It’s not easy to describe what Chris Skinner does. Based in the U.K., Skinner has been writing, speaking, and advising on financial topics for many years, particularly those related to the transformational changes taking place in financial technology. Earlier in his career he worked on financial services projects for several tech companies.
Skinner is the author of several books and a blog called Finanser. He also created the Financial Services Club, a network that holds regular meetings in Europe. Skinner travels and speaks extensively, works social media, and consults with banks and vendors in many countries in addition to running the club.
His most recent book, just out, is Value Web: How Fintech Firms Are Using Bitcoin Blockchain And Mobile Technologies To Create The Internet Of Value. (You can read "Beyond simple disruption," a banker’s review of it, as well as a free chapter excerpt on this site.)
In April, Skinner partnered with Singapore-based venture capital fund Life.SREDA to establish the Banking on Blockchain Fund. The fund’s goal is to give all banks the opportunity to invest in and partner with the most promising blockchain startups. It plans to raise $50 million by yearend.
Skinner’s views don’t fit neatly into boxes. He makes clear that banking as we know it is changing radically, yet within that broad stroke are finer nuances about millennials and their need for face-to-face reassurance, for instance. Read the following dialog, edited for clarity and length, and you will see what we mean.
Q1. Given our tech-obsessed world, how do you view the importance of personal relationships in the context of how financial services is evolving?
That’s a four-hour discussion, but I’ll give you the four-minute view. Money is a control mechanism, and because of that, we feel psychologically that there’s a very key relationship between us and our monetary stores. We need to feel comfortable with our money and who is looking after it.
That changes over time. Most people getting a first job or first mortgage want to have the ability to look someone in the eye and talk about it. But if you’re getting your sixth mortgage and you’ve had a job for 30 years, you’re very comfortable with money, and so doing it all on an app without ever seeing anybody is okay. That’s why most digital banks are targeting people who are comfortable and confident with money. If you look at Fidor Bank [Munich]—the poster child of digital banking—60% of its customers are over the age of 35 and over half are over the age of 45.
I disagree with those who say, “You need to completely change the banking system because millennials hate banks.” For most millennials—and the generations that come after them—the first people they talk to when they’re getting a job and looking at money are friends and family. And typically friends and family will say, “I’ve had my money with this bank for years, and even though I don’t like banks, I have someone that I trust that I can talk to.” That aspect of life isn’t going to go away soon—it might do so in 60 years, but not in a couple years. Getting comfortable and confident with money takes time. When you’re not comfortable and confident with money, you’re not necessarily going to feel you can put all your value store into a digital structure, particularly if you’ve been burned by that structure like the guys who lost money on Mt. Gox Bitcoin exchange.
Some say you’ll never need a branch in the future. I think you’ll always need a branch in the future, and you’ll always need to be able to engage customers in a face-to-face conversation. Banks just need to work out how many of those buildings and humans they need.
Q2. You wrote a blog post, “Why Most Banks Fail at Transformational Change,” in which you pose the question: “How would we build this company if it didn’t exist?” What does it take to apply that?
Most CEOs fear doing such big change. A bigger bank that’s done it is BBVA, led by CEO Francisco Gonzáles, who started his career programming computers.
When I speak to people at banks similar to BBVA, they tell me, “Yes, we’re making all those [digital transformation] statements externally, but our problem internally is that culturally we’re not sure we can make the change.” So the press and PR looks fantastic; the actual truth is not necessarily living up to the dream.
If I hear someone talking about digital leadership and transformation, one word immediately makes me think, “You’re not doing it.” That word is “channel,” or any variation of it. Digital banks don’t have channels; they have access. You build a digital foundation and then try to work out how buildings and humans access that foundation. Traditional banks talk about functions and cross-functional teams. “Function” to me says you still don’t have an integrated view of the customer and the world. What you have is silo-based products and services.
Amazon doesn’t have functional teams. If they did, then the guys who sell you Blu-ray discs would be fighting with the guys who sell you books.
Many banks create a digital bank subsidiary, which is the easiest strategy to take. A harder model is to completely remake the bank as a digital bank. It’s really a challenging thing to do, because it’s not just creating a digital bank product service platform, but it’s creating a digital culture that goes with that. One example is Poland’s mBank, which I write about in my book, Digital Bank. (Read Jane Haskin's review, "How to become a digital bank.")
A third approach is where you take your existing services and put them into an app, an API, or into the cloud. You develop digital structures, but keep your existing culture and operations as they are. I question that one just because it’s what we’ve done for years and years, and when you’ve got new, nimble competition that’s digital to the core, just trying to add bits to your front end to make you look as cool as them is not really going to work.
It just comes down to that fundamental question: How serious are you about change? Many chief innovation officers and chief digital officers I encounter in banks tell me that after a year or 18 months, they realize the organization really isn’t serious about change because when it comes to the second budgeting round, they’re being nickeled and dimed. It’s the same with some of the technology incubators, accelerators, and tech labs that are operating in banks.
When you start to create a digital culture and foundation, you end up challenging the lines of business and functions, so that the guys that sit on the executive ladder, in effect, are now going to cut off the steps of the ladder they sit on. That’s not a comfortable feeling for the incumbent leadership team. Many of them think that digital is something that can be done as a project rather than as a fundamental transition.
Q3. You’ve stated that you think banks have about ten years to retool their core legacy systems. That actually seems fairly generous. How did you come upon that number?
Banks core operating systems haven’t really changed for a long time in most instances. This has become almost like having a house with faulty wiring. You’ve got to rewire the house at some point.
A few banks are trying, but it’s high risk because you’ve got live operational systems that you have to transition to something else. If there’s any downtime in the transition, then you’ve got a risk exposure reputationally and operationally.
What some banks have done [he cited Bank Australia, a former credit union], is separate content from processing—then you can make the transition. To separate content, you suck data out of your existing operational systems into a cloud-based structure to which you then apply data analytics. Once you get the right analytics and enterprise view of your data, you can then feed that data into any processes through your private cloud such that you’ve made the content independent of the processing. But to make that transition would take about five years for most banks.
Customers don’t move quickly either. They have to change their methods and structures as well, particularly the corporate community. That’s the reason for ten years. It’s about five years for the bank to make the transition and another five before the customers will walk because they think you’re so antiquated.
Q4. It’s often said that banks have massive amounts of customer data, which they need to put to better use. Is transactional data really that valuable?
It is if they know how to use it. Forrester found that most companies—not banks specifically—only tag 3% of the data they have and analyze 0.5%. So 99.5% is irrelevant, redundant, and not used. Banks are slightly better than that.
The battleground in the future is going to be about data and using data to really leverage knowledge of the customer. And if you don’t have that capability, you can’t compete in the marketplace of the interconnected internet world.
I’ll give you an example. It is Bank of America’s BankAmeriDeals program, where in real time they can identify where you are—based on your mobile phone—and send you a specific loyalty program offer as you approach a store they know you regularly shop in. So you can use a $50 discount card in your app if you walk into that store right now, because they’ve got a partnership with the store to promote it to you. That’s being relevant at the point of my reality.
Most banks are nowhere near that level of being relevant. But that’s where the battleground is—real-time analytics for relevance in the financial relationship, and the partnerships that go into that relationship that allow that to happen.
Q5. Bankers are highly concerned about cybersecurity. Can cyberfraud derail what we’re talking about here?
If you have real-time digital structures, then your cybersecurity is far more defendable than if you have fragmented structures that are not monitored in real time. A real-time monitoring structure let’s you see the pulse of the bank, so you can easily lock down an issue as it happens rather than wait until you see it the next day. Many banks have problems because they have systems across multiple platforms—some of which are batch, some of which are real time, some of which were implemented in 2015, some in 1995. That sort of fragmented structure at the back end is far more vulnerable to cyber leverage than if you had the whole thing in an enterprise, real-time structure. And so it really comes down to: Do you have the right dashboards to manage an effective level of loss? If you don’t, you really should be refreshing those systems.
Q6. Regarding blockchain, you’ve said, “This technology could fundamentally reinvent the banking system,” and also that it is the “Uber of finance.” That sounds like hyperbole. Is it?
No. It’s true. People think “Uber of banking” is going to be a company. I don’t believe it’s going to be a company, but a technology—the blockchain. The reason: Uber and similar services are connecting people who have something with people who need something. I need a ride and Uber connects me with people who have cars and drivers. I need a room and Airbnb connects me with people who have spare rooms. It’s that middle connecting piece, and that’s what blockchain is—a shared structure. Blockchain isn’t one thing, it’s a technology applied to a problem.
Right now, if I’m moving money through the banking system from somebody who has money to someone who needs it, the receiver or the sender has to pay quite a large fee depending on the size of the transaction, because there are so many counterparties involved in checking the institutions and the relationships, and the trust in those relationships.
Blockchain takes away all those layers of checking and of cost. Effectively you now say, “We don’t have to do any checking because once it’s on the ledger system, we know it can be trusted.” That to me is a little bit of banking, because now I can connect all the people who are trying to send money with all the people who need to receive money without anything in between except for a shared ledger.
Blockchain right now is like the internet was before the World Wide Web showed up. So you need something on top of blockchain technologies to create a real ability to use this in mainstream markets. We haven’t got there yet, but it will come. We’re just at the start of a five-year-plus cycle of investment and growth. It’s going to end up with some real transformational change.
I don’t think any bank can sit back and wait to see what happens. You really need to be in the frame today investigating, learning, being part of the community that’s developing blockchain capabilities. That’s the reason why JPMorgan Chase, Citi, Wells Fargo, and Bank of America are heavily investing in blockchain use cases, proof of concepts, and patents.
Q7. How do you see the potential for mobile payments and mobile wallets?
Mobile is still a very important area, and in certain parts of the world, such as Africa, mobile wallets are a transformational change. But I go one step further: The Internet of Things needs an Internet of Value to transact. The Internet of Things is really just saying, “I’ve got chips in my television, my fridge, my car, my house, my shoes, wherever, that enable them to become intelligent and transact on the internet when there is a need—without you consciously doing anything.” That to me is going to be another transformational change over the next five- to ten-year cycle.
If you think of it that way, then mobile is actually just this transient moment where the mobile is a chip inside a communication device. Whereas quite soon, we’ll have chips inside all the machines that we use, not just our communication device. I already have them in my TV and my car.
That requires a very different way of thinking about how value is transferred, because machines transacting with machines using my identity to authorize that transaction can’t take days and cost dollars. It needs to be instantaneous and almost free, which is where blockchain ledgers and digital identity comes in.
I was in a bank recently that’s done a deal with gas stations in its country. As you drive in to refuel, you just open your app, which is linked like Uber to your bank account, and order the amount of fuel you need. It’s all within the app. But what I say is, “Why do I actually have to open the app?” I want my car to be authorized to do that, so when I drive in, the car orders whatever gas it needs, and I just drive out, so I don’t even have to do anything. Self-driving cars and self-refueling, too.
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