--:-- Host: Across the world every year, 5% of global GDP is actually money laundered every single year, which is a crazy number. We did this exercise where we sum up all the regulatory changes that happen in a year and we divide it by all the days, like 365 days. And on average, you get two to three changes per day. It gets really, really complicated, really, really fast.
--:-- Many companies are correctly focused on, all right, how do I more cheaply attract my customers? How do I retain them? How do I better monetize them? The answer in that case, in many cases, is financial services.
--:-- Money predates software by 50 centuries. Yet, while software transcends borders, money movement remains fragmented, to say the least. Not only do companies have to deal with country-specific rails and banking partners, but they also have to navigate constantly evolving regulations and compliance requirements.
--:-- But at A16Z, we believe all of this is about to change. As the company of the future turns default global, the demand for fintech infrastructure that enables companies to integrate payments, lending, and other financial services globally will grow with it. And we're already seeing the shift play out all over the world, from Brazil to the UK to India, driven by tailwinds in innovation and regulation.
--:-- Just to put some perspective around this opportunity, every day, $8 trillion are sent around the world in multiple currencies. That is almost 30 times our global daily GDP, making it the biggest market in the world. And despite its size and importance, there are still so many stories of money getting lost, delayed, at prohibitive cost, or even unavailable.
--:-- So today, we're joined by A16Z fintech partners Angela Strange, Joe Schmidt, and Gabriel Vasquez, who see the opportunity on the horizon and are actively investing in startups fueling the rise of global payments. Together, we discuss how we got here, how unmet demand is attracting top entrepreneurs to build global fintech infrastructure, how countries like Brazil and Mexico have catalyzed financial innovation, and the opportunity for founders to turn payments global.
--:-- If you'd like to learn more about this opportunity to create a more integrated, financially inclusive world, check out our full package at a16z.com slash global dash payments, which by the way includes an amazing interactive global payments map.
--:-- All right, let's get started.
--:-- [Disclaimer: The content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any a16z fund. Please note that a16z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com slash disclosures.]
--:-- All right. So I feel like a good place to kick things off is this idea that software is inherently global. I mean, the three of you made a great point in your package that the Google of Brazil is just Google. But money, for some reason, feels different and global payments feel so complex. So given the fact that we do have new technology, maybe just give us the lay of the land. Like, why has this been such an intractable problem for so long?
--:-- Angela Strange: Yeah, so you kicked it off. Software crosses borders super easily. It often is just language translation, which in today's day of AI is even faster. And obviously money moves around the world, people travel, it just moves very clumsily. And it has become increasingly problematic for global businesses.
--:-- In the post-pandemic age, businesses are in multiple countries faster and faster in their life cycle. And so two big primary problems. The whole reason we're digging into problems is because those present opportunities for new companies that we're excited about.
--:-- Problem one: if you're a business with a presence in multiple countries, you have multiple bank accounts, sometimes more than one per country, an investment account, banking account. You have opaque foreign exchange going back and forth between countries. It is unpredictable when that money is going to land, especially if you're transferring money from the U.S. down to Brazil for payroll. You can be late. And as a result, finance teams can spend more than a month just to close their books.
--:-- Ask many companies in multiple countries, "Hey, how much cash do you have on hand?" Their answer might be, "Oh, let me check with the intern whose job is to log into multiple bank accounts twice a day and to record manually our cash position in Excel." So just clumsy financial accounting, a big problem that lots of smart companies are tackling, but this is increasingly top of mind for many CEOs.
--:-- Problem slash opportunity two: as I'm fond of saying, every company wants to be a fintech company. Software companies that are global that want to add financial services, this is extremely cumbersome. The example that I love using is, let's say you're an operating system for electricians or plumbers and you have operations in the U.S. and LATAM and Australia and you want to add text messaging. Well, that's really easy. You can just partner with Twilio. If you want to issue credit cards for your plumbers or bank accounts for your plumbers, that's likely multiple providers per country that you need to stitch together to do that.
--:-- This has gotten us really diving into the areas of, all right, software moves easily. Money should move much more easily. There are great companies to be built here and there's a growing customer base that just has demand for better solutions here.
--:-- Host: Maybe you could just double click on why that is. It does seem intuitive to me that money should move as easily as information, but that's not the case. Angela, can you just give us a quick breakdown of how money really moves? We're both Canadian if we're trying to transfer money from Canada to the U.S. Again, it seems like it should be intuitive, but we both know that that's not always the case.
--:-- Angela Strange: Yeah. And our partner, Alex, has a great video of this that breaks it down. Let me use an example. I want to move money from my U.S. bank to my family back in Canada, or maybe to my brother down in Brazil. The simplest version would be, let's say I bank with Chase in the U.S. and my parents bank with the Royal Bank of Canada. Chances are Chase and Royal Bank of Canada have a direct relationship. Chase would even have what's called a Nostro account, which means "ours," which is an account at the Royal Bank of Canada where they keep Canadian dollars. So I can just tell Chase, "Hey, listen, I want to transfer X amount of Canadian dollars to my parents." They can take it out of the Nostro account and put it into our account.
--:-- Now, that might be a little bit faster. How much is that going to cost? Well, as much as they can extract as possible. Is it going to be immediate? No. Is it very transparent? Definitely not. Does money move on holidays? No. So there are problems there, but that's not the most complex case.
--:-- Most cases occur because most banks don't have direct relationships with every bank around the world. So insert what's called a correspondent bank, or sometimes more than one correspondent bank, and now your money has to go through this non-transparent, expensive hop multiple times to get to its end destination.
--:-- Host: I didn't realize before seeing that example and seeing the wonderful explainer from Alex, which we'll also link in the show notes, just how complex money movement can be.
--:-- This team also put together a map of different countries around the world to kind of gauge financial health of these different countries. And you chose four metrics: banked population, smartphone penetration, credit card penetration, and local payment rails. Give me a sense of why those four metrics were chosen and how they really represent the health of the fintech ecosystem. And then also, if there are any countries that you're paying attention to, are there corridors that you think are doing things maybe differently than other countries around the world?
--:-- Joe Schmidt: We included these four kind of general categories. And I don't know if we want to call it health of the fintech ecosystem, but more of like the state of the fintech ecosystem in each of these places. We really wanted to show, obviously, the first thing you might be able to do in one of these countries is help a person get a bank account, which is where they're storing their paycheck. It's the on-ramp into all of these other opportunities.
--:-- Generally speaking, a smartphone is pretty critical in terms of whether it's paying for a good or having that bank account on their smartphone. So we wanted to show the opportunity that a more digitally native country versus a less digitally native country might have, which is obviously very different.
--:-- Credit cards are either super prevalent, like you see that in many European countries or here in the U.S., but in certain places there really isn't serious credit card penetration. So we wanted to kind of show the differences there. Obviously that might create an opportunity for a mobile wallet or a different type of payment method that we see maybe in Africa or Southeast Asia or Latin America.
--:-- And then really calling out certain local payment rails. For example, in Canada, they have Interac, which is like the Canadian ACH. I know you're Canadian. We have another proud Canadian on this call in Angela. But you look down at whether it's Brazil with PIX, and really the local payment rails that a country that's operating multiple geos is going to have to leverage to issue local payments. So we wanted to basically call out some of these unique peculiarities because each one of these markets is so different on that interactive map. I think this is something that we've been ideating on for a really long time, and we were excited to make it interactive.
--:-- We've talked about Canada a few times, but I think when people say, "Hey, what corridors might you be most interested in across the world from a cross-border perspective?" People think of what maybe a bank or a regulator might call like a higher risk corridor. Maybe an unbanked part of Africa to the UK, or Southeast Asia to the Western world, something like that where banks might not understand the risk profile of the end business as well.
--:-- But you look at Canada to the U.S., this is just as big of a problem in an absolutely massive market. Canada to U.S. is a $1.7 trillion corridor annually. The U.S. and Canada move $2 billion of goods and services every single day. And this is still a massive problem. You would think, "Oh, the Maple Leafs are in the NHL and we have the Blue Jays. This has got to be a soft problem." No.
--:-- You could take this example of maybe it's a small business that is producing maple syrup. Maybe their suppliers are on both sides of the border. You've got a Canadian supplier and you have a U.S. supplier of the maple syrup or the chemicals that go into the maple syrup. They need to figure out how to pay that supplier. And then also, if they're distributing in the U.S., they need to figure out how to receive money from that U.S. distributor. Obviously, you're going to have multiple entities, as Angela mentioned earlier, where you're managing bank accounts in the U.S., bank accounts in Canada, hedging your FX risk, moving money between entities, understanding your cash position. For something as simple as a small or midsize Canadian maple syrup manufacturer, it gets really, really complicated, really, really fast.
--:-- So I think that's a corridor that we're super interested in. It's not the only one, but I think people oftentimes ignore the really obvious opportunities hiding in plain sight.
--:-- Angela Strange: We could have picked 10 metrics. Those were just four of the more illustrating ones. One of the interesting things is to watch how they've changed over time. My particular favorite contrast is credit card penetration in many countries contrasted with smartphone penetration.
--:-- For instance, and this drove one of our investments in Latin America, in Colombia, where the credit card penetration had stayed flat for a decade under 20 percent, smartphone penetration went from 10 to 80. So now all of a sudden, the entire population had potentially a mini bank in their pocket. That's exactly how a lot of the new companies are delivering these financial services. Versus the U.S., where many banks are still opening branches, and that can be a viable strategy depending on your market. The increase in smartphones has been a real driver for being able to offer banking services in many countries around the world.
--:-- Host: That's such a great point. As you're looking at the map, are there other things that you're looking for where you're like, "Oh, I see this one metric surging and another staying flat or stable?" Is there anything else that you're paying attention to as you see maybe the confluence or combination of certain metrics put together in a certain region?
--:-- Gabriel Vasquez: One of the aspects that we take a close look at is also how regulation can sometimes push forward innovation. I'll give you the example of Brazil. Let's go back in time to 2010. Brazil had an oligopoly of five banks that were also among the most profitable in the world. On top of that, only half of the Brazilian population had access to financial services.
--:-- Fast forward to today, this has changed dramatically. Now above 85% of the Brazilian population have access to a bank account. The main payment method is PIX, which is this electronic instant payment system owned by the central bank. And it also has one of the most thriving fintech ecosystems in the world. But this drastic change was not driven overnight. It is the result of decades of regulatory changes that have happened in Brazil.
--:-- Let me touch on a couple of examples. It started with the merchant acquiring side. In 2010, there was this duopoly between Cielo and Redecard, which were the largest acquirers in Brazil. And they had exclusivity partnerships with Visa and MasterCard. The Brazilian Central Bank ended this exclusivity. That allowed other merchant acquirers to come into the competition. It also enabled lowering the fees, which enabled SMBs to adopt the merchant acquiring services, which led to the rise of large companies like Stone and PagSeguro that served the segments of small businesses and micro-merchants in Brazil.
--:-- Another big portion that happened was the unbundling of the banking licenses in Brazil. I'm going to touch on the two most important ones. The first is the payment institution, which enables companies that are not banks to offer digital money transfers and opening of digital accounts. This led to the rise of companies that are very famous now, like Nubank and Neon. In 2018, the Brazilian Central Bank also launched a new license called the SED license, which enables startups to operate directly in the credit market. Before that, they had to partner with legacy financial institutions to offer financial services, especially on the credit side. But this license enabled them to bring this economics in-house and have a more dynamic competition.
--:-- On top of that, Brazil has continued to innovate. They offer now open banking, which is enforced. And in 2021, they launched PIX, which within a year achieved 100 million users, which is incredibly fast adoption. But it's also a result of a lot of regulatory innovation that happened within Brazil. From what we're hearing, it's not stopping there. They're thinking about regulating crypto. They're launching their own digital currency that has plans in 2024. The word is they're expanding PIX to Colombia, which is also a testament of the innovation that Brazil has had and how other countries are using them as an inspiration in the region. I think that is super impressive what Brazil has done in the last decade or so.
--:-- Angela Strange: Yeah, I think one doesn't generally think of regulation as a tailwind. When we started investing in financial services, if you contrast that to other markets, like you look at the rise of Uber, for instance, they explicitly broke the taxi regulations. Soon enough, all the regulators were on Uber and laws had to change. From a fintech point of view, you can't ignore KYC and AML. You're going to go to jail. So you have to comply with the regulation.
--:-- Thus, when a country does something very specific which encourages new players, or at least makes the process to enter very clear, we definitely pay a lot of attention to that from an investment point of view, because it creates an interesting new tailwind. You can look at a lot of new companies that have been started at the point of some of these regulatory changes. It's because they really catalyze and capture on those.
--:-- Host: That's such a good point because we really don't often think especially about financial regulation as a tailwind. We often think of it as the exact opposite. I'm sure a lot of people in America would think to Dodd-Frank and the thousands of pages and hundreds of new rules that were enacted from that. But Joe, can this be applied to America? Like if we look to Brazil or some other countries like the UK that are introducing regulation like open banking, can we just copy and paste those? Or is there some other dynamic that we should keep in mind? Is the U.S. fundamentally more challenging?
--:-- Joe Schmidt: It's an interesting question. Maybe I'll answer it in a slightly different way. You asked, "How does money actually move internationally?" It talks about, okay, the money is moving this way through, whether it's a global bank and then a Nostro account, a correspondent bank, and then to the receiving bank. That's really one part of money movement. The other side is really where the regulators care a lot about, which is basically the compliance workflow around moving money.
--:-- For each one of the parties in Angela's example, there's a major compliance overhead aspect to that where they need to onboard a customer. They need to understand who that customer is. And then communicating that between all the different parties in that transaction. As Angela said, that might be many hops between many different banks or financial institutions.
--:-- One really interesting regulatory tailwind that's being driven here in the U.S. has been the broad de-risking that's happening, being driven by the U.S. Fed. By that de-risking process, across the world every year, 5% of global GDP is actually money laundered every single year, which is a crazy number. In response to this, the U.S. Fed has actually terminated many Nostro accounts for correspondent banks.
--:-- What we're seeing right now is this massive increase in demand for cross-border transactions. We've talked about the company of the future is default global, and there's data on cross-border transactions doubling over the past decade. That's on the one side. On the other side, we've seen a massive decrease in the number of correspondent banks that are available. This is creating this really interesting time where, one, you can help banks actually solve this problem. We have a company called Payall that actually does that, where it helps an originating and receiving institution communicate the onboarding and compliance information across that entire chain in a holistic fashion.
--:-- So that's the one end: you could sell solutions to the traditional banking environment. Or two, you could go and sell to a net new business. You might build new infrastructure or a new company that might acquire an end user in a different way. That is a really exciting tailwind on the regulatory side that's being driven here in the U.S., but it's relevant globally as many of the correspondent banks. The money moves in dollars and the U.S. Fed controls that from a regulatory standpoint.
--:-- Host: Absolutely. And I think maybe before we get into opportunities, let's just address why this matters now. You mentioned a lot of companies are becoming default global. That is a thesis that, Angela, I know you've presented. What I'm trying to get at is the fact that money has been around for thousands of years. Software has been around for less time. But is there really a why now, like in 2023, where things are fundamentally changing, where we need to understand or change our approach to global payments?
--:-- Angela Strange: You hit on part of it, which is it's the default global company. I think it used to be that a company would start in one country, hire 50 people generally very close to where the founder lives, and then expand gradually over time. Then as you get to be a larger and larger company, you can hire lots of treasury people, you can have FX people, you can figure this out. It wasn't smooth software operating, but probably less top of mind.
--:-- Now companies are facing these cross-border challenges much earlier. Also, expectations of the quality of software have gone up dramatically. We have great experiences in so many different areas. The experiences of software in the treasury and finance functions that often the CEO has to deal with earlier in stages are just not at that level. So there's lots more demand and there's lots more great entrepreneurs going into that space. That's bucket one.
--:-- Bucket two: we're coming off extreme growth in 2021. In 2023, many companies are correctly focused on, all right, how do I more cheaply attract my customers? How do I retain them? How do I better monetize them? The answer in that case, in many cases, is financial services. So we're seeing a large uptake in larger companies and sometimes even older companies that have been around for 20 plus years wanting to add financial services. The demand for modern infrastructure is there. There's definitely not cross-border infrastructure in many cases, but many cases don't even have modern infrastructure just for that single country.
--:-- Host: If we're thinking about specific countries, maybe one more thing to address before we jump to opportunities is why the rails in different countries differ, why the payment preferences differ. Maybe this is obvious for someone in fintech, but it reminds me of, wasn't there some stunt a while ago where people were like, "Why don't we all just speak one language?" And someone tried to invent one language and they were like, "Everyone's going to speak this and it'll all be good and it'll simplify so much." Why is it the case in fintech that so many different countries have so many different systems? Also, to your point, Angela, at different levels of innovation or integration of software.
--:-- Gabriel Vasquez: I think the example that I love to give here is related to Latin America because there's a huge contrast between the two largest economies, Mexico and Brazil. Let me give you an example of this. Mexico, 90% of the population use cash for transactions below 500 pesos, which is about $30. Above that threshold is around 80%, but it's still extremely high. Brazil is completely different. The main payment method, as we discussed before, is PIX. 75% of consumers in Brazil have access to PIX or have an account that enables them to use PIX. That is a huge contrast between the two.
--:-- We talk about Brazil as an example of how regulation has pushed forward innovation in the country. Mexico has had similar initiatives, but they have not flourished the same way because it has not been enforced the way that it was enforced in Brazil. There's also a lot of dynamics that differ between the cultures and dynamics within the country and infrastructure.
--:-- For example, in Latin America, there's a huge fraud rate. In Mexico, the chargebacks are around three times higher than the global average. And it's harder to prosecute because the legal framework doesn't support online evidence. This is a huge problem when we talk to Mexican founders. They say, "Fraud is a huge problem." So payment providers in Mexico are super focused on authentication, creating the tools to assess fraud and make this more efficient. The same goes in a lot of other countries in Latin America.
--:-- In Europe and Asia, priorities are a little bit different because you have a higher fragmentation within the payment providers or payment preferences. Managing this fragmentation requires infrastructure providers to not only accommodate these nuances to each of the countries, but also have access to the right licenses to operate in these countries. That can create a lot of complexity because each country might have different requirements that take several months. To offer the solution regionally can take up to years. So that's one of the complexities that adds.
--:-- Joe Schmidt: I think Gabe's hit the nail on the head. The simplest way that I like to say this is the local payment rails, really, at the end of the day, how the money actually moves is governed by central banks. The central banks are a part of the government. The people that are elected officials control how things actually happen in a country. The people with the guns effectively, that is who controls how the money ultimately is going to move. So it's not as simple as, "Hey, we're going to build some new thing that's going to be beautiful and seamless." You've got to navigate all the different intricacies that Gabe just called out. That is going to be inherently different across each and every country because the regulation is so different, which is what creates this global compliance problem. The issues within one country are different as they are in another.
--:-- Host: I think that was extremely well put. And I mean, Angela mentioned this before, but for every problem, there is an opportunity. So I think that's the perfect segue to talk about the fact that we have a few trends intersecting. We have many companies now becoming default global. There's higher demand for some of these cross-border payments or services. But to this group's point, every country is different. Some countries have set up regulation so that it spurs innovation. Some countries are probably enacting regulation that perhaps has the opposite effect. But let's talk about opportunities. Where do the three of you see opportunity on the horizon when we're thinking about this global payments infrastructure?
--:-- Gabriel Vasquez: I think that there are two areas that give a great example for this. One of them is taxes. When companies operate across Latin America, they have this general vision that it's like, "Oh, taxes are a little bit different, but similar in certain aspects." But I'm going to give the example of how different it can be between Mexico and Brazil.
--:-- Mexico has a system that we're traditionally used to. They have a fixed rate of VAT, which is 16%. So it generally makes the calculations straightforward. It has some exceptions based on certain industries and certain regions that are near the U.S. border. But in Brazil, it's not as straightforward.
--:-- In Brazil, there's a different tax for goods and a different one for services. There are two different types of taxes at the high level. The tax for goods is different if the good is purchased by a merchant or by the end consumer. So that's another level of complexity in the calculation. The calculation also depends on both the state that the good is originated in Brazil and the state that is the final destination.
--:-- For example, if the good originates in Minas Gerais, the state of Gerais, and it's sold in Sao Paulo, both states receive a portion of the taxes. There are 26 states in Brazil, so that can lead to 325 possible combinations. Each state has an incentive, they call it this fiscal war, to incentivize certain industries to lower the taxes and attract those businesses. So there's a lot of complexity depending on the industry that you operate in, and it makes the calculation a little bit harder.
--:-- On the services side, it's not at the state level, it's at the municipal level. Just in the state of Sao Paulo, there are 645 municipalities. There's a lot of complexity when it comes to calculating taxes in Brazil when compared to Mexico that has a VAT range that is fixed. So that's one example on taxes. If we jump into payroll, pretty similar dynamics.
--:-- Gabriel Vasquez: Mexico has a centralized tax system, as we just discussed, and labor laws are also less complicated. It's pretty straightforward, very similar to the U.S. But Brazil, the regulatory landscape for labor is actually very complex. We did this exercise where we sum up all the regulatory changes that happen in a year and divide it by all the days, like 365 days. On average, you get two to three changes per day. So if you're an HR department that operates in Brazil, it's really hard to maintain accurate calculations for payroll.
--:-- We also did an exercise showing that people in Brazil spend around eight times more than their counterparts in the U.S. trying to comply with payroll regulation. Errors in these calculations also lead to fines. People are liable for mistakes. The market in Brazil is dominated by BPOs that handle these calculations manually. Most of the time, because it's manual, there are errors and companies are liable, so they have to recalculate. It adds to the level of complexity.
--:-- Host: Can you just clarify why that's the case? Why would those regulations be changing so quickly, so often? It seems surprising to me.
--:-- Gabriel Vasquez: Yeah. This is mainly because Brazil has a strong influence from labor unions, and that is what's driving those changes. Remember that every state has different priorities on the industries they want to protect. Brazil generally is very protectionist of its own economy, but that's the main reason — strong labor unions in comparison to other countries in Latin America.
--:-- Host: Thank you. That was not intuitive to me.
--:-- Gabriel Vasquez: Yeah, so just to finalize on this point, it can vary a lot. If there's a founder trying to decide where to start, I think starting in the hardest place and finding a solution from there could be very appealing because there's a clear market need. A lot of Brazilian companies struggle with this. This is one of the opportunities that we're excited about.
--:-- Host: That's amazing. I think it's a great example of, even outside the global context, you're talking about one country where there's just so much opportunity. What other opportunities do you see, Joe?
--:-- Joe Schmidt: Well, I think we touched on some of them already, whether it's compliance and what that leads to. So maybe I'll start with that compliance point. If you think about what needs to happen in each one of these transactions, there's an entire onboarding process. Just as Gabe mentioned, it's different based on each country that you're moving money between. The onboarding process, you can either solve this with infrastructure on the KYC or the KYB side — actually understanding who that customer is. But it extends beyond that to all the other information you might need in the onboarding process, as well as complying with other local regulations such as, "Hey, where can I actually store my customer data?" Something as simple as that. Navigating this kind of global compliance problem is a major issue for businesses.
--:-- That's step one. Step two is the fraud aspect. First, I need to understand who my customer is. Second, on the fraud side, is this customer that I've now underwritten — is this transaction actually them? This is another really painful part, especially in high-risk categories, whether it's a small business or an underbanked type of company. Each transaction obviously has a high fraud risk. This is going to get more challenging with generative AI and all the things that have happened over the last 12 to 18 months. We're really excited about seeing how we're going to combat that over the coming year.
--:-- Those two things really lead into two different types of opportunity here. On the one side, there's obviously a huge existing infrastructure of partners that are moving money across the world today. Global banks, regional banks — equipping them with better technology, like Payall is doing, is one avenue we're looking at. There are a bunch of other ways those banks can be better served and can do their jobs more efficiently, which will take costs out of the ecosystem and help everything work better. The major tailwind is the correspondent banking issue that we talked about earlier.
--:-- On the flip side, there's a bunch of opportunity to go out there and acquire an end customer that's trying to move money peer-to-peer, or a business trying to move money internationally, and serve them with a better, more holistic software experience. If you think about all the problems we talked about — whether it was the maple syrup example I used earlier, or Angela's example of moving money to her family back home — there are a bunch of different software use cases around that money movement. You could simplistically provide a multi-currency account, saying, "Instead of navigating between all these different bank accounts, let's abstract that complexity and put it all into one simple multi-currency account." That's the starting point.
--:-- But what else could you potentially solve around that in a borderless banking example? You might address some of the tax issues that Gabe just brought up. You might bring up some of the treasury and FX issues we've talked about earlier. We think a lot about what that operating system for a global business looks like, or what software that powers this cross-border transaction looks like for a business or a consumer. There's a ton of opportunity there. We've invested historically in Wise, which does this really well for consumers and small businesses. But there are tons of other types of businesses doing this, such as exporters or other businesses around that. It's a super exciting time.
--:-- Host: Very exciting. It leaves me craving pancakes and maple syrup now.
--:-- Joe Schmidt: Listen, if I could find a way to have pancakes and maple syrup in our podcast, I feel like I hit my video card.
--:-- Angela Strange: I was going to say, fintech infrastructure has been holding back the maple syrup industry for decades. We've got to fix this.
--:-- Joe Schmidt: For decades. There's no infrastructure reason why Joe couldn't DoorDash us some good pancakes.
--:-- Angela Strange: Yeah. Canada supplies 85% of the world's maple syrup, but soon it will be 95%. We're even increasing Canada's GDP now.
--:-- Host: The room for innovation is insane. We could go on about opportunities for a long time. There's so much good stuff here.
--:-- Angela Strange: One we're excited about is on the pure infrastructure side. I'll come back to my software platform that provides the operating system for plumbers and electricians. It might surprise some people to learn that even for a software platform just in the US, if they want to let their plumbers accept money from clients, store that in a bank account provided by the software platform, and then provide a card so plumbers can use that for expenses, that sometimes requires three different infrastructure providers. Even in one country, this infra can get a little bit messy.
--:-- To do it in many countries, you are either partnering with someone that's been around for 20 years. Their software probably works, but their documentation is often out of date. If you're a small company, they won't give you the time of day. Implementation can take 18 months. That can be fatal for some early companies. Just the issuing — allowing companies to issue cards — and then more and more software companies are starting up and trying to add acquiring, which is allowing merchants and customers to accept payments in local currency. There's a lot of opportunity for modern players to come into both of those spaces.
--:-- Host: Definitely. As all three of you are pointing out opportunities, the question coming to mind is how you might advise founders to see through the noise of different regulations and different countries with different approaches. In a way, it's amazing because you have all these different testing grounds and you see what emerges in each. But if we have a bunch of founders listening who are thinking about potentially working in this space, where would you begin?
--:-- Angela Strange: Many of the best companies in this space are from founders solving a problem that they had. Think about the Wise founding story. It was Taavet and Kristo transferring money back and forth. They said, "This doesn't make any sense. We should just keep a virtual ledger between Estonia and the UK." They deeply understood that problem because they felt it. Many infrastructure companies started by building a consumer business or a B2B business and then realized they were spending all this time solving a non-core infra issue that could be a company unto itself. My advice to founders is: if you find that you've got a frustrating compliance problem or fraud problem, or you've been searching for this piece of infrastructure that should exist and you're surprised that it doesn't, that might be a company.
--:-- Joe Schmidt: Yeah. I would just extend what Angela said to really think about the use case you're trying to solve for and the end company you're trying to solve for, and how you can solve the things around the cross-border money movement aspect. Oftentimes it's not just moving the money, but everything else around that from a software perspective that might help you monetize by moving money internationally. Another potential way of going about this is to look at a specific corridor — US-Mexico, US-Canada, or non-US entirely. Find a group of businesses that have a common problem, whether it's tax, treasury, or what have you, and think about ways to solve that common workflow-related problem. Then you can get into a cross-border monetization method from there. That's another exciting way for someone less fluent to think about building a business here.
--:-- Host: So we've talked a lot about regulation, taxes, compliance. These are things that don't necessarily get people jumping out of their seat. But this is one of the biggest markets in the world. Just to end things off, paint a picture for folks about what a truly global payment system could enable.
--:-- Joe Schmidt: Well, we all jump out of bed for the compliance and all the different things you need to solve. But you're totally spot on. The most exciting part about this category is it's been historically an awesome place to go and build massive businesses. It is the largest market on earth, and that's not hyperbole. It's trillions of dollars in size. There are so many different ways to slice it. You could look at different corridors — there are multiple billion-dollar companies to be built. Different use cases. Look at Wise, started 10 years ago, just 10 years ago, and look at how large that business is now. There's so much opportunity here across the globe.
--:-- What we're really excited about is continuing to invest heavily in this sector, continuing to work with entrepreneurs as early as we possibly can to go and build a net new future here. Some of the businesses that will be built — they may be started today, right after this podcast is listened to by someone — are going to become some of the largest companies on earth, because that's what the incumbents are in this category. We'd all love to chat with whoever's building companies here. Hopefully, at a minimum, going into the weeds gets people excited and gives people a little bit of fodder for a new business or one they're already working on. We'd love to chat.
--:-- Angela Strange: Financial services, insurance — it's 20 to 30 percent of GDP in most countries. The other trend we're seeing is that as new companies are starting, the customer, or at least the really strong influencer, is a developer. As this gets easier and easier, I think there's going to be more experimentation. There's going to be more new products built because it's going to be easier for the builders, the PMs, and the devs to test things out and discover and build better and better user experiences.
--:-- Host: All right. If you made it this far, thank you so much for listening. But I also hope you're invigorated by this idea of the opportunity to turn payments global. If you are, make sure to go check out the full package at a16z.com slash global dash payments. There you'll find a bunch of resources. My favorite part are the case studies covering India, Colombia, Mexico, and more. Plus, don't forget to check out the global interactive payments map. With that said, thank you so much for listening and we'll see you next time.
