Jason Bates is a co-founder and Consulting Lead at 11:FS, the world’s leading fintech consultancy to the banking sector. He previously co-founded two digital challenger banks, Monzo and Starling. Today, Monzo is valued at $1BN. In both cases, he led the product and proposition: building digital services, recruiting a world-class team and managing regulatory compliance at the frontiers of technology.
On the 11:FS website, you say that “digital banking is only 1% finished”. What do you mean?
I got the idea for this from Facebook. They have an internal promotional division where they have stickers, pictures and screen-prints; all kinds of stuff. They do change management by meme!
And one of the things I saw on a sticker was ‘This journey is 1% finished’. It doesn’t refer to some quantitative measure or scorecard; it’s a mindset. If you believe you’re in a mature industry and that digital is just about adding veneer, then you’ll never make progress towards new opportunities and business models.
It’s particularly important for big companies. It matters to Facebook because they’ve got a billion users – it would be all too easy to sit back and relax and think of it as “job done”.
And it matters to traditional banks because current and savings accounts have been around for decades if not hundreds of years. That’s a real problem in a world where digital is disrupting things
If you believe you’re in a mature industry and that digital is just about adding veneer, then you’ll never make progress towards new opportunities and business models.
So what do people want from fintech products? Banking isn’t getting cheaper, so it’s clearly not about price…
What we’re seeing is a fundamental move from commodity products to intelligent services.
The industry has successfully moved from a passbook to a statement in the mail, then a statement on your desktop and now on mobile. We clearly digitize things pretty well!
But in all that time, banks have kept the same operating model: holding money safe, lending it and moving it. That’s it. The only differentiator is price, and that’s why both individuals and businesses find banking sticky: why would you change providers just for a few pounds?
Digital technology thus far has been used to drive costs out of the banking business – and that’s not going to change: the North Star of retail consumer and business banking is certainly going to be low-cost delivery. But today’s challenger banks and other disruptive services are going to dramatically add value and differentiate themselves from competitors by adding data-driven services that would previously have been associated with the private banking enjoyed by wealthy people; because it was the sort of service that could only be delivered by a team of people.
Next-generation financial services will digitally guide, inform, advise and lead – exactly what an old fashioned bank manager used to do.
This is why the banking journey is only 1% finished: today’s banks are undifferentiated providers of transactions. Tomorrow’s banks are our digital companions in money, one of the most important aspects of our lives. We’re moving into an ‘intelligent services’ world where instead of delivering a banking product, financial institutions profit by understanding the realities of their communities’ lives.
What does that look like?
Well, right now there are some very small players doing niche but extraordinary things. Take Moneybox, which takes your small change – especially change from digital transactions – and puts it into an ISA. It’s seamless, barely noticeable, yet hugely satisfying. Or Reeclaim, a tiny service which automatically files requests for train delay refunds after just a one-off registration. Again, seamless, simple, rewarding and customer-friendly.
Things are even more exciting in the SME business space, because a bank account today doesn’t really tell you how well the business is doing, or which invoices are due next week, which customers are prone to default or which bills need to be paid the week after. So I think fintech innovation in business will blur the lines between banks, accounting platforms, bookkeeping and management forecasting, with new data and new services feeding into the decisions we make as business owners every day.
So am I going to have lots of API-linked services from different providers, all strung together to help me make those decisions? Or is my bank going to keep getting better and do everything?
No one really knows. Marc Andreessen [Founder of Netscape, legendary VC investor at A16Z] says that all business is about bundling and unbundling: some businesses succeed by bundling services together, others succeed by splitting everything up into its component parts.
Uber, for example, is a great “bundler”, It’s an API based business. It uses internal APIs in the phone in order to find out where you are; it uses Google Maps to show you where you are; it uses internal Uber technology to route the driver to you and then Braintree for the payment. So that’s four or five different providers connected to provide you with a seamless, chauffeur like experience.
But there are also times when you’ll want to shop around and build exactly the elements you want. Especially in business, there are lots of options for connecting – and eventually even building – the sort of financial services environment that’s going to be just right for you.
That leads to some really interesting questions. For example, if you can pick the best interest rates and terms on your savings accounts manually), it won’t be long before a service appears which monitors the market with an intelligent agent and constantly moves your money to the account that gets you the best deal. Then the age of teaser rates will truly be over: it will force financial services businesses to work out what it is, beyond an interest rate, that they can do for their customers. They will have to decide what to commit to being good at.
And what does the future direction of fintech mean for accountants and regulation – the reporting overhead of running a business?
There’s actually a whole subset of fintech called ‘regtech’, which covers the use of technology for regulation. Because it’s not just accountancy and reporting: banking needs to cater for issues like KYC and anti-money-laundering; protecting customers and treating them fairly. Plus, we’ve got masses of new streams of data, so there’s a question around how we manage and monitor that new data to ensure that companies are doing the right things with it. There’s a whole world of new startups looking specifically at how you can protect against detrimental outcomes in a data-driven world.
That becomes particularly important when you think that, as I said earlier, the big opportunity in fintech is the creative art of looking at customers’ lives and trying to find areas where we can improve it, together with the quantitative/data side. One doesn’t succeed without the other, but it means using and sharing much more of what we know about customers’ lives and businesses.
The government is bringing out ‘Making Tax Digital’ for small businesses, which again will be an incentive to seed new ideas for accountants, businesses and platforms, with institutional support for a data-sharing environment to support those ideas. But the key trend remains this move from commodity products to intelligent services led by customer need.
The big opportunity in fintech is the creative art of looking at customers’ lives and trying to find areas where we can improve it, together with the quantitative/data side. One doesn’t succeed without the other, but it means using and sharing much more of what we know about customers’ lives and businesses.
And is there anything we should worry about instead of rushing headlong into a data-driven future?
Something that’s rightly being highlighted is that there are a lot of fintechs appearing which don’t seem to have a viable business case. We’re seeing a classic venture capital driven land-grab, where VCs with billions to invest are looking for the next big platform. Rather like Uber, (today every Uber journey is effectively subsidised by venture capital), large swathes of financial services are also being artificially nurtured in the hope that the next big international banking players – the ‘Facebook or Uber of banking’ – are going to emerge.
So this is definitely one of those disruptive turning points where some really big players could incubate; so there’s lots of money feeding into it in order to aggressively grow businesses because the driver is for scale rather than making profits in the day-to-day.