Chris Skinner is one of the foremost influencers in the financial services industry, being both a highly prolific speaker as well as the author of several books, including Digital Bank and ValueWeb. His blog, The Finanser is read and referenced worldwide, and he is the chairman of the European networking forum the Financial Services Club, which he founded in 2004. Chris is also a close friend, who I reach out to often to discuss the changes in the banking industry.
His newest book, Digital Human, is a logical extension of his previous two books, providing an in-depth look into the impact of digitization on all aspects of our lives; from the structure of banking, to digital identities, new forms of currency and economic inclusion. Skinner also includes the most extensive English language case study ever done on Alipay, China’s largest third-party mobile and online payment platform.
In this exclusive interview, Chris discusses some of the major topics covered in his book, as well as providing a compelling vision of the future of banking. In his responses, bank and credit union executives will understand why Digital Human should be part of any financial institution leader’s personal library.
Is Digital Human an Extension of Your Previous Books?
Chris Skinner: I consider my previous two books to be siblings of this one, where the focus was primarily on banking and finance. Digital Bank illustrated how legacy banks were built in the industrial revolution for the physical distribution of paper using buildings and humans, challenged today to transform into digital organizations focused on software and servers. ValueWeb focused on the transformational technologies of mobile networking and distributed ledgers, which combined, bring value to everyone seamlessly.
Digital Human builds upon these ideas, illustrating that a Digital Revolution is upon us, made faster and cheaper with technology. It is changing the way we talk, trade and transact and changes the way we make business, make relationships and make love. It is a massively transformational moment in the history of humankind and represents the fourth revolution of humankind.
What Do You Mean by The Fourth Revolution of Humankind?
Chris Skinner: Over the past several years, I’ve traveled the world and discovered the cradle of humankind in South Africa that charted the first revolution of humankind – becoming human. I’ve been to most of the Middle East, from Beirut to Riyadh, and discovered the fertile crescent of civilizations where we became civilized 10,000 years ago. I live in a museum that charts the history of the British Navy, and discovered the power of steam that powered the industrial revolution where we became commercial and global.
We are now in the fourth revolution – the Digital Revolution – where, for the first time in history, every human on earth can connect in real-time with every other human on earth through the digital network. This is a fundamental shift in humanity, and the way in which humanity thinks and behaves.
In this fourth fundamental shift of human thinking, we are creating data as currency. We still need banks to store data, and we still need to believe that money has value, but the money that has value in this global, digital age is data.
How Does Digitalization Impact Financial Services?
Chris Skinner: In the last ten years, cloud and data analytics is shaking up the banking industry’s back office, APIs and plug-and-play software like Stripe are shaking up the middle office, and mobile devices and the Internet of Things (IoT) are shaking up the front office. That’s a whole lot of shaking going on, and banks have historically been able to resist this change because they’ve controlled the entire value chain of money.
Financial services organizations don’t have this level of control anymore. Today, banks are living in a marketplace of thousands of fintech start-ups, using digital technology and consumer insight to improve the experience. This marketplace of apps, APIs and analytics is the banking ecosystem of the future. This massive cultural change – moving from a control freak to a curator – is inevitable and irresistible, with an open sourced structure being the only option going forward.
Where is the Impact of Digitalization of Financial Services Greatest?
Chris Skinner: I think the biggest change is coming from Africa, Asia and the southern Americas. The reason I say this is that what we have in Europe and America is a legacy economy. Most of our infrastructures were implemented in the last century before Mark Zuckerberg was born. That’s why when we talk about open finance, what we really mean is boring old finance being affected by technology, so it is cheaper and faster, more efficient and more effective. But we still mean business-as-usual.
When I look at other economies, such as China, India, Kenya and Brazil, I see a massive sea change. While there is business-as-usual, there’s also a lot of new, digital businesses. For example, in 2017, Americans spent $5 trillion on plastic cards while only 1 in 20 used mobile wallets like Apple Pay or Android Pay. Alternatively, Chinese citizens spend $15.5 trillion on mobile wallets like WeChat Pay and Alipay without using plastic.
My favorite example is in India, where the biggest mobile wallet is PayTM, with 250 million account holders. Their ambition is to have 500 million Indians with mobile banking services by 2020. This is a company created by a man, Vijay Shekhar Sharma, who was homeless ten years ago. He has transformed from walking the streets to being the youngest billionaire in India in just ten years. That’s the real impact of digital: it gives everyone the opportunity to be an entrepreneur.
How Do You See Open Banking Impacting Financial Services?
Traditional banking organizations in the Americas and Western Europe are in trouble. Most banks still are trying to dodged the core systems change bullet. These banks can no longer wait, because the future will be a battle for customer data and insight. The next decade will see traditional margins disappear, with the winners being those that improve the consumer lifestyle experience as opposed to just the banking experience.
The biggest beneficiaries of open platforms will be the platform giants: Google, Amazon, Facebook, Apple, Tencent and Alibaba. These big tech players aren’t interested in banking, payments and credit, but purely in services adjacent to their core platform structures. This is why Amazon and Alibaba give buyers and sellers free loans … because it gets more people buying and selling.
The core banking services of the future will be a proactive, predictive, proximate advisory service about money through analytics and collaboration. A bank will be my advisor through my devices, curating lifestyle companies doing one thing brilliantly well and delivering that to me through intimacy with my digital financial lifestyle. The winners in the future will bring the best of the apps, APIs and analytics providers around the world to my preferred channel, delivering an amazing experience of predictive, proactive, proximate service beyond just banking.
How Are Traditional Banking Organizations Flawed?
My main issue is that banks are run by bankers. I love bankers, don’t get me wrong, but most don’t understand the digital transformation that is occurring. For instance, 94% of the leadership teams of the largest banks have never had any professional technology experience in their life. In addition, 4 out of 5 banks have no one on their leadership team who has ever worked with technology professionally.
There may only be a three-year window for all banks to change their legacy systems in Europe and the Americas. Most of those systems were implemented in the 1960s to 1980s, with 43% of most big banks core systems running on COBOL. These are systems that few people can maintain, since they’re dying, and few people can use in real-time, since they use batch overnight updates. In a real-time digital world, this is unacceptable.
It requires really strong leadership and a digital culture to make the needed changes. This means a complete transformation of the bank from the top down. Unfortunately, in a recent survey by the Gartner Group, they found that 76% of the leaders of the biggest banks of the world believed that digitalization would require zero change to the banks’ business model. Really?
What Will Be The Future of Work?
It is clear that humans will not be doing the work they did before. Citibank estimates a third of bank jobs will disappear in the next seven years while Deutsche Bank estimated half of banking jobs will be eliminated. Humans will lose jobs in all industries.
So what happens to the human aspect? Most of the jobs of the future haven’t been invented yet, and the structure of work in the future is unknown. If my kids work a three-day, four-hours per day job, that’s still work. But, what will they be doing? It is clear that the jobs my kids will be doing are the jobs that machines cannot learn. They will be doing jobs that rely on the heart and not the head.
Humans will also move from numbers to ideas. Our children will be curators. The next century of the arts, of music, of imagination will be amazing. I just hope I’m around long enough to see it.
In Your 90-Page Ant Financial Case Study, What Was Your Primary Takeaway?
I picked Alibaba, Ant Financial and Alipay as the case study for my book, because they are the only company in the world with a focus upon global financial inclusion. I didn’t decide to write only one case study to promote, endorse or market Alibaba and Ant Financial, but I was intrigued to see them expand beyond China to partner with PayTM in India, Globe Telecom in the Philippines, Ascent Money in Thailand, Kakao in South Korea and more.
I found that they’re building a global platform to support two billion or more people who historically have not been able to access the financial system. They are building a new systems architecture to do this … and this is the fifth one they have built – incredible for a 15-year old company. They currently process 125,000 transactions per second on average, with fraud and frisk completely managed by artificial intelligence and machine learning. In November 2017, they processed a record $8 billion in the first hour of Singles Day.
The next system will process a million transactions per second average. To put that in context, Visa processes around 2,000 transactions per second.
The lessons for banks in the Western World? Ant Financial uses QR codes for payments using smartphones. This is now deployed globally through local partners in developing economies and global partners like Ingenico and First Data in global economies. So, the next time you go through an airport and see the Alipay sign, think about this. What if you could use your smartphone to pay with a QR code instead of Visa or MasterCard? And what if you got 10% or more off the price of the checkout ticket by doing so? Just saying …
Chris Skinner is known as an independent commentator on the financial markets and fintech through his blog, the Finanser.com, as author of the bestselling books Digital Bank, ValueWeb and its new sequel Digital Human. He is Chair of the European networking forum The Financial Services Club and Nordic Finance Innovation, as well as being a Non-Executive Director of the Fintech consultancy firm 11:FS. More can be discovered about Chris Skinner at thefinanser.com.