Remember that scene in Raiders of the Lost Ark where Indiana Jones, pursued through the casbah by Nazi henchmen, suddenly faces a huge turbaned man in black, with an equally huge scimitar?
The swordsman laughs and demonstrates his dexterity with the blade. Jones shrugs, draws his revolver, and blows him away.
Increasingly, this could serve as an analogy for the competition that banks face.
“Every time I’m in a bank board meeting,” says King, “I’m asked, ‘Who is the bank that we should be worried about as a competitor? Who really gets this digital thing?’”
He always tells them they are asking the wrong question. In other words, bringing a sword to a gun fight.
“Your assumption,” King will point out, “is that a company is going to come along as a startup bank and that they are going to do exactly what you’ve done, but with digital excellence.”
But he says bankers who watch for a digital pure-play bank will miss the real competitors of tomorrow (as in next week).
“That’s not the way it’s going to work,” continues King. “Banks keep looking for this big competitor who is going to take them on end to end, and that’s not going to happen. We’ll see death by 1,000 cuts of the banking industry, a chipping away.”
What will such narrow competitors look like?
No need to speculate. Some have already arrived, says King. Take Kabbage: “It does small business lending much, much better with much lower risk and default basis and a much lower distribution cost; much lower customer acquisition cost, and much faster growth.”
King says the Bluebird debit card—the Amex brand as sold through Walmart—along with GoBank, a low-fee checking account partnership with Walmart and Green Dot Bank—are two more of this growing group of competitive nonbanks knocking off a piece of the banking business.
Even King’s Moven, which features an all-but-invisible banking partner and has enjoyed a quarter of a million downloads of its app, looks an awful lot like one of these players. (See the section at the conclusion of this article for more about Moven.)
If King is right, surviving in the banking world he sees coming demands a major strategic, even organic, rethinking of what a bank is, how a bank sells, “where” it does business, who it partners with, and even what its relationship to its customers is.
While King frequently speaks of the retail banking field, he believes that business banking will see some of the same evolutions that retail has seen. Indeed, King thinks business banks themselves should be promoting key elements of that evolution, not waiting to be forced to it.
Brett King is a leader among a group of commentators and players who have been both forecasting and moving financial services into a very different form. Active internationally first, King popped up on U.S. bankers’ radar here in mid-2010 with publication of his book Bank 2.0: How Customer Behaviour And Technology Will Change The Future Of Financial Services. The book sprouted from a consulting assignment for HSBC.
Since then, in his Bank 3.0 update [subtitled, Why Banking Is No Longer Somewhere You Go, But Something You Do], and in Breaking Banks: The Innovators, Rogues, And Strategists Rebooting Banking—his latest book—King has skewered much of the traditional.
He has recognized, even hallowed, the impact of digital disruption.
“Bank 2.0 started me thinking down this path of disruption, and started me in a new direction,” says King. “I’ve become very comfortable with being this voice, agitating and inspiring and scaring the industry toward new heights. I think the banking industry has a lot of potential, but only if it changes and adapts.”
In the beginning, some bankers followed King, a man of strong views and aggressive social media presence, as a new banking prophet. For others, his views provoked much thought, but not much follow-through.
For some there was outright denial that his predictions applied to them.
What’s interesting is that King has a community bank following, even though his message is not exactly reassuring. Jane Haskin, an Oklahoma community banker, has reviews of several of King’s books on www.bankingexchange.com, including Breaking Banks. As she writes in her review, “Rebooting your view of the future”:
“Every banker should read this book. … [King’s] latest book comprises a series of interviews with individuals who are providing ‘traditional banking services’—to your customers and mine and outside of the banking sphere. They define why they think their product is attracting customers from our banks. As a banker, it is extremely difficult for me to admit it—but, in many cases, they are right.”
“The reception is improving,” says King in an interview with Banking Exchange editors. “When I started there was resistance.” What he heard, in summary, was, even if we might agree with you that this is what’s going to happen, we’re going to resist it with our entire might and will, because it would be bad for us. And the changes you are talking about would mean banking changing in a way it never has before, and with a speed and ferocity that we’ve never seen before.”
Even today, there continues to be resistance to King’s position that for transactional purposes, the branch is all but dead. In some areas, they continue to blossom, but they are much smaller. Even the frequently made point by bankers that branches will serve a more consultative role, which he agreed with further back, King now questions.
King can even sympathize with resistance, but in the face of exponential change, he doesn’t believe it stands a chance. In the dot.com era, says King, banks could stick it out for traditional models and resistance to players without bank charters. In the face of accelerating mobile device ownership, usage, and, Blackberries aside, an explosion of apps, banks face what he sees as an irresistible force.
King says industry resistance to his messages began to erode in 2013.
“I began to see boards moving from denying that this was happening to accepting that this was happening, but not knowing what to do,” he says. “And then, in 2014, I’ve seen banks get really serious, setting up innovation funds and investing in startups. We’re talking about tens of billions of dollars invested into this now.”
King acknowledges that buy-in has hardly become universal.
“In some organizations you’ll need a generational shift,” said King, “but the larger organizations are now fully embracing this. So the investment in digital is ramping up significantly.”
But where is King headed with all this, himself? He continues to be the futurist, while participating in the making of the future in such roles as founder of Moven.
“I have investors in Moven now, and ultimately investors look for a return on their investments,” King says. “An exit strategy is one way to do that. But having said that, I also want to create the benchmark disruptive bank account that defines the way that we think about the bank account for the next 50 years.”
To that end, King says, he is trying to get as much traction for his Moven and other ideas across as many geographical regions as possible.
Rethinking consumer banking
In a sense, King’s method of disruption means completely upending normality to reconsider the basics of the banking business. One fundamental that he starts out rethinking is how a bank fits into the typical consumer’s life.
King’s arguments begin in a surprising place: financial literacy.
For some bankers, this is a serious effort intended to educate consumers about the financial services they need, to urge them to save. The accent is on education—classes, seminars, visits to schools, and more.
But King believes that consumers once had a strong grasp of a basic—Can I afford to buy this?—back when consumers banked in passbooks. You knew what you had by looking at your bank book.
“You had a pretty good awareness of your financial situation on that basis,” says King. “But the introduction of checking and credit cards detuned awareness of day-to-day spending. Credit cards were designed to maximize spending and are not savings oriented. And airline miles and all of the other incentives were designed to try to maximize your spending so that you didn’t know how much you were spending on the card until the end of the month—because that’s how banks make money.”
Personal financial management tools on mobile devices and other channels are revamping this equation—that’s part of the idea behind Moven, something to help you track your habits and question them in real time.
“They bring back awareness of whether you are using your money wisely or poorly,” says Kings, “and they help you move your money more efficiently and with context.”
Ultimately, King sees financial literacy being drawn from one’s device, with providers doing with an app what proves a hit or miss accomplishment by coaxing or dragooning people into traditional financial literacy programs.
Key lifecycle financial questions, from “Can I afford that daily latte?” to “Can I afford that new car?” are questions a bank ought to be able to help consumers answer, says King.
“And right now banks don’t do very well in that,” says King. “They think advice is having you come to a branch to talk about asset classes or the kind of mortgage you want. But the basic advice we really need is whether or not I’m spending too much money, and whether I need to save more.”
This is not what many Americans expect to get from a bank, but to Millennials and some others, such feedback is exactly what they want. The very concept of cross-selling doesn’t match younger consumers, according to King. They want the best of breed, or even an atypical breed, when seeking out financial providers. They see no need, King says, to consolidate their financial product relationships with one provider.
As Moven was being developed, King and his team met with representatives of the Consumer Financial Protection Bureau. “They were very interested in how we were creating a tool that would allow people who are considered unbanked currently to become financially literate through the use of a tool without requiring education—and without requiring a traditional banking relationship to be able to save,” says King.
But the next step in understanding King’s view requires stepping away from traditional thinking of bank products and services—and branches.
The old pattern involves definitive steps. Buying a home? Start the mortgage hunt. King sees the industry’s survivors climbing out of their boxes—much as the advent of iTunes, Pandora, and other newer players in the music business have repainted distribution in that field.
“Banking is going to become a real-time stream of solving your financial problems as they come up,” says King. “So whether it’s access to credit—I’m at the grocery and don’t have enough cash, so I need credit; whether I’m in a car dealership or an Apple Store and want to buy something, and I have a financing decision, but it’s in the moment.”
In a sense, banks will be wholesalers to the process, in that they will be concerned about how to deliver what the consumer needs. But the consumer facing the retail face of the bank—or someone else using the bank as its “factory”—will only be concerned about having their need filled on the fly.
“The big disruption is that I am only going to get the ability to sell you a product or solve your problem financially if I have built a connection and relationship with you,” says King. “And that has absolutely nothing to do with whether you have a branch on the corner or ATMs all over a network, nor what rates you pay for savings.”
So what is a bank—and a bank charter—in King’s world?
Capital, and the ability to place that capital at risk in a structured fashion. That is hard for disrupters to replicate on their own, and so banks will have functions like credit to provide. But even there, King says much will change. “I don’t necessarily see them being replaced with an alternative, but I do see them becoming more efficient,” he explains.
Banks will have to reconsider the bones of what they do. Voluminous applications on paper must go, King believes, and so ought the industry’s love of ink signatures. Signatures haven’t been legally required on many banking documents for over a decade, he insists.
But there is another source of friction hindering the industry’s advancement.
Beyond the burden of regulation
While banking lobbyists have long maintained the industry’s battle against regulatory burden, especially post-Dodd-Frank, change has often been at the edges, not at the heart. King makes a persuasive argument that senior regulators understand a key point about the traditional regulatory relationship: It’s too damn slow.
“Regulators know they must allow innovation for banking to remain competitive,” says King. “They know that things are moving very rapidly and that they can’t keep up with the rate of innovation. So regulation is going to have to become a much higher-level matter, and much less detailed to be effective.”
Washington’s reaction to virtual currencies such as bitcoin and to financial institution usage of social media are two examples King cites regulatory drag.
“Right now we are at peak regulation,” says King.
The answer is much more self-regulation, says King. (Mind you, that “self” regulation may more likely look something like Yelp, where the market shuns those who don’t measure up.)
The alternative, continuing to box the industry in with more and more specific rules, “will make it less likely that you are going to have a U.S. banking system that can be truly innovative on a global stage.”
“And that’s the biggest risk that U.S. banks face right now,” says King.
King considers the threat quite real.
“There’s a lot of politics in regulation. There’s a lot of inertia in regulation,” says King. It’s also clear to him that banks are still paying the price for the financial crisis.
“All of those things are in the regulatory framework, and they are pushing against the industry’s need to innovate,” he says.
King sees an intolerable situation growing worse.
“The mission of any economy like the U.S.’ should be able to have all of its citizens banked and able to manage their money in a healthy financial manner,” says King. “That way the health of the economy as a whole improves.”
However, says King, the opposite is occurring—there are fewer Americans banking with banks.
“We’ve had 4 million checking accounts closed since 2009,” King points out. “On a net basis, the fastest-growing deposit product in the U.S. today is prepaid debit cards.”
“They’re not opening a ‘proper checking account in a proper bank branch’,” says King, which distresses traditional banks. Yet many don’t want customers who won’t be profitable, he says. So they make good candidates for Bluebird and similar offerings.
[Longtime contributor Jo Ann Barefoot recently blogged on “Revolution, Mobile, and CRA.”]
Penalties for falling behind
The industry finds itself at a turning point in another sense, too, says King. Analysts have begun to pay more attention to the issue of branching versus mobile banking growth.
“You’re going to start to see analysts downgrading banks that have too many branches and that don’t have a strong investment in digital,” says King. He believes recent exchanges during earnings conference calls represent “very early canary in the coal mine warnings for banks
PNC’s earnings call is one example he cites. Indeed, the archived call includes a back-and-forth where management said that 47% of its customers are non-branch clients and 36% of its deposits come from mobile or ATMs, not teller interactions. And an official said that latter number was moving towards 50%, and would be closer already, had the bank not been slow in adopting image ATMs.
As much as some bankers like to hold onto the branch, says King, he insists its day is done.
Many of the reasons that people still come to branches hinge on banks’ preferences, not consumers’. Advice? Maybe Gen X will still come to a branch for big decisions, but Millennials don’t live that way and won’t change when they age, King says.
Even with Gen X, he says, “we’re talking maybe three times in their life where they feel it’s necessary to speak to an advisor. So if your business is pinned on those three visits, you’re in real trouble.”
As for real-human troubleshooting, what banks and customers will eventually find efficient is a “guy with an iPad” in a comparative closet. And while there is a role for branches in serving small business, King says that mainly involves cash handling. He urges bankers to push such customers toward electronic payments, thus negating the cost of branches maintained as cash collection points.
The next “big thing”?
The curve of innovation and adoption in banking continues to tighten. Online, it took years for the industry to move from brochureware to e-commerce to interactivity. Mobile, says King, leaped forward into apps. But the next big thing in mobile will be “notifications,” heavily personalized messages based on your location, your behavior, and more. And it will be available not only on smart phones but on wearables like smartglasses and smartwatches.
For all the talk about Big Data, King says “small data” means more and is customer-centered. Small data will be data and advice related to your “now,” says King. It will be specific, and therefore perishable. “But this data will help you change the way you live,” says King, physically—think of stepmeters and heart-rate monitors—and educationally, and financially.
“When you marry machine intelligence and notification, it will change the way we make decisions,” predicts King. In many ways this will replace the human advisor on multiple fronts, says King—including in financial services.
That’s what’s next for financial services. But what’s next for Brett King? Another book, a departure in that his forthcoming Augmented: Life In The Smart Lane is historical and not confined to financial services.
Augmented will examine the repeating pattern of resistance to disrupting change, says King. Over the 250-year scope of the book, King finds “the cycle is the same every time. Disrupting change is seen easily, but incumbents deny it and hunker down. There are attempts at regulation.”
Examples keep coming in finance.
“You have something like bitcoin that comes along,” says King, “and the industry says, ‘This is bad, this is risky.’ But it’s not inherently risky or bad. It’s innovative. It’s new. It’s different.”
At the same time, says King, the industry still hangs onto signature-based procedures that have all the security of a sieve.
Over the next five years, bank’s biggest challenge will be retaining the customer and connecting to new ones.
“If I as a banker want to have a relationship with you, the branch isn’t going to be important,” says King. “I’m going to have to be on your phone. And if you haven’t downloaded my app, I won’t have any way of having a relationship with you.”
The message: Get mobile or become irrelevant. Keep moving forward. Or …
“You could go the way of Borders,” says King. “Remember, to Millennials, this isn’t ‘new technology.’ It’s the way they live.”
• • •
What’s moving at Moven
Brett King launched Moven (originally Moven Bank) as a mobile-based “debit account that tracks your money for you, instantly” in February 2013. Moven both enables transactions and provides instant feedback on transactions and spending patterns.
• How is Moven doing?
“We’re generating hundreds of downloads a day of the app. We have about a quarter of a million customers where we have their data and can analyze their behavior. They are not all active cardholders. Some just use our aggregation service. My objective is a total of 10 million downloads across the next few years over multiple geographies.”
King says a major Canadian partnership for Moven is in the offing, and discussions are taking place around the world. “In the U.S. we’re a direct consumer brand [with a bank backup] but outside the U.S. it’s going to be more a cooperative brand approach.”
• Will Moven remain independent, when banks often buy innovative startups?
“Everyone has their price,” smiles King. He says he recognizes that because he has investors, they will look for a payoff someday, and a sale would provide that.
• What would King do then?
Easy. “Move on to the next disruptor.”
“The banking industry has a lot of potential, but only if it changes and adapts”
Brett King as the Ghost of Banking Yet To Come in the Trinity Church graveyard near Wall Street.