Anjani Trivedi: You’ve been a long-time investor in traditional banks and have followed the journey of global financial services firms and the financial system. As the chief executive officer for Asia for the hedge fund Marshall Wace, you’re now focused on cryptocurrencies, blockchain and fintech. When did the switch happen and what’s driven it?
Amit Rajpal, chief executive officer, Marshall Wace Asia Ltd.: About a year back, I came to the conclusion that we’re moving from a process that’s been about redesigning financial services by leveraging technology to one that’s about actually redefining financial services, by changing the architecture that underlies our financial system.
There have been a lot of great fintech entities, but they’ve operated more or less at the fringes of the conventional system. I now see a move where fintechs will become the mainstream. Unless the mainstream adapts, it will be forced to shrink and operate only in boundaries where the current technology architecture allows for traditional firms to be competitive. From a public investment standpoint, we’ve continued to allocate a larger and larger share of capital to publicly-listed fintech and payments companies. We’ve also started a digital-finance crossover strategy, which allows us to invest in late-stage private equity in a way that we capitalize on this evolution, rather than wait for it to materialize at the time of an IPO.
AT: When you say that traditional banks will increasingly be restricted, can you give an example of a part of the financial system where this is happening?
AR: In most developed countries, the financial system accounts for somewhere between 5%-10% of GDP. That’s the revenue base it generates to intermediate savings flows – the fundamental job of the financial system. We see the greatest degree of transformation in payments, which according to McKinsey is a total addressable market of $2 trillion. Much of the infrastructure that underlies payments today was set up years ago to facilitate business-to-consumer payments, trade finance and supply chain flows. A lot of these payments have a standard template, heavy manual overlays and are generally expensive. With the evolution of blockchain technology at scale and with the right compliance solutions underlying it, we can get a fundamental shift where we move from manual to automated and from heavy economic rents to a much more efficient way of intermediating savings.
Most central banks already acknowledge this. They’re just finding the right modality to allow for this new technology to be able to mainstream itself without creating negative consequences.
AT: Does this feel like a watershed moment around how investors are looking at the financial system? During the financial crisis, the regulation brought to the industry caused a major shift. Is this an analogous moment?
AR: These are very early days. There are some constraints from an investor’s standpoint. First, there’s a lot of noise and confusion. Crypto is an ecosystem. It’s noisy and volatile. You have the whole evolution of non-fungible tokens, or NFTs, as well as blockchain’s ability to redefine processes and flows. Because there are so many moving parts, there isn’t clarity around how this will evolve, which is resulting in diluted investor appetite.
As with anything new, it’s never a straight line process. It’s always very volatile, which is what’s creating this opportunity for investors like us. The general investor base doesn’t recognize that this is the moment in which financial services are moving from the fixed-line era to the smartphone era. The investor recognition of that change is definitely not in sync with the opportunity.AT: There’s a difference in the way retail investors look at these assets as an investable opportunity versus how…
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