Charles Lee, former CEO of Hong Kong Exchange and founder of Micro Connect, spoke at BEYOND Expo 2022 about how he sees a wave of disruption on the horizon for traditional financial services in the Internet age. He also explained how Micro Connect is poised to ride that wave, helping global capital hope to achieve continued growth, opportunity and quality in China’s small business sector.
Beyond Expo 2022 BEYOND opens online on the Metaverse on Wednesday. As Asia’s largest and most influential tech event, the expo will feature over 40 talks and panel discussions, where leaders and experts from diverse fields will take an in-depth look at topics from consumer tech, health tech, global investment, sustainability and Web3 .
Please see below a transcript of Micro Connect President and Founder Charles Lee’s Inaugural Day speech. The following transcript has been edited for clarity:
Hello everyone, my name is Charles Lee. I am the President and Founder of Micro Connect. I am really delighted to be able to speak at the BEYOND International Technology Innovation Expo in Macau, and I would be very happy to share some of the experiences and insights we have developed over the past few days on the topic of what lies ahead . It’s been a few years since I left the Hong Kong exchanges.
I have been in finance for over 25 years now, including running the Hong Kong Stock Exchange for 11 years. And I think that experience gave me tremendous insight into how the financial system works in our economy and in our society.
I think the modern Wall Street model, which has worked wonders for over 100 years now, is probably one of the most important human innovations in our society as we try to organize capital into large corporations and then stock them. and divided into shares. So that the public can catch them.
On the one hand, you focus on finances to allocate to large corporations that are important to developing a centralized market economy. On the other hand, the shareholding system allows that capital to be distributed and held by the general public. This model works for the industrial age, because the economy at the grassroots level is unclear, and gathering information from it is very difficult, so you need Wall Street to have a centralized, institutional, professional staff to organize everything together so that Information can be searched, price discovery, and execution can be delivered in traditional financial market type systems.
But I think the most interesting question is what lies ahead: whether or not we’ve seen in e-commerce, in social media, the revolutionary changes and disruptions we’ve seen over the past two decades are potentially disrupting the traditional wall. can or not. street model.
I think we all know that in the industrial age, we all needed to go to a department store, because the department store used to collect all the goods and merchandise together, so that we could all go to the central market to get what we needed. to buy things. But in the digital age, the Internet age allows distribution and commerce to be conducted online through digital technologies, and then allows logistics to evolve so that we can actually shop at home and deliver our goods, and online marketplace. Markets, to allow the exchange of money and goods. It is a fundamental disruption of traditional finance and traditional commerce.
And I believe we are now entering an era where there is going to be a similar disruption in financial services. Because at least today the entire economy in China has become largely cashless. This means that most financial activities in China, even at the small business level, are completely digital, which means they are completely transparent. With grassroots businesses becoming transparent and digital, the question is, do we still need to force small ones to coalesce into large corporations?
And many of them never will. Millions of them never will.
There are 17 million small businesses in China, and I think the time has come for us to really have an opportunity to completely change the face and change the structure of financial services, for the first time ever to see finance as truly permanent capital. to be allowed to provide. Growth, and a firm growth and growth at the level of CapEx and small businesses.
And more importantly, it enables the global investment community to access the most sustained growth opportunities and quality returns from the blue ocean of small businesses that are not yet available due to the focused nature of our financial services. . So at Micro Connect, we are striving to find an entirely new way of providing financial services.
Instead of using traditional products, traditional discovery processes, and traditional delivery processes, we actually took a completely new way of doing it. This is what we call a new operating system, a micro star, and it has five key elements. This is a new product. There are two sides, and two maps. This is really the new Micro Star operating system to finance differently.
First, why did we want to focus on small businesses? It is very clear, small businesses largely reside in the consumer sector. And that entire sector and small businesses contribute to 60% of China’s GDP, 70% of government revenue, and about 80% of employment. So this is clearly the area where the most vibrant part of China’s economy currently exists and grows, and capital needs to find a way to access that hugely important sector.
And we established our mission to achieve this. The way to do this is with, as I said, a new system we call Micro Star, which consists of five key elements: one product, two weapons, and two maps. One product is called a daily revenue contract, DRC. It is not debt, because as investors we have to share the downside.
And it is not equity, because it is not economically feasible for equity to execute small tiers on a large scale. But it is a daily direct contractual arrangement to pay your revenue, in exchange for an upfront CapEx investment. That’s why it is called Daily Revenue Contract, DRC.
It is a completely new asset class that is fit for purpose, and very useful for small businesses. Meanwhile, daily recovery of returns allows investors to take transparent, distributed, reliable, risk-managed and diversified high quality returns.
So it’s really a win-win for all like a new product.
But the unique nature of that product requires two very different systems to ensure distribution, and at that distributed level we need to be able to collect on the investment.
So there are two branches, one arm in charge of collecting money digitally from direct revenue from small businesses. And a digital account segmentation system is highly advanced and highly viable in various consolidated payment systems in China and is actually being practiced by many industries, so we intend to use existing technology and systems to enable our investors keep. To secure the daily digital connection of the returnees.
On the other hand, when money is collected, we want to make sure that we have a modern new type of exchange, where the underlying infrastructure is a blockchain, allowing us to authenticate that every single dollar that is Every day is collected in the system. It is irreversibly entered into the blockchain, and relates to investors who choose to invest in a particular segment, in a particular store, for a particular period of time.
So that regulatory oversight, which is finally entered through technology, is the way we are able to do it on a large scale with much less human and costly management and efficiency with distribution, monitoring and enforcement systems, which are economically will not be viable. small businesses.
The latest micro star systems also have two that we call maps, basically navigation. And those two map are specific terms, essentially describing an engine that allows us to deploy such a large number of individual sizes with a small investment on a large scale with efficiency; The second map is allowing us to find ways to ensure that we are able to accurately project the economic and financial performance of particular types of businesses and particular locations so that investments are not only with scale and efficiency, but also with accuracy and To start with quality. So that the investment can continue on a sustainable basis.
This new way of doing things has never been tried before, but due to China’s digitization, it is highly possible.
As we embarked on the journey, we have invested in over 1,000 stores in over 100 different regions in China, primarily focused on four large industries: retail, consumer, services and cultural activities. Despite all the challenges and all the assumptions that small businesses in China are individually risky and not necessarily worth investing in, they are areas where Chinese consumers have basic necessities in everyday life.
As a whole, if we are able to build a sufficiently large, diversified, sufficiently distributed portfolio, we will be able to find a truly new way of investing, a new paradigm of financial services, that is transparent, distributed Diversified, and sustainable. Most importantly, because of the fact that we are able to do this in such a distributed way – potentially affecting hundreds of thousands, and potentially millions of small businesses – our aspiration is that in the next 10 years, we will be a Are able to create and fund one million small businesses with one million annual revenues, which in turn will be able to create and maintain at least 10 million jobs.
This type of investment, the new investment paradigm, will probably allow us to promote impact investing, ESG mapping, so that through investing, we are not only doing well, we can do well.
And that’s really, our dream and it’s something that we’re on a journey to achieve, and I think it’s only possible because of deep and widespread digitization and technology development in China, especially in the payments industry. I think with this, we can see that China’s consumer sector, which may be the furthest from Wall Street in the way traditional financial services, thanks to technology, will probably become the closest and most likely to become successful, Because they are able to provide us with a way to invest simpler, more efficiently, more equitably and more inclusively.
And I look forward to coming back again to update you on our progress, and I hope we’ll be able to travel that journey with many of you who have similar dreams and aspirations.
Thank you very much, we really appreciate the opportunity to speak at this great expo.