Gen Z Trading Prodigy Wins Over Wall Street Backers for Startup
(Bloomberg Markets) -- When Yoyo Chang first told his parents that he wanted to start his own technology venture, they were alarmed: This was not part of the plan.
Paul and Pauline Chang had emigrated to the U.K. from Taiwan in 2003 so their son could learn English and eventually pursue an international business career, preferably at a global investment bank. Sure enough, Chang excelled in school. He also fell in love with the stock market at the age of 13, raking in £250,000 ($326,650) in trading profits for his family by the time he went to college in 2018.
But then Chang’s life took a turn. Rather than focus on his studies and save his money, he wanted to plow it into a startup. His idea was an app that would enable stores to accept payments directly from customers’ mobile phones, slashing transaction fees and eliminating the need for card readers and other hardware.
Worried his only child was taking on too much, Paul researched the complexities of payments infrastructure and learned it was tightly regulated and dominated by the likes of Visa, Mastercard, and PayPal, not to mention banks. What made Chang, an 18-year-old freshman, believe he could jump into that world?
“I told my boy, ‘Don’t do it. It’s too difficult,’ ” Paul says with Pauline and his son at his side. “I told him to buy a house.”
“I didn’t listen!” interjects Chang, now 20, with a laugh. “I was naive.”
His mother shakes her head. “He still doesn’t listen,” she says.
Now Chang’s naivete is paying off. His venture, KodyPay, has morphed from a crazy idea he and some friends conceived in their high school cafeteria into a fledgling business. KodyPay raised $2.3 million from angel investors this summer. Chang made deals with a partner of International Business Machines Corp. and a subsidiary of Visa Inc. to build his technology. And KodyPay was ready to go live in November in cafes and shops at the University of York, where Chang is a third-year business management student. With the novel coronavirus forcing thousands of students to attend classes online throughout northern England, the plan is to try to release the app in January.
At first glance, Chang’s tech adventure follows the familiar contours of the Silicon Valley creation myth. He does idolize Steve Jobs, Elon Musk, and Jack Ma and unabashedly dreams of creating a company that can change the world. Yet Chang’s journey deviates from the traditional narrative in myriad ways. For starters, he isn’t a solitary brainiac holed up in his dorm room or garage writing computer programs. Actually, he can’t read a line of code, let alone write one.
Nor is he the product of elite private schools or the hothouses of innovation that thrive in universities such as Stanford and Cambridge. Chang was educated in state schools in southern England and has become an unexpected star at the University of York, an institution known more for its acclaimed scientific and humanities research programs than for its incubation of tech startups. What’s more, his venture shows how the drive for innovation has truly expanded beyond the confines of Silicon Valley and gone global. “There’s a lot of hidden talent out there,” says Kiran Trehan, the pro-vice-chancellor for partnerships and engagement at the university.
Chang’s knack for strategic thinking and marshaling allies to his side is well suited to the next chapter in financial modernization. The fintech revolution of the last decade is largely done: Online banking and payment apps have been commoditized, and cloud computing has made starting a venture relatively affordable. The game now is all about forming creative business models, marketing, and partnerships, says Brad van Leeuwen, a digital payments entrepreneur and co-founder of Cledara Ltd., a cloud software company in London. In payments, a $2 trillion global industry in annual revenue, the prize is titanic. “The biggest challenge in the payments space isn’t the technology, it’s building a critical mass of customers,” Van Leeuwen says. “And the barriers to entry are no longer insurmountable—a 20-year-old can do it.”
A gregarious sort who talks at warp speed, Chang has attracted a squad of influential mentors to his cause. In June, Hank Uberoi, a onetime senior executive in charge of technology at Goldman Sachs Group Inc., became KodyPay’s chairman. As the former chief operating officer of Ken Griffin’s hedge fund Citadel as well, Uberoi moves in finance’s rarefied circles. He’s connecting Chang to his network of ex-Goldman partners, old Citadel colleagues, entrepreneurs, and angel investors.
The young man talks to Uberoi several times a day as he negotiates with potential partners and prepares to release the app. Although Uberoi knows his protege may ultimately fail in his quest, he’s happy to hop aboard for the ride.
“I’ve seen enough early-stage companies to know it takes 10 miracles to succeed,” says Uberoi. “But when I first met Yoyo, I knew within the first 10 minutes I was going to invest with him. It was his energy level, his enthusiasm, his grasp of detail that impressed me. And the reality is that often experience is a hindrance rather than an advantage—you’re constrained by what you think is not possible. Yoyo doesn’t feel constrained.”
What he does feel is pressure. Between assembling a board of directors, negotiating deals, raising working capital, and managing the rollout of the app, Chang’s days are a blur of tasks and meetings. When he wakes up, he says, the first thing he thinks about is all the business problems he must solve that day. Then he’s got his schoolwork, too. His university advisers fear their pupil will become so overwhelmed he’ll drop out. As for a social life, Chang has no time to do what guys his age typically spend their time doing—hanging out with his friends on Discord or WhatsApp, playing sports, or even dating.
“I haven’t seen my friends in months,” Chang says. “Whenever they do want to meet, I just feel so guilty because I have so much stuff to do, and a lot of people are depending on me. I really didn’t know what I was getting into—I just went for it. But looking back, I think doing KodyPay is one of the better decisions I’ve made in my lifetime. I have to have that kind of mindset. I can’t not do it.”
On a radiant autumn morning, Chang is taking a break from his labors, strolling with his parents on the Long Walk leading to Windsor Castle, one of Queen Elizabeth II’s residences. Normally this tree-lined avenue would be filled with tourists. Today the Chang family and a few others have it to themselves.
The first thing you notice about Chang is his laugh—an air burst of cheer that’s inevitably followed by a tumble of words. He carries himself with the confidence of a young man who knows older people find him charming. There’s a cheekiness, a bit of the born salesman in him, but he does the work, too. When he talks about his venture, you can sense the steeliness behind the pitch.
A polite, good-natured couple, Paul and Pauline seem to be both excited and wary about their son’s ambition. There’s little doubt they primed him for a life of overachievement. They started him on tennis lessons when he was 5 years old, then came piano, and though they spoke traditional Mandarin at home, they sent him to Taipei for a school year when he was 8 to make sure he could properly read and write the language as well.
Paul runs his own business exporting household goods to Taiwan, and Pauline is an operations manager at Aten U.K. Ltd., a Taiwanese information technology manufacturer with offices in nearby Slough. When Chang was 13, his mother started bringing him to work after school. The teenager did clerical jobs and data entry and answered the phones.“I did it for three years,” Chang deadpans. “They paid me in food.”
Pauline smiles. “I showed him how the company worked,” she says. “My boss said, ‘When Yoyo finishes school, maybe he can join the company.’ ”
Chang hoots with laughter at the thought. “I might want to become a shareholder,” he allows.
He attended Windsor Boys’ School, which caters to academically gifted students, and was drawn to mathematics. For extra credit, he joined a couple of other pupils and took a crack at Goldbach’s conjecture, a centuries-old number theory problem that remains unsolved. Impressed by the boy’s intensity, Mark Curtis, his math teacher and a onetime bond trader in the City of London, introduced him to the stock market so he could see math in action.Chang was delighted with the notion you could own shares in your favorite companies. He became the top stockpicker on his school’s investing team. It didn’t use actual cash, and before long he wanted to play the market for real, which took his mother aback.
“It was a school project, so we didn’t think much of it, but then he started asking for money from family members, so I got scared,” Pauline says. “I mean, how can I give my money to a teenager? We had some arguments at the time, but I trusted my son, and we did bring him here to have adventures. And I thought if he lost the money it would be a good lesson.”
At 16, Chang gathered £10,000 from his family and his own savings. After the newly elected Donald Trump vowed to spend $1 trillion on infrastructure projects, Chang bet that commodities and mining stocks would jump. He plowed all of his cash into Glencore Plc, the Swiss natural resources giant, and was rewarded when its stock increased 13% in the first quarter of 2017. Having proved he knew what he was doing, he became the de facto chief investment officer for family members and friends. He wound up managing more than £150,000 on their behalf for the next couple of years.
Like any active shareholder, Chang wasn’t shy about quizzing the chief executive officers of his portfolio companies. He became a prolific chat correspondent with Tony Durrant, the head of Premier Oil Plc, a London-based exploration outfit that rallied from late 2016 through the third quarter of 2018. Similar to other market prodigies such as Ken Griffin, who traded convertible bonds when he was in college, Chang found financial freedom very early in life.
By the time he was preparing for his final exams in 2018, he’d built a six-digit nest egg and was considering a down payment on a house. Then one day he was rushing to get lunch in the school cafeteria when he got stuck in a long line at the cash register. Chang and his friends were frustrated they couldn’t just pay for their food using their phones. Taking it a step further, they didn’t understand why they couldn’t send a payment from their phones to the merchant like a text. Why does anyone have to queue at all in the age of the smartphone? “A store shouldn’t have to buy any hardware at all to process payments,” says Chang.
It was an interesting notion, but Chang wasn’t exactly in the vanguard of the fintech revolution. For the better part of a decade, a raft of startups and financial stalwarts had rewired the way we pay for things, do our banking, and transfer money around the world. Apple Pay had elbowed its way into the exclusive payment relationship banks and credit card companies had long enjoyed with their customers. With their own digital wallets, newcomers such as Venmo and Revolut were winning over millennials and Generation Z. Payment processing startups such as Amsterdam-based Adyen NV and Stockholm-based IZettle AB were well on their way to making inroads in the point-of-sale market in retail.
By the time Chang arrived on this crowded scene, it looked like the transformation of finance had already taken place.
Chang wasn’t going to let the revolution carry on without him. He had his own angle as the world went increasingly cashless. When a consumer goes into a shop and buys, say, a pair of jeans, she can use a contactless debit card or a phone app or a watch and tap a terminal at checkout to pay for the item. The terminal sends the transaction data on a journey through the multilayered payments system, and eventually it reaches her bank, which automatically approves and debits her account accordingly. Chang wanted to eliminate the terminal.
In the summer of 2018 he set up KodyPay, the name inspired by the dog of a girl Chang had a crush on. Chang invested £120,000 in establishing the business and beginning the process of building a prototype. In his model, the payment would beam straight from a shopper’s phone to the store’s phone, tablet, or laptop and then eventually on to her bank for settlement. That meant the customer would no longer have to wait for a cashier to complete the sale. On the way out, she’d show a security clerk her phone to verify payment and be on her way. As for the cost to the store, if it’s part of a chain of 20 or more outlets, it typically pays a transaction fee of 2.25%, and the company still has to purchase all the hardware to handle payments. Chang contends that if you eliminate the manufacture, installation, and maintenance of the machines, you can reduce annual costs as much as 65%.
Turning that idea into an application was the trick. So Chang pitched KodyPay to his faculty adviser, Peter Ball, and other university officials. The student broke down KodyPay’s proposition into simple economic terms for Jon Greenwood, the school’s director of commercial services. York had recently invested £350,000 in new tills and payment terminals in its retail outlets and cafes across campus. With the pandemic already sharply diminishing the use of cash, he was unhappy paying tens of thousands of pounds in processing charges every year as more of his students went cashless. “Yoyo rolled up and said we could do away with two-thirds of that cost,” Greenwood says. “That’s what got my attention.”
Greenwood gave KodyPay a spot in the university’s brand-new startup incubator program called Phase One. Chang also jacked into the school’s alumni network. Before long, he’d clicked with York grads John Holmes, the chairman of Hardman & Co., a U.K. investment research firm, and Chris Baker, a professional astronomical photographer and angel investor. Both men advised Chang on establishing a business and put him in touch with professional contacts.
Still, KodyPay wouldn’t amount to anything more than a PowerPoint deck unless Chang could build and commercialize the application. By the fall of 2019 he was still searching for a way to do that when he caught 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 major organizations. In 2015 he set up Cognition Foundry, a kind of digital lab that took equity stakes in startups in exchange for developing their technology. It also acts as a talent spotter for its sponsor, IBM. In the fall of 2019, Argent met with Chang and a couple of colleagues in a cafe on the south bank of the Thames in London.
Listening to Chang, Argent saw straightaway that KodyPay wasn’t doing anything groundbreaking in terms of the technology itself. He’d already seen similar device-to-device payment systems at work in China. What he did like was Chang’s plan to take terminals out of the equation. Argent could see the immediate financial benefits. “Yoyo was talking about a very scalable idea and one that fits in nicely with IBM’s initiatives in fintech,” he says. “What really grabbed my attention was Yoyo himself. I talk to a lot of people with innovative ideas, but the idea isn’t 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 the spring of 2020, Cognition Foundry agreed to build KodyPay’s platform in exchange for a 5% equity stake in the startup. Argent assembled a squad of six to eight software developers in Bulgaria to write the code. He also briefed members of IBM’s senior management team on the venture, as well as its worldwide sales unit. In October, Tom Rosamilia, senior vice president of IBM Systems in North America, interviewed Chang as part of a virtual technology conference for several thousand customers.
Meanwhile, Chang formed a partnership with Cybersource, a company owned by Visa that produces 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 the chairman and CEO of Earthport Enterprises Ltd., a London-based company that executed cross-border payments for dozens of financial companies worldwide. He’s helping Chang navigate the convoluted digital payments system and negotiate with powerful 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, now rolling out its services in Europe, caters to Chinese nationals abroad. As it happens, there are more than 2,200 Chinese students at the University of York.
Even as Chang and KodyPay made strides, his parents and teachers worried about his other project—finishing school. He has long flirted with the idea of quitting university to concentrate on his startup, and it hadn’t gone unnoticed that his heroes Steve Jobs and Mark Zuckerberg didn’t complete their degrees. Peter Ball, a business professor and Chang’s faculty adviser, was one of the first champions of KodyPay at the school, and he’s used the beta version of the app to buy fudge and mince pies for a meeting. But he’s kept a close eye on his student.
“I do nag him, but I think you have to,” Ball says. “I get the feeling he works on his business during the weekdays, and he squeezes his studies in on the weekends and whenever he can. I have said to him a couple of times, ‘I want to see you really successful, and KodyPay would be wonderful, but we also have a duty to your degree, and it’s essential to complete your studies.’”
Chang, who’s earning the rough equivalent of an A- so far, says he’s committed to finishing school, and, oddly, the pandemic has made that easier because he doesn’t have to physically be on campus and can study and take his final exams online. His parents want him to go for a master’s degree in finance, and he likes the idea of pursuing that in the U.S. But these plans may be upended by his continuing education in KodyPay.
With the University of York set to demonstrate KodyPay’s capabilities once students return to campus en masse, Uberoi and Chang are now putting out feelers as they look toward raising capital in a Series A round. It’s a big step, choosing investment partners at such a formative stage. Chang, with Uberoi’s help, will be courting venture capitalists right as his baby goes out into the world. He’ll be doing so just as the pandemic is undermining in-store shopping during a tough winter.
For all the hopes and dealmaking and sheer toil that have gone into KodyPay, the reality is it may turn out to be just another payments app in a sea of apps. The fintech scene is littered with once-promising failures—in 2019 the U.K. payments player Ipagoo went into administration, as did Loot, a digital banking play backed by NatWest Group. Even Monzo Bank Ltd., the onetime darling of London’s fintech hub, is hurting. In July the digital bank reported a loss of £113 million in the fiscal year ended Feb. 29 and warned that the pandemic’s impact on revenue, among other challenges, was casting “significant doubt” on the company’s ability to continue as a going concern. Even with a first-rate strategy and whiz-bang app, it can be hard to get consumers to change their spending behavior, says Van Leeuwen, the payments entrepreneur. “Before you get usage of your product, you have to build acceptance,” he says.
The future of finance will be written by very few authors. Chang is philosophical about the possibility that he won’t be one of them if his venture fizzles, as deflating as that might seem. After all, he’s only 20.
“I can afford to make mistakes,” he says. “In fact, they’re not mistakes when you’re this young, 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 journey.”
Robinson covers wealth from London.
©2020 Bloomberg L.P.