Kosta Peric is a visionary technologist and thought leader, that has been working in the fusion between technology, finance and innovation. One of the top fintech worldwide personalities, he is Deputy Director, Financial Services for the Poor, at the Bill & Melinda Gates Foundation, where he leads the team that focuses on financial inclusion and digital payments. From governance through business models to technology, from ideas through architecture to development, he oversees the strategy and grants to deliver secure, reliable and affordable financial inclusion and digital payment solutions.
Kosta Peric leads the organization’s efforts to build what he calls a digital financial system that, if successful, would include everyone to financial services. Financial inclusion means creating channels of financial support during times when people need it the most.
Previously, Kosta Peric was the co-founder and leader of Innotribe, the SWIFT initiative to enable collaborative innovation in the financial industry. At SWIFT, he was also the chief architect of SWIFTNet, the backbone worldwide secure network currently connecting 8,000 banks and 1,000 corporations, and servicing daily the world economy. He co-founded as well Innotribe, the initiative for collaborative innovation in the financial industry, and was the chief architect of SWIFTNet, SWIFT’s worldwide secure network currently connecting 8,000 banks and 1,000 corporations, and servicing daily the world economy.
Kosta Peric is the author of The Castle and The Sandbox, a book on how to innovate in conservative companies. You can find him on Twitter @copernicc, and Google+ and read his forward-thinking blog where you can as well appreciate his less well known artistic expression, with drawings and sketches that work as both art and thought-provoking infographics!
In the following fascinating interview, Kosta Peric tells us about his background, his present challenges working at the Bill & Melinda Gates Foundation and his positive vision of a future of financial inclusion and prosperity for all.
Kosta Peric’s Personal Background and Views
Can you tell us about your education and your personal and professional background?
I was born in Belgrade, in what was then Yugoslavia and is now Serbia. When I was 11, my father, a geophysicist, took our family to Burundi so he could work for the United Nations Development Program. I learned to speak French in Burundi, and when I was 17, I went to Belgium to earn my master’s degree in computer science at Free University of Brussels. I ended up staying in Belgium for 30 years, working for several companies, including SWIFT. My wife and I moved to Seattle two years ago when I started my focus on financial inclusion on the Financial Services for the Poor team at the Bill and Melinda Gates Foundation.
You wrote the book The Castle and The Sandbox – Transforming Conservative Companies In Established Industries Using Open Innovation. Your book is a very influential publication that bridges business and open innovation. Can you tell us about the book’s vision and how do you get the metaphor of the Castle and sandbox in a time of “startupization” and accelerated disruption?
In 2008, the incoming CEO of SWIFT Lazaro Campos asked me to think about how to inject more innovative thinking into the company, which, at that time, was quite risk-averse and conservative. As I explored options, I really came to value the simple notion that innovative ideas can be found everywhere—clients, suppliers, competitors, and many other sources, such as internal marketing and R &D. Since then, I’ve made it my practice to include as many people and opinions as possible in the ideation process. This is the first key concept in the book – open innovation.
The second concept is to truly empower those with ideas both entrepreneurs outside of the company and “intrapreneurs” to actually go ahead and act on them. This led to the “castle and sandbox” concept, where I encouraged idea owners to think outside the traditional parameters they’re used to playing in—the castle–and equipped them with the resources they needed to “play in the sandbox” and bring those ideas to life. Later on, the team and I extended this sandbox idea to technology startups, as they represented the essence of disrupting and transforming established industries through open innovation.
One of the key ideas and questions is how conservative companies in established industries become consistently innovative. Can you give us your input 2 years after the book launch and whether you witnessed or not progress in the business world?
Today, I’m happy to see that there is a thriving world of technology-driven innovation in the financial industry. In 2008, the financial industry didn’t openly embrace innovation — there were no incubators, accelerators or innovation hubs. Now, the landscape has changed tremendously. The key question of how to bring innovation back into the castle has itself produced innovative outcomes.
As I predicted, it has proven to be almost impossible to inject sandbox-style innovation back into the castle when the castle itself hasn’t changed. Instead, innovations coming out of the sandbox have emerged as new core business drivers that are helping to remake these conservative companies. And there’s real change happening. At Money20/20 this year, some of the key innovative voices were actually financial providers, which is very exciting.
One of the areas you have been talking is about the digitalisation of areas of society, after digitalisation of money and now the digitalisation of each of us. Can you elaborate on this?
Well, we’ve already digitized pictures, music, movies and books. The next step is inevitable we need to digitize our personas (with digital identity) and then our assets (including digital money, but also physical assets such as houses, livestock and land).
How do you see this going as we construct a great parallel world of data?
I see the digitalization of identity and assets having a huge impact on the unbanked poor. Rather than functioning in a cash-based, physical economy that keeps them at a disadvantage, those in poor communities can establish a digital identity that will allow them to take advantage of digital financial services and finally be part of the global economy.
How do you see Open innovation as we get more into open data and IoE and all the challenges and opportunities that brings with it?
The original open innovation concept is still valid because good ideas are everywhere. For example, if you are in the marketing or R&D department of a medium to large-sized company, you should be thinking about how to draw upon the energy and innovation across the organization and transform it into kinetic change that will benefit everyone.
Kosta Peric’s Background in SWIFT and the Financial Industry
Your vision of finance has been quite influential and special your work in SWIFT – Innotribe was a shift forward towards the conservative way the financial / banking industry has been driving business. Can you tell us about your experience in SWIFT?
It was a tremendous ride. Innotribe was an “internal startup” at SWIFT that became a key generator of products. We used open innovation to provide a forum and meeting place where anyone passionate about the future of finance could experiment and test out their ideas.
In my time at SWIFT, I saw everything from new products and new startups make waves in the market to the establishment of a permanent innovation lab that helped drive the financial industry forward. I’m happy to see all of this continuing—Gottfried Leibbrandt, the current CEO of SWIFT, mentioned that the lab is currently active in exploring the potential of blockchain technology, which is great.
Can you tell us how do you see both finance and innovation present landscape, namely in the bridge between the big players and newcomers?
I’m happy to see a growing world of accelerators, incubators, conferences and venture capital firms as part of the FinTech landscape. Compared to 2008, it is a tremendous change something that I probably wouldn’t have dared to envision back then. I’m also very encouraged to see traditional banks becoming part of this movement. It’s no longer “out there” for them; rather, it’s becoming a key part of how they’re changing their internal castles. And the biggest change of all has been connecting the startups to the traditional financial sector. This is so obvious today, but when I started Innotribe it was a totally foreign concept.
Fintech and Finance innovation have disruptive the financial world as we know it. What are you views of it in a time when Fintech became the most positive and media amplification for the industry still so marked by scandals and lack of credibility by the global public audiences?
In a nutshell, we’re not there yet. There is a growing realization that technology must include more people in the system for it to really be beneficial. In particular, financial inclusion—the notion of the financial sector contributing directly to the growth of emerging economies by including more people—should be the next horizon for innovation and disruption.
As Apple and Google get into payments and finance how do you see Silicon Valley role in finance innovation?
I think Apple, Google, Facebook, Alibaba, and other large tech players are in a great position. They have a lot of buying power, so they “harvest” innovation through their acquisitions (such as WhatsApp’s acquisition by Facebook). However, they themselves tend to have a blind spot—they often assume that technology is pervasive in all corners of the globe.
I saw recently at Money20/20 that the payment industry among these large players is almost like a tech arms race. Right now, you need to have hundreds of dollars of technology on you (in addition to bank accounts and credit cards) to make seamless and safe payments, which is excluding more and more people from the financial system. This is a step in the wrong direction. I think nimble, frugal innovation is required to ensure we’re taking into account the needs and requirements of all people, including the poorest.
Your metaphors and graphics show a realistic world changing fast, but worldwide businesses and corporations are still struggling with innovation and change. How do you see that going from the theory to practice?
The tech-driven innovation in financial services is already underway. We have new technology players getting increasingly more involved, and we’re seeing movement from pioneering business players, such as Citi, Barclays and BBVA. Now, we need to consider how to make these innovations available to all the incumbent players. There is a huge opportunity for consulting companies, innovation management outfits, or even organizations like SWIFT or industry associations, to step in and teach the rest of the industry what the pioneers have adopted.
Digital money – blockchain and Bitcoin – are accelerating the world flow of innovation toward money. How do you see this in a so complex financial and economic world scenario?
Bitcoin and blockchain are intriguing innovations, it’s true, but I see them more as part of the payment technology revolution—a bit like the transistor that revolutionized the electronics industry. Distributed ledgers and the blockchain represent a fundamental advance in technology, but the impact—as was the case with the transistor—will be mostly on business models. If you can reduce inter-bank settlement time from one business day to just seconds by using blockchain, then you’ll see a true business model disruption.
In the end, if the technology is relatively simple, the real question is how to deploy it in a way that is controlled and managed. And in the case of digital currencies, it is paramount that regulators be on board. If they are not, any deployments will ultimately fail.
You wrote: “Building a digital economy that benefits everyone takes more than just getting the right technology and infrastructure in place. Economies are about people, first and foremost—and of people” Can you elaborate on that and how to go from theory to practice?
Innovations in the financial industry ultimately have to serve the people using it. We can no longer simply leave a third of humanity unserved and unconnected. So, we need to not only think about how FinTech benefits the people in developed countries who already have accounts and smartphones, but we also have to think about the 2 billion people who lack access to the global financial system, and how we can help improve their lives.
Bill and Melinda Gates Foundation – Financial Inclusion and Social Enterprise;
Can you tell us about your role in the Foundation?
I am the Deputy Director of the Gates Foundation’s Financial Services for the Poor team, which manages a number of diverse projects dedicated to bringing digital financial services to everyone around the world. I currently lead the Level One Project, which is our initiative to create inclusive, inter-operable digital economies in every country. The central theme is the creation of a national payments infrastructure that connects the existing financial system to a new digital payment platform, ultimately fostering the higher use of both systems and increasing the levels of financial inclusion (the “level” and “one” in the name reflect the level playing field brought by one infrastructure connecting all the providers).
I believe this can happen in a relatively short time frame – thus the “project” in the name. Once complete, such infrastructures will enable financial services providers (incumbent or new) to focus on issues such as engaging customers and providing added-value services.
What is the Bill and Melinda Gates Foundation presently doing with financial inclusion/innovation and what are your goals?
We’re at a unique time right now. With the rise of digital infrastructure and the widespread adoption of mobile technology all over the world, we finally have the means to create an economy that includes everyone and benefits everyone. That’s the essence of the Level One Project. Creating such an economy would help to provide billions with the means to work toward financial stability and opportunity—and bring a vast, currently untapped market into the global financial system.
How do you see financial innovation, mobile money and the objective of raising people out of poverty by 2030 in the overall role and goals of the Foundation?
Access to and use of financial services has a crosscutting effect that goes beyond helping to establish financial stability – it impacts health, education, agriculture and more by making it easier for individuals to transact, save and plan for the future. And digital financial services have a particular impact because they meet the unique needs of the poor by being low cost and easily accessible, whether you’re in a city or a rural village.
The promise of digital financial systems to build an inclusive economy is enormous, which is why it’s a major priority for the Gates Foundation. We believe that by working with partners worldwide, the lives of people in poverty will improve more rapidly in the next 15 years than at any time in history, and digital financial services can play a major role in achieving this ambitious goal.
How many people are living on less than $2 a day, and how can the Foundation do something about it with all the geopolitics challenges we have presently? This in a fast-growing world economy, marked by excessive debt, black market economy, cybersecurity on one hand and disruptive innovation on the other?
More than 2 billion worldwide currently lack access to financial services of any kind—and it’s for these people that digital financial systems can be most beneficial. Such a system can provide financial services that will allow poor families to make investments in their future, limit risk and weather unexpected shocks. Certainly, the challenges of the digital world are important to consider, and we must confront these issues seriously. This is why we’ve conducted extensive research into the risks of digital payments. What we’ve found is that while there are concerns about security, it’s a similar threat to what traditional banking services are experiencing right now. The best solution to these issues is increased collaboration across stakeholders: providers, regulators, telecoms and other organizations, can learn from each other. These risks may be new to one group, but very familiar to another. We’re helping to play that convening role to ensure these systems are safe and truly benefit everyone.
There are 2.5 billion people in the world who don’t have access to any kind of financial account. How can you change that in an effective way without falling into the traps of the current finance and capital markets industry?
Actually, in the last three years, 700 million people have gained access to financial services. We are making incredible progress, but there is still much to be done. The way we will include those people is through a coordinated commitment across sectors. Policymakers, regulators, businesses, and nonprofits all have a role in changing each nation’s economy. Getting these players on board with a collaborative plan for financial inclusion in their respective countries will help ensure we create an effective and secure system that includes everyone.
Financial inclusion needs are as important as social inclusion, education and novel business models such as the ethical social enterprise culture. What are your views on that?
Financial inclusion is actually tied to a number of sustainable development goals—it’s an effective means of not only helping to alleviate poverty and hunger, but also providing equal opportunity for more people. For example, what we’ve found is that financial inclusion is a big boon to education, as families are able to better plan and manage school-related expenses and send their kids off to school. It impacts health and agriculture as well, allowing people to pay their bills digitally or efficiently buy necessary supplies like fertilizer to grow crops. It also helps promote gender equality, as it gives women greater financial authority in the home.
Do you think raising the awareness and education for open business and social enterprise – with its implicit shift towards social innovation and social good – would make the world economy change and improve? What is the Foundation actually doing to make this happen?
True financial inclusion involves not only the participation of the unbanked poor, but also providers, governments, telecoms and other organizations. That’s why we say that the Level One Project is about partnership, because it takes collaboration to build an economy that truly includes and benefits everyone.
MPESA success is a critical case study in mobile money in Africa, but difficult to repeat because it has distinct unusual features. How do you see mobile money and the difficulties of scaling it in an effective and ethical way?
M-PESA is the most famous success story in this area, but it’s certainly not alone. For example, nine of the 15 countries in the Southern African Development Community have banded together to form the SADC Integrated Regional Electronic Settlement System, or SIRESS. It’s a cross-border payments system based on collaboration that has allowed these nations to manage the immense flow of remittance payments from those living abroad. In just two years, it has already completed transactions totaling more than US$100 billion.
I mention SIRESS because it’s an important example of innovation that didn’t come from a provider. Instead, these countries came together to tackle this challenge, which has spurred greater cooperation and a number of benefits for participating nations. Innovation can come from anywhere, and it’s a good example of why there’s no one path to financial inclusion—there are challenges unique to every nation in the world that must be addressed differently. Another good example, this time on a national basis, can be observed in Peru with their “Modelo Peru” system.
How do you overcome those factors in countries that don’t have infrastructure, technology network, and government support or agency network?
This is a challenge, and it’s why we’ve built a prototype platform that can be adapted depending on the unique needs of each country. Importantly-and this is the same in every country—collaboration among key stakeholders in both the public and private sectors is vital no matter how advanced the country’s infrastructure may be.
In public communication about the Foundation that went out in 2015, there is an ambition to raise all people out of extreme poverty globally by 2030. How is the ambition been adapting and what are the present goals?
This has been a big part of the Gates Foundation’s vision for the next 15-20 years. Our goal for financial inclusion is for 80 per cent of all adults—including 60 per cent of the world’s poorest—to actively use a digital account and manage their money digitally by 2035. While this may seem like an extremely ambitious goal, 90 per cent of the world’s population is already covered by a mobile signal, and UNESCO estimates that more than six billion people already have access to mobile phones.
That’s why we’re at such a unique time in history. We finally have the real, unprecedented chance to create lasting change that can lift billions out of poverty and include them in the global financial system for the benefit of all. It’s time to take action.