RegFi Episode 43: Investing in Financial Inclusion
23 min listen
Kabir Kumar, partner at Flourish Ventures, joins RegFi co-hosts Jerry Buckley and Sasha Leonhardt to explore the fundamental role of technology in expanding access to fair and stable financial systems. Kabir explains how “fair finance principles” and a thesis-based investment strategy guided Flourish’s growth from a team within the Omidyar Network into an $850 million fund promoting global financial inclusion through strategic fintech investments. He shares insights on the technology trends helping to strengthen financial ecosystems and develop emerging markets, including generative AI tooling to enhance data enrichment, fraud prevention, and regulatory compliance.
Links:
-
Jerry Buckley:
Hello, this is Jerry Buckley, and I am here with RegFi co-host Sasha Leonardt. We are fortunate to have as our guest today, Kabir Kumar, who serves as director of policy and ecosystem building at Flourish Ventures. Flourish Ventures is an $850 million fund focused on promoting financial inclusion and born out of the financial inclusion team at the Omidyar Network, which was founded by Pierre Omidyar. Kabir, Flourish as a separate entity has only existed since 2019, but of course, its roots go back further while you were part of the Omidyar network.
Could you share with our listeners the origins and driving purpose of Flourish Ventures, including the company's impact-investing strategy, both with respect to for-profit and not-for-profits that are seeking to promote financial inclusion?
Kabir Kumar:
Thank you, Jerry. It's great to be here and to be with you and Sasha to talk about Flourish and other things. You've already mentioned some of the defining aspects of our fund that we started as a team within the Omidyar Network, which was this larger organization backed by Pierre Omidyar, which your listeners will recognize was the founder of eBay. And we were focused on the financial sector, applying the ideas around impact investing, and changing systems specifically in the financial sector. Right from the get-go, the team was global in nature, so we were focused on the emerging markets and the U.S. Then as you mentioned, 2018, 2019, we spun up and became Flourish Ventures. And there are three things that really define us. We are a venture capital fund. We are focused on fintech. We operate globally. You mentioned we are $850 million AUM. But in addition to those things, there are three things that are really fundamental about us. I'll come back to, at some point, why I feel that other venture firms could lean into this model in other sectors.
So one piece of what defines us is we have a set of principles that guide us. We call them the "fair finance principles." So, if you go to our website, flourishventures.com/fair-finance, you'll see all the principles. For example, Jerry, one of the principles we believe in is the importance of a digitally native regulatory system in finance. We believe regulation is a good thing, but done in a way that is facilitative and digitally native. We strongly believe, for example, in the importance of consumers having control over their data. I don't know how many venture firms out there are listing principles that say consumers should have control over their data. So we have a set of principles that guide us. Some of them are sensible things that you would expect a firm of our kind to believe in. There are some that kind of reflect part of the vision we have for the system.
The second thing that defines us is that we are investing against thesis areas. We develop theses. We engage with the system to understand what is important that we need to invest in because a lot of what we're investing in is not going to make sense until five, ten years from now. So, we don't have a clear — no one has the monopoly over the truth in terms of where the future is going to go — so thesis is a way in which we organize ourselves and push on those frontiers. For instance, in the early years of our fund and our team, we were focused on neobanking and the power of providing a very cheap, accessible, basic lending account. We believe that that was the foundations of what you were talking about earlier, Jerry, an inclusionary financial system. Can I get the person into the financial system in a most affordable way? We invested against that vision, all over the world. Of course, Chime — which is one of the unicorns in our portfolio, we were early investors in Chime — is part of that thesis.
Subsequently, our thesis was, can we modernize the regulatory and compliance system? We actually got motivated on that front a bit earlier than the broader fintech industry because of our principles. Alloy, Hummingbird, that you're familiar with, subsequently Truebiz, Blueprint recently, are all part of that thesis. Then we've invested in Unit against our thesis. We've invested in Spade recently against our fraud thesis. So that's the second piece, that we have thesis areas against which we're investing.
And the third piece that you're familiar with, Jerry, is that we engage in the ecosystem beyond the direct investments we make in for-profit companies. We engage in the ecosystem using a set of playbooks that we have developed over the years. So we back nonprofits in the policy sector. We underwrite movies. We fund research. This is very small dollar size, by the way, relative to the $850 million a year. Very small dollar size. It's done with a view of where we want to take the financial system. One of them that you're familiar with is FinRegLab. As you know, we helped conceptualize and seed FinRegLab, which has been driven by Melissa Koide, and you're very familiar with that work.
Jerry:
In fact, Melissa was our first guest on RegFi.
Kabir:
There you go. There you go. Excellent. So Alliance for Innovative Regulation, Joanne Barefoot's nonprofit, Financial Health Network, originally. We have funded podcasts that are focused on women in finance. All of those. We have funded research that has come out on the power of open data and its impact on the economy.
So, these are the three things that define us as a fund. Our set of principles that guide us, the investing with theses, with clear thesis areas that we refresh every few years, and then the ecosystem playbooks, the ecosystem engagement we do. And I strongly believe there can be other venture capital funds that fit the same model. You need to be sector-focused. It's very hard to be a generalist fund and have this kind of setup. But if you're sector-focused, let's say you're focused on mental health. Let's say you're focused on healthcare in general. You could have a structure like this. So that's who we are, and that's how we think about how we engage with the system, Jerry.
Jerry:
Well, it's extraordinary. An extraordinary accomplishment, and a lot of serious and very deep thinking went into this, and you're realizing the results. Sasha, come on in.
Sasha Leonhardt:
Kabir, thank you again for taking the time and joining us today. To turn on a particular topic in your area of expertise, our entire team at Orrick has been closely focused on artificial intelligence. You mentioned both the Alliance for Innovative Regulation and FinRegLab. As Jerry noted, we've spoken with both of them previously on RegFi. In both instances, we've touched on machine learning, AI, and to what extent AI can generate understandable and actionable results that will benefit consumers and companies alike. What are your thoughts about the risks and opportunities that we're all facing in this new age of AI?
Kabir:
I'm very excited. At the foundations, we are tech optimists and we believe in a better future. We believe we can have a better future. We believe technology can play a big role in that. I actually grew up in the emerging markets where, both personally and professionally, where I saw the power of that. How do you bring 100, 300, 400 million people into the financial system? It has to be through technology. It has to be through the mobile handset in their pockets. It's not going to be through any other means, for instance. And so, I want to say that upfront because that's our mindset.
I think this particular moment in AI is very exciting because of what happened with generative AI that we are all experiencing. I would love to hear your stories about how you're incorporating it in your work and your personal lives. I have a window open right now with perplexity and chat GPT over here on my laptop. And so, at the highest level, this is an exciting moment because of generative AI and how that has shortened the time to artificial general intelligence, generalized intelligence. So the fact that there will be a true AI future, we can start seeing that. That's what's exciting about this moment.
Now, finance is 100% going to be transformed by AI. It has already been transformed by machine learning over the years. Melissa's work, for instance, on cash flow underwriting is one aspect of how these tools are showing up in the financial system. For sure, it's going to be very transformative. We feel that there are lots of opportunities in that space.
I think in terms of the risks. Actually, we are all very much switched on to this and we've already seen it happen, in the fraud space and the sort of broader — these tools that empower the broader system to work better also empower fraudsters and empower folks that are looking to undermine the system. That is a big concern of mine. I think fraud in general has gone up, in the financial system, fraud and scams globally. This has accelerated since the pandemic. One of the biggest fears I have, to be honest with you, is that AI, generative AI, could facilitate cascading multiple fraudulent events. It can be at a scale that we haven't seen before. I worry about that. You can see the potential of that.
On the flip side, I do think those same technologies that are empowering fraudsters can empower solutions. So we are investing with that view in mind. For instance, Spade, which was one of my portfolio companies, enriches data in milliseconds. When you swipe or when you do a transaction, between the time you swipe and it is confirmed, they can actually make that dataset more enriched, imbue it with more meaning. So, you can imagine any model that you run on top of that data set is going to give you better outcomes. The idea is to make that be a powerful fraud-fighting tool, against the face of all these new fraudulent tools that we are seeing in the market. So that's one of the areas that I'm concerned about.
Then the other piece that I'm concerned about is just general safety, both at the foundational moral level. So fraud is one use case. The generation of child sex abuse materials is another use case. For instance, the ability for these foundational models to be utilized for nefarious activities, the sort of safety boundaries around that, I think is an important area. I'm very, very excited about the AI Safety Institute at NIST that someone, Jerry, you and I both know, Elizabeth Kelly, is driving it. I think that's a great initiative. As you know, both the industry and governments are behind this effort. I think they are going to be focused on the foundational models and also on where these models meet specific use cases. I think those interventions are very important. So, very bullish broadly on this technology, seeing lots of — actually, we are talking to lots of companies in different areas where these technologies are being used. Our portfolio companies are using it, but concerned about certain use cases and the weaponization of this technology for certain use cases, and then hoping that interventions like the AI Safety Institute can make a difference in that direction.
Jerry:
Well, you know, time won't permit us to go deeply into it, but as you know, Joanne Barefoot and I are strong believers that the disclosure regime that was set up 40 years ago for consumers is not as protective as we would like. The ability of AI and generative AI to empower consumers to have actionable information that serves their interest and helps them understand what their interest is, is really powerful. We'll be hearing a lot more about that. I know you'll probably be looking for opportunities to push that forward.
Kabir:
It's an interesting thing you say, Jerry, because I don't know if any of you use Mint, or Mint.com. Did you ever use that early era of fintech? But Mint started with many, many spreadsheets. There were many spreadsheets, Excel spreadsheets to organize our finances, and someone said, “Wait a minute, we need a better tool on top of this.”
I think we are in a similar moment where we're going to start — that's why I started with wondering how you guys are using these tools, because we're going to start using them to improve our everyday lives. We all of us have started to do that already. I can imagine that will be the foundation for tools that will emerge that could be interesting investable businesses for us.
Jerry:
Exactly.
Kabir:
So I'm very excited about that.
Jerry:
You know, let's take a look for a second at the for-profit investments in the companies that you've sought to promote for financial inclusion. It seems like you've made some good choices, both from an economic and from a social impact perspective. As we move forward, do you see companies emerging that will harness AI to promote financial inclusion and at the same time make money for investors? I guess this is the point I was just raising.
Given Flourish's success record, I'm sure our listeners would welcome the opportunity to hear your thoughts. Of course, understanding that you can't mention specific companies, or probably won't, and certainly you're not offering investment advice. But your general views on the trends in this area and what you see emerging in the areas that you think are worth exploring.
Kabir:
Yeah, as I was mentioning earlier, we've been talking to companies that are building solutions, leveraging GenAI and then other AI tooling. In credit decisioning, we see both in terms of loan origination and loan processing, a number of opportunities in this space. In compliance, actually, we see, in fact, a lot of activity in different aspects of the compliance space where AI tooling is being leveraged. Like, for example, on the insurance side or in terms of general capital markets monitoring. So think about every aspect of compliance, we've effectively seen solutions in that space.
Then we've also spoken to companies, and I'll mention this company's name because I think they're really interesting founders and they're local to us, called Trustable. They're in Northern Virginia. They are trying to build tools for actually complying with emergent AI regulation. Soi, in terms of governance around AI, which is very, very emergent, very, very nascent. So they have started to build tooling around that. It's called Trustable in Northern Virginia. You can imagine in all of these areas, there's lots of promise.
Then our portfolio companies have already started incorporating GenAI. Hummingbird, as you know, Jerry, has automated aspects of SAR filing already leveraging and have started sort of an AI labs. Almost every portfolio company is incorporating some type of tooling. It can be to accelerate just the kind of code development process and code review, so really in the weeds of the business, or to actually build in some functionality that shortens the time to make things happen, like clean data, for instance, on the tooling side, or filling up forms faster in terms of the use case side. You see all of that happening. So, we feel very excited about all of these pieces.
Jerry:
I'm so glad you mentioned Trustable. What I think is the most fascinating part of this whole thing is we are making the rules and implementing the technology, and the fun of it is figuring out what rules are really going to work. And the interaction of — we at Orrick are advising the largest tech companies in the world on their own internal strategies and compliance. So, I think I might open up a conversation with Trustable at some point. It would be interesting.
Kabir:
I'm happy to connect you with the good guys. I like that they're really thinking ahead. It's hard to build a business in this space, but I like the idea because it was thought-provoking for me in terms of what it might mean. I think that there are really promising, thoughtful founders that are emergent in this space. At the same time, I want to say that this is a moment where the whole platform is changing. AI represents a completely new platform. So we are also keeping our eyes open for things that are truly AI native, architected from the ground up to be truly AI native, that have real applications in the financial sector. I have to say that there are very few possibilities there right now, but I'm confident we will see more along those lines.
Because we are not going to invest in the foundations of this infrastructure. We are not going to invest in the foundational models. We will probably not even invest in the tooling layer. We really come in terms of where the use cases are specifically finance-focused. But they have to be in that native architecture. So when I say Hummingbird is incorporating AI tooling as a portfolio company, they are not an AI-native company, fundamentally. That's true for a lot of companies where they're incorporating that. We are keeping an eye open to that new generation that's truly AI native.
Sasha:
I think that's great. I think one of the things that's interesting about AI is it doesn't really respect borders, being developed here in the US and overseas. Flourish itself brings an international perspective to its endeavors, and it's focusing on how financial innovation and regulatory applications of tech are thriving throughout the world. Could you share some of the success stories you're seeing outside of the United States?
Kabir:
Yeah. We are operating almost in every geography. We have a team that's investing in Latin America. We have a team that's investing in Africa. We have, as I mentioned earlier when we were chatting, we have a team focused on Asia, focused on India, Southeast Asia. We've just decided not to do more in Europe. But we are almost everywhere. Our origins really were in the emerging markets. It really came out of what I was telling you earlier, which was how do we bring all these people into the formal financial sector? Hundreds of millions of people into the formal financial sector. Actually, it also informed the way we operate as a firm, where we realized it's not going to be that one business that's going to do that. We will need multiple businesses. We will need the incumbents behaving differently. We will need the policymakers behaving differently. The whole ecosystem has to be engaged. So that's why we function the way we function, even in the U.S., because we grew up with that orientation in the emerging markets.
I mean, I don't want to particularly highlight one or two portfolio companies over others in terms of what they're doing, but I can tell you that we are excited about, for instance, ShopUp in Bangladesh. ShopUp, which has really made it easier for very small businesses to sell online, fundamentally, and has become a dominant force in the Bangladeshi market. So, they were the ones that said that it's not e-commerce, it's F-commerce, which is basically Facebook selling and getting on Facebook, which is a dominant platform. They basically built all the tooling, built all the logistics around it to make it possible for these small businesses to be successful. And you can't be a small business in Bangladesh without leveraging ShopUp today. That's how powerful they are. So we're very excited about what they are building and where they're going. I will highlight that one particular company because people don't often think about Bangladesh. It's a market that I don't think anyone is really focused on, but these guys have become emerged as a digital success story on the frontiers of commerce and a frontier formalization in that country.
Jerry:
Your colleague Tilman Ehrbeck, who was the leader of the Flourish group, kindly introduced me to the founder.
Kabir:
That's right. That's right. Yeah, exactly.
Jerry:
That's an amazing story, really. Quite extraordinary. The possibility of application elsewhere is certainly worthy of consideration.
You know, I'm sorry to say that we're running out of time here. Kabir, we really greatly appreciate your making yourself available to our listeners. You bring a whole new perspective to the way in which financial services will be offered on a going forward basis. That's the thing that we on RegFi want to explore, and you've done a great job at helping us widen our lens. So thank you.
Kabir:
Thank you, Jerry. Thank you, Sasha. Look forward to catching up at another time. Thank you both.
Sasha:
Thank you.