A Shadow Economy & The New American Dream

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Net 30 No More – An Open Letter To The Financial Payments Industry by Pavel Cherkashin

The global financial system is broken. It’s common knowledge among the people who are forced to operate inside of its rules on a daily basis. People just don’t know it can be fixed and the banking industry does not want their golden goose to get up and walk away.

It’s been making money for them for hundreds of years.

In a perfect system there would be smaller fees, smaller commission, more competition, transparency, and accountability. This scares the old school financial industry and everyone making money from it in a big way.

But, mark my words, it will crumble over the next decade.



Financial Payments Industry

Corporations are like dinosaurs. Overhead and cost of operation are so high that every second of an employee becomes more valuable than their actual knowledge.

A high performing freelancer can outperform a large company doing the same service today for a number of reasons.

  1. Negative overhead
  2. No bureaucracy
  3. Agility in work

The only thing that allows companies to tie professionals to their cubicles is the traditional banking system.

A Shadow Economy & The New American Dream

Millennials have a different American dream. They want to fly around the world, take on interesting professional challenges and more importantly, be location-independent. They have built the new economy and set the rules for new banking standards, what bankers call “shadow banking”.

Let’s call this the “free economy”.

In the next 10 years, more than 1 billion people around the world will hide in this cool shadow from the burning rays of traditional banking regulations. Not because they want to hide from taxes, but because traditional banks just don’t get it.

Their problems start when a freelancer tries to fulfil a project for a large corporation.

The Financial Brick Wall With Corporations

Let’s say you’re an engineer at Microsoft and you have a project due. It’s a standard practice to hire 1099ers as contributors on the project. This happens constantly in big corporations.

The contractor does the work and sends Microsoft an invoice.

How long do you think it  takes Microsoft to pay? 30, 60, 90 days?

The problem is, that this leaves a sea of millions of vendors and freelancers (who sometimes depend on it) without payment for months.

This is what happening to your freelancer overseas. Every month.

For him or her, financial transactions aren’t an issue of convenience any more, it is an issue of supporting their way of life.

Who This Affects

The American financial system is not just the framework of the American businessman, it is the backbone of the global economy.

When your freelancer has to pay 5% fees to get the money she’s already earned, it’s just not right.

5% of a project might be an entire day’s work they’re not getting paid for.

Complexity and confusion of the payment and financial reporting world has created a whole bouquet of superficial sub-industries that suck money from these workers.

Slow paying clients and high transfer fees aren’t the worst of it. UpWork.com and Freelancer.com, where many of these freelancers find work at, charge even more to connect freelancers with jobs.

Even when all the terms are agreed on in advance, there is no clean and simple way to complete the financial transaction with an offshore freelancer with less than 20% of the contract being paid to intermediaries.

Ask any freelancer you know – in the US or abroad, and they’ll tell you that getting money they earned is a nightmare.

Here’s How The Revolution in Payment Economy Works

There is a small movement that’s starting to topple the credit system in the US, with startups like CreditKarma and online banks like Simple. But it’s going to take decades to re-invent the entire industry.

Hundreds of US-based startups nibble at this market. Most obvious would be breaking into lending space, where big data gives the highest financial leverage: Lending Club, Kabbage, Affirm, Prosper, and CommonBond are just a few examples.

Remittance comes next as international migrants send more than $600 billion to their families around the world ($431.6 billion going to developing countries). Nobody knows what portion of this is payment for freelanced products and services. Startups like Stripe, WePay, Qwil are disrupting payments for freelancers.

In fact, Crunchbase knows 43 payment startups (17 launched after 2010) with more than $10M in venture funding.

Only 5 startups with meaningful funding called themselves “banks”.

In Singapore you can get an off-the-shelf legal banking facility for $50,000 in less than a month without any regulatory approvals.

Paypal is using that type of facility for their international payment processing.

Companies like Revolut offer “Screw those banking commissions and complexity” mobile services and immediately became crowdfunding stars with over £13.8M in Investment Pledges.

Once a few governments in the world legally recognize it as supranational currency, money flow will hit the fan.

You will download the app, go through automatic KYC (know your customer) procedure based on face recognition and big data technologies — quicker than you registered for that photo sharing service.

Welcome to the world of new finance. Pay and get paid anywhere in the world, in any currency and amounts instantly, transparent and almost free.

In 20 years, no one will look down on freelancers or know what net 30 is. The American dream, as the baby boomer generation knows, is evolving. Anyone who wants to work remotely, make as much or as little as they are motivated to, can do so with these new financial systems in place.

The only question I have is who will build these new financial systems, because I want to invest in them early.

Pavel serves as Director at Vestor.In Partners – early-stage VC firm, helping startups get out of Death Valley and successfully go global.


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