With COVID-19 promising to widening the gap between rich and poor, we talked with fintech founder and medical doctor Dr. Ozan Ozerk on the financial and social aftermath of the pandemic.
In the wake of the ongoing pandemic, millions of people have lost their jobs, and millions more are on the brink of getting their financial freedom taken away. The true aftermath this will have on the economy is yet to be seen. Fortunately, for businesses that have taken steps towards full digitalization, the crisis might also represent an opportunity.
In order to get some perspective on the potential aftermath of COVID-19, we sat down with Dr. Ozan Ozerk, the founder of several financial services companies such as OpenPayd, Ozan SuperApp, EuroTrader and European Merchant Bank. OpenPayd alone employs more than 100 people in six international offices, with more than 200 global corporate clients. In the following, Dr. Ozerk discusses the consequences and impact of the pandemic on developing economies, brick-and-mortar businesses and the potential long-term effects.
What are your thoughts about COVID-19 - is it widening the gap between rich and poor?
Dr. Ozan Ozerk: The COVID-19 pandemic has definitely taken its toll on the global economy, regardless of the country you live in, or the business you're engaged with. No country or industry has managed to avoid the impact. For the most part the impact has been negative, but for a handful of industries the pandemic has represented new opportunities - and even growth.
In general, I believe that industrial countries in the long-term will strengthen their positions as a result of this tragic event, while poorer countries will have a growing dependency on the richer countries' consumption. I also believe that businesses that are already online, or have the ability to migrate their business online in the near future, will outperform businesses that are preparing for a more traditional brick-and-mortar presence.
What type of business or industries do you consider the least affected by the pandemic?
Dr. Ozan Ozerk: Even though the pandemic has had a negative effect overall, it's undeniable that some businesses actually saw a growth in their market share and an overall increase in revenue. But being online isn't enough in itself - just look at Booking.com and EasyJet. Even though they have an impressive online presence, they couldn't fight the underlying macro-trend; which is restrictions on movement of people. However, once the restrictions are lifted, these are the types of companies that I believe will outperform their competitors, primarily because of their strong online presence and cost-effective business model.
Other purely online services such as Zoom and Amazon Web Services saw an incredible growth. Due to the nature of their business, they will most likely continue to grow. With an online-first business model, so too will companies like Uber Eats, Getir and Robin Hood. But again, viewed from the macrotrend perspective: when large parts of society start spending less because of financial restraint, there is a risk that also online businesses will see reduced demand, increased price sensitivity, a drop in profit margins and decreasing sales.
So who will be hit the hardest by the pandemic?
Dr. Ozan Ozerk: At a very high level, the recession in the Western world will reduce the overall global consumption, leading to lower employment rates. This will result in a decline in consumption. It's a vicious circle. Rich countries will suffer, but poor countries will suffer more - and low-income citizens will suffer the most.
Anyone who follows the news can see that there is a growing trend of national and regional protectionism, resulting in barriers for free trade, as well as hardening rhetoric among global and regional powers. In the long term, this can lead to a prolonged global recession and increasing political instability, also in the Western hemisphere.
The lockdown measures have naturally impacted unevenly across the society. Brick-and-mortar businesses have suffered the most. And if one presumes that these businesses - on average - employ a higher number of lower and middle-class citizens, it isn't hard to see that one can expect a growth in the overall income gap. Also, while a private university or a retail bank can move their business more online, the same is not possible for a hairdresser or a pub. Looking behind the storefront, you'll see that these businesses represent completely different demographics.
How big of a setback is this going to be on a global scale?
Dr. Ozan Ozerk: I am not very optimistic when it comes to the short-term and mid-term prognosis for the global economy. Central banks across the world are printing money and operating with record-low interest rates, or even negative interest rates to keep the wheels turning. My impression is that at least in the Western world, these measures will inevitably lead to artificial price increase on assets - and not so much securing long-term sustainable growth. I believe we're in a bubble that - sooner or later - global consumers will need to pick up the bill for.
What are the solutions that can be implemented on a local level?
Dr. Ozan Ozerk: If you're running a business, I would strongly advise to explore the opportunity to grow your online presence. If you're not already online at all, then you should definitely adopt a business model where you can become online. And if you're already online, then you should definitely focus on expanding your online presence. Companies like OpenPayd and European Merchant Bank can support you with this.
I would also invite our politicians to be brave in their decision-making. The pandemic represents the biggest challenge in our generation. There are no perfect options to choose from, and no matter what decisions are taken, a great part of the society will be impacted negatively. Being able to look beyond the next election requires personal bravery and true statesmanship.
What about global trade?
Dr. Ozan Ozerk: Fair trade and global trade is unfortunately not moving hand in hand. This is creating an income disparity between countries, as well within countries. Rich countries have had a huge advantage over poorer countries. The same can be said domestically as well; the wealth gap within the countries is growing. This should concern us all, especially looking back on the historical lessons we have learned from the last century.
You see a growing trend of populism across the world and an increase in trade barriers that - in the long term - will have a negative impact on us all. While on one hand focusing on reducing the barriers inhibiting free trade, one must also focus on fair trade. By fair trade, I mean that a larger part of the profits must be shared with the producers - and not only amongst the promoters of goods and services. This goes as much for journalists in Australia expecting fair trade in their business dealings with Facebook and Google, as Indian tailors producing garments for clothing giants Zara and H&M.
Overall, a larger portion of taxes must be paid where the real value is being created - and tangible tax benefits must be accessible for lower and middle citizens. Multinational companies are creating incredible value that we're all benefitting from. Microsoft, Shell, Apple and other multinational companies are pushing the boundaries of innovation, providing us with great services and increased life quality. However, behind these global companies there are thousands of subcontractors, and millions of workers, fighting for survival. A greater emphasis on the whole ecosystem is needed to create long-term sustainable growth benefitting us all.
Do you think it's likely that multinational companies will ever change their policy?
Dr. Ozan Ozerk: This pandemic is representing an unprecedented opportunity for all of us to change for the better. This is especially true for multinational companies that are fully dependent on cheap labor, high consumption and almost a frictionless global supply chain. The pessimist in me tells me that the multinational companies will use all of their financial and political power to delay any step that might force them to change their existing business model. By arbitrating between low cost countries and showing cosmetic approvement in the West, they might be able to delay any transformation they deem harmful to their shareholders.
However, the optimist in me sees the coming period in a much more positive light. We have seen a growing focus on fair trade from investors, regulators and politicians across the developed world the past ten years. Previous tax avoidance schemes and structures limiting real competition has been targeted with great success. Focus on substance and fair trade is not only being echoed by politicians and regulators, but also by consumers and investors. One might even claim that all parties' interests, including the multinational companies, are aligned. Fair trade does increase overall consumption and spending. At the end of the day this is what the big multinational companies are looking for; a growing number of loyal customers that are purchasing their products and services in the long term. After all, what would Google be worth if only Americans used it, or if IKEA could only sell their furniture in Sweden?
The pandemic will hopefully speed up an already existing trend of consumer awareness around fair trade, sustainable growth from an environmental point of view and fair taxation that benefits the wider society, rather than a handful privileged.
Do you think your own companies OpenPayd, European Merchant Bank and Ozan SuperApp can be viewed as enablers?
Dr. Ozan Ozerk: First of all, we must keep in mind that a large number of people and businesses are unbanked or underbanked. This is not only a third-world problem, but as much present in New York and London, as it is in Jakarta and Lagos. So inclusion is a fundamental key in creating an even playing field.
OpenPayd provides a service often referred to as "Banking-as-a-Service" (BaaS). Through a simple API connection, OpenPayd provides the payment rails that businesses across the world need to settle their trades. Whether it is deliverable FX, accessing the SWIFT or SEPA network or just providing simple IBAN account numbers for settlements.
Unfortunately, there are only a handful of banks that are willing to bank startups and financial services companies. European Merchant Bank is one of these banks, supporting FinTechs like OpenPayd, EuroTrader and Koinal by providing safeguarding accounts, multi-currency bank accounts and clearing of funds. The growing number of international fintechs are dependent on banks like European Merchant Bank to grow their business and enrich their business offering.
The Ozan SuperApp is a mobile application trying to lower the barrier for individuals and SMEs to be banked and have access to fundamental retail services. A SuperApp can be regarded as a marketplace for a range of regulated services, such as banking and payment services - as well as insurance and investment services. But the Ozan SuperApp also provides a range of non-regulated services, such as phone top-up, gift cards, news and online entertainment.
Any final words on how we can combat the growing wealth gap that is being accelerated by COVID-19?
Dr. Ozan Ozerk: I think it's paramount that we don't fall for the temptation to safeguard only our own business, our own industry or our country. We need to look at the bigger picture to see how we all can play the role of an enabler. Enabling other businesses, other industries and other countries to grow and prosper is the only way back to a positive agenda. Isolation or a "me first"-policy doesn't represent a new beginning or prosperity, but rather an end to more than 70 years of global growth - and a giant step backwards to the uncertain times that resulted in two world wars just a century ago.