Digital banking is only 1% done - An interview with 11:FS

Digital banking is only 1% done - An interview with 11:FS

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With the recent CMA report driving further competition in banking, the historical hold that established banks have had on customers is diminishing. Furthermore, the continuous growth of significant FinTechs such as Monzo, Starling, Atom, Transferwise and Revolut, is proving that digital disruption is not going anywhere.

Three of the brightest minds in the UK FinTech scene, Jason Bates, David Brear and Simon Taylor, voice their predictions on the future of digital banking. 

As regular speakers around the globe, including the recent RFi Group Global Digital Banking Conference at The Banking Hall in June, this team has a real knack for bringing this subject to life, predominantly through popular culture references and the occasional ‘mic drop’ moment.

They have created a special task force known at 11:FS, as powerful as The Avengers (just one example of their creative analogies), to advise and support business teams within banks, start-ups and investment firms. The leader of the team is David Brear, who is viewed as one of the most influential people in banking, insurance and technology, with previous senior positions at Gartner, Infosys, Lloyds Banking Group and Aviva. Serial co-founder Jason Bates, started Starling and Monzo, two of the UK’s most innovative digital banks. Finally, Simon Taylor is a well-established Blockchain leader, and a founding member of the Barclays Accelerator Program where he mastered an unprecedented knowledge of how FinTechs and banks can and should work together.

These three musketeers, alongside Ross Methven and Meaghan Johnson who are expert analysts in digital retail banking, and Chris Skinner, Chairman of the Financial Services Club, have launched a weekly podcast called ‘FinTech Insider’, where their candidness, wit and passion is documented for your enjoyment. You can subscribe here: http://11fs.co.uk/fintech-insider/. 

What is the biggest driver behind digital banking and the need for innovation in the market? 

JB: With 76% of the population owning a smart phone and 53% of those checking their phones within 15 minutes of waking up, this is not a peripheral part of life – it is fundamental. Contextual real time and intelligent services are available for everyone.

But, you have an industry that is configured for a pre-digital world. Today’s digital banking apps are essentially a passbook, turned into a statement, turned into web page, and eventually a view on an app. We’ve got digitized banking, but we haven’t seen digital banking yet.

Who can win in this new market? Big banks have money, licenses and customers. Start-ups have agility and customer focussed digital services, super markets have brand and stores, Telco’s have access to millions of customers. Everyone has something, and they will fight it out in a very chaotic market place.

Beyond the creation of truly digital banking, APIs will enable end-to-end user journeys, blockchain is collapsing value chains and creating new markets. Then there is IOT, robo-advice, machine learning, and the list goes on. All of these developments are happening at once, and this multiplies the complexity and chaos. It is not a ‘five-year-plan’ world anymore, as we don’t know how the market will evolve.

 How do you see the eco-system changing?

ST: There is no one answer as it is a mixed bag. There is a spectrum of ways that fintechs can play in the gaps in the value chain – to be a supplier, or a partner, or a customer. They can create a new and more efficient player in the value chain that banks might buy. Or they could replace and displace banks. There are a lot of opportunities and to say ‘competition or collaboration’ as so many do, is too binary. Fintech is a big world.

DB: Definitely. Fintech is not ‘A’ thing. It does not represent just one thing in value chain. It’s an approach, an ethos to using technology to improve services and efficiencies while reducing costs.

Are banks being complacent and assume they are too big to fail?

DB: We talk about being ‘too big to succeed’. Who needs an innovation department of 70 people when you can start a bank with half of that?

JB: The regular refrain is: ‘I really want to do deliver something better, but the bank won’t let me’. I’ve been surprised that so many traditional bankers use Monzo cards and are so supportive of what we are trying to achieve. Most of the features have been prototyped before by a variety of different banks, and most bankers are happy to see those features launched, even if by someone else.

ST: It must be difficult when projects have to survive so many decision points in a bank. You have to take so many people on the journey with you, with so many different agendas. You have the AML team, KYC, wholesale risk, credit risk, operational risk, tech risk etc.

DB: So much of my time at Lloyds was like a bad Hugh Grant film. Bumping into people, oh sorry, how much? Oh no, is that broken? And I found that mentality caused a problem. You don’t just need a good person, you need 50.

So are banks actually capable of making a significant change? Do you think they will continue to be the dominant players in a digital world? 

JB: Logically, they should win every time. They have money, people, customers, position, everything. Yet historically, the large incumbents of other industries have frequently not been able to turn it around.

DB: And it is about when. Most atheists will find religion on their death bed. Banking might finally find the answer when they absolutely HAVE to. The initial reaction has been PR innovation only. They have created labs for their executives to go to, to feel good about the company.

What case studies do you look at for digital transformation within a large organisation? 

ST: GE is the only example in banking I can think of where a legacy business has successfully transformed into a digital business. O2 and GiffGaff is a great case study, as they have used the same technology and same processes, but now have a different voice with the customer. They changed the business model and distribution model only.

How much further can innovation in digital banking go?

DB: Our true belief is that digital banking is only 1% finished. Similar to when Facebook said they were 1% done, even when they were on top of the world. That has become our mantra for digital banking (shows the mantra emblazoned on his iPhone cover!).

If you think banking is 99% done, that it is a commodity and you are only tweaking it, then you are wrong.

JB: Somebody who believes banking is 99% done looks at Monzo as just a current account, with a bit of an overdraft. As it a new concept, it is difficult to define. Calling it ‘just a current account’ is like calling a car a horseless carriage. They are missing the fundamental shift from dumb commodity financial products to intelligent real-time services.

With banks providing an important pillar in the economic make-up – is it not too risky for them to change their business model entirely? 

ST: This could actually be a great opportunity if you look at it in a different way. If a bank as a platform can effectively warehouse risk, which they have proved they can through Brexit, then they could position themselves as exactly that.

What would google do? They would be the best damn warehouse you have ever seen and get all the market.

Maybe an economy of scale makes more sense – like Amazon web services – who invited others to use their platform to drive costs down and create a revenue stream for use of the service. Has anyone actually, like Amazon, change the business model of banking?

Who are 11:FS and how do you intend to make a difference?

JB: We are a specialist team that help banks understand, create, and launch new digital propositions.

ST: And we bring together and investing in the best start-ups to make that happen. We are building the ecosystem that comes together to deliver fintech solutions.

JB: Digital is a small team sport. You don’t need hundreds of people to deliver a world beating digital proposition. You need 5-10 of the best people you can find in a room to work with you to, quickly, cost effectively, and with laser like focus deliver something amazing. That doesn’t fit with the traditional big consultancy body shops. It is like professional sports. Some players really can be worth 10x or 50x what another player might be worth. They really can have that kind of impact.

DB: Traditional suppliers are only slightly ahead of the banks. They are in the fluffy white stuff of the wave, and we want to be on the beach where the start-ups are.

ST: Our key message is: it can be done, we have done it, let us show you how.

This article was featured in RFi Group's UK Retail Banker - September edition. To view the full magazine and subscribe to this free monthly publication, please click here: http://www.rfintelligence.com/downloads/UKRB-September2016.pdf

Mark van Dalsen

Content and creative strategy

7y

You've got a gift for metaphors, David. : )

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So interesting, thanks for sharing! (Pedro Gómez-Acebo, a colación de nuestra conversación de ayer...)

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Kevin Pinch

MD Key Accounts at FIS

7y

Outside in designers of microservices API architecture and value chain business models, the flattening effect of blockchains, super smart AI and open minded regulators. WOW! Exciting decade ahead indeed!

Very nice post... I think problem can also be that there is no conceptual, standardized approach of how to transform banks to digital era. Each bank will need the proprietary roadmap according to market psychology, regulatory constraints and many other differences. This is true especially in EU and Asia market. In addition, FinTech becomes a very heterogeneous market as each FinTech company offers many similar concepts but based on different technology (look at discrepancies in blockchain). Is there any silver bullet of how to transform banking segment to become more for people? And is it possible to create from such success story the repetitive sample useful not only on US or UK but also on any market?

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