Mr. Keough is the founder of the IBI and a pioneer in the Security Token Industry. Keough is a sought-after speaker and a leader in using the blockchain in the tokenization of assets. Mr. Keough is the creator of the JOBS Crypto Offering (JCO) a compliant open source initiative to raising capital on the blockchain.
As CEO of Finova Financial, Keough has raised over $100M from Silicon Valley VCs and private equity firms and driven the company’s mission to transform the future of global banking through the creation of fair and affordable digital financial services for consumers outside of formal financial systems.
Finova is now working to transform the traditional capital raising process through the creation of digital equity securities (equity tokens) to be traded in cryptocurrency on the blockchain through the JOBS Crypto Offering (JCO) backed by numerous pioneers in the blockchain and crypto space.
Keough is a serial entrepreneur who previously served as CEO of a MasterCard Telefonica joint venture for global Mobile Financial Services, and over the last 20 years was founder and CEO of multiple venture-backed companies going back to the early days of the internet.
Hey everybody and thanks for joining us here at the Security Token Academy. I am of course, Adam Chapnick, and we are talking today about the future of the security token industry with none other than the one, the only, Gregory Keough, CEO of Finova Financial. So Greg, thanks so much for joining us.
Thanks Adam, great to be here.
It's great having you. Okay, you're also the founder of something else that's interesting, it's called ... you're the chairman as well I think of the Institute for Blockchain Innovation, right?
So can you tell everybody what that is, what that does?
Yeah, so basically we formed, relatively recently, the Institute for Blockchain Innovation or IBI, because that's a lot to get out on the tongue. With the idea of saying, hey, listen, we think the industry is changing, we're big believers in security token so that this is all going to be regulated, but it will be a multi-trillion dollar industry based on blockchain. What we're seeing is that part of this is a morphing of kind of a traditional financial world, and then kind of a blockchain in crypto space. So we said, let's get together a group, a small group, it's kind of an invite only type thing, of industry leaders in both fields, with the idea of looking at specific things we can do to put test case forwards of how things could be done, and then open sourcing them.
We've gotten together a bunch of leaders in the initial folks that we've announced, a lot from the security token space, so we have Jeremy Gardner is involved, he's Awesome Ventures and also did a lot of stuff with Augur, Steve McKeon from the UC of Berkeley, good guy, we have from 500 Startups, both Sheel Monhot and Ana Gonzalez. Looking to kind of put an interesting group of folks together and form like a once a year kind of Davos event, not trying to make it too grandiose or anything, but obviously with the idea of just getting all these folks in a room and just talking about things, and seeing how the industry is shaping, and ideas, and a kind of free interchange of ideas.
We're not building a conference, we're not doing all these other things. It's very kind of specific and focused, but the take always are actionable items, so we can have test cases of how blockchain and crypto can impact the real world in the security token framework.
Interesting. So when you say test cases, do you, were you talking about things that have already happened? Or was it sort of models that of what could happen?
I think it's models of looking at interesting things of how you can combine kind of traditional assets and the tokenization of those assets whether, it could be securities, it could be physical assets, etc., and then putting a framework together in a way that could work, actually doing it, right?
So there's a test case and then after it's done, say, okay, if you'd like to follow this, it's an open source. Copy it. Then make it better, or take some of it, don't take some of it, etc., but the idea is that I think by doing this, we've all seen that regulation and compliance has gotten much more important and I think that that's one of the things that we've always been mono focused on is you have to do it right, so I think by giving this test cases out to the market in this framework of real actionable things that have been done, it kind of makes it easier I think for other people who don't have to spend so much on legal fees, don't have to go to through all the compliance and regulation, we're kind of taking some of that burden out, and then letting the community grow. That's kind of the idea.
Amazing, amazing. Have you already had one of your Davos' or is that yet to happen?
We have not. That is up and coming, but not that far out. Again, and it's kind of a referral thing, so you know, if you go to the IBI website, InstituteforBlockchainInnovation.org, you'll see some of the initial members. We are about to announce many other members and I'll give you a little sneak peek here, so Trevor from Polymath is coming in,-
-we have Jamie from Securitize,-
-we even have a more traditional, Pensco, the president of Pensco coming in. The idea is melding these kind of two worlds together in an open dialogue, that then will have a test case with open sourcing of that test case.
Terrific. Well, you have to keep us apprised of that and maybe we'll have a part in that too as we go forward. We'll see.
That'd be great.
Before we do dive into the security token discussion, why don't you give us a little bit of a flavor of Finova. What exactly do you do, how did it get started?
Okay, so yeah, changing my hat now onto the Finova. I'm also the CEO of Finova. Basically, we started the company about two and a half years ago to solve a simple but big problem. About 20% of the U.S. population is either on or under banked and what that means is, they have two main challenges. One, they can't get a loan so they have thin or no credit, or maybe poor credit. Then secondarily, if you're in the cash economy and you get paid, and you get paid by check, you can't go to the bank and cash it. You go to a check cashing store and you actually pay 3%.
We said, okay, let's look how we could solve that problem using technology. Finova basically built a totally digital platform that allows you to get a loan. The way we do that is the main asset these folks have is a car, so we develop something called a car equity line of credit, works a lot like a home equity line of credit, and allows the person, basically you can do it all online digitally, and the same day you can have your cash.
So you can kind of unlock that equity in your car, use it for what you need to, and then you get a year to pay back. You can pay back early and it's been a well-received product. We started in Florida, we are a regulated entity so we have consumer finance licenses, and lending licenses. Now we're in about seven states and we're expanding even more. So that's one of our products.
The second product we have is a prepaid card, a Finova prepaid card, and basically it has an app where you can take a picture, capture the check, it's into your now prepaid card, you can buy things online. Also, the second time, we have a lot of folks, the majority of folks who have a loan with us and they pay it off, they generally because it's so easy, they sometimes want another loan. When you come for your second loan, we actually just put the money right on your card.
Basically, it's an instant loan. If you look at traditional banks, like if we went to the bank right now and-
-yes, it's not going to be instant, there's going to be tons of documents, it's going to really clunky, etc., and so this seems to have really resonated with consumers. People really like it.
Fascinating. Okay, how did you come to that? You're into the car title ...
Yes, so it's kind of like ... So prior to Finova, actually I was the CEO for a joint venture between Master Card and Telefonica, and basically running their mobile financial services globally. The idea was to use telephones to bring people to the banking system.
Travel around the world there, I have five kids and a family that I do like to see.
Yeah, only five. So I said, hey, why not look to solve this problem closer to home and that's how I got involved with Finova. I've basically been in the FinTech based, I'm going to date myself here, going back to the internet days, so I had an early internet company, and financial services, and a couple others that I've been involved in as well.
Wow, interesting. Okay, great. So now we know who you are, how deeply entwined in this, our favorite industry, you are. We want to hear what you think. 2017 was all about the ICOs, people raised a ton of money, and then of course the regulators had something to say about that. In your view just from where you sit, how is this whole security token industry from the ICO industry, if there is such a thing?
Yeah, so I think going back to the ICO, right, so if you look and say why was the ICO so popular and so looking at it, and this is how we got into the security token space obviously, was one, I think it unlocked like an inherent investor demand and interest that nobody had kind of tapped into and I think people were quite surprised by it. Even venture capitalists I think were quite surprised.
Yeah, for sure.
If you look at it first, it was kind of total decentralization of ideas, either really good or something really, really bad. The second is, you had a frictionless transaction so very quickly you could invest globally in crypto currency to get involved in the project. Third and perhaps most importantly, there was liquidity, right?
If you look at kind of what I think investors look for, start-up investors for example, they like that process but generally it takes many, many years. I think if you look even at the VC industry, the average IPO has went from about a four years, I don't know, seven or eight years ago, now it's almost ten.
Yeah, we're never going to get liquid. So for the first time you saw this kind of unleashing of kind of raw capitalism and new technology in this new thing called an ICO, and it just kind of took off, and no matter what everybody tells us, it took most people by surprise. Right?
Yes, for sure.
Mostly more traditional folks. I thought that was great. I'm a technology guy, I love finance and innovation, I love decentralization, democratization of things, right, I think that's great. The one thing I didn't really like at all though, coming from Finova, a regulated company, the JV Iran was highly regulated globally, was I was very concerned that a lot of these things actually were securities, right? So obviously, anything that's a security has very strict regulation.
Now kind of fast forward to today, and I remember at the time I suggested, hey, I think maybe a lot of this stuff is securities, they probably should follow some pathways that are as you see compliant, I actually got a lot of hate mail on that idea saying no, that's a horrible idea. If you fast forward to today, now we see you don't hear those voices too much anymore. I do think that's a good thing because what you're seeing is kind of the maturation of the industry into what I think is going to be a multi-trillion dollar industry that is going to fundamentally change Wall Street, capital raising, and many other things.
Yeah, well we agree obviously here at the Security Token Academy. Okay, now that's the ICO versus the STO. Just for people watching, what's your take on how is the security token industry different from let's say the crypto currency sort of craze?
I think there's components and there is overlap. With that said, I think that you're getting ... it's kind of interesting to tell you the truth, because you have people who are traditional investors who've heard the crypto currency stuff, and they kind of are fascinated, interested, but a lot of them are not quite so sure, and then they've heard the ICO and they know that one they probably can't touch because it's not regulated, and if you have a fiduciary responsibility or something, you couldn't touch it. So I think they've heard about the security token and it's like, hey, that's a good sweet spot.
With that said, I think a lot of folks have a hard time getting their arms around like .... because it's so new and that's the exciting thing about it. Unlike, which products are better, there's a lot of learning curves still coming up. I do think it's interesting, you're starting to see Goldman Sachs get involved, a lot of these other big players get involved, and you're seeing money managers saying an allocation should be towards kind of crypto blockchain type products, right?
So that's a major even I think.
It is, huge evolution.
So I think that that's a trend that we're very ... you know, having been involved in the very early days in the internet, I had a technology company that we built up and we sold off, but it's very reminiscent of that except I think the impact is going to be greater.
Interesting, okay. What do you see as the specific benefit of the security token? What does it make better?
I think a couple things. If you look at the initial reason why there was the Delaware Blockchain Initiative, like the dull-
Would you say a little bit about that for those who aren't following that?
Yes. One of the big, kind of, to me the glue that holds the security token industry together is the Delaware Blockchain Initiative. As you probably know, about 78% of publicly traded companies come from Delaware, most start-ups are based in Delaware, VC backed start-ups, etc ... It's got good corporate governance and good business courts etc ... So it's a very kind of stable place.
They came across with the Delaware Blockchain Initiative and basically what it said is you could tokenize your equity stack and move it out on the blockchain. The reason they did that was because the sheer tracking process was not that great, and there's even a case with Dole where I think they said they had ... they were doing an issuance of some sort and I think they said they had 20 million shares but it turned out they really had like 34 million shares outstanding, and it wasn't due to them trying to ... you know, it was just bad administrative work.
You can see a very clear example of how, in that instance, had that all been in a blockchain, it would have been very transparent and immediately transferrable and everything else. They embraced that. That then allows you to build on top of that I think, secure using the SEC current regulations, products that can be blockchain based, tokenized, but then eventually traded. I think that's kind of the glue that holds a lot of this stuff together.
When did that opinion come out?
It was under discussion for a long time and I think it was, correct me, I'm not sure of my dates exactly, it was like last year, kind of first or second quarter of last year, but it was actually formally approved.
Yeah, I won't hold you to it. Yeah. Relatively new-
So it's relatively new.
-but still people are kind of grappling with it.
I agree, it's a big deal. So there are a lot of blockchains that provide a foundation for our industry let's say. Do you have any feelings about how the different blockchains compare, which ones will be more relevant? Do you know or do you ... plugged into that?
Yeah, I mean, I think that we're so early on and I always go back and maybe a bad idea but I'm an old man, so I go back to kind of the early days and the internet, kind of learnings there, and if you look at you'll remember like Netscape, totally revolutionary. Totally changed our ... browser based way to look at the internet. You look at Napster, well they're not here anymore.
A lot of time these things there's the person who breaks the ice, but then there's a second wave that comes and actually makes it the big, big company. To me it's not clear what that is still. So I'm not sure which ones are breaking ice and I'm not sure which ones are the big ones. I do think that it is interesting to note, all things being built on a theorem etc. and obviously the security token's a big part of that.
I think there's different applications. I don't think we need a million though, protocols.
Right. Do you think, you mentioned a theorem, do you think smart contracts are the sort of, maybe that's a little bit of light in the darkness? Like that is the functionality that will be in the future?
I think if you look at smart contracts specifically as a security industry, it gives you a lot of benefits, right? You could say, hey, I'm tokenizing my equity, the equity can be traded, but then in a smart contract there could be kickers with exactly how you get your dividends, you could pay your dividends much quicker-
All kinds of things…
-exactly. For example, just a very traditional stock market, if you have monthly dividends, you're getting appreciate it for like 3% of the stock price. You could pay daily dividends under smart contracts, so there's all these very unique things you can do which also are very transparent, which is a good thing, which I think are huge net advantages to both companies that embrace them, as well as investors that are interested.
You have some experience in international dealings, and finance, and stuff, which have all kinds of complications, and headaches I can imagine. I haven't done it, but just watching it gives me a headache to watch. Do you have a sense of any of the foreign jurisdictions that are probably going to be in to security tokens more than others, or the first ones, or the last ones?
Yeah, I mean, I think there's lots of very interesting things going on and also lots of interesting approaches. I do think that the United States is one of the largest capital markets in the world. I do think a lot of people look at the United States and the SEC to what they're doing, and if you look at just the JOBS Act, that's been replicated in about 21 countries.
It does provide a framework that also could be used in accordance with blockchain etc., which I think is interesting. Yeah, I think that there's different variants to it, and I think we're going to have some that are just totally free, not free for all, but very, very laissez faire I guess. I do think once you get to real scale, you're going to have regulation. As I say, everything that's scale, has regulation. There's pretty much no business I can think of that has real scale, that doesn't have some level of regulation.
Right. For sure. What about the time period? Looking into your crystal ball, the Keough ball, do you see, are we 18 months away, are we a year, five years away from the security token industry sort of becoming major, sort of taking over? What do you think?
I think that the last pieces of the puzzle are being worked out. Obviously you have the tokenization is on track, you have now the actually ATSs that could trade these things legally, you have those coming on, right, and so I think we're on track to go. I do think that we're probably going to have initially the kind of demand, supply, kind of an equilibrium I would say, because you'll have many exchanges, but there's not a lot to trade. So for an exchange to be robust, you need to have many things to trade. Then maybe you'll want to trade them, right?
So I think that that's something that we're working out now. I do think fast forward 18 to 24 months you're going to see, much like the ICO, I think you'll see substantial traction. I mean, it's not going to, it flips Wall Street overnight, but it's certainly going to go quicker than most people think.
18 to 24 months, there it is. Okay, we'll take it. Okay, one of my favorite things to figure out or to think about is the whole idea of the tokenization of global assets. What are your thoughts about that? I mean, real estate has already sort of busted out and started to look like one of the sort of asset classes that's tokenizing, but there's so many others. Just from fine art, or gosh, baseball cards, Pokemon cards, whatever, what are those.
Yeah, and there's all sorts of things you can tokenize, right?
That's the kind of cool thing about this and that's why the opportunity is so large, so I think that you'll see a lot of things being tokenized. Even in the IBI we're looking to do a couple test cases, they're just kind of novel test cases, to tokenize them and to show people how it could work. So we've talked about tokenizing a plane, right?
Yeah, sure. Why not?
It's something that, you know, you can know the value of it, you could have multiple shareholders of it, I mean, this concept basically already exists in another format. To do it as a test case, not the sort of business that's going to compete with NetJets that's not the idea, but showing how it could be done, right?
I think you'll see much more tokenization of assets, especially ... I think one of the phenomena we have going on too, certainly in U.S. based assets, is I think globally, and this is a more macro comment, but I think globally you're going to see a lot of interest in global capital residing in tokenized U.S. assets, especially tokenized U.S. assets that provide yield. Because I think that is kind of the killer app on a global basis for tokenized assets. So tokenized high yield assets, I think there's unlimited demand for that, almost.
Wow, okay. Awesome. What about for the security token industry as a whole? Where do we see that going? How's that going to develop?
I think you have a lot of the, and a lot of ... we're very fortunate that a lot of these guys were involved in the IBI, which we were very grateful for, but you have a lot of cool people doing neat stuff, and there's a lot of coordination going on. I think the greatest thing about this industry is that there's so much opportunity. It's not the kind of thing where like, oh, I don't want to do that because you might ... there's a lot of coopetition, I guess, is that the word there?
Nice, very good.
I think that's a good thing, because there's so much opportunity early on, it's better to have the folks who are working on these different initiatives to cooperate, share things, say okay, we're doing it this way, what are you doing, and there's a lot of that going on right now because that's going to lay the framework. I do think if you fast forward 10 years, it's basically starting a new financial system, right? So it's quite, at least we believe, it's quite exciting right?
If you look at too, I always come back to, if you look at who are the investors of the future. I'm an old man, so I'm over my prime. You're still young guy.
No, I think we are a similar vintage.
If we look at the millennials, right? They're not interested in owning a share of stock in Ford. I think they've totally transitioned the way they think about investing and also kind of the information transparency they want in investing. I think they are going to be the big movers of global capital and investment going forward in these years. I think they're going to want a framework that's a security token type framework. That's what they're going to want to invest in. I think you'll see a lot of people migrating to this, maybe by force, because that's what these new generation of investors want.
I mean, I have kids, my kids, they're not interested, they don't care what Jamie Dimon says about bitcoin, they don't care. But they are interested in holding cryptocurrency and trading, so I think that people are grossly underestimating the impact that's going to have on traditional financial services. They're the clients of the future.
Yeah, the power of the youth.
I like it. Okay, well Gregory Keough, CEO of Finova Financial, we wish you and everyone at your company a ton of luck. Hope you'll come back and keep us posted. And you can find out more about Finova Financial on their website, FinovaFinancial.com.
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