The Fintech Decade: An Interview with David Brear

Martino Tramontin •

Interview with David Brear, co-founder and CEO of fintech consultancy 11:FS

11:FS has carved itself a reputation as the specialist fintech consultancy with a Midas touch. David and his colleagues are at the heart of London’s fintech innovation scene, and his team has multiple successful challenger banks and institutions under its collective belt. In an age of instant gratification, not many digital firms would launch an hour-long film on fintech, but that’s exactly what “11:Years – the rise of UK fintech” is; a paean to a city and its people, the ashes of the financial crisis and the visionaries who saw a different path for banking. We watched the show and then spoke to David.

When the banking crisis broke in 2008, did you really say “It looks like a good day to get into banking”?

Yes, I did say it, but very much ironically! I was at Aviva for six years and the insurance industry was actually doing some pretty interesting things already. But being a weird human who likes to scare himself as much as anything else, moving into banking at that time seemed like a good idea. I was right – it was a rocky patch for a good four or five years but I’m absolutely glad I made that decision.  

In the film, you talk about the lack of trust that people have in their banks, thanks to the banking crisis. It’s great PR to say that the crash led directly to fintech. There’s certainly some blame, but isn’t it a bit indulgent to say that fintech stems from the banking crisis? 

In the documentary, we’re saying that there are a number of different variables that London specifically has had in abundance – not least its location and time zone.  While the opportunities for fintech would still have been there, because the big banks would still have left that opportunity on the table, actually the biggest thing that changed because of the financial crisis is the regulatory landscape.  

In particular, we had the [FSA, now FCA’s] Competition Mandate, pushed for at the time in government by Harriett Baldwin, MP [then Economic Secretary to the Treasury]. That wouldn’t have been as pressing an issue without the intervention of the crash and everything that came with it, and then there is indeed the loss of trust experienced by the big, incumbent organisations.  

Even so, while I think all those variables would still have been there, I’m not certain that London was automatically the ‘Ground Zero’ for fintech. The US, for example, tried to bring forward a Fintech Charter, but one state is suing the FCC to say that they have neither the capability nor the authority to make those decisions.  

Any major change requires not just a good idea but the impetus for change, and we have had the allowance of a relaxed regulatory approach and the FCA’s support with e.g. Sandboxes. This has been the accelerant to all the other ingredients.  And if you look at what the other geographies are trying to do now, many of them are just emulating what the FCA, the PRA, the Bank of England and the Government have done here, and to try to create a similar catalyst for change.  

If you look at what the other geographies are trying to do now, many of them are just emulating what the FCA, the PRA, the Bank of England and the Government have done here, and to try to create a similar catalyst for change.

You say that the FCA softened regulation. Was it genuinely their plan to change the way finance works, to democratize it; or was it just to give people more choice?

I think the Competition Mandate was set up for multiple reasons. Yes, the competition element is important, but the new licenses allowing new people to come to market are, I think, also a mechanism to ensure that the older incumbent organisations really have to come alive. They have the impetus to really make progress now because they have younger, nimbler and very, very hungry players nipping at their toes. It was as much about resurrecting the fire in older companies as it was creating an environment for new companies.

We shouldn’t underestimate the impact of the FCA’s Project Innovate. London is leading the way on the more forward-thinking elements of regulation like Open Banking, because of Project Innovate’s avowed focus on, for example, working with international partners to develop a common understanding of the principles of good innovation. Success has been less about companies and how they deal with types of technology and more a cultural transformation program within the regulatory environment.  If you look at fintech’s development through that lens, it’s very much been a case of allowing people to work in slightly different ways than incumbent organisations have operated in the past. And with that freedom has come the opportunities that we’re seeing in tech today.

Are challengers succeeding? In late 2019, a few challengers have closed their doors. Similarly, everyone quotes Marcus as an example of an incumbent that’s catching up by ripping out or not even bothering with legacy infrastructure, but instead chucking money at the problem and building a challenger bank from scratch. Is that fair, or is that distinction now not even particularly valid?

That’s an interesting one. I think, in some instances, challengers are definitely achieving their objective.  It’s undeniable that fintech and challenger banks more specifically are having a real impact on the industry: Monzo and Revolut are acquiring millions of customers; N26 is opening up in multiple new geographies. Not only from a fintech, geeky ‘we all love to change’ narrative, but the fact that there are real people walking around with Monzo and Revolut cards, and these brands are achieving mainstream awareness of their existence. Starling and Monzo have both put out their first TV ads in the past few weeks, so this is fintech going mainstream.   

More fundamental, though, is the impact that challenger banks are having on the incumbent banks. You mentioned Marcus in the US – that was led by a friend of mine, Boe Hartman. The key to their success wasn’t what they’re doing, it was the way in which they’re doing it. They have created a new culture within an organization [Goldman Sachs] that allows people to work in a completely different way, because big corporate organizations are used to command-and-control.  They’re used to the most senior person making the decision. The Monzos, Revoluts and Starlings are able to achieve in three weeks what it takes a big incumbent organization maybe two years to do.  

How can they deliver for £15,000 something that might take £5m to £10m in a big incumbent organisation? That’s what has woken up the incumbents to the idea that maybe there’s a better way of approaching digital transformation that they hadn’t considered before because it hadn’t been proven in the market. And if I’m honest, that’s what we’ve been spending a good amount of time considering at 11:FS, too. We have built out a business bank with NatWest called Mettle, we’ve done it for Standard Chartered over in Hong Kong, and built a retail bank in the US. And each time, really what we’re doing is deploying startup mentalities and methodologies into 200+ year old organisations and finding out what happens. 

But I come back to the fact that most of the problems are within the banks. I was at Lloyds Banking Group for six years. We didn’t have a technology problem. We didn’t have a regulatory problem.  It wasn’t a problem that we didn’t have enough money to invest. It was fundamentally a cultural problem. Transformation comes from people letting go of the tried-and-tested sacred cows that actually got them to be successful in the first place.  

Most of the problems are within the banks.  I was at Lloyds Banking Group for six years.  We didn’t have a technology problem. We didn’t have a regulatory problem.  It wasn’t a problem that we didn’t have enough money to invest. It was fundamentally a cultural problem.

Folks like Monzo, for example, are also happy to try things and screw up.  The brand was a mess at the start. The subscription model was awful. But you always sense with Tom Blomfield – or perhaps tech startups in general – that it’s OK to try something out and then roll back; because the hurdles to participation are low, the cost of giving it a go and learning from the experience is not high, and customers will be immensely tolerant if you can communicate with them properly.  Those are things that incumbents just can’t do because the cost goes up… 

Yeah, I think there’s a major point there. Whenever we talk anywhere, there’s a killer slide which shows that a traditional bank’s Op-Ex model is out of control.  I think Wells Fargo spends $9 billion a year just maintaining their operations. And it all stems from a ridiculous amount of success over a sustained period of time.  Banks have not got to this place by being silly: they’ve invested, they’ve got crazy track records of mergers and acquisitions. 200+ years of being stupidly successful almost leads you to a point where you’re maybe not as hungry as you could be. I always draw a comparison with boxing: when somebody says you’re the chump, it’s easy to get up at 5am and drink all those eggs and do the push-ups and train really hard; but when you’re the champion, it makes it really difficult to maintain that momentum.  

I’m not half as impressed with fintech’s apps as I am with fintech companies themselves: the culture, the operations, the capability that they’re deploying. They truly are technology companies playing in financial services, not financial services companies playing with technology. And that delineation is really why it’s not what you do, but the way that you do it, which makes for a sustainable Op-Ex model and makes the unit economics of how they serve customers fundamentally different.

I think your point around transparency with customers is also one of the best things I find in this world. When you say them out loud they just sound dumb, but when you simply talk to customers like human beings and are transparent and proactive making sure that you’re managing people’s expectations, it’s like, no shit that works, right?!

Over a sustained period, every communication from incumbent players with their customers has been castrated through this process of legal and compliance which means that text messages sound like they’re sent from robots and letters don’t really make sense to normal human beings. I never went anywhere, from the biggest banks to the smallest building societies, where I didn’t find really good people outside of work.  But through some weird process of walking into the four walls of their workplace every day, they somehow lose what it means to be the normal human beings they were outside of work. What startups do really effectively is to allow people to bring all of themselves to work; because the more normal a human being – the more you really embrace your own weird at work – the better your decisions around the stuff that might actually be palatable for other human beings. 

In the 11:FS film, you say “We’re early in the cycle. We’re only 1% finished”. What do you mean by that and where do we go next?

We always say that digital banking is only 1% finished because we’ve seen unprecedented technological and regulatory change.  We’re seeing new competitors coming to the market on a daily basis that are scaling and becoming unicorns in their own right. But the challenge is that I don’t believe we really know yet what digital banking even is. We’ve seen a hybrid, digitised banking where incumbent organisations are just taking the things that they did for 300 years that were perfectly legitimate in an analogue world, bits of paper that looked like statements, and then spend possibly billions of pounds just digitizing them for a very small screen or internet websites.  

And the reason it’s only 1% finished; and in my opinion, it will stay 1% finished for a long time; is that the industry is moving faster than the incumbent players.  If the big banks don’t get it together really quickly, it’s going to start being less than 1% rather than more.