Inevitably, The Technology Wins
A conversation with Brett King.
All we can do, in this time, is be kind to each other and try to learn from each other.
With Fintech Takes, I’ll try to help with the latter.
And to help me do that, Brett King, Founder and Executive Chairman of Moven, was gracious enough to share some of the lessons he’s learned in his last 15 years of predicting (and shaping) the technology disruptions that have impacted the financial services industry.
Our conversation below has been edited for length and clarity.
Editor’s Note: The news that Moven is shutting down its challenger bank and focusing on its enterprise business broke after this interview. For more insight into that decision, check out Brett’s interview with Penny Crosman.
Fintech Takes: Inherent to being a futurist, it would seem, is a willingness to accept as true something that almost no one else believes. How did you first come to the realization that smartphones would change banking so fundamentally and render branches obsolete?
Brett King: In 2005, I was commissioned by HSBC to do a 20-year outlook on how digital technologies were going to disrupt their business. And the key thing was the network effect — understanding that this technology enabled you to change things quite quickly, but bankers expected customers’ behavior to be very sticky and not change.
For example, the branch. My assessment, back in 2005, was that by 2008 internet activity would overtake the branch, particularly from a transactional perspective, and then by 2015 mobile would overtake both the branch and the internet. At the time, this prediction was treated mostly with disbelief and it wasn't really until 2013 or 2014 that the numbers started to show that it was really happening.
My frustration was that there was no preparedness in these organizations, which led me to do a lot of research on how different industries face disruption. When you look historically over the last 250-300 years, the pattern is identical. Every time a major technology disruption comes up, whether it was the Luddites with the steam-driven weaving looms or motor vehicles changing the transportation sector, the reaction is always the same. Traditional players say ‘well, we don't want to change the industry, we're going to hunker down. We're going to tell people that the new technologies are evil.’ But inevitably the technology wins, right? To think that any industry is immune from that is ludicrous, given the historical proofs we have.
Fintech Takes: Speaking of how market incumbents adapt to disruption, it reminds me of this Upton Sinclair quote “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
This would seem to be a fairly accurate way to describe the attitude of many bankers. I remember seeing you speak at a bank conference about 10 years ago and you getting a polite, but unenthusiastic response from the audience. What has it been like trying to convince bankers that branches were going to become obsolete?
Brett King: There was a lot of resistance. I had people come up to me after events treating me as if I was an atheist challenging their religion. I remember being accosted in a hotel after an event I did in 2010 by a bunch of U.S. community bankers. And this guy got right in my face and said ‘how dare you? This is our livelihood. We don't need you. Let us just get on with our business.’ And I said ‘listen, you have to start preparing’, while at the same time I’m thinking that these people just fundamentally didn't see what was coming. 2013 to 2014 was when the scales lifted from people’s eyes and they started to realize that things had already changed and the trajectory was inevitable.
Fintech Takes: What drove you to create Moven?
Brett King: I was on the road in 2010, promoting the book [Bank 2.0], and I’m in Los Angeles at this networking breakfast and one of the people there asks me ‘what’s a bank account going to look like in 10-20 years time?’ I said that in 2025 you won't go to a branch to get an account, you will just have a cloud-based bank account with a wallet that will sit on your phone and in the cloud and you'll download the functionality you need. It'll give you advice on savings and the best way to use credit, but you won't need to go to a human. The best bank accounts will be those that are smart and integrated into your life.
So I was describing this and people in the room quickly said ‘yeah, but banks aren't going to do that. Who's going to do it?’
And that was the epiphany that I had — I'm going to do it.
Fintech Takes: You’re a big advocate for first principles design thinking, in which you essentially start at zero when designing a new product, with no assumptions that aren’t based on immutable first principles. Despite the massive amounts of money invested in fintech, it seems to me that a majority of fintech startups are building on a lot of old assumptions. A challenger bank’s deposit account looks, when you dig beneath the UI, a lot like an established bank’s deposit account. Why do you think even startups struggle with this?
Brett King: Well it turns out that the regulatory environment is pretty critical for innovation. That's why we see more success in China, where there's lower regulation. If you look at mobile payments, the U.S. is probably six or seven years behind China. In China, people can walk into a store and they don't need to pay with cash or a card or a PIN number or a signature, they just use their face, which is a pretty elegant solution to the problem of identity theft and automating our payment process as much as possible.
Now this doesn’t mean that we will still be using plastic payment cards in the U.S. and Europe 20 years from now. History teaches us that incumbent systems, for the most part, don’t survive.
By 2030, the dominant form of financial services will be digital. The dominant brands in the space will be digital. Some of those companies will be incumbents who have have evolved, but there's going to be a lot of new players in the mix as well.
The dramatic change here is that, prior to the emergence of the internet, 100% of banking was done through bank-owned channels. ATMs were owned by banks. Call centers were owned by banks. Branches were owned by banks. But by the end of this decade, 90-95% of all day-to-day financial services transactions and interactions will go through a technology layer owned by technology companies not banks.
Fintech Takes: Speaking of incumbents surviving, a lot of established banks are creating spin-off digital banks, which could in theory give them the opportunity to start at first principles and design something fundamentally new, and yet we see hardly any examples of these digital banks producing anything radical. How would you assess the potential of these digital spin-offs?
Brett King: I think if you're going to try and respond to these trends, a digital spin-off gives you flexibility that you can’t get by trying to change the entire organization. But when you look at it, from a first principles approach, you don't generally get the same results from a bank spin-off that you get from a startup.
I'll give you an example. Moven was the first mobile challenger bank in the world. We launched in 2011 and we did a number of firsts that were counterintuitive for traditional banks. We did the first online account opening for a bank account in a mobile app. We did the first real-time receipt which instantly categorized your spending based on the merchant and gave you an indicator of how you're spending your money within specific categories like dining out or shopping or entertainment. We put the spending meter on the home screen, which showed you your spending for the month compared with your typical spending on an average month. So if you're spending above normal, the app turned red. If you're spending below, it turned green. These were things that didn't come out of the traditional space. They were counterintuitive. Remember the early mobile banking apps? The first thing you'd see is a checking account, savings account, and credit card account. You’d see the list of products. At Moven, we took a different approach — here's your relationship to your money, here's how your behavior affects your savings, and this is how you can change it.
I think where the digital spin-offs miss, from a design perspective, is they don't have a strategic view of disruption in the same way fintech startups do. Fintechs want to do things differently. The banks that spin off their digital pure plays generally are doing it as a response to the market and to stay competitive with the with the challengers. So from a strategic perspective, there are two very different drivers.
Fintech Takes: It's an interesting counterfactual. If you had convinced a large bank back in the day to let you start Moven as a spin-off of their organization, there probably would have been a bank executive in all those meetings saying ‘couldn't we just use the same design as the the homepage from our online banking?’ There would have been that countervailing force in all of those discussions, right?
Brett King: Exactly. When you start prototyping something different you come up against this systemic resistance. So if you want to have a digital pure play that you spin off that's really effective, it almost needs to be a separate organization with a very different culture and then over time you infuse that culture into the incumbent business. That's the challenge and we've seen mixed success with that.
For example, DBS Bank launched digibank in India as a digital pure play. Neal Cross, who was head of innovation at the time at DBS, then tried to use that as an example to push the internal culture around digitization at DBS, with some success.
But then look at Chase. They launched Finn in the U.S., at the cost of $180 million or so. And if you were in New York City, like myself, and you went to sign up for the thing going ‘I'd really like to use Chase’s new app.’ Guess what happened? You would get a message saying ‘thank you very much. Finn is not available in your area right now, but you can go to a bank branch and sign up for a Chase account.’ They didn't want to cannibalize their existing branch business. So if you were in a city or a zip code that was covered by a branch, you couldn't actually access the mobile app.
So when you look at why Finn failed, it wasn't the quality of the app. It was this schizophrenic behavior within the bank, where this digital pure play was seen as a competitor to the traditional business.
Having said that, Chase is one of the top banks on the digital side for millennials because their app support is quite good. So it's obviously not a complete failure. It's more this slow burn of becoming more and more digital over time.
Fintech Takes: In 2007, there was a ton of resistance in established banking markets to the idea that a smartphone could play an important, let alone central, role in bank-customer interactions. Yet, also in 2007, Safaricom and Vodafone commercially launched M-PESA, which used feature phones to bring banking services to millions of people. It’s a great example of Nintendo’s engineering philosophy “lateral thinking with withered technology”, in which you find creative new uses for established, mature technologies.
From your perspective, is there an established technology — not something cutting-edge like AI or quantum computing — that has significant untapped potential for creative use cases in financial services?
Brett King: I think one problem with the tech we’ve used in banking today is that a lot of it is dependent on you going to a bank-owned channel like the branch or ATM.
Where it gets interesting is around things like the point of sale. The point of sale is mostly passive right now, just collecting your identity information to authenticate a transaction, but I could see more real-time engagement being driven by a smart point of sale.
So let's say, for example, you walk into a grocery store like Whole Foods and you're obviously not going to shop for toilet paper right now, but you're going to the store and I know you normally spend $400 on groceries. But today, I know you've got $200 in your bank account. You may not know that. You may not know that your salary hasn't come in because it's a Saturday and your salary doesn't get paid until Monday. So you go through the whole shopping process. You fill up your cart, get to the cashier’s station and you swipe your card and it gets declined. That's obviously a bad experience, but it’s also an easily avoidable experience.
Instead, what if the store uses beacon technology or even just geo-location with your phone to deliver a better experience? I know you normally spend $400. I know you've got $200 in your account. I can send you a text message or notification through your app saying ‘Hey, it looks like you might not have enough money to purchase your regular amount of groceries. I can offer you a $200 loan, interest-free for 30 days. Would you like to proceed?’
We could do some pretty interesting things that are more predictive and behavioral in nature, without requiring massive injections of artificial intelligence or quantum computing.
In the spirit of learning from each other, here are a few fintech reading suggestions:
Brett’s latest book, Bank 4.0, is a fascinating primer on first principles design and embedded banking. I highly recommend it.
I’m also excited to read Chris Skinner’s new book, Doing Digital, which will be available on April 7th. In the meantime, video, slides, and a transcript of a keynote presentation Chris recently gave on the same subject are available on his blog.
I make it a policy to read everything Jennifer Tescher writes, but her latest Forbes article on the necessity of getting stimulus money into consumers’ hands immediately is truly a must read.
Finally, Jim Marous and the team at The Financial Brand have been providing great ongoing analysis on the impact of the pandemic on the financial services industry.
And, in the spirit of being kind to each other, a quick message from Doctor Who (h/t: Theo Lau):