The Big Interview

DCC’s Stewie Zhu on mission to take credit to the ‘underserved’

The founder of Distributed Credit Chain talks to Coin Rivet's Olivier Acuna about the high-cost loans and the cryptocurrency and blockchain bubble. He speaks of the under-served, low-cost credit and his challenge to change the world...

CR: Tell me a little about you and your work in the crypto and blockchain sector?

SZ: I’m an entrepreneur. I was a PhD candidate in Finance at London School of Economics, and Political Science with a research focus on microeconomics and Game Theory. I spent a lot of time in school. You can’t imagine how long. I studied for 22 years in school. I have three masters degrees, and I started with a Bachelors degree in Electrical Engineering and then went on to Statistics, Finance and then to Economics. But one day, I felt I might have spent too much time in schools.

I was inspired by those success stories from Silicon Valley and the successful Chinese entrepreneur Jack Ma, and actually, I was born in the same city (Hangzhou, Zhejiang, China). In my town there are a lot of successful people like Jack Ma – you know, very innovative. So, finally, one day, at the end of 2014, I decided to quit, and I returned to my home country to become an entrepreneur.

Because I was studying finance, I decided to start a business in what at that time was called Internet finance. At the end of 2014, there were already big Internet companies in China, such as Ali Baba, which was already very successful. So this provided the facilities, for example, those IT infrastructures… very strong!

People already had very easy access to mobile internet. So, at that time startups were looking at new areas to fuel up the market. We saw startups aiming to provide services to under-served people. When I talk of these under-served people, I mean those who don’t even have access to open bank accounts. In China, I think, even today, there are only about 2.6 million people with credit cards. Only about 60 million have their online credit data or history. So I created the first company to provide the SAS – software as a service – to those microlending platforms and to those banks which try to be innovative.

That business is going very well because the shadow banking market which represents those under-served people is growing crazily. Now you can see at least six of these Chinese microlending platforms listed in Nasdaq.

Because these companies were doing good, so was my firm because it provided services to them. But, I found a lot of problems in that market because there’s no regulation and because there are so many mobiles in China third-party payment is so fast. So these companies can grow in a fast manner. They try to compete for profitability, and the users are who suffer because the online lenders charge really high interests rate, some charge 2,000% annually for a seven-day loan, it is ridiculously high. And because there are so many people in China the demand for loans is a big number.

In this case, because of the competition, this causes a series of problems. After being charged very high interest rates, you see a lot of default. People don’t have the money to pay back. How can you afford to do so with such high interest rates? You’d have to borrow from someone or somewhere else to pay the money back, right? So debt collectors in China steal the data from your mobile phone, and they get the calling record, and they have a team of people making phone calls. The text message system is very easy to use in China so debt collectors send very vicious text messages to push those people to pay the money back and this causes vast social welfare problems, and I don’t like it!

So I created my business last year because I see the data, I see the problem, and I think this is not going to last very long. So I sold my software business for $150 million in cash. And then I start to think “is there an opportunity for this a new business model that can solve this existing problem?” Boom! I saw blockchain and saw this to be the ultimate solution because it is a brand new technology and not a business model. So this is the reason for me to found my new company Distributed Credit Chain (DCC), a decentralised credit ecosystem and so far it is going very well.

CR: Would you say then that the inspiration behind founding DCC is to help underprivileged people?

SZ: Yes, but not only in China but around the world, especially in South-East Asia and other countries where you see the market of shadow banking is big, such as Africa, where the banking system is far behind western countries. Also, in Brazil and other South American countries.

CR: How do you see yourself and your firm bringing about changes within this revolutionary era of cryptocurrency and blockchain?

SZ: I think we’re looking into a very specific area… credit. This area has problems with the traditional business model. Another example would be foreign exchange. You can see very successful crypto projects like the Ripple network, but it only solves one problem: foreign exchange and that’s it. So, this is the right way to get blockchain technology involved with the real world. People are talking about the public chain painting a very general picture which is too big. Now, we need focused stuff. We want something that can truly be used, and we want the next generation of Uber or Airbnb, which is blockchain-based. This is why I chose a specific area to work, which is to take very low-cost credit to those in need.

CR: You are taking very low-cost loans to people around the world, has this caused you problems with traditional banking firms?

SZ: First of all, we are trying to bring a brand new decentralised credit ecosystem. In this system, if all the parties involved in the credit business use this system and become our strategic partners, everyone will benefit because this new system is more efficient in terms of fees, which will all go down, including the online payment fees, the data collection fees, data analytic fees.

Advertising costs also decrease. All this improves the social welfare to the next level. This is the benefit of decentralised credit versus the traditional centralised banking service.

Secondly, the users, the people borrowing money will also benefit because they will pay lower interest rates and the default rate will also go down because the system improves the market efficiencies. You can see why someone’s interests rates are so high. The first reason is that the institutions want to take the risk by charging people higher interest rates because they can’t differentiate. There are developing countries that still have no big data or risk control techniques, such as Indonesia and Africa. So, those people are being overcharged. But, in a decentralised ecosystem, it is all transparent because it is on the blockchain.

CR: So again, is this confronting you with traditional banking institutions or do they not care at this point?

SZ: I think they do care because they already have a private league chain. Big institutions will come together to create a private chain that is only open to private membership. I don’t know if that model will work in the end. If you want to create a more decentralised ecosystem, you’re going to open it up.

In our system, we invite everyone. We’re not only inviting those internet lending companies but were also asking those traditional banks. We are helping them to build decentralised apps based on blockchain technology. They will benefit because they will find this system to be more transparent and more fair and cheaper compared to other internet providers. I think in this case there is no conflict of interest. We already have examples of traditional Chinese banks working together with us, and they’re happy.

CR: What compelled you to be where you are today?

SZ: Well, firstly, my father, who is a very successful entrepreneur. So, I feel I have a mission also to be successful. I love being an entrepreneur – it’s in my blood. Secondly, my academic study, years of training in schools that taught me one thing: independent thinking. I don’t think many students in China have that because fundamentally the system is different. I genuinely appreciate those years of rigorous academic training. That is the real reason for me choosing blockchain. I trust it, I believe, and I’m committed to it. I want to change the world with this new technology.

CR: What benefits do you believe new technologies will bring to the world we live in today?

SZ: So many benefits. If you’re working in a major Chinese city you would see only one big exchange 10 years ago, and now you can call many service providers, and you end up talking to an AI customer service rep without realising it. AI techniques are so advanced you can never tell them apart from real persons. Ten years ago it was like the beginning of the Internet, and it has grown so fast. So, it’s hard to predict what changes will come in the next 10 years. But in the next two or three years, we’ll be significantly influenced by blockchain and AI. After that, I don’t know so I’m pretty excited.

CR: There is huge hype around cryptocurrency, and it is the centre of a debate. The most significant concern is that crypto has no real backing, no value and it is too volatile. How would you put people’s minds at ease?

SZ: Firstly, I admit there’s a bubble in the market. Fake projects and others that are not too successful, so there is a bubble. My view is that the bubble is always there. You see a new market that is increasing exponentially, so you’ll see the bubble is still there. My recommendation is that you have to have at least a basic understanding of the new technology before pouring your pocket money into it. ICO is a very new form of fundraising, but you have to understand that first. You can’t just take the chance. In this case, I say we need regulation… it’s better for this industry. Not a lot of the people involved in blockchain and cryptocurrency are recognisable.

CR: How long before cryptocurrencies make their way into society and if and when they do, will they substitute fiat currencies or will they coexist?

SZ: I think they will coexist. First of all, fiat money is also very new. We rid fiat of the gold standard in 1971. I don’t expect that we will use cryptocurrency to replace fiat money. We can talk of electronic cash, but this is a different concept. If you’re speaking of cryptocurrencies, I believe they will coexist. Also, you have to ask what form the central bank-based cryptocurrency will have, and in this case, I think they will work together with that bank’s fiat currency.

CR: How soon does regulation need to happen and how in-depth does it need to be?

SZ: There’s a long way to go before regulation happens because the industry is in evolution and it changes so fast. In my view, you need the government or regulators to truly understand this or at least have a better understanding than they currently have. The knowledge gap between regulation and understanding of the technology needs to be narrowed. I believe governments will engage in many discussions with the experts of the industry and some governments will walk fast. Small countries can move more quickly, such as Malta and some in Africa. But, bigger countries like China or America – they are paying much attention to the industry and they are studying it so hard, but the US will move faster, and China will need more time for preparation, but yes you can expect more regulation or policies like a sandbox.

CR: Can you give us your view on centralisation versus decentralisation?

SZ: In our human society, we will adapt to both these concepts that will coexist. You cannot have a big organisation fully decentralised. With cryptocurrency, the money cap is already huge. If you want something fully decentralised, I think you’ll lose control in many ways, so, again, I think it will coexist if the centralised parties on this planet like governments have enough knowledge and understanding of this industry they will talk with the big decentralised organisations or coins and put in place regulation. You already see a mingle or mix. There’s an excellent example in cryptocurrency exchange; they are centralised.

CR: How deep will blockchain penetrate into governments, societies and private institutions?

SZ: In certain areas, it will go very far because it delivers benefits. That means we can produce something more efficiently. So, in areas such as finance and public welfare for example, it works, and it will go very far. But not all aspects of our daily lives will be affected by blockchain.

CR: When do you think full adoption of blockchain within these organisations will happen?

SZ: If blockchain solves actual problems for them, they will use it as quickly as possible. I believe all governments are paying attention to blockchain and are looking for ways to adopt the technology already.

CR: Can blockchain help fight poverty, inequality and corruption?

SZ: Ummm, yes! However, it also produces problems. So, it’s not a 100% ‘yes’ because of the technology itself, as Bitcoin represents issues like money laundering and the KYC (know your customer) products. This means you can say that Bitcoin is sometimes used as a tool for corruption and money laundering. The technology in itself is innocent. However, yes, you can use blockchain in government to get rid of the moral hazards. If banks implement blockchain for interbank operations, ethical risks would be reduced.

CR: Does the issue of anonymity of cryptocurrencies such as Bitcoin need to be addressed?

SZ: No! Anonymity comes with the technology, and I think it’s polarised because some projects try to achieve the ultimate anonymity. So, like Monero which is doing very well, it provides better anonymous characteristics than Bitcoin. I would say blockchain definitely meets the human demand for anonymity. So it will definitely not disappear. My guess is those projects working with anonymity will keep increasing.

CR: What are the highlights of your career within this technological revolution?

SZ: When I met the blockchain technology. It opened the door for me to a new world. This to me is great. I missed the Internet era of the 1990s because I was in elementary or intermediate school. The blockchain belongs to my generation. The second highlight is when my project DCC got listed in crypto exchanges. This was very exciting because it proved the value of my work.

CR: What has been the biggest challenge you’ve faced so far?

SZ: Within and even outside the industry, we have many problems because it is so young. However, most of the issues come from within because some organisations have too much power, such as exchanges. Some early starters took a position and barred other players. Another example of this is China’s crypto mining industry; they have too much market percentage. However, I think because of how young the industry is this is quite normal. However, we expect new players, more talent and investors to take up positions. There’s also a lot of competition, this is a challenge, but we have confidence in ourselves.

CR: Where do you see yourself and DCC in the next few years?

SZ: We have a vision. We want to be the biggest decentralised credit ecosystem in the world. We also want to be the first to integrate the most financial institutions and online credit providers into our ecosystem. We want to move fast. An example would be the Ripple Network, it has an estimated $40 billion-plus market cap, and it solves the foreign exchange problem, but the credit market is way bigger than that, so we’re challenging a more significant industry. So, we want the most talented people to join us and help us solve a bigger and older problem. We need to talk to the bureaus and the big existing players in Wall Street and Canary Wharf. We need so many resources to make the change, and we’re confident we’ll reach our goals, and we’re enjoying ourselves in the process. We have a vision that we can influence the human society with a brand new distributed credit ecosystem.

CR: Stewie, have we covered everything or is there something we’ve left out?

SZ: I think lending is very new to the blockchain. You can see a lot of outstanding projects here in London, so that means there is interest to know about it and that is very good. I look at the expectations of those financial centres around the world… New York, Dubai, London. And the major cities and the governments are also paying more and more attention to this technology. This gives me the confidence to continue.

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