Mark Chahwan co-founded Sarwa more than four years ago after moving from Montreal to Dubai to address gaps in the market: a local population that was still largely parking its money in real estate and savings accounts, and a banking sector that mostly focused on high net worth individuals.

Sarwa made it easy for customers to open an account, and offered the opportunity to build a diversified investment portfolio, including crypto.

In this episode of Rise of the Next, Mark talks about some of the cultural differences between the Middle East and the West when it comes to investing, and what matters when building a wealth management company.

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TRANSCRIPT

Shereen Abdulla

Mark, thanks for coming on Rise of the Next. It’s great to have you on.

Mark Chahwan

Great to be here.

Shereen Abdulla

Why don’t we start off by telling the audience why you moved from Canada to Dubai to start your company, back in 2017, I believe?

WEALTH MANAGEMENT IN DUBAI VS CANADA

Mark Chahwan

Yes, of course. So as you said, we moved in 2017, after just realizing how new FinTech was in Dubai, in the UAE, and the GCC in general.

We saw that there were core problems that were still unsolved, such as investing and retail investing. People were still looking at real estate or savings accounts, while in the West, we were already heavily investing in stocks, ETFs. So, when I witnessed that gap, I realized that banks here were quite behind. So the answer had to come from a startup, and that was really motivating to see that we can — this is a problem that we have close to heart and we can actually solve.

Shereen Abdulla

So the gap then was not so much that the investor community were not aware, rather you reckon it was the supply and that it wasn’t from the financial industry’s point of view of things being provided to the public?

Mark Chahwan

Exactly. People had the appetite, to save, to invest. In Dubai, a lot of people move here for personal growth. Of course, it’s an area where income still isn’t taxed. A lot of people move here to jump a few career layers. So within that environment, it’s a lot of driven, young people that were saving a lot but didn’t really know where to go. So, we found that the wealth management was still very much tailored to the 1 million plus. Everyone was after that segment, but no one was really looking at the mass affluent, the people that had considerable income but didn’t have someone looking after it.

ABOUT SARWA

Shereen Abdulla

Interesting. And on that note, why don’t we actually give the listeners a quick brief about your company and what it is that your company does?

Mark Chahwan

Of course, yeah. So Sarwa means “wealth” in Arabic, it’s pronounced “tharwa,” and we kept it simple because we want to help people invest their money, to put it into the stock market, into ETF stocks, and now crypto as well so that they can make their money work on the side.

We started by providing a robo-advisory service where we help people diversify their investments with a portfolio with dividend reinvesting. Last year, we shifted into a more active proposition, as well, in the same app where you can also do zero-commission trading all in one place under one app. So that’s the new trajectory we’re on based on a lot of the shift and, basically, the comeback of active trading.

ACTIVE VS PASSIVE INVESTING AS AN OFFERING

Shereen Abdulla

Back in 2017, why did you pick on passive investing as the offering your company was going to focus on, as opposed to active investing?

Mark Chahwan

Yeah, very good question. So I was 25 at the time, and it’s my first business so I needed to go out with a bang on a proper portfolio structure. And I had worked as an asset manager that was managing 80 billion in passive and I lived the data firsthand — I saw that, year after year, passive wins over the long-term. So instead of putting on a similar proposition than the banks, which is a persona with a banker that tells you, “I know how to beat the market,” we approached it with data and with transparency to show that over the long-term, we can match the market, and that’s good enough on its own.

That really resonated — it was different, it was bold, it was transparent, people knew exactly how much fees, how much returns we were making. Until today, actually, we’re the only wealth manager in the country that’s displaying our historical performance online, I still have yet to see one. So all of it — we had to come out with a very different approach, so that we stand out.

Shereen Abdulla

Why do other wealth managers not share their historic performance?

Mark Chahwan

From my experience there’s a few elements, the wealth management industry wants to be exclusive and makes you – wants people to feel they’re part of a club, versus in FinTech it’s the opposite, we want to make it accessible. So by making the website quite simplistic, you’ll see that it sends a certain message that they…

Shereen Abdulla

Approachability?

Mark Chahwan

Exactly! There’s a lot of that and I also feel like it under-performs. So, when it under-performs you don’t want to show that publicly because you might do well on one year, you might do well another year, by not putting it online you can manipulate the data to show better performance. So that’s where active under-performs over the long term and putting it online is a very difficult job.

Shereen Abdulla

So why expand in active investing now?

Mark Chahwan

We basically realized that having a 100% pure passive portfolio is unrealistic. And we realized that — a lot of us on the team — we love technology, we’re excited by crypto ourselves, we work in a startup, we want to own equity in fast-growing companies. So, we realized that there needs to be a mindset shift from “get rich quick” and “get rich slow” or “stay rich.” The passive portfolio will help you stay rich and meet your goals in a predictable way, and when we realized that, we realized that a lot of customers on the side were trading with Interactive Brokers, outside of the Sarwa platform. A lot of us started asking to move that over into one app – to have their speculative bets, as well as their long-term investments. And that’s what we did — it was very much bottoms-up and listening to customers that has now allowed us, and convinced us, that this is a space we should enter.

SARWA’S PERSPECTIVE ON OFFERING CRYPTO TRADING

Shereen Abdulla

So speaking of listening to customers, I don’t know about you but all I hear people talking about these days is crypto. You mentioned crypto just earlier in this conversation — have you guys now officially expanded to offer crypto on your platform as well?

Mark Chahwan

Almost, I would say we have an MVP that allows people to have a 5% exposure into Grayscale, which gives exposure to Bitcoin in an ETF-like fashion and we’re soon entering the ability to buy and sell crypto directly. The reason we did that actually was it was a popular asset class, even Ray Dalio entered and published a very good paper on his thoughts on Bitcoin and how institutions are entering it. And for us, it was really the first test as we didn’t want to wait until launching Sarwa Trade to get a feel for the active proposition. So, it’s quite easy to put together a portfolio with a 5% exposure to Bitcoin, and it gave about 30% of our AUM that month when we launched it. So, it was a very good validation of the importance of moving and expanding to become more than a robo. So, yeah, that’s a bit of our view.

In my personal way, I put 5%, as well, into it. I saw that people sometimes get stuck to be either all in or nothing and have a bit of this decision-making limbo, but when you suggest 5%, it’s not going to make or break.

Shereen Abdulla

Sounds reasonable, yeah.

Mark Chahwan

Exactly.

Shereen Abdulla

So you mentioned that in 2017 there was a big gap between the Middle East and Western markets when it came to the average investors’ exposure to ETFs, and stocks, and whatnot. How would you compare the appetite, where you’re based, versus internationally when it comes to cryptocurrencies?

Mark Chahwan

Like, what is the appetite today of retail investors in the UAE around crypto?

Shereen Abdulla

In the Middle East, exactly, versus, let’s say, the appetite of the average American consumer when it comes to cryptocurrency?

Mark Chahwan

Funny enough, I think they’re quite similar. What I’ve learned about retail investors here is there’s a bit of this barbell approach to it where they’re either on the opposite end of the spectrum — they’re either very conservative or very risk-taking. So, We’ve seen that maybe skip a few steps around having a safety net, a diversified portfolio, and go straight into crypto, which is interesting. And some of them have done well, but it’s also a dangerous approach to get into and do well from the beginning because it’s one thing to get rich, but you have to maintain that wealth over time.

I find that in the West, people understand the volatility a lot more and the different risk profiles of an asset class. So, they understand how does real estate play into my wealth, how do stocks, ETFs, crypto — and build something much more diversified. and what we’re working on, by having all these products, is also bringing them together so that you can have a bit of everything, with the right allocation, so that you’re not all in on one coin, not all in on one stock — but you have enough exposure to a few things.

Shereen Abdulla

So from a business point of view, Robinhood, which is one of the most popular consumer trading apps in the US also recently — last year, actually — expanded their offering to offer their customers access to cryptocurrencies on their platform. Do you guys think that this is the natural evolution of where these B2C wealth management FinTech apps are going, which is that “hey, we’re going to offer more than a specialized niche,” or, “We want to be a one-stop-shop app?”

CONVERGENCE OF FINTECH OFFERINGS

Mark Chahwan

100%! I think, I read this somewhere where all Fintechs have the same roadmap slide when they’re pitching to VCs, and it opened up my eyes that we’re all heading towards the same trajectory. It’s about how fast we can get there, what’s the right sequence, and why are we equipped to win? I’ll give you an example of what that means — initially, we were planning to launch Sarwa Save before Sarwa Trade, but when trade was making a comeback, we moved our roadmap around so that if we had launched Sarwa Save with low-interest rates it would have been not as interesting of a product.

Shereen Abdulla

Would that have been the equivalent of a deposit account?

Mark Chahwan

Exactly, where you have money markets, something much more safer for your three to six months of expenses, let’s say you’re in between jobs or you want a safety net. So, I do believe that a lot of FinTechs are rebounding financial services, and we witnessed initially, the unbundling where you do one thing really well. But with Sarwa, for example, we built a really strong brand and trust around our wealth management service. Now, a lot of people trust us for other products, so the adoption across other products is much faster than doing one thing. That’s a bit of the strategy we’re following, at the moment.

HOW SARWA BUILT CUSTOMER TRUST

Shereen Abdulla

What did it take to build trust?

Mark Chahwan

A lot of things — I think it’s gradual. Every event, every piece of content, every conversation with a customer, or PR. So, it’s approaching key channels like PR that spreads the word. A lot of education. We approach trust by transparency. You can find five to six Sarwa events in a week, where you discover different people on the team. The VC-backing, for example by Mubadala that’s a 250 billion fund, is a big vote of confidence, as well. So, every area, every opportunity of trust, we’re going to take it and see how do we elevate the brand? How do we gain a customer’s trust? Because in the Middle East, a lot of people actually want their money outside of it — they’re not really looking at local banks as an end-goal. That plays also to our advantage where we partner with US providers, European providers that have their custody there. So, there’s a lot of elements both in the product and the brand to build trust.

Shereen Abdulla

Why is it that the average Middle East resident wants their money abroad?

Mark Chahwan

There’s been some horror stories, I would say. Like, Lebanon’s banking crisis is a recent example where it raised a few eyebrows where you think of a bank as a trusted institution, but it started asking, “All right, where’s the value chain of investments?” It’s one thing to invest in Apple, Tesla, and an ETF, but where is that domiciled? Where’s the custodian? So, this is where these stories start to invite people to ask, “Where’s the money ultimately held?” And they look for more transparency and more security found. And, at the same level, as if you were a citizen in the US or in Europe with a more global access to info, people won’t demand the same level of safety as if you’re outside.

Shereen Abdulla

Why not then work with a multi or rather a wealth management company that is based internationally as opposed to a regional wealth manager who will put your money abroad?

MARK’S VIEWS ON FINTECHS OPERATING IN MULTIPLE GEOGRAPHIES

Mark Chahwan

Yeah, it’s a great question. It shocked me, as well, in 2017, that’s why we started Sarwa when we realized that you couldn’t sign up from Dubai or from the GCC to a Robinhood, to a Wealthfront in the US, and we started investigating and realized that there was a lot of regulations that prohibit this. And also the risk appetite of the brokerage firms and the wealth management firms in the US is very low for the Middle East.

Shereen Abdulla

Why?

Mark Chahwan

The Middle East is a higher-risk jurisdiction, in general, and the US platforms are seeing so much growth in the US that they’re barely expanding into Canada or Europe. Robinhood wanted to go to Australia, they cancelled it. Wealthsimple went to the US and the UK then sold both businesses and focused on Canada. So, in FinTech, there’s a strong focus on owning one market — or even more, one city. It’s different than the e-commerce model, or some models, where you have to own a lot of countries and expand really quickly.

Shereen Abdulla

But, in the Middle East, particularly in the business of a regulated financial services FinTech, like yourself, you would need to be in multiple countries, even if you’re not physically in multiple countries, serve residents of multiple Middle Eastern countries for you to be a unicorn one day, let’s say?

Mark Chahwan

Yes and no. I think there is an over-emphasis on how fragmented. It’s true that the GCC is very fragmented, but I do believe there’s enough — the behavior is so positive, the wealth is there, the youth is there to basically — if you own UAE and Saudi alone, for example, that’s two thirds, or that’s $1 trillion as an addressable market, when we looked at it with McKinsey. You really have to follow an 80:20 approach and ask yourself, “Is UAE enough? Is Saudi enough?” I think people are a bit too quick to start talking about expansion when we can go much deeper into the share of wallet within a customer that has many, many unmet financial needs.

Shereen Abdulla

And what Middle Eastern countries do you guys currently provide your wealth management platform to?

Mark Chahwan

So currently we’re focused and regulated in the UAE; however, we do have customers that heard about Sarwa that are based elsewhere and sign up from Saudi, from Oman, and the various — or Lebanon, or Syria, from various countries. Or you have expats that moved back to their hometown and keep their Sarwa account and just notify us of an address change. That’s one thing that was really key in designing a platform here — to plan for expats. These people want to move back and our concern that once they move back — can they can still use a startup based in the UAE? That’s why we built a global platform, as well.

MARK ON CUSTOMER SUPPORT AS A BUSINESS DIFFERENTIATOR

Shereen Abdulla

You mentioned earlier that a lot of FinTechs have the same roadmap — what do you think, other than building trust, is a key factor for a FinTech to win in the space of wealth management?

Mark Chahwan

Trust is a big one. I think timing is really, really key so that you’re the first mover because that gives us a lot of time to understand the market, roll out features that are unique to the Middle Eastern investor. Customer Support is really, really key — that’s one thing we love differentiating on. We like to go where other players don’t like to go, such as WhatsApp as a channel. So, 50% of our conversations are on WhatsApp, which is huge! So this is the type of ways you build trust, because you just start making things a lot easier. The account opening takes a few minutes, instead of a 30-minute application. Even the discussion with a human is an opportunity because, sometimes in Dubai with the bank, it turns into paperwork — you filling out paperwork for 99% of the time and covering maybe one question around your account. When you automate all the paperwork that leaves so much more room in a 30-minute discussion to actually discuss investing and educating.

Shereen Abdulla

So you very much think — keep the customer in mind, and particularly the Middle Eastern customer and their habits?

Mark Chahwan

Exactly.

MARK’S VIEW OF GAMIFICATION AND PERSONALISATION

Shereen Abdulla

Speaking of keeping the customer in mind, I know that Robinhood was recently under fire for employing a lot of gamification tactics in the design of its app as a way to really tap into consumer behavior. How do you see that being managed and employed here in the Middle East?

Mark Chahwan

Yeah, it’s a very good point that that’s one thing we’re avoiding. There is, however, the element of personalization that without gamifying it as much — we were talking about Netflix earlier, I love Netflix’s way of doing it. So, for example, I noticed that they won’t tell you watch this movie it’s an 8.8 on IMDb, but it’ll tell you based on what you’ve watched before you have a match score of 90% so it’s a good fit. This sort of model is very interesting, where you personalize the experience of what an investor is seeing, what they have access to trade, without necessarily making it addictive. And also, ss a company we don’t track logins as much as we could, we’re not really after screen time or logins, we actually tell people log into your Sarwa maybe once a week, once every two weeks. The way we track our metrics internally dictates the customer behavior, because if you were tracking number of logins, number of time they’re spending on our app, we’re going to want to see these numbers grow.

Shereen Abdulla

Why is daily check-in a warning sign?

Mark Chahwan

Because when there’s a lot of volatility — let’s go back to March 2020, the market was going up 10% and down 10%, in the same week, and sometimes three times. That’s very destructive for your emotional well-being, to see your portfolio swing so much. That will eventually make you a worse investor because you start having FOMO, you start having a lot of thoughts about seeing your wealth go down like that.

Shereen Abdulla

I would say when it comes to passive trading, but when it comes to active trading, I do understand that people tune into market news daily, they want to see what’s up with the stocks and they may glance at their portfolio without necessarily actively trading daily.

Mark Chahwan

Yeah, there’s the right balance, as you said. The daily news, especially when it’s in a few minutes or in a podcast is really fun. It’s very intentional as well where you put it as part of your morning routine. I love that concept; however, if you gamify it too much, it can end up being the sort of reflex when you take your phone and click an app without even thinking about it.

Shereen Abdulla

Instagram — for me, at least.

Mark Chahwan

Exactly. That’s where we want to avoid being something like that because ultimately it will hurt behavior and we want people to back themes, and ETFs, and stocks that they believe in the long-term. Unlike other platforms, we actually want people to make money, and I know it sounds controversial or silly but a lot of FinTechs in the investment space don’t necessarily have that in mind. But, over the long-term, this is why we believe we will win because people start to get it because people start to see their money go up and they refer their friends, so they become advocates of seeing it firsthand.

Shereen Abdulla

And that, in turn, builds the trust that you’re alluding to earlier.

Mark Chahwan

Exactly.

MARK’S TAKE ON CHALLENGES HE’S FACED BUILDING SARWA

Shereen Abdulla

Perhaps as a closing question, Mark, what are some of the challenges you’re facing in the market, or some things that you keep in mind, in particular, when it comes to growth in this market?

Mark Chahwan

I think the amount of things we want to roll out, the amount of what we call technical debt. There’s so many features, so many opportunities to work on but eventually we have to be much more realistic and focus on a handful of things that are going to be the most impactful. Maybe that’s true for a lot of startups, but I feel like in the Middle East, specifically, I see a lot of founders that are a bit understaffed on the tech side and that’s one challenge that we’ve been constantly prioritizing — focusing on the most impactful projects.

Shereen Abdulla

Interesting! Well, I think these are good problems to have when there’s so much to do that you just have to go and seize the opportunity.

Mark Chahwan

Yeah, it’s a good way to look at it.

Shereen Abdulla

Mark, thank you for your time.

Mark Chahwan

Thank you, Shereen.

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personal finance

Sarwa’s Mark Chahwan on Building an Online Investment Service in the Middle East