Chris Titley: Be quite focused on where the dollars go. I think when people raise capital and they raise 3 million or $5 million, and I've seen it hundreds of times, like have a really focused view on where that money's going to go. Don't think it's just going to go on a billboard and away you go. You probably had the push from a number of people to accept cryptocurrency and bitcoin. I think that was a trend that came and potentially could come in the future. There's going to be a wave of entrepreneurialism and a wave of fintechs coming through, devising different ways of doing things and making things easier for people over time. And the winner may not already be in front of us.
[Voiceover]: Welcome to Add to Cart, the podcast that Express delivers all you need to know in the fast moving world of E commerce. Every month, Nathan Bush from 12 High and an E commerce industry expert will share the news, research and insights that you need to know to keep you at the top of your game and of course, keep your customers adding to cartoon.
Nathan Bush: Hello and welcome to Add to Cart. My name is Nathan Bush, host of Add to Cart and E Commerce Strategist at 12 High. I've got a bit of a change of pace for you today and it's not slowing down, it's probably speeding up. If anything, we're going to speak with Chris Titley, who is a stock broker at Morgan's Financial. So what's interesting about Chris is that he's got a special interest in fintechs, digital banks and payment methods. He even hosts his own podcast on the matter, which which is his podcast called bank to the Future.
Nathan Bush: Get it?
Nathan Bush: Bank to the Future and he interviews founders and leaders from fintech businesses who are doing things a little differently. I wanted to speak with Chris around what he sees in the future of payment and banking, especially where the worlds collide with E commerce. So no doubt 2020 has seen an explosion for e commerce, but there's also been huge growth and disruption in the alternative payment methods. I mean, does anyone else worry about whether they can fit another logo on their checkout? In our chat we cover everything from the buy now, pay later emergence, how open banking has actually opened up disruption opportunities, and which metrics investors are looking for for emerging business investment. And sorry, no, I was not able to get the future afterpay share prediction out of him.
Nathan Bush: All advice is general and does not take into account your objectives financial situational needs.
Nathan Bush: Just before we get into this one, I had a few questions around whether the episode with Dom Holland from Fast was a paid episode and the answer is definitely not. I just thought it was fascinating story and it was a great one to capture. While they're still relatively young, all our paid sponsors from our amazing partners are clearly called out. I promise we don't sneak any in there, but if you think you have a great story to be told, whether this be as an e commerce business, a service provider or a subject matter expert or just get in touch. We're currently putting together our 2021 guest schedule so let's get into it. Thanks to our partners Shopify plus and Signet. Here's our episode with Chris Titley from Morgan's Financial on everything fintech and payments.
Nathan Bush: Chris Titley, welcome to ADD to cart.
Chris Titley: Thank you Nathan. Pleasure to be on here, mate.
Nathan Bush: Thank you for coming on.
Nathan Bush: It's a bit of a different one for our audience this week and some of our listeners may be wondering, well, we've got a stockbroker on, but Chris, we've known each other for a while and you've got a very certain interest in especially fintech and I'd love to pick your brains today on what you're seeing in fintech, because I think 2020 has been the year.
Chris Titley: Yeah, it sure has. I think probably it's the combination of a few different things. I've been doing emerging tech or startup podcasts now for coming up to five years and I'm very agnostic on size and agnostic on sector and meeting some fantastic entrepreneurs along the way and certainly investors as well in this space along the way. And it's thrown me in different directions. But really during the COVID period when everyone was locked down, sort of sat down and thought about where I could focus my time and effort on what I thought was something which has got a long story to tell, a very big opportunity over the next five to 10 years in terms of the way people are paying, the way people are being creative with their financial goals and the tools and payments which people are using. So the idea to document that was probably the culmination of why I started this small podcast called bank to the Future, which is a bit of a play on Back to the Future. I'll give my wife the credit for that name. I don't think she even watched the movie, but I was a big fan of Michael J. Fox and Back to the Future. So it sort of plays. It's quite a nice name for where I'm documenting. And I suppose the three or four things which took my interest is one is the rise of the digital banks here in Australia. Secondly, the sort of the adoption of payment methods like buy now, pay later during COVID the sort of the absent, the move away from cash, I suppose, particularly from a health point of view as well as also people not wanting to carry around germs and whatnot in terms of cleanliness and the sort of the slow decline, which is debatable, of credit card usage and the way that credit cards are issued. So lots of different things. Plus also bank shares haven't performed the best over the last couple of years or the big four bank shares. And we've seen some euphoric rises in other fintechs. So it's an interesting sector to document.
Nathan Bush: Absolutely. And we're going to dive into all of those today. But before we do, can we give everyone a little bit of an idea on what you do day to day? Because your official title according to LinkedIn is stockbroker. What does broker do?
Chris Titley: What does a stockbroker do? I mean it's changing over time and certainly will change again over time, but my predominant role is to advise retail clients on Australian equities, really Australian shares. So it could be you, it could be another individual, could be someone self managed, super fund, et cetera. And they come to us to ask us for advice on how to enter and also manage a portfolio of Australian shares. Really predominantly in a real nutshell, that is. So yeah, obviously everyone's got different circumstances and everyone's got different objectives, but along the way we're there to help people and assist people with their asset class, particularly in shares. So that's kind of what I do from a day to day role and that involves meeting companies, predominantly listed companies, to get insights and information around what they're doing and try and predict their future growth path and then relay that back to our particular clients to hopefully inevitably make money for them over the long term. Now that doesn't always happen and things go pear shaped and things go to zero and whatnot. But in the end of the day, hopefully over the course of the history that our firm's been around and for our industry, that we actually add value or potentially hopefully add value to one's portfolio.
Nathan Bush: Gotcha. And you're advising over all sectors, not just digital or technology or payments.
Chris Titley: Yeah, generally most stockbrokers are generalists, so we do follow the market. There's 200 stocks in the main index in Australia, the ASX 200. And there's also, I actually don't know the number of stocks that are listed. I'd assume it's north of 1500, so we can't cover everything, but predominantly we try and keep abreast of the main issues with the large cap. And then most brokers have their own little individual interest, whether it be junior resource shares or a sector that they used to work in. And mine just so happens to be emerging tech, which I've done for roughly five years in terms of a focus, but now more predominantly on the fintech and payment side.
Nathan Bush: Yeah, absolutely. So let's dive into that. The four trends that you called out there that you saw rise in 2020 being the rise of the digital banks, more payment methods, less cash, and the potential decline of credit cards.
Nathan Bush: From an e commerce perspective, I guess
Nathan Bush: the payment methods has been really interesting for us in 2020 because what I've seen with my clients is that before you'd kind of not want to put more than two or three payment methods on a checkout and that was usually credit cards, PayPal and then you might have one other. But what we're seeing now as a standard is six to eight different payment methods. With all these options coming out, is there any particular type of new payment methods that's really standing out to you in 2020?
Chris Titley: Well, I think taking back another year or two, you probably had the push from a number of people to accept cryptocurrenc. I think that was a trend that came and potentially could come in the future as well. I think a lot of retailers were thinking, oh, should we accept this payment method? How do we accept this payment? And there was a lot of talk at the time about that, particularly with euphoric rise of the bitcoin price.
Nathan Bush: I don't think it's gone away. Right. It hit 15k the other day, didn't it? And PayPal just announced integration with crypto.
Chris Titley: Exactly. And the validity and the sort of verification of Bitcoin as an accepted payment method is probably a trend which I think may continue over time. Now, whether it's Bitcoin or Ripple or whichever digital currency, the mere concept of a digital currency run on the blockchain I think is probably got legs over the next decade or so. I don't know when or how, but I think it'll become an easier payment method. So that was one sort of thing that sort of popped up a year or so ago or two years ago. And, and from that we've had the adoption and Australia's been probably a first mover in the reverse lay by, which is buy now, pay later and some call it alternative to credit, some call it a lender. Some are actually using credit cards to split it for instance saying that the credit cards are not going to die and they're going to leverage the outstanding balance, for instance. So if you look at a car, for instance, when, when Uber first came out it had the big Uber sticker. And then some people tell me in San Francisco and even here in Brisbane you end up having an Uber sticker, an OLA sticker, a Lyft sticker on the front and a car's a car just takes you from A to B. Then you go to the restaurants and they've got an Uber Eats, they've got Deliveroo and they've got MenuLog, you've got three laptops and three point of sales and you've got three different combinations. It's very clunky but that's the way the market's evolved because of distribution and, and the ability for another channel to assist you with your order gives. And then you've got, you go to kogan.com and you go to the checkout now and you've got five or six different payment methods. So I think it's normal, I think that competition comes inevitably. There'll be one or two winners in particular payments I think. And you've got the behemoth and PayPal sort of looking at above and then even beyond that you've got Visa, MasterCard, MasterCard. They're looking to partner with various fintechs and other ways of methods of doing things. So there's big players already in it and then you've got the rise of the smaller players. And I'm calling Afterpay small. It's 25 billion market cap and small compared to PayPal and Visa and Mastercard. And then you got on the SME side you've got things like Xero which are helping small businesses transact as well. So there's lots of good things that are happening from the payments point of view coming out of Australia. But I do think inevitably the checkout size will probably shrink from six to, to three to four. But right now it's six and probably people will determine which ones they want to pay for and that's where the market will go and that's where the retailers will go.
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Nathan Bush: Is that the general gist in the investment community is that retailers aren't making, usually aren't making a big bet on one or two emerging payment. They're kind of going, well, we'll do a bit of zip, we'll do a bit of Hum, we'll do a bit of afterpay will kind of keep everyone happy and keep everyone on board at the moment until we work out who the winner is because we expect it to shake out. Is that kind of the feeling in the investment community as well, to kind of have a bit of everything at the moment?
Chris Titley: Look, I think Australia has become a hub for Buy Now, Pay later offerings and the share price success in the short term of some of these companies has got the market alight. Whether that will continue over time, the only time will tell and only hindsight will be the end of which ones have performed the best. But at this particular point in time, I think in Australia we've got Afterpay, zip, lay by, split it, openpay, quick fee, to name a few. I think there's probably a couple other ones that I've missed along the way. Flexigroup, which has the Hum offering as well, and someone like Moneyme's going into the sector as well. So yeah, it will be a test of where the consumers want. And now there's also some unlisted offerings around which I saw a company called Before Pay, a company called Foo that are doing similar but different, everyone's similar but different offerings in regards to maybe reinventing what used to be called the overdraft. And maybe some of the Buy now payload is saying they want to reinvent what used to be called the credit card. So I think that the market will test it and the market will say, actually this particular one is resonating really well. We've seen the customer adoption of Afterpay, I suppose, exceed everyone's expectations here and abroad, but then others will follow with similar but different offerings and only time will tell.
Nathan Bush: Yeah, and you called out the big gap, right? So we've still got the big traditional players, the credit cards, the PayPals, and then we've got the emerging players. And I like that you call out that afterpay is emerging and still, you know, got that market cap, which is, which is still big, but again, nowhere near the other guys. Do you see that sometimes Buy Now, Pay later may be the product or the service offering that they're coming to market with, but they are actually, you know, that's just their entry into market. They're actually going to evolve into something that's much bigger, that could turn into a PayPal rival over time.
Chris Titley: Yeah, look, it's interesting and what I'm seeing now from the Fintech's point of view here in Australia, predominantly, which is what I tend to follow, has been the number of partnerships that have happened with various providers and I think that's a good thing. Inevitably that may lead into M and A, but I do see like for instance, UpBank, which is probably the forefront or leader of the number of consumers that have taken up a digital bank here in Australia. I think last time I checked it was 285,000 in the first couple of years that they've signed up. Now they've done a partnership with Bendigo bank to use Bendigo banks systems and ADI and licensing etc. And Bendigo will offer the BSP and account numbers. And then more recently you've probably seen afterpay do a deal and partnership with Westpac to do potentially a banking as a service product which will enable customers to spend and save using afterpay and using an afterpay card and using an afterpay bank account. Now, whatever form that comes in, that's probably my view on what that type of partnership will look like and others will follow. So the whole idea of banking as a service and the ability for non banks to become bank like and non bank lenders to become bank like lenders and whatnot is opening up probably due to the fact that open banking is here in Australia reasonably live, not fully fledged and operational and not really. I suppose there's not too many use cases around it that are live at the moment, but that will come down the track. So yeah, it's interesting to see what will pan out, particularly with those that want to keep more transactional data, more, I suppose, more scrutiny and more eyes on what you're spending and what you're doing. And eventually the idea is to probably help you to save a bit better and to make better choices, I suppose, from a consumer point of view. So it'd be interesting to see how that pans out.
Nathan Bush: Can you give us a little bit more around open banking? Because I think it's a term that's thrown around a lot and most people don't really understand exactly what open banking is. What is the promise of it?
Chris Titley: Yeah, sure. I mean, I'm no expert either, so I'm just using my knowledge of what I my learnings from speaking to a few people. But if you think about open banking like this is that you've got some data, whether it be, let's call it Commonwealth bank, you've got some data at Commonwealth bank, you bank with Commonwealth bank, you bank there all your life. You obviously spend, tap and go, and you do have direct debits, et cetera. So your file per size is your, your spending habits, really, and your income coming in from your, from your work, for instance. Now, if you were to go to get a loan, a car loan or a home loan, et cetera, then most people will ask for those bank statements to check on how you're going and what you're. To verify income and to verify your expenditure and to see how you're going. Now, there's various algorithms you can run over the back of that. But really with open banking means that I can probably take mine, my CBA file, over to Westpac in a pretty quick instance, and Westpac can then analyze that as opposed to me giving Westpac my CBA login. They're logging in, they're looking at all the details, they're going through it with a highlighter or a more efficient algorithm, for instance, and then I can move it around. Now, the applications that can happen on the back of that, for instance, could be that, let's say an insurance aggregator comes along and says, oh, well, put in your. Give us your file from Westpac and we'll scrape your bank account and we'll run analysis and we'll say, look, you're actually spending $264 a month on home and contents insurance. And we can see that you're with provider X. Have you thought about provider Y, which is currently at $184? And we see that you've got some daycare built into that, which means you probably have some kids. You also see you've got a mortgage and we can see how much you're paying on your mortgage mortgage. And therefore, do you realize that you're paying 3.84% instead of 2.6%? So it's about the analyzing of the transactional data. And probably the whole appeal is to give consumers more choice and more awareness of exactly where they're spending and why they're spending and attempting to give them a better deal. So, yeah, I mean, I'm not going to put an analogy on my health record, but if you think about my health record is that if you go to a doctor and you've got a sore back and they said you had Any back history pains. Then you say, oh, I had surgery seven years ago. Now, that doctor doesn't have that data, but some doctor will, and you can, you know, with potentially with something like my health record, that file gets sent to that doctor and they go, I can see you had a surgery seven years ago. So it's very similar to, in my head, something like my health record, where you have the data and you can move it around. Yeah.
Nathan Bush: And so that's purely the customer's choice of what banks and what organizations get to see what data.
Chris Titley: Yeah, that's right. And you'll give permission over what period of time and how and what. But previously that the bank, like Commonwealth Bank, I'm just using them as an example, not saying that they're any more or less than any other bank, but let's say the data was held with Commonwealth bank and for someone else to access that data, you'd have to give them your login and credential details. And that's what you have to do when you go to a loan nowadays, particularly any sort of loan. Generally they'll scrape your bank account or at least provide statements of your 3 months, 6 months, 12 months history. But with open banking moving forward, I'm assuming there'll be applications where you can sort of have a dashboard and you can move things around and give people permissions to try and scour a better deal over time.
Nathan Bush: Is there something weird going on in the financial market at the moment where there's lots of talk around regulation and cracking down on the banks, making sure it's fair and equitable and transparent? So then from that side, you're hearing a lot more around where we're restricted, we can't do anything. But at the same time, I don't think you've got an industry that's innovating as much as that sector.
Chris Titley: Yeah, look, there's been a lot of eyes on the sector, definitely opposed to Royal Commission, and I think for the right reasons. I think responsible lending still probably at the forefront of the topic of whether it's. There was an announcement the other day around the loosening of responsible lending and putting the onus back onto the consumer about if the consumer does default, then whose fault is it? And that's a very interesting question, that if a bank says you can afford X and really you can't, where does the responsibility lie? And we've seen through the Royal Commission and the findings that have happened, that of various instances of, you know, consumer hardship, and I think, you know, that's. That's one thing, but then now it's like, okay, well you know, even if you go to a mortgage calculator on a website, how accurate is that? And is that a marketing tool or is it accurate or is that, you know, what, what is that? So there's a lot of greatness. And if I go to get a loan at Bank X and they say no, then I go to bank one, they say yes. What's the difference? Are they just flexible on, on the ability that they think I'm a better customer or why did you know? So everyone's got their different criteria around things. So there is an element of sort of grayness I suppose when it comes to lending and the various levels. Some might say like for instance, some might, if you're on commission, if you're a real estate agent or a stockbroker or something, you might say, oh, we'll take the middle of the year of three year earnings or some might say we'll take 50% of last year's earnings because it's commission. Or we'll include bonuses. We won't include bonuses. Will include your overtime or not overtime, will include the fact that you stopped work for a period of time but then you started again. Will include that or not include that, et cetera. So yeah, people still got to buy houses and people still got to lend money and the economy's got to keep going. So yeah, there's going to be a, there is still, I think an element of greatness around what is responsible and what is not. Yeah.
Nathan Bush: And there's an article that came out this week is around even one in five consumers missing buy now pay later payments.
Chris Titley: Yeah.
Nathan Bush: And they're not considered, they're not considered loans as such, are they?
Chris Titley: No, some, some are and some are depending on the threshold of the, of the dollar value. But yeah, I mean that again that's, that's great. Whether, whether it's pure lending, whether it's installment plan where it's reverse lay by, whether it's budgeting, there's, there's, it's open to interpretation by, by many people and I think, you know, this is all a new way of doing things and a new, new consumer led type of payment and what you think of it is vastly different to the person next to you thinks about it. And I'm sure it's vastly different from a retailer as well. One retailer might have 30% of their volume through Buy now pay later and some might have three. So yeah, it's all subjective but it's a fascinating topic to Watch. And money in itself is particularly why I'm focused on it is just it's moving, the moving parts every day. It's just there's some, some new type of payment or some new type of method or new fintech doing something slightly different to the norm and, and the success of that's only going to be seen over time. Absolutely.
Nathan Bush: I mean I love following your LinkedIn updates because you often do do the updates around, summarizing the news that's coming out and just looking at how much stuff that you can publish around that's new.
Chris Titley: Right.
Nathan Bush: It's not fluff, it's not PR fluff, it's actually new stuff coming out daily. It's phenomenal.
Chris Titley: Yeah, look, it's moving and like I, there are some days where it's fairly quiet and I show some support to profiling some fintechs and then there's other days like today where you might get three pieces of information that pop up in various press or various newsletters or various LinkedIn posts by the founders where some are raising $10 million and some are launching their buy now, pay later for property or some are certainly doing a new way of a digital bank. And so it's constantly moving and there's a lot of entrepreneurs in this space that are looking at the big four banks and other regional banks as well and the ways that they're doing things and going can we do it differently? And the response from the banks is going to be very interesting. We're seeing some partnerships, we're seeing innovation arms on the big four for banks being developed and we're seeing some like for instance Westpac did take an on balance sheet equity stake in zip pay very early on and profited handsomely from that. And you may see some M and A, you may see the banks on the attack and say well let's Commonwealth banks, direct investment in Klarna as well. As another example, do they move in whole or do they sort of pay to play and learn, which you might see, or do they partner with something? So the way that the big four banks are going to respond and other banks in Australia are going to respond to some of these fintechs is yet to be seen. But at this stage there's a little bit of partnerships, a little bit equity stakes, but no major M and A. Yep.
Nathan Bush: And if we take the conversation back to the consumer and if we think about the younger generation of consumers coming in, I'm not going to give them a bracket or a name, but if we think of the younger generation coming through and how they want to pay. What are you seeing? And you mentioned before, it was really interesting around. Is it the death of credit cards? The jury's still out on that. What do you think that they're telling us about the future of payment?
Chris Titley: Well, I think there's probably two schools of thought here. One is that the idea of 20% revolving debt or beyond, you know, maybe even 40% or whatnot in terms of maybe, maybe payday lending and whatnot. Look, I don't know. I don't speak. I don't really follow that industry too closely. But the idea of a consumer generally being ripped off, I suppose that's probably too harsh. But the idea of value for money is probably a better way of putting it is more prominent than ever now. Consumers are more savvy than ever. They've got the information at their fingertips. They got comparisons and they've got the ability to go around and shop around in a pretty quick way. So I think if you. The idea of, let's call it a nominal figure of $3,000, for instance, now if you need $3,000 for a holiday or a wedding that you don't have, what are your options now? And you know, there's a, there's a personal loan you can get, there's a credit card you can get, maybe there's a. An overdraft facility, probably not that much. Or you can just buy now, pay later. There's lots of different ways of seeking $3,000. Now, I suppose if one outfits charging 20% on those $3,000 and it's revolving and compounding, that might not be as desirable as free. If you pay on time using buy now, pay later, or it might not be. You might actually go, well, actually the personal loan's the way to go. So it's all changing. But I do think the underlying thematic is consumers want value for money. They want to be felt like it's a fair outcome. And they're aware that if there's hidden fees or admin fees or overlay fees associated with that, then they can probably do the maths on it that they're not getting a fair deal. So I think that's probably the number one thematic. And the second thematic is the digital transformation, the idea of not having a wallet, really. I mean, I have to swipe into work to get into my office, so I carry a car, and it's probably the sole reason why I carry a wallet. I don't go out to bars and nightclubs anymore where they ask me for my id. I'VE got a few gray hairs on my chin, but really that's the only reason I carry a wallet. So my transactionals now become Apple Pay and there's other payment methods along those lines. And then you've got the things like the QR code which is making it a little bit of a in store kind of comeback with particularly when it comes to hospitality and checking in and using your phone to scan menus, etc. So that's all changed probably recently with
Nathan Bush: COVID Are you seeing the QR code used in payments at all?
Chris Titley: No. I mean that's probably something which I Suspect Alipay and WeChat have done for a very long period of time and I'm not a prolific user of that. But I do think that QR is playing much more of a play here in regards to collecting data on check ins and being Covid safe. And I have heard anecdotal stories of buskers just having a QR code out the front when they instead of putting your loose change in, just scan the money and transfer money, etc. Not here in Australia, but maybe abroad. But yeah, I do think that's a trend that's probably been led from outside of Australian shores and may well make a significant comeback.
Nathan Bush: When Australian fashion brand Age wanted to set up its international omnichannel presence, they wanted to focus on mobile intuitiveness and flexible payment types. And of course they turned to Shopify plus in just a few weeks after implementation they saw their E commerce conversion rate soar by 135%. It's the stuff E commerce streams are made of. They also saw a reduction in bounce rate, increased pages per session and a longer session duration. Now they are ready to take on the world. To read more of Age's story and see other case studies, visit the customers section on shopify.com and. Now given that you are across such
Nathan Bush: a, like such a range of stocks and businesses in that, in that space, is there anyone out there that you think have a great story that you'd be willing to share that just isn't getting the attention? I mean we hear a lot about the afterpays, we hear a lot about, you know, that kind of sector. Anyone doing something really interesting that we may not have heard of?
Chris Titley: I think there's a lot around open banking and the use cases, I think from different areas of what can be done by open banking. I actually don't think there's been too many entrepreneurial uses yet for open banking and I sort of liken it a little bit to the blockchain. I think the blockchain is a subject out there which people can use and trial in various different ways or forms. But the mainstream adoption hasn't happened yet. So I do think moving forward there'll be some really cool and funky use cases for open banking which will adopt and people go, wow, I didn't know this could happen. And this is really, really cool. And it probably goes a little bit, a little bit viral. So my answer to that is probably whatever's funky and cool in a year's time may not have been created yet. So looking at afterpay, I think it's six years old now. Six years ago you said what would be a a $25 billion company in Australia is involved in payments and marketing for retailers, etc. And you said buy now, pay later. You just don't know what that is. It just wasn't crowded. So I do think there's going to be a wave of entrepreneurialism and a wave of fintechs coming through, devising different ways of doing things and making things easier for people over time. And the winner may not already be in front of us.
Nathan Bush: Okay.
Nathan Bush: And if we take a wider look at the ASX at the moment, obviously 2020 has been great for E commerce, not so great for other sectors, but from an e commerce perspective it's been great. And what we've actually seen is a lot of e commerce floats onto the ASX. We've had people like Adore Beauty MyDeal, I think Booktopia are going up for one. Do you feel that the wave behind e commerce is set to continue into 2021 or do you think we'll see a bit of a cooling off?
Chris Titley: Well, we've seen a mass adoption of e commerce and that's been a forced issue with people staying at home due to health regulations from the government. And the way and the process of what people are doing and how they're spending their money online has been fast forwarded, undoubtedly fast forwarded due to, due to the stay at home restrictions, the ease of which you can do things and the unknown of how things work. And maybe I'll check this out and see when the delivery times and maybe I don't want to put my credit card details online. Maybe it might take three weeks to get something. Some of these myths have probably been debunked recently by people staying at home. So E commerce has been around for a very long time in Australia and contributed x percent of retail spend X percent growing every year sort of marginally and growing and growing. And this year we've seen the explosion. So I do think there's a slight, definitely a structural change in E commerce in Australia. You've had something like Amazon come into the market a few years ago where a number of the retail stocks fell on the thought and the elephant in the room that's coming and shiver to think, oh my goodness, are we going to get crushed by Amazon? And there's all these harsh and dark words about what Amazon is going to do to Australia and E commerce and really over the last few years it's chipped away. It really hasn't had this sort of effect that's going to crush Australian retailers and certainly that may change in the future, potentially, I don't know. But the impact that Amazon's had in Australia thus far has probably impacted some business in some way and other businesses in a smaller way. But yeah, the change is happening, the change is real and we will always probably go back to, I'd imagine once things open up again and there is a vaccine, there's more talk about various vaccines over the next coming years, walk into some stores undoubtedly to touch and feel things at a high cost point. I don't think it's fallible to kind of have everything online. I mean, you're still going to have various services that do require you to be in store and maybe over time that's going to change. But you probably want to buy an $80,000 car. You probably want to go to a car yard to try and test drive it first. Potentially some people will buy cars off the Internet and there'll be a market of that and it probably is growing, but over time you still need some items to go. So I do think we've seen a structural change into the adoption of E commerce and the use of it. And whether that's going to end up being 50% of Australian retail or 30% of Australian retail or 75% is yet to be seen. But from a user point of view, I think it's definitely changed.
Nathan Bush: And do you think that there's the opportunity for Australian business to have an impact on the world stage? Do you think that's growing? I mean, we've obviously got the unicorns like the Canva, the Atlassians, the afterpay we've talked about. But even from an E commerce perspective, we talked about the door that's potentially a global business.
Chris Titley: Do you think it's. Yeah, look, we're the lucky country in Australia. We're quite unique in our ways of doing things, but yeah, and Atlassian went to the NASDAQ early as opposed to the asx. And I think you've seen the phenomenal success of someone like Atlassian from a public point of view in regards to share price growth and company growth as well. So I do think we can compete definitely. I think we are world leaders. If you look at the ASX 200, there's a number of companies that are world leaders in what they do and they'll have a huge amount of earnings offshore outside of Australia. Something like CSL is a phenomenal, has been a phenomenal story from where they've come from to where they are now. Now they're the largest company by market capitalization in Australia. We do have various industries where we are number one. So I don't think we're by any chance out of any race at all living in Australia. We are a smallish island. We therefore need to be relatively focused on a global market from day one. And you could argue that some aren't global focus from day one and merge into it. And I think that's definitely a valid argument. But we've seen some really good global stories even, even something like the success over time of something like Macquarie bank for instance, that has grown overseas and grown into different markets, into different verticals and somewhat reinvented themselves over the last decade or so. So yeah, we're a pretty competitive bunch and we love being outdoors and we play a lot of sport and sport's pretty competitive and on the business side we're pretty competitive too. So I'd never back us out of a race. So yeah, I think, you know, there's, there's Silicon Valley and, and, and, and hubs like, you know, Fintech hubs like New York and London and, and Tel Aviv, et cetera. And they're always going to, you know, provide wonderful outcomes and big, big tech and they've got the infrastructure systems probably slightly, maybe better than ours, I don't know. But you know, we're a thriving nation so we've got to, we've got to think big and give it a go. Absolutely.
Nathan Bush: Now a lot of our listeners will be founders either of E commerce businesses or service providers, including in that payment space that may have ambitions of investment or floating at some point in the near future. From your perspective as a broker, what are the key metrics that you look for in business performance that tell you whether this is a good investment?
Chris Titley: It's a really good question because it has probably veered off like somewhat veered off the traditional path. I mean, I was fortunate Enough to go to see Warren Buffett speak at his annual general meeting a few years ago, maybe three years ago, three and a half years ago. And what he looks for is compounding cash flow businesses that have really a legacy ahead of them or can have a legacy ahead of them. And he bought stocks in 1975 and 1985, for instance, and held onto them. He's always been of the view that pretend the market shut for 10 years and if you buy an investment, you're buying part of the company, you're buying a card of the company, which you will then derive part of the profit from the company, which will then compound over time and hopefully ideally beat the market and hopefully make you a lot of money. Metrics have changed recently on some things from net profit after tax probably is somewhat again, certainly not out the door, but certainly people now use EBITDA a lot more than npat and then even people now using sort of things on the tech front like revenue multiples and, and revenue to ev and the way that some of the global valuations in technology have seen that. So first and foremost, I would think from a business point of view that you probably cash is still very much important in the business and some would argue the most important. So if you're losing a lot of money, that's one thing which some businesses have done remarkably well over time. Losing a lot of money, then making a lot of money and things like Uber have lost money for a long period of time and still people are a bit undecided whether that's going to be an ultra, ultra successful business model or not. Things like Netflix as well, and even look at locally, things like Xero lost a heap of money and we're burning a lot of money through their growth period and have now turned the corner. So there are anomalies when it comes to spending money to grow. It's probably a risky strategy, I would imagine from the lifeline of a startup or an emerging tech. But inevitably I would say be quite focused on where the dollars go. I think when people raise capital and they raise 3 million or $5 million, and I've seen it hundreds of hundreds of times, like have a really focused view on where that money's going to go, don't think it's just going to go on a billboard and away you go and you're going to get customers. So yeah, I think over the podcasts that I've done, there's been a few different methods of the way of growing and scaling, but one that sort of stands out to Me is one that said, just test a product out there, get the feedback. If it doesn't work, scrap it. Test a bit more, test a bit more. Until people say, actually, I really like this feature. This is the feature that I really want. Because you might not know exactly what people want, and until you find that you know your customers, the ones that provide you revenue which keeps you. Keeps your lights on. So, yeah, I think you and I can sit in a room and go, I think the market would like this. And we spend $500,000 on building an app and realize that no one wants it. That's just our view. So, absolutely. You know, I think do it the other way around. Spend $5 and see if someone likes it. And then they go, they don't like it. And you spend $5, and then if they do like it, you go, what actually do you like about. Oh, I actually like this feature more than anything else. I'll double down on that feature and see what happens. So, yeah, the customer is critically important to. And the feedback loops that you get from the customer. Critically important. I would imagine not an entrepreneur itself, but certainly the podcast that I've done over time, I think that's a lesson that's come through pretty. Pretty clear.
Nathan Bush: Yeah, I think so. I was actually. It just reminded me of a situation I had this week with a client where we were going back and forth on WhatsApp about a new product that they were thinking of launching. And we're going like, I think I'd like this. And he was like, I think. I think they'd like this. And if it was me, this. And this is what I'd do. And then we both kind of like, why don't we just bring three customers and just float all these ideas past them? Because they'd love it. And it's the best feedback. Rather than us trying to pitch.
Chris Titley: It's the best feedback. Yeah, it's the best thing. I mean, like, if you. If you. If you started pitching. Yeah. Like a buy now, pay later customer who's never heard of the thing, and they've got an established credit card and they're, I don't know, 65 years old, and they'll be like, I don't think this idea is going to work. Really? That's what I'll say. I don't think this idea is going to work. And if you start pitching, you know, Facebook to my dad, who's 78, so, dad, you got to jump on this thing. And he was like, I don't see any point. And I said, do you think the business is. Would you believe this business is worth X billion? How is that possible? And that's reality. That's reality. Anything in life, people, just different target markets and a different adaption of things and you need to understand that. So the best way of understanding that is to get the feedback from your customers. And I'm sure Facebook, over time as an example, has changed their front page and homepage and app many times on the back of where they see people are and the applications that they're using.
Nathan Bush: Definitely. Chris, it's been so awesome speaking with you. We've gone from everywhere from crypto to buy now, pay later to new banks to open banking. So we've covered a lot of ground and it's obvious that 2020 has been a big year, especially in that fintech sector. So appreciate all your thoughts and insights on that.
Nathan Bush: Now, where can people get in touch
Nathan Bush: with you if they want to stay up to date with everything happening in Australian fintech?
Chris Titley: Yeah, so just me over LinkedIn, really just type my name in LinkedIn Connect, reach out. Happy to have a chat with anyone. Always like meeting new people. And the podcast is under the Morgan's Financial. You can type that into Spotify, but also if you wanted to type in the particular series that I assist with under Morgan's Financials, called Bank to the Future, not Back to the Future, but Bank to the Future on Spotify and SoundCloud and all the various podcasting apps etc, and any feedback is more than welcome.
Nathan Bush: Beautiful, mate, thank you very much.
Nathan Bush: What a time to be in fintech. Now, there are a few takeaways from
Nathan Bush: our conversation with Chris that I wanted to call out.
Nathan Bush: The first was the flashback to the cryptocurrency craze. Like it's just been forgotten, but it's still there. Even though the hype has cooled, there is still so much movement in that space. We need to be careful as retailers about just floating along from one thing to another following that hype cycle.
Nathan Bush: Sometimes we've got to stick and pick.
Nathan Bush: Secondly, Chris's point that it will probably get messier before it gets cleaner kind of scared the hell out of me. But just like us in retail investing, investors seem to be covering all their bases while they wait for these disruption winners to play out in the fintech space. We probably just need to stay comfortable with the mess for a little bit longer. And lastly, some of the metrics Chris was talking about and the movement from net profit to cash flow and growth for investors really hit his point around being really definitive around what you're doing with investment money when when you're asking for it, it stuck and made a lot of sense. If you want to hear more from Chris, I can highly recommend checking out his podcast bank to the Future and go over and follow him on LinkedIn. He's a great guy to keep you in the loop on all fintech news in Australia. If you're looking for more e commerce news, case studies and research, sign up to 12High's High5 newsletter. Every week I read all the e commerce news and send you five things, things which I've found which will help grow your business. Visit 12high.com auhigh5h I g h5 to
Nathan Bush: sign up for free.
Nathan Bush: Thanks for listening and until next time, keep adding to cartoon.
