We are now going to be talking about an important notion, the

notion of going from too small to care to too big to fail.

Financial technology is a 150-year-old industry that has been
divided across 3 different eras. The first era was a 100 years old,
the second era was 40 years old, and the third era, in which we are
today, will be about a decade old. Now what you start noticing is
that each of these era are shorter than the previous one. And what
this means, is that technology is changing faster, and is
penetrating into the public at a faster rate than ever before. And
that's something that you can actually notice from your own
perspective.

Let's take the phone, for example. It took many decades for land
lines to reach a million customers in the US. However, it only took
a few years for mobile phones to reach the same penetration in
that country. Now let's bring that to finance and let's think about
banks. Acquiring half a million customers is a very big feet. But
KakaoTalk has been able to do that in only 2 days. Now if you
take challenger banks or regular banks, it would typically take
them many years for them to acquire the same number of
customers. Finally, I can also give you the example of Bitcoin.
Most of you must have heard of Bitcoin. As an asset class, Bitcoin
is becoming more valuable faster than any other asset classes that
previously have led to a bubble. What Bitcoin has done in only one
year, it took many more years for other classes to do. Therefore,
those three examples are an illustration that technology is
changing more and more rapidly, and therefore regulators need to
adapt themselves.
Let us talk about a graph. On the Y-axis, you have the size of a
company, and on the X-axis, you have the time it takes for that
company to grow. Now, normally what we are used to understand
is the notion of organic growth.
You will grow because of the results of your business, and every
now and then, you may grow from an acquisition. And financial
institutions that you may know, such as tier one players like Citi,
HSBC, etc., have grown as financial institution over the last 100
plus years. And therefore, their path of growth is very predictable.
For regulators, that's actually very useful, because regulators don't
necessarily always regulate and enforce action against certain
companies.
Indeed, what you will see now on the X-axis, is that you go from
too small to care, too large to ignore, to too big to fail. What this
means is that if you are between too small to care and too large to
ignore, regulators may or may not, at their own discretion, choose
to enforce an action against you, if you are breaching a rule. The
reason of that discretion is because not everything is worth suing
for. If you are only having one or two consumers that you are
hurting, this is not worth the regulator's time, compared to a
breach that would impact over a million persons. However, the
second problem is companies that become too big to fail. The
notion of too big to fail is deeply rooted into the financial crisis, in
the same way that the financial crisis has led to the emergence of
FinTech.
But in a similar fashion, the emergence of mobile phone has also
favorized the emergence of FinTech, and with it, the mobile
phone is a distribution channel for financial technology
companies. Because now financial technology companies can use
that infrastructure to more quickly reach you as a consumer, they
can go to too small to care to too big to fail overnight, creating a
regulatory blind spot for regulators.
This is the example that we take, for example, in China with Yu'e
Bao. Yu'e Bao went from zero to 90 billion US dollar of assets
under management in only nine months. They did in nine months
what it took over seven decades for large tier-one asset managers
to achieve. Therefore, regulatory sandboxes are one of the first
tools for regulators to resolve the risk created from startups that go
from too small to care to big to fail, but that's only the first step.
The second step will be about building smart regulation on top of
regulatory sandboxes.