How Fintech is disrupting banking

Brett King Hosts break the banks, which has been called “the #1 fintech podcast in the world”. He is also the author of numerous bestselling books on fintech and was recently named one of BizTechThe 30 financial services IT influencers to follow in 2022. BizTechDidi Gluck of Didi Gluck recently sat down with King to discuss the disruption 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 facing traditional banks today and how are they handling them?

BRETT KING: The number one issue is culture, because for years the real issue for banks when it comes to responding to things like internet, mobile banking and crypto, and now the metaverse, has been their technology DNA. “Compared to fintechs like challenger banks that we see emerging globally, the wallet plays and players like Ant Group, the largest fintech in the world, who have the whole team as technologists, most of the banks don’t have that.”

Legacy banks have a significant disadvantage in terms of culture because the first thing you need to do before you can invest in technology in an incumbent bank is fight for the budget that would otherwise go to branches or infrastructure typical of the bank. You have leaders at the top who have spent 30 years doing banking the traditional way; nor do they have the expertise to deal with the technology. So, I say culture, but it boils down to core skill sets and DNA of the organization.

There is also the overall risk aversion to experimentation. Fintechs are always experimenting, always trying new things, pushing the limits. This is very difficult for banks to do given their legal and regulatory compliance issues. The internal culture is that “the regulator hasn’t explicitly said we can, so we better not”. Fintechs are like, “Yeah, let’s do it. And if the regulator says we need to change it, then we’ll deal with it. »

The number of banks in the world in 10 years will have decreased considerably. The biggest banks in the world will be technology companies.

Brett King

Host, Breaking Banks Podcast

BIZTECH: Are there particular technological innovations that banks need to master or face extinction?

KING: Yes. If you look at the way analysts talk about the banking industry right now, you hear them talking about market capitalization, which we hear more about tech companies. The influx of fintech companies into the sector has changed that basic measure of assets held by a bank, or their non-performing loan ratio, or return on equity. Now that’s customer acquisition cost and customer lifetime value. These are metrics on which fintechs significantly outperform banks. The ability to acquire a customer digitally is the most important factor for survival. And it’s a metric 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 quickly and grow their customer base very quickly because it’s just a matter of downloading the app or clicking a link, isn’t it not? If you are a bank that can only acquire customers when they enter the branch, then you are at a significant disadvantage.

Going forward, the real difference between banking before the Internet and when we look back 100 years from now is that we are moving from banking products that we used to provide through the branch, such as credit cards or savings accounts, to integrating the usefulness of banking into our lives through the technological layer. It is 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 how to save money and help you understand how you use your money and help you develop the right behaviors.

There is a much more experiential view of how banking services should relate to customers’ lives. This requires a complete organizational change in the banks, because the credit card service will not exist in 10 years; the plastic won’t matter. You will deliver these experiences in the cloud or in a mobile wallet. You won’t be issuing plastic cards, checkbooks, or passbooks to your customers 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 customer banking experiences combined with the ability to acquire customers digitally at scale.

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BIZTECH: Are there any examples of traditional banks that you think are doing the right thing right now to prepare for the future?

KING: I get asked that all the time. When banks ask me, I say, “You are asking the wrong question. But in this context, it’s fine.

There are a few, but not many. A good example in the United States is JPMorgan Chase. CEO Jamie Dimon has been very clear and articulate about the threat fintech poses to JPMorgan Chase and more broadly his commitment to spending money and acquiring fintech, investing in fintech and partnering to fintechs. I think it shows a real awareness of this paradigm shift that is happening in banking. DBS Bank in Singapore is another great example. CEO Piyush Gupta invests heavily in his knowledge and technological capabilities. He transformed the bank around him. He launched a digital-only bank in India called digibank. They acquired 5 million customers. There are very few incumbent banks that have successfully launched a purely digital game.

Market-wise, the US and Europe tend to lag far behind fintech leaders in China. This gap is much smaller in China.

BIZTECH: When you say banks are asking the wrong question, what should they be asking?

KING: When people ask this question in a bank, their motivation is “tell me what is the best bank in the world that does this so we can copy them”. But my argument is that you have to look at Ant Group or Nubank, not the old banks that have to adapt, because you have to follow the new rules. These should be the things you aspire to as a bank if you want to survive this transition.

EXPLORE: Check BizTech’s 30 financial services IT influencers to 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? It’s a much bigger question mark. The fact is that the number of banks in the world in 10 years will have decreased significantly. The biggest banks in the world will be technology companies. Some banks will have managed to stay in the top 20 or 30 because of their investments in space. But many of the big names in banking will fall by the wayside.

Then there is the other part of the question: the nature of the bank in 10 years. It will be very different. You will have your smart glasses and you will receive financial coaching advice from a personal AI. You will walk into a Tesla dealership and immediately see a financing option to purchase the Tesla. You will enter a real estate property and you will immediately see the real estate financing on your heads up display. You will be coached on better ways to manage your money. You will be able to ask your bank account if you have enough money to go out with your friends on weekends. It will truly be a holistic money management system. And it will integrate features from many different banks, fintechs, and tech companies to give you that experiential outcome. Technology companies and operating systems will, in many ways, be the gatekeepers who provide these contextual offers or contextual information.

LEARN MORE: Find out how the future of banking is through decentralized finance.

Another example: 10 years from now, if you don’t have enough money to buy groceries, they will simply be handled by your mobile wallet stack. This is the dynamic change that is going to occur due to this experiential infusion of banking utility into the world around us. This does not mean that banks will not exist. But it means that instead of dealing with one bank, we now deal with an ecosystem of banks, fintechs, technology companies and data providers who come together to provide us with these banking experiences when and where we need them. .

When you realize this is the trajectory, then it seems natural that banks are no longer household names. If you think about it, it’s like the gas company or the electric company: today, people would have a very hard time identifying their electricity supplier. In most cases, they should look for this on the invoice.

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