/7. But there's other stuff we need to do in order to get people up to mobile penetration. Take DRC, like mobile phone penetration is still less than 25%. Banking penetration is like still less than 5%. That's crazy. There's stuff we need to do before we think about embedding LLM in everybody's brain. [00:00:00] S0: Yeah, so to stick with that example again, if that penetration is that low, will you and your business naturally benefit from that going up based on the products that you're building? Is that how you think about some of these opportunities where it's much lower hanging and just no one's paying attention?
· William Hockey
[00:00:00] S1: The leapfrogging that happened in Asia is obviously quite well known. China skipped the laptop, went straight to the mobile phone. Most famously, we skipped online e-commerce and went straight to social commerce in China. There's gonna be leapfrogging as well. And you're gonna see the same thing in financial services. Financial services tend to be most innovative and most progressive in the worst countries. You can see this in Argentina, you can see this in Iran, you can see this in other places. The Iranian financial system, say what you will – it's complicated. They have to deal with a lot of incredible constraints and thus they've built a lot of bespoke stuff just for themselves because they do not have access to global financial markets. And when you get to design things from scratch, you end up actually building things a little bit differently. And that's actually quite interesting. If you look at these emerging markets, Africa, for example, they were the first ones to do mobile payments and M-PESA decades ago. Well before Venmo. If you talk to them, they are actually quite a bit more open. They are used to their category being somewhat disrupted. An interesting thing is they have a bit of access to differentiated capital, which is differentiated talent. If you're in the US, pardon the banks that I'll shit on here, but you do not have access to the top talent. The top talent’s going to Anthropic, they're going to Google, et cetera. But if you believe that brains are distributed equally, you go to Congo and there's going to be some proportion of equally smart people as there are in France. There’s no Anthropic to go to. They don't have the ability to move to London and go to DeepMind. But there's still a pretty decent talent pool there. They're going to go to where there is job safety and where there is money. That tends to be in a lot of emerging markets, the breweries and the banks. That's where the money is. And so the talent, I'd say the middle level and top can actually be quite a bit higher than people think. I'd say, take your emerging markets bank executive team – they're hands down way better than I think probably what you see in the Western world. They also have the ability to verticalize much better than they do in the US, because we already have amazing software, amazing retail experiences down the entire stack.
· William Hockey, Patrick O'Shaughnessy
In most emerging markets or in a developing country, everybody has a bank account. A lot of the people who have a phone have a bank account so they can actually cross sell there effectively. You and I have talked about this before, but I think one of the most interesting companies out there is Kaspi in Kazakhstan. [00:00:00] S0: Fascinating. Can you explain it? [00:00:00] S1: They started out by buying a bank, and then they just built. [00:00:00] S0: Did everything. [00:00:00] S1: Did everything. They're the largest e-commerce company, the largest bank. You pay your taxes on Kaspi. You can renew your driver's licences on Kaspi. Because what they realized is where people start – okay, maybe people start in social media, but they also start in financial services. And so if we require financial services, we can cross sell and we can distribute products there. The largest bank in Congo has been called Rawbank. Highly sophisticated, download the mobile app. It's way better than anything we have here in the US. You can upgrade your TV subscription on it. Imagine JP Morgan doing that, or Bank of America doing that, or Wells Fargo doing that. Or candidly, even US fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is, in all these countries, the main currency is the dollar. And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the US than maybe a large traditional bank.
· William Hockey, Patrick O'Shaughnessy
[00:00:00] S1: Did everything. They're the largest e-commerce company, the largest bank. You pay your taxes on Kaspi. You can renew your driver's licences on Kaspi. Because what they realized is where people start – okay, maybe people start in social media, but they also start in financial services. And so if we require financial services, we can cross sell and we can distribute products there. The largest bank in Congo has been called Rawbank. Highly sophisticated, download the mobile app. It's way better than anything we have here in the US. You can upgrade your TV subscription on it. Imagine JP Morgan doing that, or Bank of America doing that, or Wells Fargo doing that. Or candidly, even US fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is, in all these countries, the main currency is the dollar. And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the US than maybe a large traditional bank. [00:00:00] S0: Do you end up earning similar amounts of revenue from outside the US as you do inside because of these potential relationships?
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: Do you end up earning similar amounts of revenue from outside the US as you do inside because of these potential relationships? [00:00:00] S1: The US market is so good and fintech is so developed. One of our theses is fintech is probably gonna be the last area that is somewhat maybe disrupted by AI. I think what you'll see is you'll see a collapse in domestic fintech and enterprise software. And you're already seeing this with the Ramp and stuff of the world as they go deeper into the workflow management side. Good thing for us, some of our customers are growing just so quickly. But the rest of the world is also, it's a big part of our revenue. It's something that we're super excited about as well. It can be both like Western Europe or emerging markets. [00:00:00] S0: Can you say more about this comment that the Silicon Valley along with Beijing is the most consensus place? As you traipse around California, what strikes you as the strangest? You're building something so different. You spend so much more of your time away from there. You're able to get outside perspective despite being of that place originally. What would you say stands out as the strangest elements of it and its culture today?