Foundations of Innovation with Bill Winters* of Standard Chartered

Bill: Everything that we do, we start with what do our clients want, and then we execute that subject to what the requirements are.

Jeremy: Hi, I'm Jeremy Allaire, and welcome to this episode of The Money Movement. I'm here in Singapore during Singapore FinTech Festival, and I'm very pleased to be joined by the CEO of Standard Chartered, Bill Winters. Great to have you on the podcast.

Bill: Good to be with you again, Jeremy. Absolutely.

Jeremy: So a lot of things I'd love to talk to you about, and maybe just for some basics. Standard Chartered, obviously, is this incredible institution that's been around since 100 years or whatever it is. And the bank has been at the core of frontier markets, and maybe just frame a little bit in a minute or two, brief history of the bank and where it started, where it is today.

Bill: 170 years ago, it was actually the Standard Bank of Africa and the Chartered Bank of India, China, and China, which came together in a merger in 1969. But it started off as a British colonial finance the empire, finance trade in the empire banks. In many cases, the central bank in the local economy. So we still print the bank notes in Hong Kong, for example. Right. Those are like stable coins. Just like another stable coin. We celebrated our 150th anniversary in Hong Kong. We got permission to print a $150 Hong Kong dollar banknote. Now, if you can get your hands on one of those, it's worth a lot more than $150 today. But Standard Chartered, we have a retail business in Asia, Middle East, and Africa. And we have a cross-border corporate banking business, which is where we work together. And we're all about connecting. We're all about connecting people in old-fashioned ways, but also in some new ways. And I know we're going to be talking today about some of the interesting tech applications to finance.

Jeremy: Yeah. I think it's fascinating because globalization, we think of, obviously, as something that happened in the last, whatever, 30, 40 years. You guys were part of globalization.

Bill: Yes, we've been going for a long time.

Jeremy: And as a bank, you do market infrastructure. And I think what's also interesting about Standard Chartered is you've played across these geographies and a huge range of political and economic histories that have kind of run through that. And I think about what we do as building market-neutral infrastructure. And I would imagine that Standard Chartered. It has to think of itself as sort of this market-neutral infrastructure as well, but also, to some degree, geopolitically neutral, right? Because you're working with so many different regions or interacting with so many different governments. And how do you think about being that neutral platform, especially in the current environment?

Bill: Yeah, we are neutral. That is an important place to start. But everything that we do, we start with what do our clients want? And then we execute that subject to what the requirements are. They may be regulatory requirements. They may be sanction-related restrictions. And, of course, we've got all those things in spades right now. We've got a very big operation in China. We've got a very big operation in Hong Kong. Obviously, here in Singapore, every ASEAN country, every South Asian country, every place in the Middle East, and most of Sub-Saharan Africa. But we're also the second-largest international U.S. Dollar clearer in the world, which means we've got a big U.S. Operation, which, amongst many other things, is responsible for imposing and maintaining U.S. Sanctions, as we do in Europe or as we do when the Chinese impose sanctions on somebody else. So that's, yeah, we're touching all that. But we start with what do our customers want and need, which is, again, how we end up dealing with you.

Jeremy: Yeah.

Bill: And subject to the restrictions on our activity, we always comply with local law. Thankfully, you never have to compromise your neutrality by complying with the law.

Jeremy: Right.

Bill: And, of course, we live in fear that one day the laws in one jurisdiction will conflict with the laws in another. There have been some close calls, but we've managed that. And the fact is, all the players, even in an antagonistic world, they want the money to keep on moving.

Jeremy: Right. There's this shared economic well-being. No one wants to destroy that.

Bill: On the day that President Xi is meeting with President Biden in San Francisco. Life is going on despite all this rivalry and tension.

Jeremy: Right. That shared goal. I've always found Standard Charter's position in the world within the banking industry, its history, just fascinating from that perspective. And it's a tie-in, obviously, to the development of an internet financial system. So the internet heralded this really acceleration in globalization. I think if you parallel from the early 90s through the following couple of decades, two, three decades, that paralleled this incredible amount of globalization, global trade increase, global commerce increase, and so on. And now we're seeing emerge an internet financial system that's increasingly built natively up from the ground on the internet. And so it seems like a bank-like Standard Chartered, given that history and given that position, is probably best set up in some ways to be a major player in that. Regulatory clarity, notwithstanding, is sort of emerging and so on. And so when you think about you've had these emerging market frontiers forever, it's the birth of the company, but sort of technology frontiers and the building out of this next phase, I hope, of significant global financial integration through the internet.

Bill: Yep.

Jeremy: How do you think about the role of Standard Chartered in that build out?

Bill: At the core, we have institutional and individual customers who want to avail themselves of convenience or safety or security or whatever their particular motivation is for dealing in financial markets. They want access to these things. Our job is to provide them with access to those things. So we're not inventing the Internet or stable coins or the digital economy. We're contributing to it, but mostly we're responding to what our existing or new customers find important. We do innovate as well. We've got a ventures lab. We've had some really great successes in there, actually. Some of it is servicing the new economy. We've got a digital asset custodian, Zodia, marketplace and exchange. We're institutionalizing parts of the new economy value chain that had been a little bit less institutionalized and collectivized in previous arrangements. But we're also doing some brand new innovations, which are things that didn't exist before, as much as anything to keep ourselves sharp and to understand how we can apply some of the lessons of new developments. And how we can get close to customers who want different things and then try to expand that back into the rest of our bank. But mostly we're reacting to what our customers want. And if our customers want to deal in this fabulously efficient Internet-based economy with digital money and buying digital assets and services, eventually leading to non-digital stuff, if that's what they need, then that's what we're going to do our best to provide. And we're going to do it alone or we're going to do it with partners.

Jeremy: That makes a lot of sense. And obviously, we're excited to work with you in the development of all the market infrastructure that's needed here. I'm also interested, given the cross-border nature of what you do, I think part of the promise of blockchain networks, stable coins, can you accelerate cross-border transactions? Can you provide faster settlement assurance? Can you use programmable money and smart contracts to deal with commerce interactions in new, innovative ways? When you think about cross-border today, which is obviously central to the business, and you think about what it could be five to 10 years from now, which I assume as CEO, you got to think out that far. But do you think that the world will feel really dramatically different if this technology builds out as some hope it will? Do you think it'll feel dramatically different? Or how do you think about that evolution?

Bill: Yeah, you're right. I mean, there's always this interesting quandary where I take it upon myself and my board has asked me to look five to ten years out. I got to hit the quarterly numbers. Got to hit the quarterly numbers as well. So, you know, there's always that tension. But I think the legacy of any CEO, and of course I intend to own stock in this company for years beyond when I'm no longer working here. But I think we can see some really fundamental changes in the way business and commerce are done. But when I come back to, you know, what are we investing in in terms of use cases? And, you know, there's some really important use cases. For us, fraud prevention is an enormous use case for a full range of these technologies that we're talking about. Speed of settlement is very, very important in some aspects. It doesn't matter for others. I mean, like, honestly, faster payment systems in many markets are just fine for 98% of individual users. But may not be fine for an algorithmic trader. And reducing settlement risk in the system. So significantly reducing the risk. Risk of securities or tokenized securities. Monumentally valuable in terms of liberating capital in the system. Obviously, that ties into fraud as well. The convenience use case is very, very important. I mean, I think you built a whole business on the convenience of people accessing the digital economy with a digitally native instrument. So convenience, of course, is critically important to us and our customers. Surveillance, which is a double-edged sword. And, of course, when I talk about fraud prevention, that's our surveillance. But other people would also like to surveil transactions that are going through the system. That may be an imposed use case. Banks are the custodians for the financial crime protection regime.

Jeremy: Right. You're the champions of law enforcement.

Bill: We're the ones that do it. Front line on the fight against financial crime. So we'll have requirements. And being able to adequately surveil. Let's think defense for a second. How are we set up to surveil in a new set of markets? Let's think about offense. How can we be better at what we do to serve our stakeholders in the most effective way? Of course, there's some nefarious surveillance applications as well.

Jeremy: Yeah.

Bill: And to the extent that we think it's in our control. And to the extent that we think it's inappropriate from a privacy perspective, we'll avoid it. If we're required to, by law, we require it. So these are the kinds of things we're thinking about. But we can't be a bystander in this. And I don't even think you can be a fast follower. You've got to be with the cutting edge. Occasionally at the cutting edge.

Jeremy: You just don't want to get cut and bleed.

Bill: You're going to catch a few falling knives and not get the handle. But in the early stage of these things, you can keep that small.

Jeremy: I'm interested in your thoughts also on credit. And one of the promises of an internet financial system and of more efficient capital market structures where you've got the ability for different forms of credit to happen through blockchains, through tokenization, other things. Given the markets that you serve, and you're serving at the retail level, obviously, also, and all these households, SMEs, obviously large enterprises too, but sort of at that household SME level across all these regions, is there a possibility for significantly improving credit delivery in all these markets? And it's just, it seems like, I mean, credit is how new economic activity happens. And it's something I'm particularly excited about is sort of, just like we have the internet created these giant marketplaces for everyone to participate, like Alibaba and Amazon or Google AdWords or others, like, could we see capital markets, like debt capital markets, and the way in which. Credit is formed become as efficient and available as other internet markets, but you're up close to it. Like, you see what the challenges are there today compared to, say, underwriting in Europe or the United States.

Bill: It's happening at pace. And it is a revolution. Like all revolutions, we have to make sure that it doesn't have adverse consequences that are either unintended or just by virtue of excess. But we have a small business banking units in 30 countries around Asia, Middle East, and Africa. We have obviously large corporate banking as well. But I mean, SMEs typically carried out as an extension of our retail business. So historically branch-based, which now are almost entirely algorithmic. Account opening, algorithmic. Credit scoring, algorithmic. Loan extension, loan monitoring, loan collections, automated. And we're doing that on our own, and we're doing that with partners. So we probably have 15 partnerships. An interesting one is with WeBank in China, where we're banking their SME ecosystem. We are relying substantially on their our proprietary data.

Jeremy: Yeah, which is incredible data.

Bill: It's incredible data. It's very differentiated. We also have a very interesting partnership on the retail side with Ant Financial. Extraordinary access to data through their payment platform. Right. And through the Alibaba e-commerce platform. So that redefines the assessment of credit when you've got that kind of a partner. We set up a different kind of partnership in Indonesia with Bukalapak. So one of the largest e-commerce platforms. We have a banking as a service module that we've installed inside the BUKA.JK e-commerce website. Credit. Decisioning is effectively a joint process. We're getting the value of the BUKA.JK data together with, obviously, the credit bureaus, our own assessment of credit based on our own history. We will be able to make much better credit decisions, much faster, much more conveniently, almost certainly with much lower credit losses, which will translate through, because it's a competitive market, to a lower cost of credit for consumers, which should create jobs. It should spur consumer spending. It should be good for society. Now, we all know that any good thing taken to excess, becomes a bad thing. And we'll have to watch that. And if we do something right, there will be other people that will follow. They may decide to just cut a couple of corners, overextend credit, underprice, generating losses. So like every great innovation in history, we tend to go through excess and then pull back. We're quite aware of that, having been through a lot of this in our 170 years. But this is a transformation in terms of the way the credit is assessed and delivered.

Jeremy: That's tremendous. I'm interested as well as the sort of securitization of credit and how that then gets distributed out into the markets. But tokenization, obviously, big buzzword. Everyone's talking about tokenization. And I think the idea that you could have credit pools that are going, using data that are going into these kinds of markets, but where you could actually tokenize that pool of credit, that then becomes an investable opportunity for people in completely other parts of the world. And so maybe instead of relying upon the local deposit base, you're actually able to rely upon capital flows where it's just in the past. It was impossible to invest into these growth businesses in Indonesia or whatever the market is and sort of be interested in your thoughts on tokenization, opening up of capital markets. What could that do when you think about it aligned with the sort of how does one invest in emerging market growth?

Bill: Again, highly topical. One month ago, right here in Singapore, we did our first pilot transaction to effectively securitize, tokenize a portfolio of trade receivables. Trade finance tends to be very short-dated loans, 30 days, 60 days, while goods are in shipment. It tends not to be risky at all from a credit perspective because the last thing you don't pay is your supplier. You've got to believe the invoice. And the bill of lading and the insurance contract. And so it's highly susceptible to fraud. So the use of blockchain technology to have a true source is already not fully embedded in trade finance, but it is becoming embedded. And then the ability to take these assets, which are very hard for a capital markets investor to take on board because you can't do hundreds of transactions with a 30-day, with all the fraud prevention, blah, blah, blah, blah. So we took a portfolio. It will be a rotating portfolio, tokenized, and it works. The technology works. It's a pilot. I mean, this is not industrial. These are...

Jeremy: They're green shoots, whatever you want to call them, right? But they're really powerful.

Bill: So we had seven investors that bought these tokens at the end of the day. We're creating a secondary market in these tokens. It wasn't that hard. It wasn't that hard. The next one will be, you know, one-tenth as hard, and the next will be one-tenth after that. And then we'll get thousands of investors.

Jeremy: Yeah.

Bill: And we'll have a whole new asset class.

Jeremy: Basically, it was like when, you know, the first e-commerce websites were getting set up. It was like it worked and it traced through and you could do this. And then when you've got, like, scalable platforms of many to many anywhere in the world, it was like revolutionary. My dream is to see internet capital markets that have that same capacity. And it could change the role of banks and non-banks and all of this as well. But I think as a 170-year-old franchise that's been in the frontier of both reach distribution but now in technology, you guys seem like you're very well set up for that kind of transformation.

Bill: Yeah. Life is very constraining if you think that you're confined to things that are traditional banking. But we go into very few things where we're applying whatever innovation capabilities or technology capabilities we've got that don't have their roots in some understanding we have of banking or the way customers think about banking. Because customers, as you know, they don't want a fancy wing ding. They just want to execute what they were doing yesterday better tomorrow. And that may allow them to do new things with their business, to develop their new business models and acquire new customers. So the interactive nature of the way we work with you, the way we work with our tech partners, we probably have 300 fintech partners that we deal with. They're not competition. They're either providing us a service or we're partnering with them. But the objective is to make life easier for the end user. If we do that, we'll make money. And if we don't, we won't make money.

Jeremy: It's a good philosophy. Well, it's tremendous to work with you in building out this next wave of infrastructure. And I hope to someday also be a 170-year-old company with global scale. But really a pleasure, Bill. Thank you.

Bill: We will do all we can to get you there. Together. Together.

Jeremy: Awesome. Thank you.

Bill: Good to see you.

Jeremy: Absolutely.