Industry Profile – Martin Chorzempa
In a world where every aspect of our lives—in every industry and region—is being completely transformed by technology, experts with the toolset to understand what’s going on across multiple, highly technical disciplines, as well as the ability to look at issues from multiple perspectives, are in short supply. As a research fellow with the Peterson Institute for International Economics (PIIE), a private, nonpartisan, nonprofit institution focused on the study of international economic policy, Martin Chorzempa is well on his way to helping fill that gap.
I first became aware of Chorzempa last year when he was finishing up his Master’s degree at Harvard University’s John F. Kennedy School of Government and co-authored a paper entitled, When Markets Quake: Online Banks and Their Past, Present and Future (I reviewed it on the Orchard blog). At its core, the paper highlights the delicate balance between promoting innovation and the continued transformation of financial services, while protecting consumers and the integrity of financial systems. He’s continued this area of focus at PIIE—along with researching digital currencies—and his forthcoming book on Chinese internet finance is expected this fall.
I was looking forward to learning more about Martin, discussing lending and financial technology in general, as well as hearing his thoughts about China and the future of fintech.
A Financial Heritage
Martin Chorzempa envisioned taking over the family banking business before the 2007-2008 financial crisis and a book—This Time is Different: Eight Centuries of Financial Folly—intervened, giving him a new perspective and mission.
“I grew up wanting to be the head of the family bank,” he says, and laughing, recalls, “from a relatively young age I’ve probably been excessively exposed to financial issues and financial regulatory issues.”
His family would talk about how the bank helped grow the community and in turn, grew along with the community—when his great-grandfather founded Richfield Bank and Trust in 1947, Richfield, Minnesota was a small rural community. He was also raised on stories of the community rallying to his great-grandfather’s aid when incumbent banks were lobbying to prevent him from receiving a state charter. Or, more directly, being approached by an area business person while working at the local golf course. “I was setting up the driving range and somebody who was a member of the course saw my name tag. He was sort of a local celebrity that I recognized from television and he came up to me and said, I never would have been able to start my business, if your grandpa wouldn’t have given me that loan.” Chorzempa continues, “It really sunk in how finance is connected to the community and benefits people.”
However, after the family bank was sold to a larger competitor in the early 2000’s, and the ill-fated decision of that organization to massively expand operations into Arizona real estate, Chorzempa found himself studying finance at the University of Minnesota with a deepening fascination with understanding how financial crises work.
A Deeper Look into Institutional History
In my opinion, the simplest answers are usually the best. “I didn’t really want to be like most people with a finance degree when I graduated. To go to work as a financial analyst at a big corporation, or something,” Chorzempa relates when asked about his rather fascinating career path after finishing his undergrad.
“I was selected for a Fulbright Scholarship and chose to apply to Germany because, at that point, I was interested in central banks. And if you know a little about the history of Europe, you know that the Central Bank of Germany was the model for the European Central Bank, and, at that time, the eurozone was in the midst of a crisis.” That lead to a research project with the Association of German Banks to compare financial regulations and small business financing in the U.S. versus Germany.
Next, the French Industry Ministry hired him to work on innovative enterprise funding. That’s when Chorzempa experienced his own regulatory crisis: difficulty getting a French work visa. Although he wasn’t able to accept that job, Chorzempa made use of the time by studying Mandarin in Paris. Mornings, he studied Mandarin; afternoons, he enjoyed Parisian art galleries.
On the Front Lines of Chinese Fintech and Economic Research
Chorzempa’s next move landed him a Luce Foundation Scholarship and a job at Peking University Center for Economic Research, as well as a position with the China Finance 40 Forum in Beijing, an independent thinktank focused on facilitating policy discussions between policymakers, academics, and financial professionals on China’s major financial issues.
“Often, we get the sense in the U.S. that the party [in China] is a single organism that has one view on everything and it’s very unified,” Chorzempa notes, but he found “an incredible amount of robust debate, especially on economic and financial issues, which they view as core to their legitimacy.”
In China, in 2013, Chorzempa sat “on the front line” of three major economic events: a mobile payments explosion globally; Yuebao, Alibaba’s money-market mutual fund, grew into the largest money market fund in the world; and P2P lending grew seemingly overnight into a $100 billion industry. Hongling Capital alone, China’s largest P2P firm at that time, underwrote hundreds of millions in renminbi loans—they’ve since announced they would pull out of the space after Chinese regulators began to crackdown on the industry last year.
Looking Forward From Fintech to Finlife
China was essentially the biggest regulatory sandbox ever and, as a result, financial technology evolved much more rapidly and in a different direction than in the U.S. “For better or worse, these large platforms that do ‘everything’ are more likely what the future looks like,” he states. Pointing out that in the U.S. we see large platforms like Google, Amazon, and Facebook which have enormous economic power, but in China, the impact and power both politically and economically, in terms of market power of companies like WeChat and Alibaba (that include financial services offerings), are astounding.
“If you look at average people in China, one of the things you see is that they’re already talking about what one of the people at Alibaba calls moving from fintech to finlife.” Chorzempa explains what that means, “in the future, you won’t even see finance,” and continues, “The goal is that finance disappears…”
“If you can really trust these intermediaries, then things work out really well. You walk over to a rental bike system where you scan a QR code, the payment automatically comes through and you just hop on the bike and ride away. You make a purchase, and if there’s not enough money in your account, you don’t get an overdraft that charges you $35. The money gets pulled from your money market account to your current account so you can make that payment, or you automatically get a low-interest loan to pay for it. All of this functions in the background, but if you want to take a closer look at what’s happening, you can.”
Of course, in the U.S., Facebook and Messenger are still two separate applications, never mind trying to send money to someone, or paying for something with them.
As anyone watching the explosion in fintech, regtech, insurtech etc., will have noted, ideas and innovations abound but often the regulations and the existing infrastructure and institutions are outdated—and change can be like watching water freeze. “There are many interesting, complicated policy questions to deal with related to lending, fintech, and this concept of moving from fintech to finlife,” he says. “In my second year at Harvard, I spent a lot of time at the MIT Digital Currency Initiative and was able to also take a class from Harvard’s Chief Technology Officer that focused much more on the tech side, the nuts and bolts of how the internet functions, how cybersecurity works.” He offers the example of someone that not only understands how Bitcoin works from the technology-side, but that also understands monetary economics and financial flows.
“What I’m trying to do is to be able to contribute on these really thorny, complex multidisciplinary issues that require you to look at things from not only a technology perspective, but from a policy perspective, from an economic perspective, financial, social etc., to really have a grasp on what’s going on and what the real challenges are, and to help us solve them.”
In that vein, Chorzempa recently published a policy brief (China Needs Better Credit Data to Help Consumers) exploring both policies and technology solutions to help China leverage data to make credit newly accessible to hundreds of millions of people, all while preserving privacy and security to prevent a Chinese edition of the Equifax data leaks. He also aims to have his book, tentatively titled “Finance for the People: the Rise of Internet Finance in China,” finished in fall 2018. I’m looking forward to reading it.