Ep 19: Practical Fintech Use Cases for CFOs with Todd Feldman, Associate Professor of Finance at San Francisco State University

From working capital and contract management use cases to Bitcoin as a treasury asset to Star Trek TNG and the future of currencies, we cover some fun ground in this episode of Upside/Downside.  Todd Feldman, Associate Professor of Finance at San Francisco State University, shares how fintech is becoming practical and why CFOs need to pay attention.   Welcome! 

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Transcript

UNKNOWN: 0:01

you

SPEAKER_00: 0:01

Hi, this is Matt Cooley, business partners need to be paying attention. And that's what today's episode is all about. My guest is Todd Feldman, Associate Professor of Finance at San Francisco State University. Welcome, Todd.

SPEAKER_02: 0:44

Thank you, Matt. Glad to be here.

SPEAKER_00: 0:46

Same here. And thanks so much for your time. This is going to be cool. And San Francisco State's my alma mater, so I feel extra special getting to talk to a professor from there. So thanks again. Please tell us what your current role is at San Francisco State and how you came to be there.

SPEAKER_02: 1:06

Yeah, well, my current role is Chris Larson, the founder of Ripple Labs, is also an alumni at San Francisco State in the business school, had donated approximately$25 million to the college. And we've used that money to set up kind of these new initiatives, really great initiatives. One of them is the FinTech initiative, and I'm kind of leading that initiative, trying to kind of educate, myself included, people about fintech, cryptocurrency, because it's obviously influencing the world right now and kind of need to learn more about it.

SPEAKER_00: 1:52

Oh, that's excellent. So that's nice to be attached to a$25 million endowment and to be able to do programs like this. That's really cool. So let's get into that. So is fintech becoming more practical for companies to implement and therefore create bottom line value, or is it still early stages? It feels like we've moved into a new period for fintech.

UNKNOWN: 2:18

Yeah.

SPEAKER_02: 2:19

Oh, I agree there. I mean, there are layers of it still being built that are not there yet, but some layers are getting there. Like, of course, we just saw a Coinbase IPO.

SPEAKER_00: 2:32

Yeah, exactly.

SPEAKER_02: 2:33

And that type of stuff, you know, when I first bought Bitcoin, it was weird. I didn't know what I was doing. It was kind of hard, difficult. I had to go to the exchange, download a wallet and all this stuff. I got public key, private key. I don't know what was what. But now it's, yeah, just go to Coinbase. You can purchase your cryptocurrencies and it's pretty easy. And then, you know, the next layer of like the lending, the borrowing, the exchange, I feel like that's the kind of the DeFi space that's being built up now, just not really there yet. The UX still needs to be developed, but you can see it's coming. Okay.

SPEAKER_00: 3:17

Oh, very cool. So in our preparation, you mentioned some interesting use cases around, I think it was contract management and working capital loans. So can you explain how those would work and what are the tangible benefits of those from a cfo perspective for example

SPEAKER_02: 3:37

Oh, right. I mean, there's two ways to think about the working capital management loans, which kind of goes into the Bitcoin as a treasury as well. So just from the lending side, we're obviously kind of orienting more towards personal data, using data, kind of social media sites are using our data, the search engines, and that's going to proliferate, I think, everywhere because data is just so accessible. We can store it easily. And therefore, banks or fintech companies are going to have access to all our financial transactions. I mean, banks right now have access to our transactions. I can see it when I log in.

SPEAKER_00: 4:29

Oh, yeah. They're watching, aren't they?

SPEAKER_02: 4:31

That's right. It's there, but it's kind of never really did anything with it. as far as I can analyze this business's kind of financial personality and then really drill down on the type of risk that I would incur, let's say, as a fintech company to lend to this person or company. And it's kind of that specific data, like really drilling in using their transactional data versus like a credit score. I think that can be kind of game changing because if you're running like a machine learning system, an automated system, you're learning, learning, learning about the company, learning, learning, and then they'll figure out, okay, based on past history, this is a bad seasonal month for you guys. We think you should borrow some money. Here's some money. Click on this. You'll get the money right away. And then we'll take it out automatically from your credit sales. So it's kind of like the CFO wouldn't really have to think about it.

SPEAKER_00: 5:42

Now, would you have multiple entities making these offers to you, or would it be an entity that you already have a relationship with? I'm just curious.

SPEAKER_02: 5:56

Oh, that's right. It would have to be an entity you have a relationship with that sees your transactions.

SPEAKER_00: 6:01

Right. Okay. Oh, that's interesting. What about the contract management side? How could this be applicable there? Yeah.

SPEAKER_02: 6:10

Oh, yeah. I've seen cases, especially in the internet economy where you're working with people from all over the world. You're trying to send money to people all over the world. Typically, it is upfront money, 50 upfront, 50 at the end. It's kind of like a typical breakdown of a contract, which makes sense given the current infrastructure because there's wire transfers. It takes some time and money to transfer money. But in kind of this blockchain crypto world, it's just so easy to transfer money. And you could essentially set up contracts in a way that are kind of milestone related. So you do this task. Then I just send this amount of a stable coin to you. then you complete this task and so on. And so essentially the completion of the task could trigger the sending of payment. And it's just so easy when you send it over the internet.

SPEAKER_00: 7:24

Okay, that's interesting. So that's where the efficiency comes from is the backbone's blockchain, but there's some kind of web interface to doing this and it's just a lot quicker than traditional route of doing a wire transfer or whatever.

SPEAKER_02: 7:40

Yeah, exactly. I think that's the major roadblock that people are trying to figure out now is what are these interfaces going to look like and how are we going to integrate them? That's what people are working on now.

SPEAKER_00: 7:53

Okay, that's interesting. Yeah, that's why you mentioned the user interface piece. Yeah, that's so critical. Okay, so from a CFO perspective, their speed, efficiency, ultimately cost, because it sounds like a simpler transaction with these use cases that, yeah, there's a tangible benefit to it. Okay. All right. Interesting. I feel like I have to reorient my thinking as fintech becomes more prevalent. So that's really cool. You have a strong interest in cryptocurrencies. I picked up on that. Plus you've shared some examples already. What are the pros and cons of Bitcoin as a treasury asset? And you alluded to this a This sounds really nerdy and I'm not afraid to say it. Are we ever going to reach sort of an idealized world, kind of like Star Trek Next Generation where there are no more currencies? Where are we headed with all this?

SPEAKER_02: 8:54

Oh, yeah. I love that question.

SPEAKER_00: 8:57

All right. I'm not the only nerd. Good, good.

SPEAKER_02: 9:00

I like to think kind of far out. But yeah, as far as Bitcoin, I mean, we all face this. I mean, everybody in the world, companies, people face the same issue is we hold their wealth, a lot of it in these kind of fiat currencies, which are being debased continuously. And we all know this, like this is not a secret. And so we have to, we need money kind of like near us, rainy day fund or a company, you know, they make money, they have just cash sitting there, no good kind of use for it as of present, maybe down the road. So there's always value just sitting, but we know it's being debased. And there are alternatives, you know, gold or treasuries, the dollar. But the Bitcoin to me is just a superior technology than these other store value alternatives because it's not being debased. It's secure and it's right there if you ever need it. So what I could see for companies in particular, which I think was missed, we're now kind of seeing now more like, wow, this is really companies could use this because this company is just sending a lot of cash. You don't know what to,

SPEAKER_00: 10:29

you

SPEAKER_02: 10:29

know,

SPEAKER_00: 10:30

you

SPEAKER_02: 10:30

don't want to be forced to make acquisition. That could be bad. Um, and, But if they're not going to use that money for a while, you can put it in Bitcoin. The value of it is probably going to go up, even though it's volatile. But if you don't need it right away, I think that's okay. And then companies can essentially use that as collateral down the road if they ever needed a short-term loan. And that's kind of a better way than just keeping a bunch of cash because you're debasing it. let's say percentage points every year. So if I just need a working capital loan for a month or two months, that's maybe 1% or 2% I'm losing as a CFO of a company. But the value of my treasury is going up. So I just see it as it's just a superior technology for storing that's easily accessible, secure, and then you can send and receive it anywhere in the world.

SPEAKER_00: 11:34

And what about the regulatory layer that's so prevalent today? I mean, I'm not going to, I don't want to get into a debate over whether we should have that or not. It's there for a reason, but how does that relate to business? It seems like there's still such a heavy debate out there whether how much this should be regulated, etc. Where do you see this going? Is it going to be a viable treasury alternative for the long haul in your perspective, if you had to make a call today? Yeah.

SPEAKER_02: 12:12

I believe so. I mean, where I see kind of the need for regulatory, I see the regulatory environment accepting Bitcoin, institutions accepting it, and potentially using the infrastructure that's being built on Ethereum. But my worry is like all these coins, other coins and tokens that exist out in the world that I notice people investing in and I'm like, that coin doesn't make sense to me. So I worry about those people investing, getting kind of hyped up in the craze because there's a lot of noise out there. And so I see maybe a need for a regulatory, more regulation in regards to like the ability to create a new coin and does it make sense for what the world needs?

UNKNOWN: 13:11

Yeah.

SPEAKER_02: 13:11

There's too many coins out

SPEAKER_00: 13:13

there. Yeah, yeah. It feels like in a way it's trying to grow up. You know what I mean? It's trying to grow up and be something that's applicable to a broader audience than what it was before. Yeah,

SPEAKER_02: 13:26

that's right. There's like a growth spurt going on.

SPEAKER_00: 13:28

Yeah, that's interesting. That's really interesting. Well, maybe we will achieve that next gen ideal someday. So I like to ask my guests, because this is a podcast for finalists, business partners, where do you think the finance business partner role is headed from your perspective? And what should people be doing now to prepare for that future? Obviously, we've talked about some things that are becoming realities now, and that's wonderful. And that means we need to pay attention to it. But where do you see this role heading?

SPEAKER_02: 14:02

Oh, right. I'll connect it to the other point. You mentioned about the Star Trek and current But I mean, you know, it's kind of interesting because there's a lot of money just kind of floating around the world. But there's no, as far as prices of goods and services, you would think would be go up a lot too, right? But the thing is the world is changing in a way where kind of automation is, or just the software is automating everything to the point where the costs are so low. You know, you and I are in a conversation about kind of before this, about, you know, working from home and building that software out where a small business with 10 people could do what they couldn't do years ago. Those types of things. just lower the cost of businesses so much, which requires less need for currency. Yeah. Interesting. So I think there will be, I think, a need, the point I'm getting to, for financial professionals to understand, like, okay, there's going to be more currency out there we're going to be holding and how we should handle that. Because there won't be the acquisitions and things like that, maybe not as needed. Software can do so much. um so it's hard to know like there's going to be i believe a lot of currency out there and there's going to be um Companies are going to have to figure out what are we going to do with all this currency we're sitting

SPEAKER_00: 16:12

on. Right. Yeah. The traditional channels for investing it or holding it for short, medium or long term periods, you know, are becoming, you know, less. So, yeah. Yeah. No, I see your point. And that's something that we are going to have to think of. I hear what you're saying because there's a lot of money chasing fewer investment opportunities, it feels, across the board. And so as this cash starts collecting, what are we going to do with it? Yeah, okay.

SPEAKER_02: 16:44

Yeah, that's right.

SPEAKER_00: 16:45

All right, very interesting. Well, Todd, thank you for sharing with us today. I really appreciate it.

SPEAKER_02: 16:50

Oh, no, thank you, Matt.

SPEAKER_00: 16:52

It was good. Yeah, it gives us something really important to think about, and I hope we get a chance to talk again. Thank you to the subscribers of Upside Downside as well, and have a great day.