FULL TRANSCRIPT (AI GENERATED):
Finimize Studio (00:02.19)
Hi Lex, welcome.
Lex (00:04.949)
Hi, thank you for having me.
Finimize Studio (00:06.894)
It's great to have you here. I've actually followed you for years now. And in fact, like, yeah, it's been a long time. And I noticed myself whenever there's like a new disruptive technology, I go to your content to try and figure out what on earth is going on. And I'd quite like to start there. The way that you've been able to rapidly become an expert on pretty much every wave of innovation is fascinating to me. But I'm curious like why that is. Is that just your natural curiosity that allows you to move from?
Lex (00:10.037)
No, impossible.
Finimize Studio (00:36.622)
wave to wave.
Lex (00:38.773)
Thank you for that generous categorization. You know, I think the way I think about it is that I've tried to keep up and it's been amazing to be in this industry, in the finance industry, and actually be in a moment where there are things to keep up with. You know, the pace of change has actually been faster and faster and faster since I joined, which was in the middle of the 2000s and kind of going through.
the experience at Lehman, seeing the bankruptcy and then watching kind of this wave of technological progress with the, you know, in the beginning it was FinTech, which is the, the application of Silicon Valley web two technologies and mobile and websites to financial services. And then for me, it's been crypto and then within crypto has been decentralized finance and sort of the structures that come with that.
And most recently, it's been trying to understand how artificial intelligence plays a role in the economy and what implications that has on finance. And so if anything, you know, I feel really lucky that there are these platform shifts to navigate because they keep things really interesting. But in terms of sort of, I think there are different people that are similarly situated to me that are in this industry that have things to say that, you know, have formed a view and.
many people are really focused on, you know, how do we make finance better or how do we have kind of incremental change but prioritize the stability of financial services, the delivery of the things that we already have. Whereas for me, I found sort of this attraction to novelty. So I'm really interested in the change itself.
and figuring out where the frontier is. And part of that comes from kind of growing up, I did a lot of visual arts. And so in the visual arts, you always start with a blank page and you use the blank page every time you have to kind of create from scratch. And so I think for me, the novelty of like, okay, well, we have the language of financial services, we know what it's for, but there's a completely new frontier and we have all this opportunity to fill it in.
Lex (03:03.381)
That's what's exciting for me about it.
Finimize Studio (03:05.486)
Well, let's take that sort of blank page philosophy you have. I'd love to sort of dig into your framework around that. Like how do you take a new technology that arises that we know nothing about and what's your process to kind of getting to a point where you have some kind of clarity and a point of view.
Lex (03:23.093)
Yeah, I think people use the word mental model as an answer and end of the day that's right is that for me, I've put in years if not over a decade of work building out mental models across a whole bunch of questions and really building them up with evidence and from.
from fundamentals and fundamentals being like building spreadsheets and sizing markets and figuring out what's the best quantitative case that I can believe about any of these things and then trying to figure out what the patterns are that connect the dots. So I had started as an entrepreneur in digital wealth and kind of lived through the digitization of the distribution of financial product.
basically putting asset allocations on websites, putting pie charts into mobile phones, which at the time was pretty profound. Yeah, you know, it's like, it's not on paper, it's on a website. So that's cool. You can put Google ads around it and get people to download it from mobile games. You know, exactly. I'm being reductive, but you know, if it's 2024 and your business model is still, we'll put it on the phone and put,
Finimize Studio (04:28.398)
Very innovative.
Finimize Studio (04:40.014)
Yeah, and you got a business.
Lex (04:49.077)
mobile ads into games, I think. Check stuff out from 2013. You'll be surprised. So.
After going through that single experience in the one industry where I focused, which was around WealthTech and digital investing, my thought was like, okay, well, where else is this happening? And it was happening in pretty much exactly the same way in Neobanks in the UK and now in the US with things like Chime and Revolut in the UK, Monzo and so on. It was happening with digital lending. So you had Lending Club, OnDeck, a bunch of others. It was happening in payments.
So Venmo, now Cash App, and kind of the motions were all really similar, which was put the thing on the website or into the app. And there's more to say about it, but if you want to be reductive. And so I noticed that pattern. And then I noticed some larger patterns. So the East and the West. So for example, the US has a very particular structure to its financial services industry where the investment banks are powerful.
then there's a long tail of lots of small banks. And the telecoms are kind of there to provide infrastructure and the big tech firms by regulation are not allowed to launch financial services. Like if I'm Amazon or Apple and so on, it's hard for me to actually own a bank and not corrupt the rest of my business. Whereas in the East and especially in places where you did not have the same type of...
industry schematic, you had completely different outcomes. So you might have like in China, Big Tech, Alibaba, the biggest company there, Build Out and Financial, the biggest payment rail, bigger than any of the banks. And that payment rail incorporated all of e -commerce in it. It was the destination. So Big Tech took the shape of financial services there. You had other places.
Lex (06:56.917)
You look at India, you look at Africa, Africa, the continent, and the telecoms end up playing a financial role. So -Pesa famously has mobile minutes becoming a digital currency in much earlier than, you know, cryptocurrency was even out. And so you end up having these patterns of like who rises and who's in charge, depending on the structure of these jurisdictions.
And after that, you know, the larger kind of story on top of that was the technology platform shifts. So putting the thing on the phone is sort of one is the web two transformation of everything. So software is eating the world ended up meaning really our attention is going online. And that's where the attention economy is. You can, you can buy customers there. but you also had other platform shifts like,
blockchain and crypto in 2009, but really for me in 2016 with Ethereum, once you had computational blockchains, you can actually manufacture financial products in a very different way, which is profound. It's a different idea, the distribution versus the manufacturing of financial products. Then you have artificial intelligence, which has sort of baked and matured today. We see that. And the digitization of sort of human...
judgment, probabilistic thinking, has lots of implication on, I think, economic activity, economic growth, where value accrues. And then you have the third one around, you know, today you'd say spatial computing, three years ago you'd say metaverse, three years before that you'd say augmented and virtual reality. And that one is about sort of uploading the physical world into the digital world. And so those platform shifts, I kind of landed on,
as being much more profound than really any of the other questions that were being asked. So the question of will Apple or JP Morgan win the game is a narrow question and it's a function of regulation, company structure and stuff like that. The question of is the robo advisor or the neo bank gonna beat Wells Fargo at digital distribution again is a very narrow question and maybe five years to figure out, 10 years.
Lex (09:23.029)
Whereas these larger platform shifts are the rabbit hole. They're the real frontier. And so, you know, I've been chasing that rabbit down the rabbit hole for a while now.
Finimize Studio (09:34.446)
I love that. And it's amazing, really, how once you start to see those patterns, that things just keep repeating themselves time and time again.
Lex (09:42.005)
Yeah, I mean, I don't know if I'm a crazy person, you know, and I've sort of self radicalized myself into being interested in this, but I love having the opportunity to work on these really kind of difficult open -ended questions rather than the much more incremental progress and kind of the scotch taping of banking as a service and embedded finance. Like all that stuff's fantastic, but if the gears of your machine are from 1985 and anyone who can develop in cobalt is dead, you know, like,
maybe try building new roads, build new infrastructure. And so for me, those are much more interesting questions.
Finimize Studio (10:22.542)
Let's pick up on that. So I know you're very experienced in corporate innovation and both on the startup side too, but when I started, it was very much the narrative that it was startups versus the incumbents and the startups would innovate and the incumbents are very, very slow. But if we start to look at big tech, especially, it seems like large companies are starting to figure out how to innovate. And perhaps that narrative is slightly starting to shift.
In your opinion, what does it take for corporates to innovate and why does most corporate innovation fail?
Lex (10:59.733)
what a difficult question. I think first you do have to draw a really bright line between the types of corporates we're talking about. So the culture of, and I don't mean to pick on any particular company, I think JP Morgan is one of the best banks that there is in the world. They're extremely good at execution, operating, they generally speaking watch out for their customers and so on. But if you take a,
or Goldman Sachs, right? A company that made an extremely hard pivot into beta C fintech with Marcus, the acquisition of things like Greensky, a bunch of custodians from WealthTech, like they've put all this stuff together. The culture at places like that in the banks is radically different from culture, for example, in the media companies.
And the media companies are relevant for kind of a finance conversation because over the last four or five years, crypto architecture has changed the economics of the media business. It is now possible to basically DRM anything and everything. It's possible to sell digital assets from your musicians or from your visual artists and do it generating millions in revenue and building brands and communities online. So all of a sudden,
media companies are in the business of managing the financial assets of their IP in a way that they weren't before because they have a new economic architecture. But they have a culture and their culture is fashion. Fashion is a very different culture from regulation and custody and keeping assets safe. So the way that a media company would sort of incidentally launch a financial product is very different from a way that an international bank might...
want to launch a network to move around, you know, commercial banking paper or something like that, or private equity. And then that's going to be completely different from the big tech players. I think we're living in a fantastic moment right now. And it's like the business case studies will be unbelievable because Google is under direct attack. Google, the disruptor of everything and the eater of the internet, you know, the black void of all of information.
Lex (13:25.621)
that has reigned supreme for how long, you know, is under direct attack by a superior technology. Maybe not yet superior user experience, but definitely a superior technology. And so we're gonna watch how Google tries to deal with the innovators dilemma and the disruption from underneath by artificial intelligence. Like, are they gonna nuke their advertising business so that we all have conversational interfaces? But in each of these,
verticals and media in finance, in tech, the culture is different. And in part, it's, you know, who's the superstar in each of these verticals in, in banking, the superstar is the banker or the sales and trader. It's the person who touches financial product that understands markets. It is not the IT department. Yes, it's a
Finimize Studio (14:18.398)
Let's talk a little bit about this, that space, like the within banking, you know, this podcast is all about like the consumer side of FinTech, specifically probably in the wealth management space. If you're one of these big businesses, so whether you're a retail bank with banking and wealth customers or you're a wealth manager or you're a FinTech, and you see the power of open AI's technology and just the power of AI in general, how would you recommend a company like that wraps their head around?
Lex (14:27.349)
Yes.
Finimize Studio (14:48.558)
innovating and launching a successful program utilizing those tools in the best way possible.
Lex (14:55.637)
So there's a current shape to all these things inside of finance corporates. And the shape of them tends to be top -down corporate innovation programs. So you end up having sort of a theatrical ped department where the innovation people go and they get to wear hoodies. And maybe there's like a beanie bag in their glass office.
which is great, beanie bags are wonderful for brainstorming and stuff. Great, yeah, yeah. Maybe some Buster Rhymes on the radio, it's all good. I'm probably dating myself, is that like, nevermind. So, yeah.
Finimize Studio (15:27.534)
Table tennis table.
Beer on tap.
Finimize Studio (15:35.118)
Ha ha.
Finimize Studio (15:41.934)
The answer is no, by the way. Buster Rhymes is not in the zeitgeist right now.
Lex (15:48.245)
No, no, he's not. He's very strong now I hear. So the innovation departments are able to do proofs of concept and then they have kind of these ramps into the operating business, meaning they'll do proof of concept. If it goes a little bit well, they'll expand it to more customers and then, you know, they'll get the division to buy in and take on the cost. And at some point it might merge with the operating business. And I just, I just don't think it's quite,
Finimize Studio (15:52.814)
You
Lex (16:18.677)
I don't think it's fair to place the burden of real innovation, of real R &D inside of these organizations, internal divisions, in part because they're just, number one, they're not capable, they're not staffed appropriately. Like, you can't afford an open AI researcher. Their opportunity cost, literally last week, $200 million seed round for a new LLM model company based out of Paris.
You can't afford, it's not fair, right? You can't afford the talent. And that's okay, it's not your job. So I think it behooves you to work with external partners day one, there's no choice. The second thing is do you hire the consultants to run it or do you try to build internal capability? And I think there, the answer for me would be anything where you're operating business has buy -in from day one. You know, so.
If your operating business will listen to your innovation department, great. If your operating business will listen to Accenture, fine. But the only way any of this stuff gets stood up is if it's championed by the person that's running the actual P &L, who has a long -term enough time horizon to actually see something through and not just say, we did AI on an earnings call, make 10 million bucks and leave to retire. So the incentives are really, really tough.
and, you know, frankly, I'm not very optimistic, about the ability of finance firms to be anything other than customers. and so you kind of have to figure out if you're going to be a customer of this stuff, if you're going to be a leader and innovator of this stuff. And I think if you're a customer,
Then the question is, how do you get to the right partners? And can you be acquisitive of startups that are playing in this space? I think if I had to do it, I would likely just do &A. I don't think I would try to run this stuff internally, mostly because it's almost impossible to get the culture right and the incentives are so deeply misaligned.
Finimize Studio (18:33.742)
And we've seen that as a sort of one of the core processes of the big tech firms that have been able to innovate. I mean, they obviously have, I think you mentioned culture, they have an innovative culture, staff, they have very good staff, yet still in order to get a product off the ground, it does require this &A approach. And then it's a whole different story about how you continue. Once you've acquired that firm, you allow them to continue to grow and actually to achieve the outcomes that you want for the customers.
Lex (19:03.509)
Yep, yep, but it's all, you know, it comes down to risk. So you need to be paying people for risk. The people who don't want to take on the risk will be more affordable, but also will fail at the thing. The people who want to take on the risk will seem crazy and, you know, on average will fail, but the ones who don't expect a meaningful payout. So if you're a bank and you're like, well, we don't, you know, we don't do 20 times revenue.
fantastic to get to the back of the line for having AI as part of your offering. And that's okay because there are lots of customer segments that don't require it, but you sort of have to mark to market in terms of who you are.
Finimize Studio (19:46.414)
So we've spoken a bit about corporate innovation. And there's, there's, we haven't focused too much on, on FinTech innovation. We've both been sort of at the early days of FinTech and now, you know, we're sort of 10, 15 years into this democratization of finance. And people talk about crypto winter, but we're really in a bit of a FinTech winter right now. You know, think of the down rounds, the layoffs that we've had. What's your take on the current state of innovation in FinTech as we know it?
Lex (20:17.365)
What a mean question, so mean -spirited question. But it's accurate, I think. So we started off talking about keeping pace with the frontier. And one of the most uncomfortable things for me in my career, and most likely, maybe I'm wrong, I could be making a categorical mistake, it's all anecdotal.
but it's my experience, so that's the only thing I'm gonna go off for this. In my career, I've had to make several transitions in terms of the language of the industry that I participate in, like the clothing, the culture, the vibe, right? So at Lehman Brothers, we wore business formal with a suit and tie every day. So five days a week, you come in with a full suit and a full tie. So you've got 10 suits in your closet and you go through them, right? That's what you wear.
And the way you communicate is through PowerPoint. I had to go through that, from that into a startup founder in New York at a time when venture investors were, in New York were basically private equity investors for bad businesses. There weren't really kind of growth of venture people. And so transitioning into the sort of California language about customer centricity and product first and doing pivots like completely different language.
And you'd think that you'd get to this like fintech outcome where we've described everything. We have terms for everything now. Like everybody understands what it means to be API first and why you want mobile apps and all of this. And you'd think that the people who made that transition would continue moving with the water. And it's clear, it's bright as day that the water is moving. I mean, you have to be blind.
to not see that sort of the core changes are now happening in crypto. That the blockchain architecture that is underneath computational protocols like Ethereum, you know, have a billion accounts, right? That a third of people worldwide own these assets, that these are financial assets that are viral. Generally people don't like financial assets. If I asked you to...
Lex (22:43.285)
fill out a mortgage application, you'd feel bad. If I told you I have a token that's gonna go up 100 times, you're like, what token? Tell me more. So it's behavioral, right? It's weird. And so what I've found is so many people who've made it to fintech are now sticking their head in the sand in the same way that coming out of Wall Street, people were like, no, no, Silicon Valley doesn't matter. So it's been really kind of weird for me to...
Finimize Studio (22:50.446)
It's so true.
Lex (23:12.117)
to leave a lot of my network behind in a way and trying to rebuild this new network and surprising to see resistance to crypto from the fintech crowd. Anyway, so the point to your question of innovation of who's doing the thinking, like when I look at fintech today, it's really hard for me to find categories that I'm excited about and that are net new. There's...
distribution on the internet, there is more automation in the middle office, and then there is, you know, using digital underwriting or digital engines for, you know, for lending, for risk assessments, for trading. The ideas are done, you know, and I think what maybe isn't done is operational excellence or execution.
And so now that we're in this phase of execution for FinTech rather than pure innovation, meaning there's no fog anymore. If you're just, if you're not moving to crypto and Define AI and so on, the only vector of competition is execution. And so now all these companies are competing with, large banks who have caught up. You know, you, you had this like arbitrage window to be like, I'm going to disrupt you. at this point,
Are you really going to disrupt Schwab on digital investing like 10 years later or 15 years later? probably not. You know, are you really going to beat, Fiserv on core banking because you're using cloud and probably not. And I think it's true across the field, right? And that's why you're seeing some, some companies that are maybe really well -funded driving consolidation through acquisition. and then you see banks driving acquisitions.
And then you see some tech firms kind of attaching financial products, right? So Stripe building out the CFO suite, all of that. But I do feel like the nature of competition has really changed.
Finimize Studio (25:21.518)
And when, you know, I love this, we caught up recently and the thing that stuck in my mind when, when I left that conversation, when you're talking about that arbitrage between sort of short -term thinking, short -term innovation, not really a platform shift. You actually use the phrase bullshit innovation. if I can share, share that with everyone. And I found it fascinating, right? Like if you're someone that is entrepreneurial and you're looking to be an innovator, like it's quite a useful radar to have of like, is this bullshit innovation that I'm doing here or is it not?
Can you just talk about that for a moment? Like what is bullshit innovation? Really? What's an example of non bullshit innovation?
Lex (25:58.837)
again, it's it's so mean. It's so mean. I plead I plead the fifth. Look, I think if if you're putting scotch tape on things that already exist, it's you're doing a trade, you know, your trade is I'll do this faster than some internal tech team at some bank. And because of that, they'll want to buy it. But
Finimize Studio (26:02.862)
Yeah.
Lex (26:26.805)
you're not profoundly changing anything in the world. And...
Lex (26:33.973)
It's surprising to me how many of the same ideas that had been already done in the past just continue to come up over and over and over again. You know, and.
Lex (26:52.213)
I think about companies that build on top of Plaid, for example. So this goes kind of to the heart of it. I think Plaid is sort of a miracle of start -up -ness because they ended up launching at a time when Yodly was already very large and they used Yodly's engine. Yodly is part of InvestNet, it's a big, big wealth tech platform. Yodly is connected to everything. It's the reason Mint existed.
You know, so like really OG data aggregation. So the fact that Plaid was able to execute, is incredible. And the way they did it is they figured out you can distribute essentially personal finance through the data aggregation, to tech firms rather than just to financial advisors or to banks. You know, so, most of Yodlee's clients were people who are like, come here and look at all your financial stuff. Whereas Plaid was.
helping Uber authenticate people into payments, you know, and riding this like huge web two wave. And that's really interesting. But now it's 2024. And I feel like a lot of stuff that's being built on data aggregation, and then, and now in an analogous way, like everything that's being built on banking as a service, or embedded finance, whatever you want to pick, is just like more banks.
It's, we've got Chime and we've got Dave and we've got Moneylion and we've got Varo and now, you know, and we've got Revolut and we've got Monzo and we've got Tandem and we've got Simple. I mean, a bunch of stuff there is dead. And then we've got all the neobanks inside of JP Morgan and UBS and Bank of America and blah, blah. But then we need the number hundred bank and then we need the bank for, you know,
the woke bank and the anti woke bank and the bank for people who wear green hats and then the bank for people who are between the ages of 16 and 17. You know, and it's like, that's, that's okay, but you're just building a website on top of an architecture and work that somebody else already did. And, you know, to me, that's clear. It's the same thing as opening up a laundromat, you know, like a laundromat is a business. It can be a good business.
Lex (29:16.053)
But your NEOBANK today in 2024 is a laundromat. You're not innovating. You are pursuing a go -to -market strategy using a bunch of pieces that have been put together for you. And again, that's not a knock on plaid. I think plaid's an amazing company. It's more to say that the work is done. There's not the fog of uncertainty and sort of the creative destruction that comes with building in a new language.
Finimize Studio (29:42.03)
So talk to me about genuine innovation. So talk to me about something that does drive real change in the real world.
Lex (29:50.901)
That's tough because I think real innovation often doesn't drive real change. It might not touch the real world, you know, so.
And it's just about your priorities, right? So if you look at something like DNA editing technologies on CRISPR, right? Or like there are companies that are researching how to write data into molecules so that in the future you could use DNA as cloud storage instead of hard disks. Clearly that's primary research and the same stuff is happening in the energy industry. Same stuff is happening at the edges of AI technology.
Clearly that's that stuff. Is that to be done in universities? Is that basic research? Should it be government funded? I think we're now in a trend where academic discovery is actually quite valued by venture capitalists. And that's in part because two of the most mathematically rigorous themes have ballooned to enormous valuations in the last couple of years, right? So,
Nvidia last quarter printed an extra $2 billion of revenue as a surprise. $2 billion of revenue is a lot of unicorns. That's like 20 unicorns in there. And artificial intelligence companies are math companies. This is, you know, like, yes, they make hardware and there's engineering, but at the core, this is a math product. So the only way it's getting moved forward,
is through scientific progress and more impressive literal discovery in the mathematics of the field of artificial intelligence. For blockchain, it's the same thing except in the field of cryptography. So you have the initial encryption of Bitcoin within the consensus mechanism that powers the scarcity of Bitcoin. So
Lex (32:02.005)
to reduce crypto to a very sort of simple image. If you've watched the Avengers and you know, like there's the multiverse and then the universe is split and it's a problem, you have to get the universes back on kind of the one true line. So what Bitcoin miners and Ethereum validators do is they perform computational work to determine the one true timeline of digital activity with block space.
occupied with digital assets and the state of the thing, and then every block being the time, right, that people validate. So you have one timeline, which is the true timeline with all your ledgers and all your stuff. So there is real mathematical progress in order to create that mechanism. And then we've seen an enormous amount of scientific progress in figuring out how to put a virtual machine inside of this network with Ethereum and have computation there.
We're now at a place where zero -knowledge proofs and other types of cryptography are being used to...
essentially verify and track digital activity in a way that's even more grounded and secure than the current crypto economic approach. So you're having like real difficult mathematics pushing forward the state of the possible and the abstractions that we're using are becoming much more sophisticated. And as a result of that, like you're, you're altering the reality of the world and what can be built. Like your market venues are different.
your platforms are different. You know, when e -commerce became a platform for internet economic activity, that's a real innovation in the sense that it causes, you know, thousands and if not millions of businesses to sprout up. That's very different from, you know, I'm going to save your portfolio management and trading business 20 % if like you replace your Salesforce CRM.
Lex (34:06.933)
with another CRM that integrates into your custodian. That second one is, yes, it's a business problem. It solves real costs, but it's incredibly incremental. It's important, but it's different from these profound changes. And yeah.
Finimize Studio (34:26.734)
Well, one thing just on that Lex is, are we just earlier in this innovation cycle, right? So I imagine that's how the computing industry started, right? It was very academic, very engineer led, and then fast forward and you get the iPhone, complete change in a platform, complete opening up of new opportunities. Is that what we're seeing right now with AI and crypto?
Lex (34:54.933)
So I've got a pet theory of platform shifts.
that's maybe a little bit more revolutionary than that, where I think there's lots of scientific progress all the time. So AI is, neural networks have been around since the 60s, right, with Turing. But the water is boiling in terms of being able to make some of these science fiction ideas reality. So at any one time you might be like,
It's ridiculous to think that we'll be wearing headsets that are gonna beam information into our eyes as if we're in a 3D world. Like what a crazy idea, right? In the same way that literally six years ago you would have said it's ridiculous to think that I'm gonna talk to an AI from the movie Her and it will actually exist and it will actually be delivering the answers and here we are with Chad GPT and their recent announcements.
Or you would say, it's ridiculous that 20 years ago or 30 years ago, you would have expected, if the bank branch is closed, you can't get money out. Just wait till Monday. And today it's offensive to think about the bank having your money in a way that you can't access 24 seven. So there is a slow boiling effect for these, for kind of the state.
of everything, of society, sort of culture, economic conditions. But I think what flips it over is usually some sort of gigantic theft, some sort of gigantic appropriation of prior cultural artifact and knowledge. And so I'll give you the examples. You said the iPhone. The iPhone could not have existed without the iPod. The iPod.
Lex (36:58.133)
could not have existed without MP3s. MP3s didn't matter without Napster. And Napster only mattered because it involved the wholesale, essentially theft of all the music IP that there was. If you got the iPod and you didn't have any MP3s, there was nothing to do. So the go -to -market for the iPod was, look, people have, college students and teenagers have stolen all these Metallica songs, they need to put them somewhere. And so it...
that platform shift, the value, the switching cost was paid by pulling the value out of the music industry, literally. You look at something like YouTube, right? So today, Netflix and Amazon and all these other kind of streaming platforms, TikTok, they've grown up, the idea of the internet as a video platform, that's originating from YouTube.
maybe real player before it, YouTube started out as a place where people uploaded copyright movies. The reason YouTube had any traffic is because it ingested all of the stuff that already existed. It basically pulled the movie industry into it. And then that catalyzed switching costs, right? People started going to where the content was, and then that flipped into trying to finally build business models on the internet. Otherwise, none of these studios would care to shift.
to a digital distribution format. And I think, you know, with crypto, the answer is pretty straightforward. The thing that's at risk is money and pulling all of money into the black hole of Bitcoin and stable coins and so on, right? It's digitizing the money and the capital markets out of traditional systems and into crypto native systems. As an example, there are some recent stats that are just, I mean, they're amazing about,
generations owning assets. I think if you look at like Gen Z, more of them own crypto than stocks and certainly more of them own crypto than real estate. So 30 % of them own crypto assets and they're not on the real estate ladder, right? And it's flipped in terms of assets for older generations. And then with AI, the sort of...
Lex (39:20.085)
the thing that's flipping over is basically the entire knowledge of the internet. So these AI models have ingested and pulled into themselves the collected set of all information that we've all been uploading to the web. And they've done it illegally. It's super clear. They're being sued by every single newspaper for IP infringement, by every single artist for taking their style, but it's completely irrelevant. It doesn't matter. It's not gonna change anything.
We now have these models that are able to deliver a profoundly new experience. So this is a long way to say that, yes, it's the maturing of the technologies, but it's also kind of this flip of actual human activity and creativity and the products of that making it over to the new space.
Finimize Studio (40:09.71)
fascinating. We're basically in the theft stage of the innovation cycle right now.
Lex (40:14.965)
Yeah, yeah, and I mean, like, let's just say the words British Empire, right? Or the United States and the Native Americans. Like, it's not as if this is somehow special. This is like the human animal opening up a new frontier, and this is the way in which it happens.
Finimize Studio (40:30.222)
Interesting. Well, whilst we are touching on AI, I want to just shift the focus now to AI in FinTech and finance. So what is your, if someone was to ask you, or if I'm to ask you, what is going to be AI's impact on financial services and FinTech over the next five years? What would your answer be?
Lex (40:57.141)
there's a
there are kind of different questions in there. So I think that we've had AI and finance to date, largely machine learning and neural networks. What machine learning and neural networks do is come to a conclusion. So they are consumers of data and they output a decision. Generative AI is the opposite essentially where you are
generating content, you're hallucinating content based on prior decisions or prior examples of content. So one is you've got information and you're deciding about it. The other is you are generating new information based on some decision, i .e. some prompt. Like a person decides what the prompt should be and then
the AI generates the hallucination. And by the way, all thought is hallucination, you know, the world is just an illusion, all that. So to date, most of AI has been machine learning and finance, and that's worked really well with the manufacturing part of the value chain. So within things like digital lending, so underwriting risk,
within things like underwriting insurance, or within things like within capital markets, for example, there are things around, market making algorithmic trading where getting a very quantitative decision is, you know, on, on the spot, helps you participate in a market and essentially manufacture the financial product. there's already stuff.
Lex (42:51.509)
in the middle part of the value chain, especially around risk and compliance. So if you think about big payment systems and onboarding people on and off into the payment systems, is this credit card transaction, does that look real? Let's use machine learning on a thousand data points, not just the fields that people enter information in, but the make of their computer and how they move the mouse around the screen. And in like,
Did they just log in and how many times and their location and so on, right? So you kind of put all that clump and then make a risk decision. And that's where we are today. There's a little bit of conversational interfaces, but they tend to be internally facing. So they help with customer support, but they do it by helping the customer support people with customer support rather than directly to the person. And so I think with generative AI, there's a couple of effects.
the very small narrow effects are we can do all the things that I've described better. We can automate the processing of them much better. So things that in the past used to be called robotic process automation, which is building software robots on your machine that connect different software together with a bit of intelligence will be lubricated. It'll be a lot better.
conversational interfaces within applications will also be a lot better. So it sounds so, I hate saying these things out loud, because I think they're so unambitious. Like, you'll be talking to your bank account, right? It is so unambitious to think that one of the most profound,
Finimize Studio (44:32.91)
Chatbot and RPA is what I'm hearing.
Finimize Studio (44:38.958)
Right.
Yeah.
Lex (44:43.829)
sort of transformative AI technologies that people have ever created and their purpose is, let me talk to my bank account or like, let me talk to my research report about Nvidia stock, like have some imagination, you know, like go to the moon, don't PDF talk to your statements for your credit card to know how much you spent at Starbucks. But you know, like God bless, that's a narrow business. It's a good trade. I think you have three or four years to do this faster than the banks.
Finimize Studio (45:02.262)
Totally.
Lex (45:13.237)
They're going to buy you if you build the thing that lets you talk to the bank account statement. And, and fine, that's a feature. So that's the kind of the narrow thing. I think the second order implication is around distribution because I think AI is, is very much a web two technology. It's, it's in the, in the relative versus web three. So AI is about.
taking the attention economy and the sort of endless infinite content of the internet to its logical extreme, which is that content is alive and can talk to you. And generating more of it is basically free because you've created this like permutation machine. So the purpose of Web2 is distribution, i .e. attention. And what I think, and we see already this with something like a mainstream and obvious examples.
pay like Apple pay obviously sells you financial products. You know, you can talk all about how it's visa and how it's you know, it's you know, it's really whatever GE or Goldman or whoever is inside right. But in any consumers experience, like obviously Apple, you put your card in there and then you're using your phone to pay right? Your iPhone contains all your bank accounts. Yes, it might be a Bank of America app.
but it's Apple who's offering you the bank account. That's why Apple is 20 times more valuable than, you know, pick your bank. Cause the bank is the feature inside of the tech company. The distributor is Apple by selling you the phone. And one of the features happens to be money, right? If you zoom out. You know, this is true for the web as well. The web just tends not to be as private. It's not owned in the same way.
You could say that on the internet, Google is the owner of financial accounts, right? Because in order to get to your bank, you're probably Googling the name of it. Anyway, the next large distribution mechanism is conversational interfaces or whatever interface is going to be there for artificial intelligence. And so I think that there's going to be the second order effect, which is inside of AI,
Lex (47:33.077)
AI agents or LLMs or whatever shape it will take, inside of AI, we will embed financial firms. And financial firms like JP Morgan or Goldman Sachs will be features of OpenAI, right? In the same way that if Goldman's doing the Apple card for Apple, Goldman is a feature of Apple. In the future, if Robinhood does the cash account for OpenAI,
Robinhood is a feature of what this AI can do for you. So I think there's a frontier to participate to be the default provider of financial products within an AI superstore whose structure we yet don't know. So I think that's the second order effect and that's what's interesting. The third order effect, and I'll be brief here, the third order effect is...
the economic transformation of the world by having AI agents be workers alongside real people. And so I think that's a great question.
Finimize Studio (48:38.382)
That's what I wanted to talk about because I'm still struggling to get my head around it so in the most succinct way possible what does that look like?
Lex (48:50.261)
Lex (48:53.877)
You need a job description for an intern for the summer. Two years ago, you go to your analyst on the HR team who spends three days creating a job description that you put up on a website, getting buy -in from executives, blah, blah, blah. Right. In a year from now.
You do not employ that HR analyst. You ask an AI agent or chat GPT for the job description for the intern. You look at it for five seconds after it's generated for you in two minutes or in a minute. And then it gets automatically posted on your site. So you, as the owner of the business, you know, you're capturing more value because you're not paying for this labor.
You have automated labor doing work of a human being. Your business is way more productive, but then somebody is unemployed. So that's the economic transformation. And I'm giving you an example of something I've done, right? Like I've put up JDs made from Chad GPT. Same thing is gonna happen to lawyers and is already happening. Junior lawyers,
generating first drafts of documents, and so on and so forth, right? Whether it's financial advice, whether it's medical fields, pick your sector.
Finimize Studio (50:35.086)
And how does that turn into like, what does that look like on a macro level? Like how does that turn into a source of economic growth other than just sort of understand cost cutting and making businesses more profitable and perhaps working at a faster pace, but at a macro level, what does that start to look like as generative AI becomes mainstream?
Lex (50:52.373)
Yeah, I think it removes the barrier to, I'll say entrepreneurship or economic or generating economic activity. An example would be Amazon Web Services launching lowered the startup cost of new internet companies from having to pay 2 million to do their own servers and buy their own hardware and so on to going to.
We're going to retake that. We're going to take that. Exactly. Yeah.
Finimize Studio (51:22.606)
What a beautiful moment, there's an AI voice from the background telling you I'm not sure about that.
Lex (51:30.453)
Fantastic. I'm not sure about that. So yeah, the idea being it's analogous to cloud services where instead of having to stand up your own expensive infrastructure for two million with a server farm and having to know how to do the IT stuff, you can just go to one of these cloud providers and for a thousand dollars a month, you get to rent all of the cloud infrastructure that you could want. And that has resulted in.
thousands and thousands of internet businesses being born because the friction to do so is much lower. You don't need as many people who are experts in cloud services on your own team, right? So you can just, you don't need to hire them as an entrepreneur. You just use that as a product. And I think a lot more white collar work is going to be productized. And so it'll be much easier for people to form new ventures riding on this machine labor for their business.
In my view, I think net net, it's going to be a positive in the sense that there's going to be a lot more economic activity. McKinsey estimates somewhere between two to 4 trillion of GDP coming from generative AI, but it's going to be deeply painful for people who are, you know, who are craftspeople and who don't find ways to ride this, this wave and, and adapt. I think it'll be profoundly difficult. And that's, that's a political question. We'll see how that gets resolved.
Finimize Studio (52:58.318)
Well, I hope for any of those people that are listening, there isn't anyone really better to learn from than yourself Lex, as someone who's very good at understanding new platform shifts, new technology at a very fast pace and taking advantage of that. As we come to the end of this, I ask all of my guests, like, what is your biggest lesson that you want this audience to take away with? So what is your advice that you want to leave people that will help them become better innovators, given the whole,
conversation we've just had.
Lex (53:29.909)
Yeah, absolutely.
Lex (53:35.829)
There is, two things come to mind. One I tell my kids all the time is that, and this is not my idea, I stole it from somebody else, which is that mistakes are good, and it's the only way that you can learn. And so when they come home from school, I ask them what mistakes did you make today, instead of like, what did you get right? Because I think having that practice of normalizing that everything's changing, you're gonna be wrong, that's okay.
just try it, just figure it out and learn from your mistakes. Be okay with being wrong. So you're not caught up in this like ego trap of having to be right and having all the gold stars. I think that's really important is normalizing being a novice. And then you also have to have curiosity. That's kind of the second part of it. If you don't have curiosity for the new thing, if you're not like in wonder about the possibility that comes from,
like human potential and innovation, and you think it's just like these kids are playing their rock too loud, then it's not gonna work for you, right? So try to develop a sense of curiosity about the world.
Finimize Studio (54:47.406)
I love that. Normalize being a novice and develop a sense of curiosity. I'm going to go and take that on in my own life. Thank you so much, Lex. It's been awesome.
Lex (54:57.205)
Thank you for having me.
Finimize Studio (54:59.022)
You're very welcome. See you soon.
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