To banking futurist Chris Skinner, traditional bankers find themselves at a cultural crossroads. They have “finance” and to varying extents they use “technology.” But most of them aren’t part of the fraternity that some call the “FinTech Mafia.”
Skinner, chair of the European networking forum the Financial Services Club, says the age of FinTech is one “where the banking people who wear suits are suddenly being confronted with the development community, who wear jeans to work.”
The challenge, continues Skinner: “How do we bring those two cults together? And how do we strategically develop the model for the new financial world that’s a FinTech model rather than a traditional banking model?”
Skinner, based in England, has worked extensively with financial and other companies there and in Europe and writes the blog, Finanser. In this country he has started consulting with U.S. banks, including community banking institutions. He says his messages about financial services disruption and the necessity of making significant changes resonate with bankers.
That is, until he brings up Bitcoin and other crypto currencies.
“People don’t like Bitcoin, because they think it’s some flakey currency that just had to do with Mt. Gox,” says Skinner. “They have no idea of what I’m talking about.”
“All the time I ask banking audiences, ‘Have you heard of Bitcoin?’ and everyone raises their hands,” says Skinner.
“Then I’ll say, ‘Can you explain the block chain to me?’ Then nobody raises their hands. Or if they do, it’s somebody who is working with block chain technologies,” Skinner adds, concluding, “and that’s disgusting, considering that Bitcoin is the most radical transformation in financial services right now.”
The block chain, in simple terms, is a ledger, where the sequence of ownership of given bitcoins is recorded and which can be examined. In simple terms, imagine that every dollar bill has a printout stapled to it—or a web address—showing who has owned it and who it passed on to. Short-story writer O. Henry wrote a piece many years ago called “The Tale of The Tainted Tenner,” telling the life story of a $10 bill. He was quite a bit ahead of his time. A key reason for this ledger is to be sure a given bitcoin is only spent once before going to the next bitcoin holder.
“It surprises me how few bankers understand and have any view on this emerging transformation,” says Skinner, “when it is the most likely thing to actually break the banking system in this century.”
When Skinner says “break,” he is not predicting failures or rioting in the streets. He sees the traditional competitive, organizational, operational, and customer-facing aspects of banking changing dramatically. We discussed his views via trans-Atlantic call recently. Read community banker Jane Haskin’s review of his most recent book, Digital Bank: Strategies To Launch Or Become A Digital Bank.
The following excerpts from the interview have been edited for clarity and length.
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BANKING EXCHANGE: When I came into this business in 1979 you had a profession called being a “banker.” In Digital Banking and your other work you paint a very different picture for the future. If things go as completely in the direction that you paint, will there be a “banker” anymore?
Skinner: I don’t think we’ll have bankers as a profession as we knew it in the last century. That’s why I say the “suits” and the “jeans” are clashing. The hybrid will be a rather different person. It’s fintech.
So banking’s no longer banking. Banking used to be a lot of physical distribution of paper in a localized network that was branch focused. And now we’re doing digital distribution of data in a globalized network.
The new profession actually is far more a person who is a coder, a developer, a creative designer, someone who extends the user experience from a remote device. Someone who understands the desire for digital platforms for engagement with Millennials and sees those platforms as a culture rather than as a channel.
The new banking career is focused upon creating amazing digital engagements around value exchange, rather than the physical transaction of money across counters.
BANKING EXCHANGE: Is anyone educating young people to be such “bankers”?
Skinner: To a certain extent. Mainly this is happening in digital hubs, with new fintech people emerging in hubs like Silicon Valley, the Silicon Roundabout in London, and Silicon Alley in New York. We’re seeing quite a few fintech people coming along in places like Israel. I’ve been to Ukraine, where actually they have an amazing technology capability. They don’t have a fintech capability right now, but it might be emerging, depending on the outcome of the war with Russia.
What we’re seeing is an emerging class of individual who could work for Google or Amazon or Facebook—or create the next Facebook, Google, or Amazon. Or, because they are passionate about rethinking money and finance, they could move into the financial world.
Many who run traditional banks are over the age of 35. They are encumbered by blinkers [chiefly British version of the word “blinders” as used on horses long ago] because of the way they grew up dealing with money through traditional networks. The younger people don’t have those blinkers. So they see the potential of the technology to transform the system.
And that’s what they’re doing.
BANKING EXCHANGE: In Digital Banking you refer to technologies that came along too early to be adopted. Is that happening now?
Skinner: We always overestimate the speed of factors that challenge and change— and we underestimate the impact when it does change.
When I first came into financial services technology in the 1980s we were trying to bring in biometrics. It was always too difficult—too many false positives, and false negatives. But 30 years later we’re finally seeing fingerprint touch ID on mobile phones with Apple and Samsung. And heartbeats using Nymi, which is a wrist strap and an app used for authentication.
So biometrics is finally coming of age, mobile’s come of age after 25 years, and 25 years from now it will be internet of things and wearables and connected commercial worlds. And that’s all starting to emerge right now. But it’s very early days.
In eastern Europe they have this fantastic app. When it’s very cold, rather than getting out of your car, you say exactly how much fuel you want and through a deal between the bank and the gasoline company you get exactly that amount of fuel pumped into your car by the garage attendant without having to get out of your car.
So you stay warm and toasty because the app’s done all the work for you. A couple of years from now your car will do this for you. You won’t need to actually mess about with your phone app.
BANKING EXCHANGE: What will we do with ourselves when we don’t have those mundane tasks like filling the tank to worry about?
Skinner: Well, knowing where we are right now, we’ll be staring into our screens playing games. But hopefully we might actually engage in family conversation and start doing something fruitful.
BANKING EXCHANGE: I’m not a person who fears tech, I use plenty of tech. But one thing I’ve wondered about as I was reading the book is loss of privacy. While I read a lot of science fiction, in the book you posit a time when you will walk past a car dealership and your bank will make you an offer for a loan—or even improving on an offer if you walk a few blocks further. The sci-fi-er in me finds that very exciting; the paranoiac in me says, “I don’t want people knowing what I just walked past.”
There must be other people like me out there, who, as you wrote, find this a bit creepy. How do we become part of this too?
Skinner: There’s two pieces to that, Steve.
For one thing, I mean it may sounds like science fiction but it’s actually a reality right now with Bank of America. BofA is using a number of mobile technologies to geolocate you using GPS network and give you proximity-based offers as you walk down Main Street. That’s deployed—it’s not a vision thing, it’s actually reality.
We’re learning all the time about how to use these capabilities. Consumers will start becoming more aware of privacy settings and start tinkering with them to suit our lifestyles and preferences.
When I started using Facebook, I had “Chris Skinner” as my handle. Now I have two “Chris Skinners.” I have the public one and the private one because I realized that the public one was starting to share information that was private. It’s really down to the privacy and permissions view of the world. If you believe the bank can give you value by giving you these great deals at the places that you go and shop at, then you’ll opt in. If there’s no value exchange in the deal then you won’t bother. It’s a trade off between giving access to private information versus what it is I’m trying to do with my life or trying to achieve in the process.
BANKING EXCHANGE: Years ago, then-Senate Banking Committee Chairman Phil Gramm liked to say that if the information about you at your local bank was the most exciting thing about you, then you led one heck of a dull life.
Skinner: There you go. My only concern would be where people use someone’s profile on Facebook, say, finding out their mobile number from the details, where they hang out on the weekends, and then kidnapping their children or their partner and using that for extortion to get access to the bank. Unfortunately I know of several real examples of that. So learning how to use these technologies and capabilities is something important that is happening over time.
BANKING EXCHANGE: In reading the book I kept thinking, in this world, is there still a role for community bankers?
Skinner: Yes absolutely. One of the key points I’m now making in my presentations concerns linking relationship with the social network.
As a community banker what I would focus upon is, “How do I build communities in those social networks where I am relevant?” There are a number of examples I have knocked about on my blog where I can point to banks that are building amazing communities on Facebook, on social media, where they’re proving their relevance.
Community bankers need to think of how they can make a digital connection to their community through the new media.
There’s a huge opportunity there and it’s not expensive. I mean, this stuff’s free. I run a business that people think is a massive business. But it doesn’t cost me anything. My blog is free, my e-mails are free. My Twitter is free. All of my outreach, my marketing is free.
Community banks that are not seizing the day then are missing it.
BANKING EXCHANGE: If you were one of them, what would be the first three things on your to do list after reading the book?
Skinner: Identify whether my board room is full of people over the age of 35 and start to change the demographics, if it is. Invest in understanding new media and in particular the digital reach that the Millennial generation is using and start to embed my community focus within that outreach. And, finally, look at my cost model and say, “Do I really need to have this large organization with large numbers of people in large offices or Main Street branches when that no longer really makes financial sense?”
BANKING EXCHANGE: In the book you make a point about the business no longer being one of locked-in users but “fans.”
That’s 180 degrees opposite the industry traditional mainstays: inertia and stickiness. Bankers over the years has stressed cross-selling which I know Millennials don’t accept because they want best of breed. Experts claim that Millennials don’t care about how many institutions they deal with, but how good a given product is.
But how do you get fans, not customers? For many people, banking is a task, a chore to get done. If I get what you’re driving at, with advanced capabilities, the bank becomes more woven into the fabric of your life.
Skinner: Yes, banks traditionally in the last century had this inertia and stickiness— because they had control.
Products, processing, and distribution of finance was controlled end-to-end by our organization and we locked in our customers. The technology is now breaking all of that apart by replacing the organization with processes and squeezing the margins. Think of crowdfunding, P2P lending, Bitcoin, and all.
Increasingly, customers will be able to integrate all the pieces and services that they want into the dashboard that they want.
Thus we move away from control, stickiness, and locked-in to completely open, transparent, and relevant finance.
Then providers must prove their relevancy and trustworthiness by being transparent and being relevant through relationships and conversations. They will need to converse with the community rather than to push products through channels—far more engaging and informative about money and finance, instead of just saying “Here are my products.”
For the consumer, it’s much more about who do you feel comfortable with, who do you think is actually interested in you, who cares about you as an individual? Who makes you feel good?
BANKING EXCHANGE: As banking moves in this direction what are the implications for the way it’s regulated and examined?
Skinner: That’s a really interesting one. I think we are moving towards component-based regulation that is aligned with component-based finance. So what I mean by that is as the technologies start to modularize services, and you can see that right now with P to P lending, or in money transfers with specialists who are doing it far more effectively than traditional players—then the regulators will evolve.
Instead of getting a banking license you get a license for specific parts of finance.
BANKING EXCHANGE: What will the regulatory structure look like?
Skinner: There are several layers to that question because on the one hand you’ve got a depository guarantee system [FDIC insurance] that really is at the heart of where banking and banking life should sit. And that’s still going to be as controlled as ever because otherwise you’ve got the Wild West.
The licensing piece implies that everything that sits outside the depository accounts with the guarantee is up for grabs. And banks will face more new competition, the nimble component-based players. I think they will be gaining licenses probably at state level, to begin with.
Having said that, you’ve then got the crypto currency world, where people want to have value exchange without control—they don’t want to have regulations. They don’t want to have state or federal involvement in their currency movements. They want models that are globalized that cannot be regulated on a localized level.
And that is where we’re seeing the real friction right now. They want money without government. My answer is you can’t have money without government because then you have movements of funding that potentially could create a nuclear attack on America without knowing where the hell it came from, because you don’t know how it’s funded.
And that’s unacceptable in a civilized world.
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Chris Skinner’s consulting firm is called “Balatro,” which means “jester,” in Latin. To read his reasons for this choice, see his website.