Christine Duhaime: Iran to take leading tech role as it rejoins the global finance community

iranian fintech

As the first anniversary of the Iran nuclear agreement approaches in July, the international business and finance community has identified an enormous market of opportunity in Iran, and believes the time is rapidly approaching that open trade with Iran will become a reality.

Christine Duhaime
Christine Duhaime

Anticipating that opening, the financial sector has hosted a series of conferences and summits analyzing the Iranian market. These include a Financial Times one-day summit entitled Exploring Opportunity and Risk in a Potential Economic Powerhouse, a May 19 get-together in London hosted by the Euromoney Iran Conference, and a two-day conference in Frankfurt produced by the Iran International Banking Forum.

Tradestreaming’s Andrew Friedman caught up with Christine Duhaime, a Canadian legal expert on anti-money laundering and terrorism financing and the Executive Director of the Digital Finance Institute, to talk about the opportunities and challenges facing Iran and the international community as Iran re-enters the global financial community.

Where are the opportunities in the financial sector for technology to step in?

Now that Iran is getting connected to the international financial system, there are all sorts of fintech opportunities that did not exist before. But Iran’s banking system is actually quite modern and the use of debit cards is very pervasive and modern. Their anti-money laundering laws are quite advanced and unique – another unknown fact – because the central bank in Iran has assumed the role of compliance for the opening of all new accounts as the account information holder. No other country does this, and it relieves the regulatory burden from bank branches to some extent and allows fintechs to create technologies at the banking sector level without the same level of regulatory burdens that fintech companies face in other countries.

Could you give a general overview of the technology sector, and the fintech market in particular, in Iran? 

There seems to be a misconception of Iran as not being tech advanced or tech savvy because of sanctions and their economic isolation from the world. But in reality, Iran is incredibly advanced in technology. There are world class technology universities in Iran and more students, including more women per capita, studying in STEM than anywhere else. There are approximately 40 students in tech per 1,000 university students in Iran and there are close to five million students per year enrolling in STEM in Iran. People thought sanctions would cripple Iran, and perhaps it did [in the short term]. But in the long run they actually united Iranians and fostered a drive to succeed, and to be so self-sufficient and achieve more than other countries with technology as a response to ensure that the world could never harm them again.

Is there a robust startup culture?

Yes, Iranians naturally are entrepreneurial and there are cultural expectations on children to be successful, if not through university education, then through business. That is driving a large part of the startup culture today. No question, Iranians are ambitious. President Rouhani started a program where they give low interest loans to over 1,650 startups a year to jumpstart the entrepreneur system in Iran. It’s the hot thing in Iran to have a startup, especially a tech start-up, and so, people are getting into startups in droves.

Is there a good way to profile mobile/internet use in Iran? Are Iranians tech savvy?

Yes, there is high internet penetration, and they are definitely tech savvy. Some areas of internet are spotty and some areas have better internet speed than others. It’s not like Canada or the US where there is high speed internet access everywhere but it’s getting better.

Is there high demand for new tools? What do users in Iran expect from their financial services providers?

Iranians are interested in everything new, modern and techie. In terms of their financial services, at the moment, they are looking for services that will allow them to bank outside of Iran as a primary concern, with the sustained ability to send money oversees to children studying overseas, and to receive funds. There’s also a huge need to be able to pay for things on the internet when it comes to foreign purchases.

How does Iran coordinate technology innovations such as online lending with the requirements of Sharia (Islamic law)? 

The whole of Iran’s financial services sector, including lending whether online or not, has to comply with Sharia law. But that hasn’t and doesn’t impede innovation. It’s innovation-neutral.

Does the introduction of technology aid things for the industry, or complicate matters? 

It definitely helps many industries – one area where I think Iran will beat us all shortly is artificial intelligence, and specifically, artificial intelligence in banking and finance. AI is going to wipe out hundreds of thousands of bank employees, mostly tellers and compliance personnel in a few years, both globally and Iran. I have no doubt that Iran will lead in this area by virtue of the sheer size of its population, their ambition, drive and the numbers of students who are studying STEM. No country will be able to compete.

The Iranian rial has tanked in recent years. What impact on fintech investments do you envision as a result?

I think investors look at Iran as an inexpensive place to invest and when you look at the incredibly low salaries for MBAs, lawyers, or other well-educated Iranians who studied at the best schools in North America or the EU, it’s incredibly advantageous for an investor. It means the costs of the investment goes way further and they can obtain incredibly bright, well-educated young employees engaged in a startup.

Is there local money to invest in technology, or will the sector be heavily dependent on foreign money? 

It’s a bit of both — there is local financing and also a huge dependence on foreign investment, with the expectation that more investment will come to Iran. Part of the reason we did the first FinTech Conference, as Canadians in Iran in 2015, was to help to light the flame of fintech in Iran with foreign interest. Hopefully it had an impact.

Photo credit: Paul Keller via / CC BY

Is there really a wave of fintech M&A coming?

is there a wave of fintech M&A on its way?

Could we be looking at a wave of M&A in the coming years?

There are many reasons to believe the answer to that question could be “yes.” Keeping up with a changing global financial landscape since the turn of the millennium has proved to be a challenge for many global financial institutions, many of whom still operate on cumbersome legacy technologies. At the same time, energetic, imaginative startups have re-written the global rules of communication and finance, with mobile and internet companies now offering a host of low-cost, convenient alternatives for payments, investing, and automated money management platforms.

The large incumbents in the finance industry certainly aren’t planning to leave the playing field and hand over the finance sector to the startup and internet world. Banks are some of the biggest consumers of technology – they spent $486 billion in 2015, 18% of worldwide IT spending. And some analysts predict that the global banking industry will grow to $163 trillion in assets by 2017, with a 5 year CAGR of 8%.

In addition, according to a white paper released in March by UK firm FirstCapital, 92% of bank executives understand that their systems and processes must be upgraded to comply with constant regulatory change. Leaner, meaner newcomers have challenged retail banks with enhanced user experiences, competitive rates and a consumer centric approach.

But, the same research estimated that new technologies and fintech startups stand to siphon $4.7 trillion in assets away from today’s largest finance companies. Venture capitalists are betting on a disruption of the finance industry, upping their investments in fintech companies over the past six years, from $366 million in the first quarter of 2010 to more than $4.845 billion in the third quarter of 2015.

All of which raises a host of questions. Can large banking and financial institutions adapt to the new millennium? Can an industry that has long been dominated by MBA professionals adapt to a world of roboadvisors, one where professional-quality technology is available to non-industry players, often in their teens or early 20s, with professional levels of competence, and a global exposure via social media?

And what about traditional banks, long accustomed to financing new cars, vacations or new businesses but who have suddenly been challenged by crowdsourcing and peer-to-peer lending platforms, or by non-bank money transfer platforms used by tens of millions of people in Africa that have no other access to banking and financial services.

In many ways, the answer is clear: The finance industry is adapting to a new reality, if reluctantly. For example, look at how the mutual fund industry is responding. Many asset managers and investors have switched their focus from expensive, actively managed mutual funds to cheaper exchange-traded (ETF) and index funds, to the tune of about $250 billion in 2015 alone. That’s a boon for investors, who enjoy lower fees. But for asset managers, the new reality is an ugly one that cuts directly into their revenue.

“ETFs have $2.1 trillion in assets, with an asset-weighted average fee of 0.27 percent, producing annual revenues of about $5.5 billion,” Bloomberg reported on April 7. Traditional index funds have 2.1 trillion in assets but have an asset-weighted fee of just 0.10 percent, producing $2.2 billion in annual revenue,” Bloomberg says. Those same assets would have generated over $30 billion in fees if they had been managed in actively-managed mutual funds — that’s $27 billion of revenue that’s just evaporated from the industry.

In addition, FirstCapital says that the largest US banks have made “strategic investments” in over 30 fintech companies. Some incumbents such as BBVA, HSBC and Sberbank CIB have launched dedicated fintech funds topping $100 million to be invested in early stage technology firms. Others, like BBVA, have acquired online challengers. Industry majors IBM, Microsoft, HP and Thomson Reuters have upped their games to service financial clients, investing heavily in enabling technologies, including fraud prevention and risk management software, infrastructure management for banks, data security and more.

To meet the challenge posed by disruptive startups and technologies, FirstCapital predicts a wave of mergers and acquisitions over the next three years as “financial incumbents [will] look to catch up with widespread innovation from new entrants… We expect a wave of M&A activity in the next 3 years as financial incumbents look to catch up with widespread innovation from new entrants, the internet majors scale up in financial services and the technology/software majors add new technology to deepen their offerings in this sector.”

In addition, the white paper expects “the internet majors scale up in financial services and the technology/software majors add new technology to deepen their offerings in this sector, particularly via the use of blockchain technology for payments, regulatory reporting and share trading.

Could be. Last August, asset manager BlackRock acquired automated investment advisor, FutureAdvisor, and is already rolling it out to financial advisors who work for the firm. Spanish bank, BBVA has purchased two challenger banks. It is certainly not inconceivable that major industry institutions could move to acquire upstarts into their basket of services in the coming years.

But that is far from certain. The incumbents’ sheer scale gives them the luxury of being patient and the ability to weather the challenges posed by newcomers calmly and carefully. At the institutional level, banks and lenders are already testing blockchain technology developed in-house and with he help of service providers. And Goldman Sachs still employs more engineers than Facebook. This could indicate that the traditional industry leaders are biding their time not until it is the right time to go on a buying spree, but rather until they have analyzed the industry, mapped out the future and they are ready to roll out their own, in-house technologies on their own terms.

Photo credit: pmarkham via / CC BY-SA

Technology is filling the void left behind by Wall Street layoffs

automating Wall Street, fintech, and layoffs

It was just a few months ago that employment on Wall Street hit a post-crisis high. As 2015 rolled to a close, more than 172,000 people called the Street their home away from home, according to a report from the New York State Department of Labor published in early March. That’s the largest workforce the financial sector has employed since 2008, but that may be changing now.

Wall Street is now feeling the pressure of a weak stock market. Lower share prices and cloudier financial forecasts have big banks laying people off and considering letting more people go. In a CNBC report on the bulk of the layoffs, Barclays CEO Jes Staley remarked that he’s already eliminated 6000 jobs since taking over the helm at the bank at the end of 2015, which is double the total number of cuts in the 3 years preceding him. RBS said in 2015 it would reduce its investment banking staff by 14,000 by 2019. Morgan Stanley reported late in 2015 that it had reserved $150m for layoff-associated costs, cutting 1200 positions. Bank of America recently set aside similar sums for severance expenses, the company’s CEO said on the bank’s most recent earnings call.

Rising Wall Street Layoffs


“[W]e did reduce head count in the business, the markets businesses and the related capital markets business,” BofA CEO Brian Moynihan noted. “We didn’t make big announcements, but that led to the $130 million in severance in the fourth-quarter numbers.”

Wall Street has always been subject to bipolar swings, staffing up during strong economies and paring down when times get leaner. But something is different this time and you can see it when you look at how much money the Street is investing in technology. Employment may be shrinking at Wall Street firms but technology spending is enjoying its own bull market. Last June, SourceMedia conducted an online survey of 50 of the top banking CIOs and found that about 50% of them expect to increase their technology spending. About a third of the participating CIOs forecast budget increases of 20% or more.

When you look at what banks are spending their IT budgets on, one of the most popular areas of investment is cybersecurity. Most senior Wall Street technology leaders polled are increasing their budgets for security technology by at least 10%. While lawyers and compliance teams are going to be receiving larger kitties this year, banks are focused on building out their online banking, data analytics, and payments capabilities.

Technology spending is pretty much increasing across the board, from branch technology to upgrading the lowly desktop on trading desks. But money is also flowing to areas that were previously the domain of Wall Street’s brightest and most talented. Hundreds of financial analysts are being replaced with software. Big chunks of the number crunching tasks that analysts spend hours toiling away on every day are being automated. Sensitivity analysis, like what happens to Stock X when Economic Event Y occurs, is being increasingly handled by computers now. Firms are shedding the jobs that produce this type of cornerstone analysis as part of their equity research product.

The New York Times recently profiled the automation of the Wall Street workforce in the New York Times Magazine. In The Robots are Coming for Wall Street, the newspaper profiled the growing automated financial workforce. There’s an evolution going on here and it began years ago with lower-paid clerks, “many of whom became unnecessary when stock tickers and trading tickets went electronic”. Next up is where we find ourselves today: software capable of analyzing large sets of data more quickly and reliably than human analysts ever could. The next ‘‘tranche,’’ according to the article, could see client-facing responsibilities relegated to the machines.

‘‘I’m assuming that the majority of those people over a five-to-10-year horizon are not going to be replaced by other people,’’ said Daniel Nadler, founder of Kensho, a technology provider that’s developing automated financial analysis. ‘‘In 10 years Goldman Sachs will be significantly smaller by head count than it is today.’’

Photo credit: spenceyc via / CC BY-ND

Fintech trickles down to games as cash is busted

monopoly goes cashless

If J.K. Rowling were to write her fantasy novel about the young wizard Harry Potter today, she’d probably make him pay for his wand via an online transaction rather than visit the goblin-run Gringotts Wizarding Bank in London’s Diagon Alley with his giant friend Hagrid.  And George Banks, of Mary Poppins’ fame, wouldn’t take his children to his stern bank branch to invest their tuppence, but rather get them to do so via a mobile app.

The combination of an increased penetration of smartphones and mobile broadband with a new generation of tech savvy and impatient millennials, who like to get services at a tap of their smartphones, is disrupting a great number of industries including finance. New mobile payment methods along with person to person lending may make bank branches, as we know them, as obsolete as Olivetti typewriters or public-phone tokens.

“I talk with millennials and they mention that they have never ever set foot in a bank branch,” said Robin Tiegland, a professor of business administration who specializes in Strategic Information Systems at the Stockholm School of Economics in emailed comments. “And I can’t remember either the last time I went to a bank in Sweden. I do everything online.”

VCs invested over $13.8 billion in a variety of fintech companies globally in 2015, more than double the value in 2014, according to a KPMG and CB Insights report published in March. Overall fintech investment in 2015 totaled $19.1 billion compared with $12.2 billion in 2014 and just $2.4 billion in 2011.

This disruption is changing not only the way we bank and pay but also the way we play.

Hasbro Inc. will be launching its Monopoly Ultimate Banking game in August this year, in a new version of the much loved 81-year-old board game that will see cash money replaced with credit cards and a banking unit that will help players track their wealth and buy properties.

“Hasbro continues to update our gaming brands to keep them relevant for kids and families today,” Jodie Neville, vice president of marketing for Hasbro Gaming said in emailed comments. The ultimate banking version, a new take of an electronic banking version launched in 2007, “is inspired by the way people today interact with money electronically,” Neville said.

Companies have an incentive to try and make their games more technologically sophisticated, Matthew Hudak, a toys and games analyst at Euromonitor International said in emailed comments. “With constant competition from other readily available means of entertainment, like smartphones, game makers have been hard pressed to keep the attention of children.”

The increasing consumer trust and comfort with online and mobile financial products and the rapidly growing acceptance of prepaid cards as a handy financial tool have spurred the formation of virtual family banks such as FamZoo, which launched its first prepaid card product in mid-2013. The platform allows parents to teach their kids “good money management habits,” said Bill Dwight, a father of five and founder and CEO of the company which at the moment caters to 1,975 paying families in the United States.

FamZoo allows parents to issue pre-paid cards and create IOU or prepaid accounts in which they can inject funds for their children and supervise and update these amounts as needed.

“Prepaid cards have become the digital equivalent of the cash envelope,” Dwight said in email comments. But a prepaid card is better, because it can “be used as easily online as in stores, it automatically tracks purchases, it can be locked and it comes with protections,” like insurance.

The children sign in separately to access their own accounts and spend and keep track of their money in a safe and parent-monitored environment.

“Insanely busy parents simply do not have the time or the patience to visit a branch to open accounts for their kids. They want to do it all online in just a few minutes,” Dwight said. They also want to be able to move money safely and easily to their kids in arbitrarily small amounts with “zero fees, zero delay and zero risk of debt,” he said. FamZoo’s work in “linking prepaid card accounts together with our custom family software satisfies these needs.”

Dwight is the founder and sole investor in the company and has no plans to raise outside capital at the moment. “The children in FamZoo families range from preschool through college. So our potential reach is all the families in the US with kids in those age ranges,” he said. “We’ve only scratched the surface of what we plan to deliver.”

Similarly, Osper, a banking service for 8-to-18-year olds, allows families to issue pre-paid debit cards and use the Osper App to give their children financial independence in a guarded environment. Via the app children can check their balance and keep an eye on expenses, while the parents can instantly load money onto the cards from the app, set up regular pocket money payments and get notifications on their phone when there are failed transactions or insufficient funds.

Mobile phones and apps are also making it easier for children to access the stock market.

Palo Alto, California-based Stockpile was set up after CEO and co-founder Avi Lele discovered one Christmas that there was no easy and cheap way to give stocks as a gift to his nieces and nephews, after he was stonewalled by bureaucracy such as social security numbers and brokerage accounts and the price of some shares. “It was so hard to do, I just gave up,” he said in an interview with Tradestreaming in November, after the company in October closed a $15 million investment round.

The company has created stock gift cards that can be bought online or at retailers such as Safeway or Kmart, which allow recipients to own $100, $50 or $25 worth of stocks of companies ranging from Apple Inc. to The Coca Cola Company and Facebook Inc. The person who gets the gift enters a code, signs up for a brokerage account in just a few minutes and gets real stock. In a way, these gift cards are a modern version of the savings bonds children used to get once for birthdays or Bar Mitzvahs, Lele said.

Stockpile built a “fractional shares brokerage from scratch to power all of our gift cards and other stock transactions,” Lele said. “Fractional shares allow you to buy any dollar amount of any stock you want, regardless of how much one share costs.”

Lele, who says he is turning stocks into a consumer product, says these gifts give children financial literacy that is fun and is “more meaningful” than the toys they play with for a couple of times and then toss away. Stockpile, which placed 43rd on KPMG’s Leading Global Fintech Innovators 2015, was founded in 2010 and is privately owned. Investors include Sequoia Capital and actor Ashton Kutcher.

These online platforms fit into the fintech ecosystem in that they “are some of the many solutions that are enabling the movement to a cashless society, where significant fintech investment activity is occurring,” Tiegland, of the Stockholm School of Economics, said. Children, who have traditionally used cash because they were too young to get credit cards, are thus among those affected by this transition, she said.

So then, is the future of board games as shaky as that of bank branches, as the role of smartphones and the Internet takes up an ever growing chunk of children’s lives? Perhaps not, said Euromonitor’s Hudak. Nostalgia is the key.

One of the biggest selling points for games like Monopoly or other classic games “is that parents have some level of nostalgia for them because they played them as a kid,” Hudak said. “This encourages them to buy for their children, who themselves may become nostalgic for the brand once they become adults, and buy it for their own kids.”


Photo credit: therichbrooks via / CC BY