Published: 15 December 2018
Brett King on the future of banking
Gerry Gaffney
This is Gerry Gaffney with the user experience podcast. My guest today is a futurist and author. He's been a commentator and participant in the banking industry for many years.
He co-founded Moven, a New York-based banking startup where he is also CEO. He's written for Huffington Post, BBC, and others. He hosts the radio show Breaking Banks on Voice America. He's recently joined the board of Australian neobank Xinja as a permanent advisor, and I point out by way of disclosure that I'm currently working at another neobank - Sydney-based Volt Bank.
His books include Life in the Smart Lane and Breaking Banks. His most recent book and the reason I wanted to talk to him today is the fascinating Bank 4.0 - Banking Everywhere, Never at a Bank.
Brett King, welcome to the User Experience podcast.
Brett King
Gerry, it's great to be back in touch and on the show.
Gerry
It's been awhile. Brett, I must say the book really was an eye-opener from page to page almost. I was highlighting it and when I went back through my highlights to prepare for this talk, I realized that I just had way too many, but I guess I could sum it up by saying that you see that banks are having, or undergoing or about to undergo an existential crisis. Is that a fair summation?
Brett
Absolutely. And this goes well beyond the Royal Commission in Australia. It's really the fact that the modality of what we think as banking, the modality of that is changing due to the way technology’s being involved in our life. And the real shift is, you used to go to the bank to get a product like a mortgage or a bank account or whatever. But in the future, the utility of the bank will be embedded in the world around you. So it will respond to your needs in a sort of predictive, geolocation sensitive behavioural sensitive manner.
And when you look at that, what you realize is all of the products that banks tend to issue today, you know, don't fit well in that world. And then when you look for organizations that are doing that sort of stuff, and then you find organizations like Ant Financial out of China and others, along with the potential for scale, and ultimately you do the math and banks aren't probably going to end up in a favourrable conclusion in that respect.
Gerry
I guess the banking industry is, I mean, it is so traditional, so old, isn’t it? And in the States for example, people still use checkbooks on a day to day basis.
Brett
Does my head in. I think you're talking about banking 750 years old. The oldest bank in the world is 750 years old. It goes back to the time of the Medicis. But even the terminology we use for banking, like "bank" is from these marble benches that the bank has used to sit on in the marketplaces in Italy. So yeah, there's a lot of that influence. And in reality, banking hasn't changed that much in the last 800 years.
Gerry
You’ve said that the options for banks as they, I guess design for the future is to either iterate on the branch model, or engage in first principles thinking, could you expand a little bit on that for us?
Brett
So if you look at how banks have adapted to technology, we've essentially just taken what we knew through the branch and retrofitted that onto different channels. So, you know, when you got phone banking is very structured around, you know, like the sort of conversation you'd have with a teller, but it's the highest, you know, solvable questions in a call centre. Then you've got the ATM machine. Automated Teller Machine designed after a teller, you know, this function that gives you cash. And when the Internet came along, what do we do with it? We stuck a statement behind a login and called that internet banking.
And so, you know, everything we've done in banking in respect to tech has been essentially just extending the branch model onto these new channels. But when you talk about first principles, the potential for disruption is high. So a few examples I give in the book, you know, the automobile, how it changed city design and driving and all of that because of the introduction of that… The SpaceX rocket versus the Apollo program, how we’re talking about magnitudes of cost savings and really fundamentally, differently approach to space transportation.
And thirdly, the iPhone which was in no way an iteration on the previous phones that had come before it.
So they’re good examples of first principles thinking. And so in the book I went looking for evidence that fist principles design is coming into banking and I found a lot of it coming out of emerging markets, but almost none of it coming from the incumbent system iterating on the existing model.
Gerry
And it's funny, I was thinking about a quote yesterday in the book because I had a little bit of a play with one of the local banks here, you know, using their voice interaction. But you wrote in the book; "If you are trying to get someone to pay their credit card via Alexa, you've missed the point entirely."
Brett
That’s a good quote! Well because that's know the point is that a credit card was designed for distribution, physically in a branch, you know, sending you a physical card. Now when you shift to the voice-based world or real-time payments world, then you know, if you see what's coming out of China, for example, with facial recognition and then you throw in voice commerce over the next few years as well, you realize that a 16-digit plastic card is simply not elegant enough. Or you know, fundamentally, secure enough to be able to be used on an ongoing basis in the digital sphere. And yet that's how banks think about it. They think about, let's stick the credit card and a mobile phone or on Alexa and that should be good.
But instead you should be, start thinking about, if I have Alexa in my home, what could I potentially… How could I have a relationship with my bank account in a way that I don't currently have? And that's where you get smart about things like advice, where you could say, Hey Alexa, can I afford to go out for dinner on the weekend? Alexa, when can I afford to buy a new home? And you know, that sort of ability that you could build into. This is pretty interesting, Alexis answering, by the way, over there.
Gerry
Yeah, we've got that problem here too. We've got Alexa and Google side by side. We occasionally get some sort of internecine warfare going on. Now in theory, and you talk about AI agents there when you're talking about Alexa, in theory, an AI agent can work on the customer's behalf. For example. There's a statement in the book that the tech will help you buy a home, not a mortgage. But there's also an inherent assumption here that the AI will have the customers' interests at its core. A more dystopian view might be that the AIS are working at the behest of inimical interests are indeed working for themselves in a way that's detrimental to the customer. How do we, orcan we guard against that?
Brett
So just say Illuminati dude…
Gerry
You reckon I’m a conspiracy theorist?
Brett
I'm just giving you a hard time. So the interesting thing about AI development right now or course that we are starting to code in human biases and there's a potential for that. You know, when you try and solve the bias problem or the ethics problem in AI, it's a really sticky one. Because if you try to encode human behaviour, you get 100 people in a room, you'd probably get at least 50 definitions if not 100 definitions of what is ethical behaviour as an example.
And so sort of trying to build that into the AI schema is hard because machine learning is where we're at right now and machines are essentially learning this pattern of behaviour based on human templates that are served up is in the form of data, right?
Gerry
Do you find it a bit scary that there's so much facial recognition going on, and particularly the direction it’s going in in China?
Brett
Well, you know, when I was a lad in Melbourne, Australia, I'd come home from school sometimes and I'd find a book on the doorstep and you'd open up this book and it would have everybody's name, telephone number and address in the local city.
And of course we thought nothing of having a telephone book with all of those details on it back then. So I think when you start getting real value exchange for sharing your data, which is where the, the essential is, I think we'll adapt that quite well.
What is the value exchange you give? Well let’s take, you know, an apple watch with heart rate data, you know, why would you share that? Well, what if I could give you, what, if I could tell you through an algorithm that could predict the likelihood of a heart attack, you know, would that be worth you sharing heart rate data with me? I think so.
And so I think, when we start thinking about privacy concerns, I think, well, we can use things like facial recognition and it solves the identity theft problems. So it does, you know, that's a pretty good value in itself. But if I can give you some additional value on top of that, beyond the security, then yeah, I definitely think we should. I think we'll just get used to it. I think our kids, of course will find it much easier.
Gerry
Yeah. Although you do see, and again, I don't want to harp on about China in particular, but you do see a credit worthiness being related to not only the ability to access credit…
Brett
A social scoring system
Gerry
Yeah, the whole scoring thing. What do you think of that?
Brett
Well, you know, like if I was China, I can understand why you do something like that… It’s a really interesting exercise in kind of gamifying the entire society. You know, obviously from a civil rights perspective it's a challenge, but at the same time, you know, we informally to this sort of social scoring through social networks today. We have influencer lists and things like that. So yeah, I don't know if it's that different, right?
Gerry
So to sidetrack a little bit, can you just tell us a little bit about how the way that people, that I guess the previously unbanked are accessing financial services in developing nations and what the implications are for the banking industry in general?
Brett
So obviously we've got some killer examples out of places like Kenya with M-Pesa where we went from 20 percent of the population having a bank account – due to branches - to 98 percent of the adult population having essentially a proxy for a bank account on their phone. That's just incredible progress, but it didn't happen because of bank branches or getting a signature on a piece of paper. In fact, what we've learned in recent times is that because of the increased, compliance around things like terrorist financing and money laundering and so forth, we've made the identity requirements to get a bank account now so difficult that in the US, about 20 percent of households can no longer get a bank account because of just having to have a driver's license and passport, you know, as an identity mechanism, which as you know in the US is not necessarily guaranteed, particularly the passport.
So that's a stat which is quite interesting where you say M-Pesa, you see Paytm in India, um, you see the mobile wallets out of China and you know, these are very different. They use network effect. They look at, you know, some simple scenarios first, or some compelling scenarios like the Chinese guys Ant Financial and Tencent, they did this digitalization of red packets. So that's all ways, they’re mechanisms for inclusion that just simply were not available in the branch, but the branch appears increasingly…
You know, if you're in Africa, for the unbanked in Africa, 70 percent of them would have to spend an entire month’s salary just to get to a bank branch so you not going to include them in an ecosystem like that because it's just not going to work. So that's where mobile has been really interesting innovation.
Gerry
Yeah. And I guess even in, in the richer nations, you know, you point out in the book that when people do go to a branch, particularly when people I guess under the age of 30 or 35 go to a branch, it's generally because of a failure of the online medium.
Brett
I'd agree with that. In fact, you know, we did some research on this, awhile back and we found that about 85 percent of branch visits were because they'd been asked by the bank to visit. You know, once you open an account these days, theres not a lot of need to go to a bank branch and you should be able to, as Moven’s been proving since 2012, you can open a bank account without a branch.
Gerry
I guess that's going to be surprising to some listeners that that's kind of the norm now is that you can go on to a modern bank and you know, five minutes later I have whatever accounts you needed up and running.
Brett
Well, you know, the challenger banks that have come into the UK, for example, there's more than 50 of them. In fact, there's about 100 challenge of banks globally at this point. Some of them like Revolut, N26 and others are really, you know, more than more than 2 million customers and in multiple countries. But these guys have all grown based purely on mobile based or digitally based customer acquisition. There's none of them have branches.
Gerry
And I see one of the UK Challenger banks won I think was the Which award for Best Bank of the year. I can't remember which bank…
Brett
Starling bank.
Gerry
That was a pretty impressive coup.
Brett
It was. And I think there's real pressure being applied to the banks in the UK as a result of the success of these challengers. And you know, I wouldn't be surprised if Steve [Weston, Volt Bank] and Eric [Wilson, Xinja] down there in Oz do similarly for the Australian market. You know, we have a lot of Moven copycats in the market here in the US. You know, Chase spent a considerable effort on building a new app called Finn and which is very similar to Moven in many aspects.
Gerry
I guess the power balance has changed because, I mean previously the bank was sort of this elevated institution to which one went and I guess begged for a, you know, some sort of indulgence. It was church-like.
Brett
The "lucky to be a customer" scenario we call that.
Gerry
Yeah. But now particularly with changes to open data in the UK and in Australia and other countries, that's going to change, isn't it?
Brett
Well, you know, we’re getting a lot more choice and that's where Fintech I think is important. It not only does give a sort of different, standard to banking when it comes to things like user experience where you've got technologists who are really focused on that stuff. But I think you've got, you know, think about all the innovations that have come out of the marriage of the Internet and social media around this, you know, businesses like TransferWise with cross border payments, even Bitcoin as a mechanism for payments. And so, you know, there's a lot of innovation also coming through these players which make banking just much more frictionless and accessible.
Gerry
Now I'd imagine that a number of people listening to this or reading this are going to be UX designers currently working in the banking sector and they've probably got their chops with UI design and mobile first and responsive web design and you know, maybe a little bit on chatbots and voice and so on. And they're probably thinking, oh shit, everything is going to change again. Now. Do you have any advice for people there to I guess to maintain their relevance in the industry?
Brett
In the book, what I do is I talk about experiences that we'll be using. So if you think about it from experience designer perspective and so forth, don't worry, they've got plenty of work in the foreseeable future, but it comes back to the context of banking.
So essentially what I plotted in the book was if you look at bank 4.0 on this sort of bank 1.0, 2.0, 3.0, 4.0 trajectory, and you try to classify that you'd classify on two axes. One is, you know, the move broadly from physical distribution to digital distribution happening with retail sector, etc. And then high friction environment to low friction environment. So the real benefit of some of this design and stuff is that in a real-time, low latency environment, you can do some predictive stuff, for example, that really can blow a customer away, solving a problem before they're even aware of it.
Or something location based. Like, I did modelling on when you can't afford your groceries at the grocery store, and today how you do it is you fill up your card, you go to the checkout, when your card’s declined you have to try and find another payment method. But in this future world, as you walk in the grocery store, you might get a message on your smart glasses or your smartwatch or your smart phone saying, hey, we know you normally spending $600 at Coles, but today you've only got $400 in your account. Would you like the additional $200 to complete your grocery shopping today?So that sort of context stuff all needs to be built, all needs to be modelled. And behavioural psychology, experience design, the data science, they're all elements that are going to make this a really, really interesting sort of re-engineering of that entire distribution layer for banking.
Gerry
And I guess it points towards the importance of multidisciplinary design or, you know, cross-silo work as well.
Brett
Yeah, because you know, the silos that they have in the banks today for a start won’t really survive. Like, you weren't need a credit card in the future. You just need access to credit. And that'll be contextually based or scenario based.
Gerry
If you have with the banks now they're all very much based on product, right? If you look at their information architecture, it's product, product, product.
Brett
And that was the point of Bank 4.0 is that you’re shifting from products to experiences and that the most scalable experiences, the fastest growing financial services organizations in the world tend to be these that have reframed the core utility of the bank through a technology-based experience. So instead of having all of these different savings accounts and all of these different credit products, like a credit card and mortgage and so forth, they just take that core utility of providing credit and sort of wrap up a technology and digital based experience around it.
Gerry
You had something towards at the end of the book saying that, it's a really fantastic and exciting time to work in banking. But you also had a little anecdote where you said that often when you talk to an older executive will come up to you and say; "That was really interesting, I'm glad I'm retiring next year…"
Brett
Because I don’t have to worry about it. And that's obviously not a solution for the brand that they're working for. But that happens more often than you’d care to believe. Because it, it is, you know, those guys who had been in the business 30, 40 years. Iff you then say to them, it's all going to change, obviously the first reaction is this is just too har, you know. So if I've got the opt out…
Gerry
Brett's book is called Bank 4.0 - Banking Everywhere, Never at a Bank, and I think it's pretty much a must-read if you're working in the banking and financial industry or indeed if you're at all interested in how the fundamental changes underway may affect the way we interact with technology and finance in the future.
You can follow Brett on Twitter.
Brett King, thanks so much for joining me today on the user experience podcast.
Brett
Gerry, it's been great, and thanks for having me.