Here is a short video from April 2020, with the Commissioner of the US Securities and Exchange Commission, on the value of providing US based startups a 'cross governmental sandbox' for Fintech.
Conclusions for Pineapple jurisdiction, are as follows: United States: We are a US company that builds software. However the US has complicated regulations for a non bank financial institution. Specially since our customer market is mostly outside the US we are considering other alternatives before we fully release the beta application. Unless we partner with a bank or charter one ourselves, we do not see a way to independently grow a truly bank challenging deployment. We will need to severely limit our product to the point where we would not have a unique advantage. At this point our priority is to open our beta and start servicing the first clients who have signed up. Europe, Singapore or Hong Kong: Pineapple has looked at most potential jurisdictions which could be fruitful for a challenger fintech. We found Estonia to be unique due to several factors, including ease of compliance, great regulations, tax regime and all processes completely online. We decided to apply and got selected for a startup viza from the government of Estonia.
The parallel options we are exploring are Singapore which has a regulatory sandbox. Hong Kong has a great money transmitter regulations process.
UK has a great sandbox too. Pineapple now has options, before we start processing customer revenue.
As we consider jurisdictions other than the United States, we have addressed this issue of lack of clarity with the regulator, at the highest level. For a later stage we see potential for a US bank sandbox in Nevada and Wyoming. However to expect one from the federal regulator at any time soon is not practical. Pineapple is underway, moving jurisdiction. ASSURING COMPLIANCE Regulations are absolutely necessary to run a balanced economy where both the businesses and it's customers are protected. But as an entrepreneur one also has to be super conscious about how servicing those regulations is going to impact one's business. Some countries have regulatory frameworks that are more accommodating than others. For a Fintech startup with a world wide market, making the right choice of jurisdiction is a highly important decision. Pineapple's seriousness about navigating regulations responsibly, is expressed in the podcast below. It was recorded in November 2018 in San Francisco, at a thrilling but turbulent time, when Bitcoin and ICOs (initial coin offering) were crashing after seeing an all time high. Pineapple did not do an ICO, in fact we learnt extensively from the blockchain and cryptocurrency movement on the forefront with practitioners. To arrive at conclusions we now see with Pineapple in 2020. Pineapple has specifically identified the role blockchain, tokenization, decentralization, automation and distribution has in our model. As well as the regulator's role other than enforcement, which is to nurture and facilitate innovation, by crafting compliance which is commensurate with the stage of the company building emerging finance and banking.
In the past 5 years, financial technologies are suddenly light years ahead of the banking industry, which is still based on medieval concepts even while adapting technology. Fintech apps disrupt and redefine old ways of doing things everyday. Practitioners come in two overlapping tones: - Some use technology to build on the existing banking and finance system , and give more power to it, finding and filling gaps to make incremental changes. Established financial institutions are wary of changes to their legacy systems, but are really interested in technology — So, lots is happening in the Fintech space, the best of which eventually gets adapted to modernize what's working already. - Others go outside the box to germinate new products, to provide solutions for the many pain points in society which have been ignored by big banks, or in many cases caused by financial institutions themselves. FALSE GOD The more technology advances, the more atrocious becomes one single idea: The Interest based lending and deposit system. Interest is considered an “immutable” law of banking and therefore it becomes part of all business. Like a law of nature itself! On which the universal system of business is dependent to run. A “blind” justice, reflected as the interest 'rate' which applies to everyone. That idea is false and has become obsolete in an age where we can go granular into customer data and find exactly where the more fruitful earning opportunities are, instead of having a one dimensional rate for everyone. Most of the population, especially those earning minimum wage, could do much better without mandatory interest and fees — instead; a transparent digital treasury everyone is part of, and democratically running, in the benefit of anyone — is the way to go. MONEY IS OXYGEN A person with declining oxygen first fumbles mentally and with further deprivation, actually dies. Not having enough money does the same thing. Extreme poverty puts people on the street, creates abusers and the abused, exacerbates crime, affects the quality of family life, health, and the fundamental ability to think. Some in society have adequate oxygen. But many who do not, are progressing slower, fumbling, some are choking. For low earners, “interest” just should not apply to a loan. The heavy burden of high interest generates ever higher levels of distress to “meet” the payment. For a family earning under the national average required for basic healthy life, the stress is significantly more than for someone who has access to all the basics. It is good to have more oxygen than what one’s lungs can hold, although according to Nobel laureate Dr. Daniel Kahneman’s lecture “The riddle of experience versus memory” — beyond a certain band of earning, happiness is not associated with money. But being under the minimum threshold, the stress is devastating. For example, one of the largest demographic of payday loan borrowers in the US are hardworking single mothers, working paycheck to paycheck. Paying an “average” 390% annualized rate on the short term of 2 weeks which revolves an average of 5 months. On paper: “Twelve million American adults use payday loans annually. On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest”. In reality that interest payout can be much higher for many, who are on the upside of the average in the total curve. Decade upon decade this predatory promotion of poverty undermines the potential of a neighborhood and ultimately society. In the US and around the world. Every year, people die from this prevalent one-dimensional financial system. In modern society, money like oxygen permeates the very being of life and is the source for most “growing” things. The interest-based system applied most harshly to those least able to pay, stunts growth and causes illness. People are kept in the cycle of poverty so that their ticket collectors can keep on earning. There is no moral justification to earn “cash rental” for enabling life’s basic standards from those earning minimum wage. By removing the burden of interest, loan repayments should be easier to “meet” for those who are not quick pacers. Even 5 years ago, we did not have the technology to make interest-free financial services a part of mass consumer habit, risk managed, cost effective and still profitable. Today, we do. BANKING FOR THE MANY NOT THE FEW There would be fewer social security checks for government to write and lesser human degradation problems for local authorities to handle if the private sector financial system was aligned to nurture those with inadequate means. Rather than ignore that broad segment of society which wallows in an endless cycle of systemic circumstances sustaining poverty. Taking a significant amount of their meagre earnings away, in “charges”. The regular citizen does not need to bet on foreign exchange, stocks or sophisticated “financial instruments”, most of which contributed to the crash of the global economy. In fact, if enough of the public get together to form an Interest Free crowd treasury online, they would be able to give themselves a better deal than the banks. Big banks give less than 1 percent on deposits and when it comes to charging Interest on loans, banks can charge 20% upwards. Less regulated financial institutions can take that beyond 390%. INSIDE THE BOX One can almost hear some financial managers and treasury officers saying: “where will one get the money to lend interest free”? “how will we make good enough money, we are not an NGO”? Sometimes these are the very questions that professionals should not ask anyone else but themselves. Or they could ask media people instead of bankers. Transactional abilities going digital is where banking becomes the kinship of media. In advertising, if managers asked those sorts of questions for very long, instead of coming up with mind blowing creativity that actually pays back — one would not last very long in an agency. There are Pricing lessons to learn from the social and broadcast industry. Like freedom versus charges and hybrid sources of earning. Moral lessons, like the fact that some concepts are great, they would sell the product through the roof, but are morally wrong or illegal. Only when one shuts out the obvious “what one can do — but will not do” is when the true charisma of inherent genius is born again. Every human has that capability of invention. If one gives oneself that chance to come outside the box. How can you find something valuable, that you are not looking for, and if it’s not looking for you either? One of the best ways to do that in the wonderful new world of digital banking, is to make your customers your shareholders without being your investors. Let everyone breathe, there is plenty of oxygen for all in the digital economy. This chat at Block Connect conference last year in San Francisco explains a bit about the directions Pineapple is taking with emerging forms of banking. OPEN SOURCE MONEY available to anyone - owned by everyone Please share your comments! we will add more to this narrative based on feedback. Writer Babar Yousuf is founder and CEO of Pineapple
Here is a presentation, delivered to the IT Secretary of Hyderabad (India) and corporate bankers, on the importance of reforming the business of banking towards social impact, using the revolution that is blockchain to bring transformation to the use case. We love tech! But what we love even more, is what tech does for quality of life. Health, wealth and happiness. Inventing and going deeper into engineering is the future for sure, but is it making enough difference to some of the world's biggest issues? What's the solution for billions of hungry people, babies dying due to malnutrition. Problems which never really seem to ever get solved. Doesn't matter how many grants are spent year after year, and how many institutions are working around it. Sometimes it seems that the multi institutional industry built around solving the world's biggest problems is so big and commercial, that if the issues went away, what would happen to it! We think there is great technology already available today, which can change the circumstances of the world faster than ever and more comprehensively, if the business case was very innovative. Pineapple is focused on how we can use some of the tech being invented today in finance, networking, identity and multimedia. To build breakthrough use cases and original products which can have a positive impact on the trajectory of a customer's life. 'The more things change the more they remain the same' despite technology, simply because some of the big ones like financial inclusion and poverty reversal, need a business case as innovative as the tech. Please share your comments! we will add more to this narrative based on feedback.