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The last thing the world needs right now is another bank

Interviewed by Katia Lang, editor-in-chief at The Fintech Times.

We caught up with Sofie in Amsterdam, where she was speaking at Money2020. She told us about the groundbreaking work Hiveonline is doing, and how it might just help put a stop to government corruption in the developing world.

Tell us a bit about you. 

I spent most of my career building banks, and then a few years ago I met the guy who is now building our blockchain platform, and we decided the last thing the world needs is another bank, because there are so many people out there, especially the smallest businesses, who don’t get supported well by banks.

Small businesses everywhere have the same problems – cash flow, administration, and, most of all, trust – the smaller the business, the harder it is to prove you’re trustworthy.

Hiveonline is a platform that is delivered over the phone, which enables our customers to enter into contractual arrangements, either with their customers or with financial institutions, to show that they’re delivering what they said they’ll deliver, and to get paid. It handles everything from quotes through to invoices, or from agreement through to fulfillment, without the business having to do any paperwork, which helps with the admin side. Our reputation system measures what they do – so we don’t use any reviews, thumbs up, or star ratings.

How do you measure reputation?

Through what they do on our platform, as well as other non-traditional pieces of information, such as phone and company records. So we build a very rich reputation depending on how well they deliver.

What about the issue of trust, especially for someone who is new to a country?

This is the advantage of reputations, because you can take them wherever you go. Trust means different things to different communities, so how we present that trust to your customers and your lenders may vary in different countries, but you take your trust score with you, you take your reputation with you.

For example, what’s late in Denmark is probably somewhat different to what is late in Ghana – Africa runs at a slightly different pace – but what goes into deciding whether you’re late or not is the same information. So the data is the same, it’s just being able to configure it a little differently in different countries. What that means is that if you build up a reputation in your country, you can take it somewhere else, especially if it’s an adjacent country or a country with a similar culture.

Who are you targeting with this platform?

We have two main markets – in developed economies, such as Denmark and Sweden, which are our main markets, our clients are people who don’t work in offices. So, small to micro businesses in areas like construction, catering, agriculture and logistics – typically fewer than four people in the business, and they don’t have someone doing admin or invoicing. Usually, the head of the business has to do everything, so partnering with us takes all that work out. It also means they can fit in their financial administration while they’re on site, so they don’t have to visit the bank on their accountant.  

The other big market we have is small to micro businesses in developing economies, which typically don’t have access to financial services at all. In the countries we’re targeting, roughly 80 percent of businesses don’t have a bank account and many lack formal identification – this means that they are usually subject to extremely exploitative rates from local lenders. To be fair, the lenders have problems validating these customers, because they don’t have bank accounts and they don’t have ID. So it’s a very expensive way of lending money and it’s a very expensive way of borrowing money. Using our reputation system and our automated contracts, as well as our crypto currency, we can take out much of the risk of default, and most of the admin cost as well, so we can bring down the cost of lending for these communities.

How big is your team?

We have three co-founders and eight team members. I am based in Copenhagen; Rob, our CTO, is based in Sydney; and Matt, the COO, is in Stockholm with a few team members. We also have a team in Kiev. We’re all used to running several countries at once, so it’s a natural space for us.

What do you define as the major issues of financial inclusion? How do you feel about the talk of people in Africa having not enough food to eat, vs. people in Britain not having access to financial services?

The problems are the same everywhere. We specifically target people who run businesses, but obviously in developing countries many of those businesses are in a developing economy, and effectively what you get is an individual who is selling something, or growing something. In developed economies, there certainly are large numbers of financially excluded people, and the reasons they are excluded are fundamentally the same. It’s due to a lack of cash and the cost of having a bank account – the cost of everything. As we know, being poor is really expensive, wherever you are. If you’re in the UK and you have a pay-as-you-go gas meter, it costs nearly twice as much as a standard gas supply. So the same problems apply to communities everywhere. We’ve been talking to the Bank of England about bringing our work to the UK, but that’s quite a long way down the road for us at the moment.

What about the US?

The US is so far off our radar, which is a shame because seven percent of US customers are unbanked. In cities like Miami, it’s as high as 16 percent. That’s because the cost of having a bank account is so high, and the barriers are so high. You need a stable income.

With both the UK and the US, the problem of financial inclusion is the same as it is in Ghana – if you haven’t got a validated address or proof you are who you say you are, and if you haven’t got a financial history, you can’t get a bank account. Whether you’re growing yams in South East Asia, or you’re a mechanic in Florida – this is the reality. The divide between rich and poor in America and access to health care and clean water makes it more like a developing country every day. The US is the only developed economy where people are bankrupt because of health problems – it’s just shocking. So my heart goes out, I’d love to go to the US, but we’re starting with some of the areas where there are 80 percent unbanked and a lot of government challenges.

One of the advantages of our solution is, because we’re digitising people’s transactions, we can also help people to save. We can create interest bearing accounts on their phone, which will keep adding wealth, and we can give them access to things like micro insurance and pensions – bring them into the formal economy. This means that not only do they get access to things like land rights, identity and credit history, which is obviously great for them because it means they can reduce their cost of lending etc, it also means the government starts getting taxation. That might sound like the evil hammer coming down on the poor farmer, but actually they’ll be paying less and gaining more by being a formal economy business. And as the government starts securing the latest tax revenues, that means you take away both the need and opportunity for corruption in the government. If you’re a government where 90 percent of your economy is informal, you’re not getting tax revenues and you can’t get anything done without taking bribes. That means that these economies are not able to function effectively, whether they want to or not.

Why did you start with Denmark?

Denmark is a great market for us for a number of reasons. First of all, workers in this sector already use electronic payments, which is an important factor for us. Mobile pay is a huge thing – if I buy a Christmas tree from a guy’s shed, he’s using mobile pay, charity collectors use mobile pay, so there’s very little barrier to overcome. If I go to a builder in the UK and say – ‘I’m going to digitise all of your payments’, that would present a huge adoption barrier, because a lot of these guys are on the black market. It’s the same with Germany. Whereas with Denmark, Sweden, the Nordics in general, and Benelux – there’s a very high use of digitised solutions in these sectors, so that obviously means that our adoption barriers are very low.

These are also countries where the population is quite highly educated and comfortable with digital solutions, and also where community is very important – because we’re very much about community trust, it’s a good place for us to go into.

This is a complete contrast to our customers in developing economies, who prefer digital solution because at the moment all they use is cash, which is very risky. We hear classic stories about customers who, as soon as they get a large amount of cash, their friends and relatives hear about it and suddenly the cash is gone. Of course, if you store it securely on a mobile device, it’s much harder for those friends and family to get it out of you. There is a wonderful story about a guy who was promoted to being a judge – a colleague of mine met him at a conference – and he was really upset about being promoted. My colleague said – ‘why? This is fantastic!’ and the guy said – ‘no, you don’t understand. When I get home, my house will be filled with all of my family and all of my neighbours, trying to cream something off me.’ This is what happens when you get higher pay in these poorer communities.

This is not the only reason there is quite a high default rate on micro loans, the other reason is because the rates are so high – typically between 40 and 600 percent interest. Also, using cash, there are huge risks at every point of the delivery. So, the field agents might say – ‘I’ve given the loan to Mary’, and put the cash in their pocket – there’s no way of telling. Those sorts of things mean that people are very accepting of digital solutions. As we’ve seen with M-PESA in Kenya, even though the solution is not particularly good and it’s quite expensive to use, it’s still better than cash. So adoption in those countries is as strong as it is in the very developed countries, which are all digitised.

If you look at the background economics, it is really interesting. A country like the UK and a country like Denmark culturally are very similar – they share a sense of humour, they share a lifestyle. But, actually, the behaviour of consumers with regards to digitisation in these sectors is very different. It’s really fascinating.

Who are your competitors in this space?

We don’t have any competitors, but we have a few partners, who are in the same space as us. We’re working closely with a company called Solara, which is working on tokenising solar energy. They’re based in Australia and the project is called Solara Digital Village. We are also working with customers is Ghana on a number of different projects. There are other people doing similar things to us, but I don’t regard them as competitors because the problem is so big, it’s going to take a village. There are not that many blockchain companies involved in social impact, so the more there are, the better for us all. It’s an area that the big guys could go into if they wanted to, but we’re working very much at the grassroots level, and they are at the corporate level.

Finally, do you think it’s possible to stop corruption?

It’s need and opportunity – those are the two drivers of any socio-economic structure. You need both to make it work – if you’ve got the need and you start shutting down the opportunity, then you just find other opportunities. But if you can take away the need, you might make it.

In Ghana, we’re working with a company that is building low-cost sustainable housing for government workers. We’re working on the financial instrument that they can use so that they can afford these houses without having to sell their grandmother. In Ghana, it take two years to get a mortgage because it’s so corrupt, but we’re working with a company there that is putting land registry on the blockchain. There’s all sorts of stuff going on that 

makes it easy and affordable for government workers to get their dream house, but on their own government salary. So if you take away the need, by giving people more benefits in kind, there is no call for corruption. The reason salaries are low in the first place is because the government has no liquidity. So, again, if you can get more taxation coming into the system, salaries go up, lifestyles go up, the desire and need to be corrupt actually reduces. Corruption is largely cultural, but the reason this has arisen is because of the tax deficit – the fact you can’t get anything done because there isn’t enough money basically, so part of it is about culture, but culture arises as a result of the given situation. 

We’re trying to address the real cause of the problem, and not just the symptoms. Addressing the symptoms doesn’t give you long-term transformation. We can trace currencies, we can take out the middleman, we can expose people who are overcharging customers – but you’re not going to take out corruption if none of that filters down to the cause, which is that there is not enough money in the economy. So by locking money into the economy, which is what we’re doing with these currencies, you can actually take away much of the real cause as well.


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