Brett King hosts Breaking Banks, which has been called “the No. 1 fintech podcast in the world.” He also is the author of numerous best-selling books on financial technology and was recently named one of BizTech’s 30 Financial Services IT Influencers Worth a Follow in 2022. BizTech’s Didi Gluck caught up with King recently to discuss the disruption that technology is bringing to the financial services industry — and what banks can do about it.
BIZTECH: What are the two or three most critical challenges legacy banks face today, and how are they managing them?
BRETT KING: The number one issue is culture, because for years the real issue for banks with respect to responding to things like the internet, mobile banking and crypto, and now metaverse, has been their technology DNA. “Compared with fintechs like the challenger banks that we see emerging globally, the wallet plays and players like Ant Group, the largest fintech in the world, that have the entire team as technologists, most banks out there don’t have that.”
Legacy banks have a significant disadvantage in terms of culture, because the first thing you have to do before you can invest in technology at an incumbent bank is fight to get the budget that would otherwise go to branches or the typical infrastructure that’s in the bank. You’ve got leadership at the top that has spent 30 years doing banking the traditional way; they don't have the expertise to do the technology stuff either. So, I say culture, but it comes down to skill sets and the core DNA of the organization.
There’s also the overall risk aversion to experimentation. Fintechs are always experimenting, always trying out new things, pushing the boundaries. That’s very difficult for banks to do given their legal compliance and regulatory issues. The culture internally is that “the regulator hasn’t explicitly said we can, so we better not do it.” Fintechs are like, “Yeah, let’s do it. And if the regulator says we need to modify it, we’ll deal with that then.”
The number of banks in the world in 10 years will have shrunk significantly. The largest banks in the world will be technology companies.”
Host, Breaking Banks podcast
BIZTECH: Are there particular technology innovations that banks must master or face extinction?
KING: Yes. If you look at the way analysts are talking about the banking sector now, you hear them talk about market cap, which is something we hear more for technology companies. The influx of fintech companies into the sector has changed that core measure from assets that are held by a bank, or their nonperforming loans ratio, or return on equity. Now it’s the customer acquisition cost and lifetime value of the customer. These are metrics that fintechs are significantly outperforming banks on. The ability to acquire a customer digitally is the single most important factor in survival. And that is a measure that keeps getting emphasized in terms of the market, the cost of acquisition and your ability to scale.
All of the fastest-growing financial institutions in the world now have this ability to scale digitally very rapidly and grow their customer base very rapidly, because it’s just about downloading the app or clicking a link, right? If you are a bank that can only acquire customers when they walk into the branch, then you’re at a significant disadvantage.
Moving forward, the real difference between banking before the internet and when we look back in 100 years is this moving from the bank products that we used to deliver through the branch, such as credit cards or savings accounts, to now embedding the utility of the bank in our lives through the technology layer. That’s access to credit when we need it; not a credit card, just the utility of credit. And instead of giving you a savings account, we teach you to save money and help you understand the way you use your money and help you develop the right behaviors.
There’s a much more experiential view of the way banking needs to be attached to customers’ lives. This requires a complete organizational chart shift in the banks, because the credit card department isn’t going to exist in 10 years’ time; plastic isn’t going to be important. You’re going to be delivering these experiences in the cloud or in a mobile wallet. You won’t issue your customers a plastic card or a checkbook or a passbook in the future because those artifacts just won’t work in the hybrid physical and digital world. I would start with the basic concept of what a bank account is and how we deliver banking experiences to customers, combined with the ability to acquire customers digitally to scale.
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BIZTECH: Are there examples of legacy banks that, in your view, are doing the right things right now to prepare for the future?
KING: I get asked this all the time. When I get asked by banks, I say, “You’re asking the wrong question.” But in this context, it’s fine.
There are a few, but not many. A good example in the U.S., is JPMorgan Chase. CEO Jamie Dimon has been very clear and articulate about the threat that fintech represents to JPMorgan Chase, and, more broadly, his commitment to spending money and acquiring fintechs, investing in fintechs and partnering with fintechs. I think this shows a real awareness about this paradigm shift that’s happening in banking. DBS Bank in Singapore is another great example. CEO Piyush Gupta is invested heavily in his technology knowledge and capabilities. He transformed the bank around him. He launched a digital-only bank in India called digibank. They’ve acquired 5 million customers. There are very few incumbent banks that have successfully launched a purely digital play.
At a market level, the U.S. and Europe tend to be far behind the fintech leaders in China. That gap is a lot smaller in China.
BIZTECH: When you say that banks are asking the wrong question, what should they be asking?
KING: When people ask that question at a bank, their motivation is “tell me the best bank in the world that’s doing this so we can copy them.” But my argument is that you need to look at Ant Group or Nubank, not the old banks who are having to adapt, because you have to play by the new rules. Those should be the things you aspire to as a bank if you want to survive this transition.
EXPLORE: Check out BizTech’s 30 Financial Services IT Influencers Worth a Follow in 2022.
BIZTECH: What will banking look like in ten years? Will there even be legacy banks?
KING: In ten years, yes. But in 30 years? That’s a much bigger question mark. The thing is that the number of banks in the world in 10 years will have shrunk significantly. The largest banks in the world will be technology companies. There will be some banks that have managed to stay in the top 20 or 30 because of their investments in the space. But a lot of big names in banking are going to go by the wayside.
Then there’s the other element of the question: the nature of banking in 10 years. It will be very different. You’ll have your smart glasses, and you’ll be getting financial coaching advice from a personal AI. You’ll walk into a Tesla dealership and you’ll immediately see a financing option for buying the Tesla. You’ll walk into a real estate property, and you’ll immediately see home financing in your head-up display. You’ll get coached on better ways to manage your money. You’ll be able to ask your bank account if you have enough cash to go out with your friends on the weekend. It really will be a holistic money management system. And it will incorporate features from many different banks and fintechs and technology companies to give you that experiential outcome. The tech companies and the operating systems will be, in many ways, the gatekeepers that provide those contextual offers or that contextual information.
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Another example: In 10 years, if you don’t have enough money to buy your groceries, it’ll just be handled through your mobile wallet stack. That’s the dynamic change that’s going to be happening because of this experiential infusion of bank utility in the world around us. It doesn’t mean banks won’t exist. But it means that instead of dealing with a bank, we’re now dealing with an ecosystem of banks, fintechs, technology companies and data providers that come together to provide us these banking experiences when and where we need them.
When you understand that’s the trajectory, then it seems natural that banks are not going to be household names anymore. If you think about it, it’s like the gas utility or the electricity utility: Today, people would find it very difficult to identify who their electricity provider is. In most cases, they’d have to go and look at it on the bill.
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