Article part of The Bank is Dead. Long Live Banking.
By Harry Llufrio,executive creative director and partner, and Chris Ryan, managing director and partner, AnalogFolk Asia
The fintech revolution has caught some well-established banks off-guard. They’ve been held back by legacy systems and the urge to press on with traditional models, despite changes in customer needs and behaviour.
We asked futurist and CEO of digital banking service Moven Brett King what the coming years hold for the incumbents – and how they can get on board.
BRETT, WHAT ARE THE YOUNGER GENERATION LOOKING FOR IN BANKING?
Millennials have very different expectations of banking: they think of it in terms of utility and experiences, not relationships. In emerging markets, where there’s no legacy behaviour, millennials are finding new ways to work with each other financially, using services such as WePay and Alipay. They’ve found a workaround to the banking system. They don’t need a full bank account, a cheque book, an overdraft or a credit card; they just want the ability to pay.
In China, the younger generation have been splitting bills using WeChat for a while now. The emphasis is on how they live their lives, and how finance fits into their lifestyle.
IF RELATIONSHIPS ARE NOW LESS IMPORTANT THAN UTILITY, WILL THIS MAKE LOYALTY HARDER TO ACHIEVE?
For the big banks, it’s going to get much harder to keep customers.
The emergence of smart assistants, voice UI, mixed reality and AR-embedded experiences will help fintechs raise their game and compete with banks and their human-to-human touch points. As these experiences mature, that utility becomes very behavioural rather than product or brand in nature.
Banks aren’t employing this kind of tech fast enough, however. They’re still pushing traditional products hard. Technologies like Amazon Echo, through which products can be ordered by voice command, illustrate the experiential problem traditional banks have.
If you look at how a bank sells a credit card to a customer, it differentiates it by offering air miles, cashback and other rewards for usage, hoping customers will pull its card out of their wallet above any others. In [the case of Amazon Echo], the product disappears and the utility surfaces.
Who has the advantage in that space? The owner of the smart assistant or layer of technology. They can dictate which apps will be utilised and what gets configured into the machine learning, and they will influence what service is from a commerce perspective. People who don’t own that technology layer are going to have to fight hard for involvement.
SO BANKS WILL BECOME INCREASINGLY BACK-END, PROVIDING THE PRODUCT FOUNDATION BUT BEING INVISIBLE TO THE CUSTOMER?
The only banks that can survive this transition and maintain a direct relationship with customers will be the biggest banks with a major commitment to providing digital experiences. Banks that don’t will end up with three core products: the ability to make payments or move money, the ability to store value and appreciate that value, and the ability to access credit.
BECAUSE OF THE TOUGH REGULATORY BARRIERS, WILL FINTECHS HAVE TO WORK IN PARTNERSHIP WITH BANKS?
With Moven, we started off with a direct-to-consumer model in the US, but then had lots of banks asking to license our tech, because it’s differentiated. We’ve signed a US$20m commercial deal with Canada’s TD Bank and we’re now extending into the US for them.
There’s a number of banks we’re now licensing our tech to. We realised it was far easier to be paid by banks per user for deploying our app than to go through the cost of acquiring customers in a direct-to-consumer model. And since we aim to expand internationally and reach 100m customers, trying to get a bank charter and our brand established in each foreign market would be really hard and very expensive. So the way forwards is in partnership with banks.
When you look at other technologies, such as AI and Bitcoin, those, too, will only work well in partnerships.
THE GROWTH OF FINTECH IS SET TO CONTINUE. HOW DO YOU SEE THIS UNFOLDING AND WHAT WILL BE THE DRIVERS OF CHANGE?
Let’s start by asking what the financial services sector will look like in 30 years’ time. The application of a ‘first principles’ design philosophy focusing on goals will make things look very different. Consider the way the iPhone was designed. Apple didn’t iterate on the design of the Motorola flip phone; it took three groups of functions – the iPod, the browser and phone apps – and thought about a completely new approach.
If you were building the banking system from scratch today, would you end up with branches and a business that requires you to visit in person and sign a piece of paper? No way.
So based on the fact that technology is redefining how we think about banking, who’s redefining the way banking works in people’s lives? Ant Financial, for example, is 15 years ahead of the banks. It’s in 77 countries and investing and acquiring, and is on track to have 2, maybe 3 billion people on its platform by the end of the next decade. That would easily make it the largest financial services company in the world.
WHAT ABOUT THE CORPORATE AND B2B SIDE OF THE BUSINESS?
I get asked one question all the time: ‘If you were a bank, what would you do today?’ I give a simple answer: You have to be able to deliver every product in your wheelhouse in real time, with a mobile phone and without a signature, whether you are corporate or retail.
That’s the design problem you have to solve. If you have friction in the system, somewhere in the world there’s a fintech already working on it.
DO YOU THINK TECH WILL GRADUALLY MAKE HUMAN INTERACTION LESS NECESSARY?
Companies such as Quicken in the US look at cash-flow analysis. Moven can, for instance, plug in its cash-flow analysis and that data will inform Quicken what credit it can offer Moven. Here, the data is all that matters.
Ultimately, if the data leads to tactical advice that helps you manage your business more effectively, with advice given through AI or predictive algorithms, a human relationship only slows down decision-making.
Larger organisations could augment humans with data – a combined AI approach – but the banks that will win will be those that invest in the platforms.
WILL IT BE A COMMUNITY OF BUSINESSES OWNING THE DATA?
Banks can learn from platform providers like Amazon and Uber. But think about the change that would require for an organisation to go from being a bank that’s heavily regulated, with a credit card department, mortgage department and risk departments, to becoming a tech company that can deploy AI across a voice-user interface. These are completely different skill sets.
SO THE CULTURAL SHIFT IS A BIG FACTOR, BUT IS IT MISSION IMPOSSIBLE?
If a bank’s leadership team is talking about technology all the time and is enabling experimentation and allowing teams to fail, they’re the ones that have some promise. I believe Capital One in the US, BBVA, DBS Bank and Emirates NBD will be among them; they are trying different things. But if you’re looking at a bank to model on, you’re starting with the wrong assumption. You need to look at M-Pesa and Ant Financial.
WHERE ARE THE BIGGEST INNOVATIONS AND GAME-CHANGERS COMING FROM?
Emerging markets are where you see both the biggest changes and the fastest adoption. They have new systems, less regulation, and no legacy systems or behaviours that favour incumbents. Take mobile payments. In the US last year, about $9bn in mobile payments were carried out. That includes Apple Pay, Samsung Pay, Android Pay, PayPal and others. In 2017, China’s mobile payments will amount to about $3 trillion; around 70% of which will be through Tencent and Ant Financial’s networks.
In Kenya, before M-Pesa’s mobile payment came along, financial inclusion was 27%; today it’s effectively 100%. That hasn’t happened because of branches; it’s happened because of M-Pesa and the phone.
In sub-Saharan Africa, China and India, people won’t think of a bank account as something they got from a branch; they’ll think of their phone as the way to access to utility and money. That’s the psychological, behavioural shift we’re seeing in emerging markets. The rest of the world will see it eventually.
Brett King’s latest book, on the development of the digital world and beyond, is ‘Augmented: Life in the Smart Lane’ (Marshall Cavendish International).
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