Brett King is an Amazon best-selling author, a well-known industry commentator, a speaker, the host of the Breaking Bank$ radio show and the founder of the revolutionary mobile-based banking service Moven.
For almost a decade now you have been talking about the “branchless bank.” Depending on the research you read, some consumers express a preference for the personal contact with their branch. Do you still think we’re seeing the end of branches, and if so, what would you recommend for banks dealing with such a massive change?
Today we see many major banks in the United States, the United Kingdom and throughout much of Europe shedding branch infrastructure rapidly. Why?
It’s critical to look at actual consumer behavior, and not surveys that ask "would you still like to use a branch" or similar. In 1995 the average retail banking customer in the United States, United Kingdom, Australia, Norway and Germany visited a bank branch 25+ times a year—in 2015 that number was less than one visit a year, and it’s still declining, faster than ever before. Sean Park from Anthemis uses the illustration that banks using branches are like Wile E. Coyote from the Road Runner cartoon—they’ve just run off a cliff, but many haven’t yet realized they’re 1,000 feet up in the air with nothing below them.
While all branches won’t disappear, banks that rely on the branch for revenue and engagement will absolutely disappear. It’s simply a problem of economics—the cost of an individual branch and the level of engagement the channel produces, proves most branches are no longer viable. The loss of branch engagement we see is not a branch design problem, it’s a customer behavior problem. So redesigning branches isn’t a solution.
The key to adapting to this changing customer behavior is really about changing your approach to customer engagement. For every product or service the bank offers, it will have to be redesigned to be delivered in real-time via digital in the near-term. That means if currently you require a wet signature and a face-to-face interaction to acquire a customer, then you are going to find it very difficult to adapt, and your business is at risk.
I would stay start with some new metrics. Look to increasing engagement with the brand on digital, and then look at the effectiveness of your digital channels to deliver both revenue and relationship metrics.
If that is the case, what about the human factor? What about the role advisors like financial planners, account managers and private bankers play in building relationships with customers? Can digital really take the place of human advisors?
There are two problems with assuming that you need humans to have a relationship with your customers. Firstly, outside of the financial services space, we see plenty of brands whose primary relationship with customers is built on technology—Amazon, Netflix, Facebook, Google and even the primary day-to-day relationship Apple has is via technology.
Secondly, artificial intelligence and advice is being built into our day-to-day banking experience, which provides much higher quality personalized advice than we could ever get with humans.
There are a number of reasons why humans won’t be able to compete with AI in respect to advice. In Augmented, my new book, I identify the following reasons:
Big data and information asymmetry. An AI will simply have access to much more data, and will be able to synthesize it faster than any human could. It’s why Google’s self-driving cars are 10x safer than humans, and why IBM Watson is twice as good at diagnosing cancer as the best human doctors. We just can’t compete with AI on data synthesis.
The best advice is real-time, contextual. Like Fitbit and other sensor-based fitness and healthcare technology, financial advice needs to be responsive to changes as they occur: A spike in your spending that will change your ability to save for an important event; an emerging change in the market that will affect your investment. Much of this is time-sensitive and humans in the chain just slow us down.
Machines will be better at learning about us. Sensors, data mapping, heuristics, pattern recognition, deep learning and other capabilities mean that a machine or AI that you enable will know so much more about you than a human advisor ever could. This counts for areas like healthcare even more than banking. But think about your relationship manager from your bank—if you see them once a year, how well do they really know you? It’s not even close to what AI will be able to do.
Clearly there is acceleration in investment in Fintech. We hear a lot about banks needing to partner with these disruptive companies. How do you see this playing out over the next 5 years?
Fintech companies raised $21 billion in investment last year, but that was up from $12 billion in 2014, and $3.6 billion in 2013. In January of 2016 we saw more than $7 billion in investment alone, so there’s no sign that things are slowing.
The key function Fintechs are playing in our economy is revolutionizing the experience that customers get via digital. The reality is that banks have really shown a distinct lack of ambition and creativity when it comes to digital engagement. We see the same products that are offered through a physical branch being repacked without so much as rebranding or repositioning, we see sign-up processes barely modified for an online experience and we see compliance processes groaning under the pressure, or just road-blocking digital completely.
Fintechs on the other hand, are trying every combination of different approaches that you can imagine, much of it that banks reject out-of-hand as unreasonable, or only possible because Fintechs are not yet regulated properly, but I think that’s largely an excuse for inaction.
If I use Moven as an example, we’ve got an app architecture that is radically different from any app you’d get from your bank. You can sign up in two minutes (that’s opening a bank account), with no signature, and our home screen, features and notifications coach you to save money. This required not only a very different compliance and risk approach, but also a fundamental rethink of the way a smart bank account can have a place in a consumer’s life. After four years, we’re now seeing many of the incumbent banks attempting to copy elements of our capabilities, but the issue is that banks are not the ones doing this sort of innovation.
My firm belief is that banks will co-opt this creative and experience design capability of Fintechs as this gap becomes even more glaringly obvious. Ron Shevlin recently tweeted out this gem: (Retweet it)
There’s definitely some truth in that.
One area where Fintechs are really going to hurt banks though, is acquisition and revenue. Banks that still require signatures on a piece of paper to onboard a customer should be very, very nervous right now. Fintechs are built to deliver every product imaginable in real-time, without a signature.
Like Fintech, the blockchain is another disruptive technology not only in banking, but beyond. Can you share your thoughts on the value of blockchain and when you think we’ll really start seeing its impact?
As we move to value stores aligned with the Internet of Things, Agency and Voice Commerce and Personal AIs in our smartphones, the current link between identity and a value store will break. There’s not a single area I can think of that is going to be so devastating to both banks and regulators in such a short period of time. The only practical way to handle this change in the way we treat identity and the way we digitize assets, is the blockchain right now.
I use the example, in my book Augmented, of an autonomous vehicle in 2025 that is owned as part of the sharing economy by, say, a dozen different owners, or through some subscription service. The self-driving car drops its owners at their workspace in the morning, but then has a few hours where it logs on to Uber as an autonomous vehicle, driving for them. It then has to go to a public parking facility where it charges via a wireless charging unit and has to pay for access to that electricity. Inside that self-driving vehicle is a wallet that enables it to make all those transactions, to pay road taxes, tolls, earn an income from Uber, etc.
If you are a bank, you would still be working out which of the shared owners you need to KYC (know your customer) to open that wallet!
As we start using artificial intelligence in the advisory space, particularly in the fields of accounting, law, credit management, etc., then all of our assets and contracts will need to have a digital equivalent that is managed in cyberspace. That must have a shared ledger capability that allows secure portability of assets and constructs. Basically anything we currently do on paper that establishes bona fides will have to move to a secure, distributed ledger to work in the future Augmented world.
We’d be remiss if we didn’t talk about your new book, Augmented: Life In The Smart Lane, where you examine four key disruptive themes: Artificial Intelligence, Experience Design, Smart Infrastructure and HealthTech. As a “book on future history,” how do you predict these disruptions play out in the banking industry?
Augmented is a departure from the world of banking for me as an author, but one that really became necessary as I started to think about the magnitude of changes the industry is going to face over the next two decades. If you think Fintech, smartphones and the Internet have been disruptive, just wait till you get a load of the Augmented age!
Let me take the example of HealthTech to illustrate. In just three years’ time, you’ll be able to wear a $50 sensor or a $300 smartwatch that will monitor your heart health and be able to accurately predict the likelihood of a heart attack many weeks and months out. Think about the impact of this.
Firstly, that smartwatch might eliminate a major cardiac attack event, which will not only save you or your insurer upwards of $90,000 in health costs in a country like the United States, but might dramatically change your treatment options. If we catch a change in heart health early enough, we don’t send you to a doctor, we send you to a nutritionist to change your diet. What would a health insurer pay for this reduced risk profile in a customer?
The real shift of banks and financial institutions is around experience, however. Within just a few years, technology like Amazon Echo or Siri, embedded in our phones, will have a great deal more intelligence than it has today. With Amazon Echo you can simply ask Alexa today to reorder a previous item you’ve ordered through Amazon, but in five years Alexa, Siri and Cortana will be able to book airline tickets, hotels, reserve a restaurant, pay a bill and much more. Within 10 years, more than 70 percent of our personal commerce will be handled by an "agent" built into our smartphone, smart car or smart home—and we won’t be using a credit card or signature for any of those transactions.
If you are a bank and you don’t have a strong API around delivering your data to these service layers, you will simply not be part of the ecosystem. When a customer walks into a store, they won’t pull out their credit card to make a transaction next decade, they’ll just receive a credit offer. A customer will ask Siri what their account balance is and whether they can afford to buy that new iPhone 12. If you aren’t integrated at that level, you become irrelevant almost immediately.
The “bank” will be embedded in experiences in devices and interfaces built into the world around us. If you expect a customer to stop their life to come to a bank, then you’re going to be amongst the first victims of this shift. The future of banking is all about responding to a customer when and where they need help, not creating friction, reinforcing products through multi-channel architecture or “owning a customer.” Payments, value stores, credit and advice will all be repacked for a contextual world. We’re the last generation that will use the terms credit card, mortgage, savings account, overdraft and mutual fund.