“Banking 4.0 —Banking Everywhere but Never at a Bank”, isn’t really about banking — that’s just the familiar terminology Brett King uses to carry along his narrative. He comes clean late in the book when he describes how since 2009 more than one billion people in India, sub-Saharan Africa and elsewhere have gained access to a simple store of value…”initially none of these individuals have entered financial services through traditional branch access.”
His theme is financial services access; banks are just one avenue.
King founded Moven, a bank account that uses a mobile phone, a debit card and technology to show users not only their current balance but what they can safely spend, and helps them save money. Moven now offers its technology through licensing; TD’s MyBank in Canada was the first to take it up.
He has been saying for years that banking is going digital and mobile; the U.S. lags behind much of the world in this. Too many banks go digital by analogy, in King’s terms — moving paper processes to a digital approximation rather than re-thinking them.
Smartphone transactions have surpassed branch transactions but banks are still branch-centric in both organization and design. For the foreseeable future, banking will continue to move to digital and the bank tool of choice will be the smartphone, although at some point voice and biometrics will reduce the importance of the phone.
Yet American banks are still stuck with paper processes; only 18 percent of banks and credit unions permit smartphone onboarding yet Simple, Moven, BankMobile and GoBank have offered it for years.
“We will see the disappearance of banks that rely on branches for account openings,” he predicts.
Part of the problem is American regulators lag behind regulators in other parts of the world, especially when it comes to licensing tech-based banks. Varo in San Francisco is in discussions with the OCC, the FDIC and the Fed and hopes to have a license soon, its CEO, Colin Walsh, told me recently. (Look for an article about the bank the week of April 22).
Digital applications like M-Pesa in Kenya and Alipay and We-Chat Pay in China have expanded financial services to billions of people who never had an easy way to save or transact before.
“When it comes to financial inclusion, Kenya has done more to improve the lot of its populace in the last 10 years the U.S. has in the last 50 through legislation like the Community Reinvestment Act.”
King thinks we will see experiences like firms providing credit when you need it and then monitoring your spending, and discouraging unnecessary spending, so you can pay it back. That’s within the realm of technology now — Moven and Simple provide some of that. The big problem is it reduces bank profits by reducing credit card use.
Which leads to another issue that King touches on — is finance too expensive? Tim Chen, CEO of Nerdwallet, said bank profits equaled $180 per household in the third quarter, an outsize return for what are basically simple, and similar products. As Mehrsa Baradaran explains in her book “How the Other Half Banks,” bank accounts are just too expensive with their NSF fees and minimum account charges, for many people. Changing that will probably require regulations (NSF fees at $35 for a simple digital action?) or regulatory permission for fintech competition. (All-mobile Varo Bank charges no fees and pays 2.12% on savings and up to 2.80% for regular direct deposit and specified debit card use.)
Traditional banks have to support vast branch networks, large staffs and expensive legacy systems. The legacy banks will have to change or die, says King.
“Old regulated systems on rails can’t survive — even with protectionism — because they simply aren’t fast, flexible and scalable enough in a world where 200,000 internet-enable smartphones are sold every hour of every day.”
He also sees changing coming to: “regulation built for 19th century banks on top of legacy systems built decades before the internet existed.”
Perhaps inevitably a book about banking focuses on institutions, the individual may be slighted — experiences are something the financial institution does to her not something she selects and controls for herself — although King noted that the average consumer has four to seven financial relationships and that recommendation sites are beginning to change the the power relationship consumers have with their financial providers. Still, this is relatively new in financial services, Angela Strange of Andreesen Horowitz said at Money2020, noting that comparison sites save airline travelers $10 billion a year. Financial services like Nerdwallet, Credit Karma and Magnify Money are growing, though.
King concludes with some check lists for bankers to see where they are on the road to digital. A key point, does your head of digital outrank your head of branches? If not, maybe you should go work for Blockbuster or Kodak, he advises.
The book is a good read and well organized with the footnotes at the end of each chapter. I suspect it will be alarming for many in the business.
