We have realized a fantastic interview with Ege Ertem who is Intel New Technologies Global Business Development Director and Fintech Mentor during his visit to Istanbul.
Would you kindly brief us about the latest updates regarding the financial technologies?
There are some serious improvements regarding the Financial Technologies that we call “Fintech.” These will firstly affect the banking system in Turkey – when we say banking, we mean corporates working with corporates and corporates working directly with individuals-. Because banking is a critical system, any change in this body, directly affects our lives and our business. We call this briefly, “Fintech.”
We observe a new encounter. Upon various changes in some laws and regulations mainly in the United States, Europe, and the Far East, small companies appeared challenging big banking corporations. These companies are now offering consumers, corporates and especially small-scale companies attractive financial services to ease their difficulties.
In fact, this is a game of chess. These Fintech companies are challenging the banks. When these Fintech companies started to become serious competitors to banks, some other businesses and entrepreneurs are now improving alternative software and services. Especially, since 2009 we are experiencing lots of innovation breakout regarding the banking systems. A group is trying to benefit from the revenues of the banks while another group is trying to protect them against such losses. Meantime, a considerable number of entrepreneurs have presented many attractive products into the market in this respect.
These create substantial effects. For example, the virtual money, which we call “Bitcoin” has started to become a fact. When it will come to Turkey and when Turkey will adapt itself to it may seem so far away, but you never know. It has become an important aspect.
As far as we know, BDDK (Banking Regulation and Supervision Agency (BRSA) does not recognize “Bitcoin,” they declare that it is not safe.
There is such a perception but in fact, it is a safer transfer technology compared to regular money transfers.
Taking into consideration the present laws and regulations in Turkey, they may be right. In fact, the legislation and regulations of the country have to change in this sense. If the regulations change, their views might change as well. Laws and regulations are a crucial impact in financial innovations. Variations in the financial systems are very useful for many countries. You inject a lot more money into the system; especially the cash kept at homes. You open credit to an entrepreneur or a small-scale company, and you have a new business. Thus, such financial innovations accelerate the economy. I believe that Turkey will experience certain changes as well.
There is a new fascinating era. We see more women in decision-making levels regarding the economy. When we examine the staff and boards of companies in the Europe Union, the number of female managers has reached a total of 40%. They have brought along many different viewpoints and ideas. That is an issue the Fintech environment is discussing these days. We see a lot of women gathering in the technological and financial companies. It may not be the case in every technological company or every area, but something is going on. Especially, we see some variations in strategy making and decision-making levels.
As consumers or as Managers?
Directly as managers in decision-making mechanisms. We see more women both in state sectors and industry determining the economic policies.
Can we mention about alternative payment methods?
An alternative payment and alternative credit methods are blooming. We can explain it such, “If I lend you money and gain interest in return, this is called usury or loan sharking” and it is not legal in Turkey. Only the banks can do it. But in some countries, they have started to legalize this under certain conditions. Just like buying and selling a commodity via the internet, now you can buy and sell credits. Such alternative loans grant some certain possibilities to individuals who do not have a bank account or even a credit card. That is an important era.
Will this affect the Blockchain?
No, it will not. We have to consider the Blockchain separately. The Blockchain grants us an important facility. You can EFT a considerable sum of money with a very low fee. In fact, to achieve an EFT, you have to use a remarkable technological infrastructure. The whole banking system is using a common safe database and effect the transfers by this method. In fact, using the Bitcoin will reduce the costs of this system as well.
What will be the concept where individuals who cannot obtain credits will get credits?
You may call it alternative loans. They call it “Micro Finance.” Banks spare a remarkable sum of energy to insurance areas. However, in the areas of risk identification and risk calculations, there are some serious entrepreneurs who can grant private realistic results by using artificial intelligence. That means they can offer certain attractive products to certain consumers cheaper than the insurance companies.
Let us take an insurance product, such as a comprehensive motor vehicle policy. Insurance company examines your driving license points, your age, consider your past performance, etc. But, these are not the only data that you have to consider. A new entrepreneur may come up and give you a service only in this area. For example, there is a new entrepreneur in the United States who grants motor vehicle insurance only to Uber drivers. It is not probable for a huge insurance company to make a detailed risk analysis for Uber drivers and ask their marketing department to prepare a particular policy for these drivers. That may not be a remarkable benefit for a big bank but a new entrepreneur takes the risk and insures the Uber drivers.
Another one comes forward and grants education credits to university students. Another one gives credits only to high school students. These alternative credit methods called “Micro Finance” have started to affect the revenues of the banks in the negative sense.
Here is now leading to a new trend. When the banks began to realize this impact, they started to invest in the new technologies and tend to emphasize on internal innovations.
They also began to yield into fields other than banking. They offer tourism facilities, build up websites offering certain products and grant informative tools or make various campaigns. As I mentioned, an exciting game of chess is carried on.
Where is this new era leading us?
If you consider the case, in the long run, the determining factor will be the artificial intelligence. Recently, the banks are not able to unite different customer information details under a particular customer profile. They can not approach you in a proactive way and try to sell you a particular product. You deposit your money, thank them and leave the bank.
By using the artificial intelligence, banks will start to create specific personal products and try to sell them to their specific customers. Our relations with banks will be much easier. It will be simpler to establish new business areas. By the effect of these new entrepreneurs, the banks have started to learn to act faster.
The commercial area, which suffers certain difficulties, will overcome them shortly, and both individuals and corporates will have safer, cheaper and more alternative services.
Do you consider Bitcoin as a competitor against the banks? The rest of the world has a trend to pull the Bitcoin into the system.
There are a lots of bankrupt big company stories in the world. All have started by emphasizing on a particular point. You start objecting to a telephone device that has no keyboard and end on mobile phones. Finance corporations are trying to avoid the same mistake. Now they want to internalize the Bitcoin and the virtual money and prepare themselves for the new order.
There are certain areas in Turkey where the banking technology is ahead of the other countries. Therefore, we have to adopt ourselves into these new areas.
Is there something going on in Turkey or are you trying to give the message: “Hey, wake up and do something?”
As far as I know, with the present laws and regulations, you cannot do anything regarding the Bitcoin. I have not heard of any attempt in this respect. Maybe an R&D study can be accomplished but not further than that.
How do you see the future of tools like Bitcoin and Blockchain?
Replacing a technically safe and cheap database with an idle, unsafe and expensive one will be much better but, you must consider that in issues like the Bitcoin or Blockchain you have to trust the corporations, not the state. They start up from a minor point and reach to high growth rates. In fact, significant amounts of money are transferred between large companies and countries. Therefore, tools like Bitcoin will be peanuts. But the technologies using these tools will take their reputable places all over the world.
How do you see the possibility of the alteration of the monetary system we are using now into a virtual system within a decade?
For the time being, 30% of the money flow in Europe and the United States is realized virtually in a virtual environment. I can give you an example. When the banknote was first invented, owners of the gold coins were saying; “how can you make money out of paper?” It is just the same. That will be the new unit of money. We shall have banknotes but virtual ones as well. But not within two or three years.
Why do individuals want Bitcoin? When you make your payment with Bitcoin, you do not pay any credit card commission to the bank. You pay much less. If something is cheaper and more useful, you cannot avoid it. But, there are still some old habits to overcome.
How many years do you forecast?
Within three or five years the banks will start using such technologies. A generation might be expected for the Bitcoin. Maybe some fifteen years but 15% of the bank customers will be reaching their banks by their mobile phones within the next five years. Not by websites or from branches but directly from mobile phones. There are some data regarding the children. Some of them are living on their cell phones, and such a generation is coming. When they reach their thirties, no one can avoid them.
As an individual, where shall we situate you among all this?
The reason I am here; we are implementing Design Thinking Workshop on innovation with the Turkish Economy Bank. Using the advantages of living in the Silicone Valley, I am working on financial technologies and “Fintech.” Some of the things I do are related to my duty at Intel, and some of them are not.
The relevant ones are, for example, the comprehensive motor vehicle insurance policies granted to vehicles in the United Kingdom are given with a black box to be placed in your car. There are some companies we are working with where you put a camera on your vehicle and pay half the cost of your policy. When you consider the internet or internet of things or internet of everything, there are some areas related with Intel such as the financial technologies. Myself link the ones not related, personally.
Which areas are not connected?
All the issues we have talked about are running on Intel Servers and technologies. In the new group of devices where I am working, one of our products has a feature to optimize the mobile payments. We call this “Payment IQ” I am trying to look into the “Fintech” matters from a banking point of view. Only then you can see its broad effects.
You foresee a significant potential for entrepreneurs in these areas. What would you suggest to Turkish entrepreneurs?
If you want to sell something to banks, anything related to security is very popular these days. There are 100-150 new entrepreneurs in the Silicone Valley marketing products related to security systems. If they would like to work on financial technologies, there are some interesting issues. For example, they made a change in the laws in the United States recently. Some companies used to have around 200 shareholders when they became public; now, they have more than 2.000 shareholders. Employees of companies can buy the shares of their businesses. So, a new stock market is born. The stock market of entrepreneurs. Recently you should be an angel investor to invest in an entrepreneur company. Now, by overcoming some simple criteria, you can own the shares of giant entrepreneur companies. If there are entrepreneurs who can reach the United States and wish to do some business here, there are a lot of opportunities and possibilities. A lot of services can be considered.
If I am an entrepreneur in the area of finance, should I focus on the security side of the banks? Which areas have more opportunities?
Direct sales to the bank are one aspect. That is not an easy question. Both has advantages and disadvantages. If you can succeed in both, that would be great. Each of them can be the first steps of a public company worth 10 billion US Dollars. Both of them are huge markets.
Can there be a Billion Dollar Turkish company in “Fintech”?
A good question. In fact, recently Turkish entrepreneurs have started to work considering the improvements all over the world. They are not the same as before. When I meet them in the Silicone Valley, I can observe that their technical knowledge capacity is improving day by day. There is no reason to think on the contrary.
What are their deficits compared to the US? Which areas need to be improved?
If you are talking about deficits, they lack correct advisors. You can easily reach the ideas, the knowledge, and the science. I can observe that some corporates or individuals like me are assisting these entrepreneurs. I have worked in the Middle East and Turkey units of Intel. I have realized one unique aspect. You should not dictate any experience of a corporation to any entrepreneur as an absolute truth. He has to decide for himself after judging the advantages and the disadvantages. Because something right for a corporate might cause harm to a small scale entrepreneur. Some advice is easier to reach in the United States. American engineers produce the product regardless of its financial side, and the marketing department or specialist takes care of its commodity side. As far as I can see, our entrepreneurs despise the financial aspects of the product.
Like, “we can do it ourselves”, “no need for a budget”?.
Asides from a “no need for a budget”, they improve a product, which is quite good, but, what are their sales channels? What will their margin be on each channel? They have not considered these. I am not telling these to criticize them. They consider the end user and put a price of 100,- TL. Their cost is 50.- TL so they earn 100%. On the other hand, I am coming from the retail side of marketing, so, no retail shop will put such a product on its shelf without earning 100 %. Then they will not gain anything. But, they assume that “if we give this product to the retailer at 80,- TL, he will add a 20% margin and that will be sufficient. No, the retailer adds 20% margin to the biggest brands in the world. If it is a new product, the retailer margin is 100%. Because they are unaware of this reality, they go into financial problems after two years. They bring the product to a very high level without considering its financial aspect. In the United States, if a product becomes a prototype, they put it into the water to test it or, they try to sell it to a consumer. Some smart guys prefer this way.
Would you kindly mention about the new “Fintech Zoom”?
Fintech Zoom – http://www.fintechzoom.com/ – is just a baby; it can only crawl. Now I am trying to gather a portfolio of companies interested in this issue. I hope that it will be a device to measure the heartbeats of the technological finance side of the Silicone Valley.
My purpose is not to transform or evolve it into a publication. Living in the Silicone Valley has a unique advantage. I have met a lot more chief executives from Turkey here than I had met while I was working in Turkey. Because when he comes to the United States, the executive wants to meet and talk to a Turkish person. As Turks, we have a significant potential. If you can hear a little bit more or even learn a little bit more, you can enjoy great achievements but, because that hearing and learning side runs very quickly, some opportunities are missed very easily. That can be due to the lack of language or reading habits.
Therefore, I want to build up a platform where the corporates and individuals in Turkey can easily reach – not statistical – but the actual and practical knowledge and information on the Silicon Valley
I am participating in activities. In these activities, you can gather an enormous amount of information very quickly. The knowledge and intelligence I have gathered from the people I have met in the Silicon Valley have already given you the replies for the questions you have asked about the opportunities.
Of course, there are some media groups or journalists who have gathered these points, but you can not find a report containing all these. Because this is a small amount of information for a report. A journalist would not go into every detail. He just puts forward the outlines. I will be reflecting such realities. I believe that all this information will be useful for the corporates and entrepreneurs in Turkey.
What will be the language?
Great! An Informative Platform on Fintech from the Silicone Valley to Turkey.
Yes, an informative platform with no vision, only information. No loss of knowledge and information. Keep them in stock.
If they can evolve into some other areas, let them evolve. But becoming a publication is not my dream. I just want to build up an informative platform. After some time you gather a lot of information, and you wish to share this information through individual channels.
Thanks for everything. We wish you all the success and look forward to reaching your platform.
Thank you very much.
You can watch the interview with Ege Ertem who is Intel New Technologies Global Business Development Director and Fintech Mentor down below in Turkish.