As consumers continue to move more of their banking transactions to online and mobile channels, and as banks search for the right combination of physical and digital, the definition of a ‘digital bank’ always generates interest and debate in the fintech community. Chris Skinner has written an excellent book on the subject (Digital Bank: Strategies to Launch or Become a Digital Bank) and has also written some great articles on his Financial Services Club blog.
The most recent iteration of this discussion was prompted on Twitter by Nicole Sturgill, research director at CEB TowerGroup.
While there were a number of responses to Nicole’s tweet, none of the conversations could have been as robust as the dialogue that occurred between Michal Panowicz, managing director of marketing and business development at mBank and Brett King, founder of Moven as part of a group Direct Message on Twitter. What made this debate exciting is that both mBank and Moven represent very different interpretations of today’s digital bank.
Below is the complete transcript of this compelling debate that transpired over a two-day period seven time zones apart.
Michal Panowicz: When asked about direct banks, how can people count Moven and Simple as digital banks? They are not banks – just a skin on top of real banks.
Brett King: Uber doesn’t own taxis. Are you going to tell me that customers don’t consider them a real cab company? Your argument is a Bank 1.0 argument. If you can’t understand that distribution and manufacturing are rapidly fragmenting in banking, then you aren’t strategically ready for the future. Banking experiences don’t require banking licenses anymore. Frankly, any other argument does not reflect today’s realities.
Chris Skinner (serving as a centrist in this discussion): Just to clarify, Brett. You mean the customer/UX doesn’t need a banking license. I certainly wouldn’t encourage anyone to bank as a store of value with unlicensed companies like Mt. Gox.
Brett King: Yes, Chris, that is what I meant. CX is splitting from risk, credit and insured deposits. But value creation is mostly weighed down with core system replacements, Basel III, regs, etc. It will be hard to compete on a sustained basis with a new layer of CX like Apple Pay, Moven, Betterment.
mBank has done well, but they can’t replicate outside of Poland. If they try, it will be cost prohibitive compared to Moven and Fidor. We’ll be able to scale much faster. I only see 5 banks in the world that can do what mBank has done organizationally. I see 5,000 start-ups that can do the same from a CX perspective. It’s all a numbers game.
Michal Panowicz: Not feeling slapped quite yet (:-P) The thing is that superficial UX layer can only get you so far … more or less bare bones banking.
Brett King: That’s where you’re wrong. If our plan works, we’ll demonstrate the entire core retail banking product suite is redundant.
Michal Panowicz: With little profitability provided for the digital bank. Try to integrate e.g. 30 second loans and investment services and the challenges appear.
Brett King: Essentially the Checking (current) account, savings account, credit card, overdraft and fixed/certificate of deposit are all replaced with context. And charging banks for the experiences that disrupt those products. It will be the banks that can no longer afford to compete.
Michal Panowicz: If you have a provider of those services in the bank, based on e2e digital process, then why do they need you? The front end is simple compared to the back of the actual product factory. The issue is that product factories can’t produce digital processes to expose neatly on the front.
Brett King: So, why is it that nobody has ever duplicated the front end of Moven in 4 years? The banks we’re partnering with think have tried various CX approaches and are really getting the improvement in mobile engagement and revenue they expected, so that’s why they’re engaging with us
JP Nicols: How many banks do you think are capable of working through their legacy tech and business models to create the kind of CX you describe?
Brett King: Maybe 5 in the whole world. But there are thousands of start-ups working on the same.
Michal Panowicz: If you’re looking at front-end or design, >20,000. So here is my question … If the legacy of loan, investments or payments factory is the impediment, how can the CX fix that? You need the process infrastructure to deliver on every customer request at scale.
Brett King: The transformation at mBank was only possible because of the CEO and team around him. Most other banks don’t have the “balls” for a total commitment to digital. It’s why the only players in mobile payment innovation are non-banks. It’s why the best roboadvisors are non-banks.
Michal, you’re thinking Moven wants to be a bank – we don’t. We want to simply own the day-to-day banking experience and every money moment that involves spending. Moven doesn’t want to be in the business of mortgages or personal loans. I just don’t believe the universal banking model will survive this transition. So the premise that we can’t compete because we don’t do universal banking is flawed itself.
Michal Panowicz: I think that’s where the difference of assumptions is. The Moven assumption is that you can “rent” the underlying product or service for a white label. You can do it for rudimentary transactional banking because banks have already had it for more of the decade – online transactional services.
But they have not built end-to-end services for a stunning range of products people need and have not delivered on ability to buy, change, amend, extend or close these products remotely. So – who are you going to rent these products from, other than the simpliest of transactions and stored value? What about loans, investments, more robust savings and retirement? It’s not easy to rent because few institutions really have it.
Brett King: We have several banks that are partnering with us and are giving us the ‘UX keys.’
Michal Panowicz: You can run a wallet this way today, but extending to lending (all consumer types) and investment advice on a single login is what we see today. Unless a product factory renders a digital process to rent, you will have tremendous barriers in providing good or any CX on the front-end, be it mobile, browser, social network, contact center or a wearable.
Brett King: I am not talking about a wallet, but a smart bank account with advice built in. Your assumptions are again wrong because consumers don’t want investment advice or product advice … they want money advice.
Michal Panowicz: I agree that what you offer and intend to offer is very cool. And I believe this is a brilliant way to scale a great service – yet basic transaction accounts cover only a slice of services needed, even for mass banking audiences. I don’t think you can bundle or unbundle banking quite yet. There is a long list of reasons.
Brett King: Experience will trump products. It won’t be about bundling or unbundling. It will be about redesigning context.
Michal Panowicz: This discussion needs greater depth. Abstracting from a product factory IMO brings in many cases of lipstick on a pig. Or great experiences on a piglet (a fragment of banking needs). The consumer will not care what is in the back – which I agree with you on. The issue is if ‘the back’ can deliver breadth, scale, context, latency …
Brett King: There are several major banks that will fall victim to the digital shift. They will be broken into smaller units within the next 5-7 years. Because they failed to adapt. There are some banks where the last update they have done to the online banking model was more than 10 years ago. Those banks don’t really have a chance because it demonstrates a clear culture issue towards digital.
Not done with the debate, but realizing that the participants needed to spend time on their family vacations and going to work, the conversation moved forward 12 hours, but certainly didn’t reduce in passion.
Michal Panowicz: ‘Mobile-first’ is a flawed philosophy in my opinion. Mobile is just device like PC, contact center, branch, Smart TV or wearable. For each form factor underneath should be a universal process layer which abstracts from devices. Then each device has CX optimized for the characteristics of form factors. In such architecture ‘mobile first’ disappears and users/segments choose right device for particular scenarios.
Many scenarios are badly served on 3-5 inches and a thick thumb. Not all banking is a 30 sec cognitive task. “Create” scenarios in particular. Just like any other channel, mobile has its capabilities, some shared and some unique. You need to optimize the service for the scenarios the channel is best at.
Brett King: Rubbish. Buying music on a CD was an entrenched behavior. Mobile has something no other channel has. I believe once optimized, 50% of the planet won’t use any other channel. It will be a replacement for banking entirely.
Michal Panowicz: I didn’t say anything else than you did – I just stressed that it is one of many choices people will still use and they will also use non-mobile devices for years to come.
Brett King: I don’t believe that. I believe, once optimized, 50% of the planet won’t use any other channel. It will be a replacement for banking entirely
Michal Panowicz: End game scenarios do not happen in one day – people transition, and those who can bridge these transitions are in best position
Brett King: For most by 2025, it will be the only channel they have ever used. There’s rarely a bridge. In 250 years, there have only been a handful of industries that have bridged. Most have been displaced as new tech came along.
Michal Panowicz: Ray Kurzwell, for whom I have great respect, predicts that by 2029, we’ll hit singularity when all else stops to matter. Between then and now, you need a transition path. Preaching full mobile now does not take into account form factor characteristics (strengths and fails) and what users choose to do with them.
Brett King: There’s no strong historical precedent for what you’re suggesting. It’s actually the opposite. Telegraph to Telephone. Vinyl/CD to stream. Horse to car, Film to digital photography. Incumbents just don’t transition in 90% of cases and it has nothing to do with form factor. Everything to do with behaviors. That’s why banking is in trouble. Because it’s not about form factor it’s about new behaviors.
Michal Panowicz: Yes – we all know these great examples. Yet banking is not the underlying producer of technology, but its user. And, as such, banks can ride the wave between branches, call center, PC, mobile and then on to wearables and virtual reality a’la Oculus.
Brett King: Which is why banks will struggle to stay differentiated because of the experience layer, they’re relegated just to back end. They won’t ride the wave. Because they aren’t trying to create new experiences. They’re just trying to implement new channels. Banks didn’t have competition before. FinTech is what is different this time, better experiences
Michal Panowicz: Banks are capable to transition the services. I do not use ‘channels’ which is banker’s view – I frame these as ‘devices’ which access/render a core service of loan, deposit, stored value, value transfer etc. In this frame, mobile is one of them. A remarkable one, but users use other ones too. And they can be coupled together for the strongest experience.
Brett King: Banks just can’t think differently, hence why they’ll end up being casualty of experience reboot. If you’re thinking devices or form factor you still aren’t going far enough Michal. Think moving from Album to music streams. What does Mobile have that no other bank channel has? Context. A Loan is a construct. A Deposit is a construct. Savings and mortgages constructs. None of those will survive “context”. Because they are arbitrary constructs defined by bankers.
You’re arguing albums need to move from shops to mobile. You’re not thinking about how music can be delivered in completely new constructs. For example – APR or interest rate on CDs defined by time. That doesn’t make any sense today. Why not gamify APR thru referral or engagement instead of related to time. The whole thing is going to get blown up. When it does the existing systems won’t be even close to adapting. 90% just won’t change fast enough. Which is why new players will get a foothold.
Michal Panowicz: My question is “so what?” In Poland, ‘banks’ have gotten so competitive in CX and value that I believe the market is closed for many classes of new fintech vehicles. I would not declare death of entire class of providers – like banks – so hastily. They can change.
Getting a foothold for new classes of fintech providers is different than obliteration of banks. But, banks have seen their share of business drop in a number of areas to non classical players over the past decade. New entrant growth rates will be higher because the traditional incumbent bases are so large ;-), but when you look at nominal #s of mobile usage and adoptions, it’s the big players who still lead the pack. Once they have these apps installed on devices, distributing new features takes one week or two at no cost … think about it.
Brett King: But the fastest growing banks in a decade won’t be any of the incumbents.
Michal Panowicz: As an example, in Poland we’ve installed our new mobile payments service – Blik, with 7 other partnering banks, to roughly 1.5 million users in a matter of 2-4 weeks. All mobile payment startups where left behind in the dust withing a month. Well – it was just an app update and one click ‘opt in’ for the new and innovative service – vola! with no ads needed.
Brett King: No way. Mobile and social are still young. The most disruptive web plays, i.e Facebook and such came 10 years after web’s first moves. That’s the key. Mobile has context. No bank branch or bank product has the same ability to provide context today. That’s why the existing model is so weak. Banks only reinforce existing constructs. Apps were just the start. Context is a very different beast. Mobile is not about apps.
Michal Panowicz: Of course it is not – agreed! The app, though, is a distribution point, container, vehicle, what have you – to distribute CX. Even if large banks have today’s app mentality and a CX which sucks, once they produce a better CX, they can push new CX in no time to their installed base of users. It will not cost them much in effort and marketing.
This is a great discussion, though. I do not think either of us is violently right or wrong. The beauty is that both scenarios can coexist … creating opportunities for those who ride these waves, from either side of the players’ spectrum.
Brett King: If you’re thinking about mobile the way you’re expressing this, I can see why you haven’t made the leap to context yet. We think within 10 years we’ll have killed off the Checking (current) account, savings account, credit card, overdraft and fixed/certificate of deposit with context.
In 2025, a customer won’t get a bank account with a debit card and have a separate credit line or savings account. Those constructs will be completely unnecessary because you’re still thinking products, ads and apps. Tell me what a loan looks like using the CD to ITunes to Spotify analogy? In 10 years It’s not an instant loan via a mobile channel. It’s something else completely
Michal Panowicz: Why do you think we – a bank – did not make a jump to context? We follow 2000+ parameters per customer in real time, trigger engagement on real-time events, have >20 forms of engagement across devices, do geo-location triggered financial and coupon offers, engage across 6 major devices, do PFM contextual advice and merchant offers. And we can go down to the level of singular customer if we want to.
Ten years from now is almost irrelevant – what takes you there is a roadmap of transition. In tech, all people know the distant future. The point is to get there in quarterly/annual steps, which is rarely a jump from one day to another. Banks have quite a bit of time. But, if they do not move they will die.
At the end of the first day of this great discussion, Chris Skinner penned an excellent article entitled, ‘The Reports of My Bank’s Death Has Been Greatly Exaggerated,’ chronicling some of the discussion between Panowicz and King and providing his perspective that banking is not going to die. Skinner also disputes the ongoing analogy to the music, photography, book and other industries that have been disrupted, instead advancing an analogy between banking and pharmaceuticals.
It is clear that the debate around digital banking will continue. This is healthy. It will definitely be interesting as institutions decide how they will respond to a definite change in the marketplace.