Hello frens! At the Hyperscale Fund, we’re committed to the intersection of capital and community, believing that each empowers the other symbiotically. We’ve started a new series called “What Gets Us Hyped” where we will be featuring people from all walks of life and expert backgrounds who make up the Hyperscale community.
Episode 2 features Sean Pawley from Seshat Bank, a neo-bank based out of Prospera in Honduras that is uniquely positioned to provide major value to not just conventional B2B customers, but also crypto clients, because of a focus on thoughtful development, friendly API’s, and customer service above all else. These ideas are philosophically aligned with us at the Hyperscale Fund.
Hello Sean! What should we all know about, your team, and Seshat Bank?
SP: Hey everyone, I’m Sean Pawley, founder and CEO of Seshat Bank (https://www.seshatbank.com/). I’ve spent most of my career in the developing world in relatively unsexy industries. I started work on what eventually became Seshat Bank after a ton of negative experiences with East African banks. I spent a lot of time reading and thinking about what kind of bank would actually make sense and would address the issues I saw in the sector. It was originally going to be based in Rwanda and Uganda, but in May of last year we moved to Prospera ZEDE, Honduras. The legal regime here in Honduras simplifies a number of extraordinarily difficult and complicated problems. The Prospera team has spent a lot of time thinking about how to best attract investment and optimize their legal and regulatory schemes.
People often equate being innovative with breaking conventions for the sake of breaking conventions, but tend to operate with extremely conservative development practices. We’re hyper-cognizant of the fact that we are responsible for other peoples’ hard-earned money, and thus our software decisions should focus on sustainability and scalability above all else. Chesterton’s Fence is part of our development practice. Before making changes, one needs to understand the state of affairs that lead to the current predicament, and the tradeoffs involved with doing something else. Risk minimization is key in our development practice. We marry that with tenets of open access and better service to deliver a comprehensively better product.
We are fortunate to have a mixed Honduran and international team that has embraced these standards and that lets us bring best practices from all across the world (Honduras, US, Nigeria, India) to the ZEDE ecosystem.
We try to maintain and develop institutional memory to the maximum extent as well, starting with extensive internal documentation. Internal documentation and strong institutional memory are the keys to scaling and passing on knowledge to new hires, developing internal talent, and maintaining your products. Over the long run this will help us develop new products faster, integrate third party applications with our internal software, and scale far more rapidly.
HF*: Wow. That’s quite a story. We can certainly empathize with the idea of building a company out of both a global mandate, and having to deal with different regulatory schemes. In the Hyperscale Fund, we like to think of our amazing X-Factor as being the “mafias” that we create around companies’ specific needs to accelerate their timeline. To your point, a mixture of people from different walks of life brings the social capital aspect of what we strive to do to the forefront.*
One way that we like to think of ourselves at the Hyperscale Fund is that we view community differently from most other projects. It’s functionally our product, and everything else is a product feature. What sets Seshat Bank apart from everyone else, and why do you have conviction around what you do?
SP: Seshat Bank is, at its core, an API first commercial bank. Programmable bank accounts open a world of opportunity for clever developers. Instead of having applications that talk about money you can have applications directly interacting with bank payment rails. We believe that this is a massive market and there is an incredible amount of demand from developers for a bank like us.
Most Honduran banks operate effectively as pawnbrokers. If you want a $100 loan you better come up with $200 in collateral. This leads banks to miss out on many promising and low risk financing opportunities. We take a more holistic approach, using transaction data to better model their cash flow. Working this way leads to a lower NPL-rate, lower interest rates, lower legal costs, etc. I think though that the real value of transaction data only comes with large datasets over long time frames. Large datasets and long time frames lets you better identify edge cases and more efficiently allocate funds.
We operate with high conviction because we’re very research and data driven. We speak with our customers and work back to the root problem. Before we begin any kind of design work we confirm demand. We read and develop theses about the future and how our customer base - and their needs! - will change over time. It’s why we’re a particularly good fit for not just for our traditional manufacturing, agricultural, real estate clients, but also for software companies.
HF*: We’re similarly very research driven in that we’re all about our feedback loop internally at the Hyperscale Fund. Our version of “moving fast and breaking things” is to do it with the integrity and purpose of learning from every experiment. It’s interesting to note the parallels between traditional crypto ethos of open access and immutable data filtering into what you’re doing on an infrastructure level. A lot of the innovation in crypto financially has been around paradigms like flash loans that can’t exist in traditional finance, but you’re doing the next best thing in how you think about this space. Making both data and resources available to people without high access or collateral requirements certainly goes a long way towards building that better, more equitable future we all are building towards. To your last point about talking with customers, we like to think of ourselves as being “in the trenches”. There’s a certain humility that incumbent, legacy financial institutions lack, so it’s great to hear just how customer centric you are.*
Crypto is thought to exist outside of traditional regulatory regimes, which is an idea many take for granted. Banking is the polar opposite. Can you talk about how you had to navigate real world jurisdictions while building something that lives online?
SP: Banking ultimately is about discipline and trust as it’s a heavily regulated environment with strict rules, no matter what jurisdiction one ultimately operates in. For example, our escrow product enables commerce between two parties who don’t trust each other, for instance. Prospera made the most sense as a starting point because of its legal regime and the increased flexibility we have here.
The first conversations anyone looking to get into banking should have are with banking attorneys. The licensing process alone is fairly specialized. After that you need to work out how long asset recovery will take, after default. How efficient are the courts? Are arbitration decisions enforced well? You need to work out how KYC/AML enforcement and how you’re handling risk management compliance. There are a lot of things that need to be resolved before you can even get your licenses. The important thing is getting your license though. If you’re looking to actually be a fintech and not just be lipstick on a pig you need to control the underlying payment rails, and that requires licensing. If you’re building your application on top of an actual bank you inherit all of the pros/cons of their tech setup. Being a UI/UX improvement for an actual bank shouldn’t be your goal.
Because we are in a regulatory greenfield, we are able to build better from the bottom both on the legal and technical side, and don’t have to compete with the many vested interests that are either unable to or don’t want to change. Building from scratch takes longer to start up but ultimately allows you to control everything and provide a better customer experience.
HF*: A lot of what you say about careful planning and regulatory compliance mirrors a lot of our observations in crypto as well. Sitting on the fund side of the table where we’re tasked with allocating capital, we’ve often noticed that projects, even ones with promise, may be hampered in the future due to poor tokenomics models. It makes the value proposition of something like SyndicateDAO even more apparent off the jump. A careful consideration of the rules and regulations saves a lot of pain if one is committed to building with integrity. We don’t look at lawyers as cost-centers, but rather as builders in their own right like engineers who can help build infrastructure for projects to have maximum flexibility and success.*
One common theme we’ve seen in compelling projects is that the payoff is not immediately apparent. Can you speak to what gets you excited about dealing with banking headaches and how do you optimize for long term rewards with current day needs?
SP: Time traveling alchemy is a pretty exciting line of work in my opinion, but to each their own. We’re advancing future income to the present and transmuting hard assets into dollars.
As far as what we look for, the key traits are having a long time preference, a conscientious approach to risk, and a propensity to look for leverage - both financial and non-financial. We’re building the financial infrastructure for every other LATAM business and are focused on helping people automate their businesses.
HF*: The concept of searching for leverage is at the heart of truly scalable ideas. We think about capital of all types, whether it’s investment based or it’s social-currency based, in much the same way. Crypto is relatively unique compared to most other industries in that there doesn’t ever seem to be a dearth of available resources for investment, but often times a lot of the scaling isn’t available because that requires not just resources, but time and human labor. We like to think of ourselves as future proofing for crypto capital markets by over-indexing on our ability to be hyperscalars for projects. This content series is a perfect example of that commitment, because significant resources are put into finding good people such as yourself to share with the broader community, but we know that by building out our content base we will be much better positioned to help projects as our audience becomes more familiar with them.*
As a natural follow up to the previous question, what would you say is the Seshat Bank community? We don’t conventionally think of banks as having community, but then again we don’t think that conventionally of funds such as ourselves.
SP: Our customers, employees, and our investors make up the Seshat Bank community. Our customers are all incredibly excited for us to go live soon and are some of our biggest advocates with the outside world. They’re building applications on top of us and will be using us for their financing needs. Our employees are working hard building and testing our products and designing the financial substrate of the future. They’re making sure that we have a very tight feedback loop with our customers and are able to help them effectively. And our investors have backed us all the way through and made all of this possible by providing the resources we need to build and meet our customer’s needs.
HF*: It’s refreshing to hear you start and end your community with your customers. There’s a fine line to walk between building for a future in which one has scaled with focusing entirely on current day needs. That being said, I think the attitude of seeing people who build on top of what you have put out to the world as would-be partners is the right one. It’s completely within the crypto spirit as well, as many protocols are multiple other protocols under the hood duct taped together.*
As a penultimate question, how do you assess people interested in helping Seshat Bank on this journey? What do you look for?
SP: The best way is to email us at careers@seshatbank.com with a little bit about themselves, their background, and what they’d like to do with us. We want global talent. Internally, we want to make sure that all of our development work and testing is completed prior to our full launch so that we can begin servicing our first set of customers with a truly full-stack solution. Long term, our focus is on building out our API ecosystem, establishing partnerships with apps built on top of the access and services that we provided, and creating better internal tools for all of our customers that directly interact with their bank accounts.
We specifically look for contributors who seek more than immediate gratification. The things we do today bear fruit in three to five years, which sits outside of recent hype cycles.
Thanks for all of your time Sean. Do you have any final words of advice for anybody reading this?
SP: I’m not in a position to give advice, so I’ll just give three points. Adverse selection businesses are extremely difficult. Cash conversion cycles are one of the most important things for you to focus on. And reducing transaction costs drives civilizational advancement.