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(Bloomberg Markets) - When Yoyo Chang first told his parents that he wanted to start his own tech company, they were alarmed: this wasn't part of the plan.
Paul and Pauline Chang emigrated to the UK from Taiwan in 2003 so their son could learn English and eventually pursue an international business career, preferably with a global investment bank. Sure enough, Chang was excellent at school. At the age of 13, he also fell in love with the stock market, making £ 250,000 ($ 326,650) in trading profits for his family when he attended college in 2018.
But then Chang's life took a turn. Instead of focusing on his studies and saving his money, he wanted to put it in a startup. He came up with an app that would enable stores to accept payments directly from customers' cell phones, reduce transaction fees and eliminate the need for card readers and other hardware.
Concerned that his only child was taking too much on himself, Paul examined the complexities of the payments infrastructure and found it was tightly regulated and dominated by companies like Visa, Mastercard, and PayPal, not to mention banks. What made Chang, an 18-year-old freshman, think he could jump into this world?
"I said to my boy," Don't do it. It's too difficult, ”says Paul with Pauline and his son by his side. "I told him to buy a house."
"I did not listen!" throws in Chang, now 20, with a laugh. "I was naive."
His mother shakes her head. "He's still not listening," she says.
Now Chang's naivete is paying off. His company, KodyPay, has grown from a crazy idea he and some friends had in their high school cafeteria into a fledgling business. KodyPay raised $ 2.3 million from angel investors this summer. Chang signed contracts with a partner of International Business Machines Corp. and a subsidiary of Visa Inc. to develop its technology. And KodyPay was ready to go live in November in cafes and stores at the University of York, where Chang is a third-year business student. As the novel coronavirus is forcing thousands of students to take online courses across the north of England, the plan is to launch the app in January.
At first glance, Chang's technical adventure follows the well-known contours of the Silicon Valley creation myth. He adores Steve Jobs, Elon Musk, and Jack Ma, and fearlessly dreams of starting a company that can change the world. But Chang's journey differs from the traditional narrative in many ways. For starters, he's not a lonely insane hiding in his dorm or garage writing computer programs. In fact, he can't read a line of code, much less write one.
Nor is it the product of elite private schools or the greenhouses of innovation that thrive at universities like Stanford and Cambridge. Educated in government schools in southern England, Chang has become an unexpected star at the University of York, an institution known more for its acclaimed science and humanities research programs than for incubating technology startups. In addition, his company shows how the drive for innovation has really grown beyond the borders of Silicon Valley and has become global. "There are many hidden talents," says Kiran Trehan, the university's deputy chancellor for partnerships and engagement.
Chang's talent for strategic thinking and gathering allies by his side lends itself well to the next chapter in financial modernization. The fintech revolution of the past decade is largely over: online banking and payment apps have been standardized, and cloud computing has made starting a business relatively affordable. The game is now about building creative business models, marketing and partnerships, says Brad van Leeuwen, digital payments entrepreneur and co-founder of Cledara Ltd., a cloud software company in London. When it comes to payments, with an annual worldwide turnover of $ 2 trillion, the price is titanic. "The biggest challenge in payments is not the technology, but building a critical mass of customers," says Van Leeuwen. "And the barriers to entry are no longer insurmountable - a 20-year-old can do that."
As a sociable guy who speaks at warp speed, Chang has gained a group of influential mentors to his cause. In June, Hank Uberoi, a former technology executive at Goldman Sachs Group Inc., became chairman of KodyPay. As the former Chief Operating Officer of Ken Griffin's hedge fund Citadel, Uberoi moves in rare financial circles. He connects Chang with his network of former Goldman partners, old Citadel colleagues, entrepreneurs and angel investors.
The young man speaks to Uberoi several times a day as he negotiates with potential partners and prepares for the app's release. Although Uberoi knows that his protégé could ultimately fail in his search, he is happy to jump on board.
"I've seen enough early-stage companies to know that it takes 10 miracles to be successful," says Uberoi. “But when I first met Yoyo, I knew within 10 minutes that I was going to invest with him. It was his energy level, his enthusiasm, his sense of detail that impressed me. And the reality is that experience is often an obstacle rather than an advantage - you are constrained by what you think is impossible. Yoyo doesn't feel restricted. "
What he feels is pressure. Between putting together a board of directors, negotiating deals, raising working capital, and managing the rollout of the app, Chang's days are a mixture of tasks and meetings. When he wakes up, he says, the first thing he thinks about is all the business problems he needs to solve that day. Then he has his homework too. His university advisors fear that their student will be so overwhelmed that he will drop out. For a social life, Chang doesn't have time to do what men his age usually do - hang out with his friends on Discord or WhatsApp, play sports, or even go out.
"I haven't seen my friends in months," says Chang. “Whenever they want to meet, I just feel so guilty because I have so much to do and a lot of people depend on me. I really didn't know what I was getting myself into - I just did it. Looking back, I think KodyPay is one of the better decisions I have made in my life. I have to have that kind of attitude. I can't do it. "
On a bright autumn morning, Chang takes a break from work and strolls with his parents on the long walk to Windsor Castle, one of Queen Elizabeth II's residences. Usually this tree-lined avenue is packed with tourists. Today the Chang family and a few others have it to themselves.
The first thing you notice about Chang is his laugh - a cheer that is inevitably followed by a torrent of words. He carries himself with the confidence of a young man who knows that older people find him charming. It's a cheek to have a bit of the born salesman in him, but he also does the job. When he talks about his company, you can feel the steeliness behind the field.
Paul and Pauline, a polite, good-natured couple, appear to be both excited and concerned about their son's ambitions. There is no doubt that they prepared him for a life of over-fulfillment. They started him taking tennis lessons when he was 5 years old and then got into the piano. Although they spoke traditional Mandarin at home, they sent him to Taipei for a school year when he was 8 years old to make sure he could read and write the language properly too.
Paul runs his own business exporting housewares to Taiwan, and Pauline is Operations Manager at Aten UK Ltd., a Taiwanese information technology manufacturer with offices in nearby Slough. When Chang was 13 years old, his mother took him to work after school. The teenager did office work and data entry and answered the phone. "I did it for three years," said Chang. "You paid me with food."
Pauline smiles. "I showed him how the company works," she says. "My boss said," If Yoyo finishes school, maybe he can join the company. "
Chang laughs at the thought. "I might want to become a shareholder," he admits.
He attended Windsor Boys' School, which is aimed at academically gifted students, and became interested in math. For additional recognition, he joined a few other students and made a jump into Goldbach's Conjecture, a centuries-old problem in number theory that remains unsolved. Mark Curtis, his math teacher and former bond dealer in the City of London, was impressed with the boy's intensity and introduced him to the stock market so he could see math in action. Chang loved the idea that you could own shares in your favorite company. He became the top stock picker on his school's investment team. No real money was used and soon he wanted to play the market for real money, which amazed his mother.
"It was a school project, so we didn't think about it much, but then he started asking family members for money, so I got scared," says Pauline. “I mean, how can I give my money to a teenager? We had some arguments back then, but I trusted my son and we brought him here for some adventure. And I thought if he lost the money it would be a good lesson. "
At the age of 16, Chang raised £ 10,000 from his family and his own savings. After newly elected Donald Trump pledged to spend $ 1 trillion on infrastructure projects, Chang bet that raw materials and mining stocks would rise. He plowed all of his money into Glencore Plc, the Swiss commodity giant, and was rewarded when his shares rose 13% in the first quarter of 2017. After proving that he knew what he was doing, he became the de facto chief investment officer of family and friends. He managed over £ 150,000 on her behalf over the next few years.
Like any active shareholder, Chang did not hesitate to interview the executives of his portfolio companies. He became a prolific chat correspondent with Tony Durrant, the head of Premier Oil Plc, a London-based exploration company that bounced back from late 2016 through the third quarter of 2018. Much like other child prodigies like Ken Griffin, who traded convertible bonds when he was in college, Chang found financial freedom very early on.
By the time he was preparing for his final exams in 2018, he had built a six-figure nest egg and was considering a down payment on a house. Then one day he was hurrying to lunch in the school cafeteria when he was in a long line at the cash register. Chang and his friends were frustrated that they couldn't just use their cell phones to pay for their food. They went one step further and didn't understand why they couldn't send payment from their cell phones like a text to the merchant. Why does someone have to queue in the age of the smartphone? "A business shouldn't have to buy any hardware to process payments," says Chang.
It was an interesting idea, but Chang wasn't exactly a pioneer in the fintech revolution. For most of a decade, a number of startups and financial institutions had rewired the way we pay for things, do banking, and send money around the world. Apple Pay had found its way into the exclusive payment relationships that banks and credit card companies had long enjoyed with their customers. Newcomers like Venmo and Revolut won over Millennials and Generation Z with their own digital wallets. Payment processing startups like Adyen NV from Amsterdam and IZettle AB from Stockholm were well on their way to advancing in the retail market.
When Chang arrived at this crowded scene, it looked like the financial transformation had already taken place.
Chang would not let the revolution go on without him. He had his own point of view as the world became increasingly cashless. When a consumer walks into a store and buys a pair of jeans, for example, they can use a contactless debit card or phone app or watch and tap a terminal at the checkout to pay for the item. The terminal sends the transaction data on a journey through the multi-tier payment system and finally reaches your bank, which automatically approves and debits your account accordingly. Chang wanted to get rid of the terminal.
In the summer of 2018, he founded KodyPay, the name inspired by the dog of a girl Chang had a crush on. Chang invested £ 120,000 to build the business and start the process of building a prototype. In his model, the payment beamed straight from a buyer's phone to the store's phone, tablet, or laptop, and ultimately to their bank account. That meant the customer no longer had to wait for a cashier to complete the sale. On the way out, she showed her phone to a security guard to verify the payment and be on her way. Typically, when the company is part of a chain of 20 or more stores, it pays a 2.25% transaction fee and the company still has to purchase all of the hardware to process payments. Chang claims that if you eliminate the need to manufacture, install, and maintain the machines, you can cut annual costs by up to 65%.
Turning that idea into an application was the trick. So Chang introduced KodyPay to his faculty advisor, Peter Ball, and other university officials. The student cut KodyPay's proposal to Jon Greenwood, the school's commercial services director, into simple economic terms. York recently invested £ 350,000 in new registers and payment terminals in its retail stores and cafes across campus. With the pandemic already greatly reducing cash use, he was unhappy to pay tens of thousands of pounds in processing fees every year as more of his students went cashless. "Yoyo curled up and said we could get rid of two-thirds of that cost," says Greenwood. "That caught my eye."
Greenwood gave KodyPay a spot in the university's brand new startup incubator program called Phase One. Chang has also integrated into the school's alumni network. It wasn't long before he worked with York graduates John Holmes, chairman of Hardman & Co., a UK investment research firm, and Chris Baker, a professional astronomical photographer and angel investor. Both men advised Chang on starting a business and put him in touch with professional contacts.
Still, KodyPay would only represent a PowerPoint deck if Chang could build and commercialize the application. He was still looking for a way to do this through the fall of 2019 when he took a break. Through Greenwood he met Ron Argent.
During a 31-year career at IBM, Argent helped design, build and sell information technology systems to global banks, government departments and other large organizations. In 2015 he founded the Cognition Foundry, a type of digital laboratory that participated in start-ups in exchange for the development of their technology. It also acts as a talent scout for its sponsor, IBM. In the fall of 2019, Argent met Chang and a few colleagues in a café on the south bank of the Thames in London.
When Argent Chang listened, he immediately realized that KodyPay wasn't doing anything groundbreaking in terms of the technology itself. In China, he had seen similar payment systems from device to device. What he liked was Chang's plan to take terminals out of the equation. Argent could see the immediate financial benefits. "Yoyo spoke of a very scalable idea that fits well with IBM's fintech initiatives," he says. “What really caught my attention was Yoyo himself. I speak to a lot of people with innovative ideas, but the idea is not enough - you need a special type of person to turn that idea into something real. I thought Yoyo had the potential and we could help him. "
By spring 2020, Cognition Foundry agreed to build the KodyPay platform in exchange for a 5% stake in the startup. Argent brought together six to eight software developers in Bulgaria to write the code. He also briefed members of IBM's senior management team about the company and its global sales unit. In October, Tom Rosamilia, senior vice president of IBM Systems North America, interviewed Chang as part of a virtual technology conference for several thousand customers.
Meanwhile, Chang has partnered with Cybersource, a Visa company that makes payment processing and security software. In August, he closed his first fundraising round with investments from a wealthy Taiwanese family, angel investors and Uberoi, the former Goldman partner.
From 2012 to 2018, Uberoi was Chairman and CEO of Earthport Enterprises Ltd., a London-based company that processed cross-border payments for dozens of financial firms worldwide. He helps Chang navigate the complex digital payment system and negotiate with high-performing players in the industry. At the top of the list is Alipay, the Shanghai-based mobile payment platform owned by Jack Ma's Ant Financial group. Alipay, which is now rolling out its services in Europe, is aimed at Chinese nationals abroad. It so happens that there are more than 2,200 Chinese students at the University of York.
As Chang and KodyPay progressed, his parents and teachers worried about his other project - graduation. He's long flirted with the idea of quitting university to focus on his startup, and it hasn't gone unnoticed that his heroes Steve Jobs and Mark Zuckerberg haven't graduated. Peter Ball, an economics professor and faculty advisor to Chang, was one of the first KodyPay champions at the school and used the beta version of the app to buy fudge and mince pies for a meeting. But he watched his student closely.
"I nag him, but I think you have to," says Ball. "I have a feeling he works in his shop on weekdays and he pushes his studies in on the weekends and whenever he can. I've said to him a couple of times, "I want you to be really successful and KodyPay would be wonderful, but we also have a duty to graduate and it's important that you graduate."
Chang, who has so far earned the rough equivalent of an A-, says he's committed to quitting school and, oddly enough, the pandemic has made it easier because he doesn't have to be physically on campus and study and take his final exams online . His parents want him to get a Masters Degree in Finance and he likes the idea of pursuing it in the US. However, these plans can be turned upside down through his continuing education at KodyPay.
Now that the University of York is set to demonstrate the capabilities of KodyPay once students return en masse to campus, Uberoi and Chang are putting feelers out to raise funds in a Series A round. It is a big step to choose investment partners in such a formative phase. Chang, with Uberois' help, will be courting venture capitalists once his baby is out into the world. He will do so as the pandemic undermines in-store shopping one harsh winter.
With all the hopes, dealmaking, and sheer effort KodyPay put in, it could turn out to be just one more payment app out of a sea of apps. The fintech scene is littered with once promising mistakes - in 2019, the British payment service provider Ipagoo took over management, as did Loot, a digital banking business supported by the NatWest Group. Even Monzo Bank Ltd., the once darling of the London fintech hub, hurts. In July, the digital bank reported a loss of £ 113 million for the fiscal year ended February 29, warning that the pandemic's impact on sales had, among other things, raised "significant doubts" about the company's ability to continue operating. Even with a top-notch strategy and whiz-bang app, getting consumers to change their spending behavior can be difficult, says Van Leeuwen, the payment operator. "Before you can use your product, you have to gain acceptance," he says.
The future of finance is written by very few authors. Chang is philosophical about the possibility that he won't be one of them if his company falters, however draining that may seem. After all, he's only 20.
"I can afford to make mistakes," he says. "In fact, when you're so young, they're not mistakes, they're learning experiences. So it doesn't matter. I don't have to worry about the future. I just have to worry about the trip."
Robinson covers wealth from London.
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