Banking 2025: Industry Experts Map the Path Forward

Jim Marous (00:11):

Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, owner and CEO of the Digital Bank Report, and co-publisher of The Financial Brand.

Jim Marous (00:21):

Traditional financial institutions face mounting pressure from FinTech disruptors, big tech companies in evolving regulatory frameworks. The rise of banking as a service platform, embedded financial solutions, and AI driven services fundamentally alters how financial products are delivered and consumed.

Jim Marous (00:41):

To explore these changes and better understand how banks and credit unions must prepare, we're joined in the Banking Transformed Podcast by two leading voices in banking and FinTech evolution.

Jim Marous (00:53):

Brett King, renowned futurist and bestselling author, and Ron Shevlin, Chief Financial Officer at Cornerstone Advisors.

Jim Marous (01:01):

Together, we'll discuss how technological advancements, changing consumer behavior and market forces are reshaping the future of financial services. The conversation covers the evolution of primary banking relationships, the impact of embedded finance, and how traditional organizations can compete in an increasingly digital marketplace. My guests also offer insights into which organizations will be best prepared to succeed in 2025 and beyond.

Jim Marous (01:34):

Legacy banks are struggling with aging infrastructure and complex compliance requirements while trying to maintain relevance in an increasingly digital-first marketplace. Success in the new era requires institutions to bounce technology, innovation, and customer trust in a world of higher regulatory compliance and the need for agility, operational efficiency, and personalized services. The question is, where the heck do you start?

Jim Marous (02:03):

So, today, as I mentioned, I have Brett and Ron on the show today. They're two good friends. We actually started different levels of podcasting and writing at the same time. We’ve been working off each other for years, and it's so fun to have them both on the show.

Jim Marous (02:18):

So, Brett, let's start with you. As you mentioned, in our pre-conversation, you've been circling the globe recently, meeting with bankers, FinTech leaders, regulators, government officials on every continent. What is a major theme that you keep-

Brett King (02:34):

Not every continent, dude, I haven't been to Antarctica yet.

Jim Marous (02:37):

Oh, okay. Well, banking's light there, there's no branches. And the reality is you get to Cape Town, so it's not like you're that far from Antarctica. So, what is the major theme that you're hearing bankers talk about and what's keeping them up at night? Well, also, what's exciting them right now?

Brett King (03:01):

Well, what's making them very nervous is artificial intelligence. Just the scope of it potentially, and the fact that most bankers, at least in senior executive positions, don't really understand the implications of that from a technology or culture perspective. I know that's keeping bankers up at night for sure.

Brett King (03:22):

In terms of what's exciting, I do think that reframing banking and reframing the way it exists in the future state of our economies, particularly with autonomous systems and so forth, is the biggest opportunity in banking in the last 50 years. But again, in terms of the number of bankers who are really well prepared for this and the number of banks that are prepared for this, there's only really a handful. So, that's the concern.

Brett King (03:58):

On the flip side, meaning on the FinTech side of this, then that's a very different scenario. The FinTech see this is their opportunity to shine and to come in and develop next generation infrastructure that is AI resilient. And they have a tech stack advantage at this point, which is they've got all new tech. They may have some legacy technology debt, but they don't have legacy systems or legacy data silos and so forth that they need to navigate.

Brett King (04:30):

So, and this includes players like Stripe, NEWBANK, who of course now is the largest bank outside of Asia. And so, on the FinTech side, there's a view that this is the opportunity to really make some incredible advances in creating next generation AI-resilient infrastructure for what banking will become over the next decade or two.

Jim Marous (04:59):

So, it's interesting, Brett, because you talk about that, and it's not like we haven't talked about it before, but it definitely does feel closer, if that makes any sense. I've been on at least 10 of your podcasts at the beginning of the years, and we talk about the same thing. But the reality is it really genuinely feels closer than it ever has.

Jim Marous (05:21):

And Ron, counter to Brett's global travels and his macro look at things, you really get in the weeds sometimes with financial institutions, and you really get to understand what is going on in the trenches, certainly in the U.S. What's the most significant challenge that you see financial institutions facing? And if you have an instinct, when you walk in an institution, what's separating the winners from those who aren't yet there?

Ron Shevlin (05:51):

Listen, for years … and first of all, Jim, thanks a lot for having me on. It's been a while. And it's just an honor to be on with Brett, of course, and doing this. So, thanks a lot for having me on.

Ron Shevlin (06:05):

Listen, banks have complained about their core providers for years, but it's a nice scapegoat, but what really is hampering a lot of financial institutions is not their core provider, but their digital banking platform.

Ron Shevlin (06:21):

If you think about what the digital banking platform does, it creates a digital instantiation of an analog product, the checking account. And it does not allow for a lot of product innovation for banks. They just can't hang off 10 different types of products off of their digital banking platform.

Ron Shevlin (06:41):

So, as a result, this has given rise to the whole concept of the sidecar core or the side core digital banking platform. And so, I think that has been a huge barrier in innovation. It's not that the banks don't want to innovate or can't innovate, it's as Brett and you kind of alluded to, some of the legacy infrastructure has not enabled this kind of product innovation an easy way.

Ron Shevlin (07:11):

I do think that there are a lot of folks kind of working on that issue and challenge and stuff, but honestly, I still think even the sidecar stuff is not the long-term solution to this. I think we really need a new digital banking platform altogether, and that's easily five years away, at least from a U.S. perspective.

Ron Shevlin (07:35):

So, I don't even think the FinTechs I see Brett, are kind of even bringing that to the table. They're bringing some good innovation from a payments perspective and from a lending perspective as well, but not really from a sort of core digital transaction processing kind of perspective. So, I think we'll see some interesting stuff over there in the next couple years.

Ron Shevlin (07:58):

The other thing I'd throw out there is the compliance burden from a U.S. perspective for sure. This has been a real hassle for the past three to four years or so for the banks. I think they're kind of optimistic going forward that they're going to see some relief on that front. But honestly, I think it'll take some time before the shackles are unchained.

Jim Marous (08:21):

Are we getting into a challenge? This goes to both you – are we being challenged that no one, no banks, very few banks, no regulators, very few of the partners are viewing banking completely differently? Now, Brett, I know you're working on a book, basically a republishing of a previous book Branch Today, Gone Tomorrow. And I'm thinking, do we continue that?

Jim Marous (08:44):

I mean, when you look at a mobile banking app, you could open any mobile banking app, they're going to basically look the same on the surface, there's not a whole lot of difference. Are we having a challenge looking at banking in the way it's actually going to be, or is it happening around us with embedded services? Brett, I'll start with you on that one.

Brett King (09:06):

Well, I think it’s happened, I don't think it's happening. So, the numbers I quote from the new edition of Branch Today (which Jim, I'm very grateful for your support on that) is that if you look at the top 20 FinTechs in retail they now account for 4 billion customers. The top 20 retail banks account for about 2.7 billion customers.

Brett King (09:37):

If you look at growth over the last five years, compound annual growth rate in terms of customer numbers, the FinTech players have grown 200%. A lot of that's come out of China, of course, with players like WeBank and NEWBANK, they've dominated. But you've seen across the FinTech space about 45% revenue growth compared with 15% for the banks and just 3% customer growth for traditional banks.

Brett King (10:02):

And then on the payment side, the implications of pay by banks, so the UPI, PIX in Brazil, the fastest growing payments network in the world, means that this year, so 2025, 60% of all payments will go through digital wallets. And this is not Apple Pay or Google Wallet, it's not tokenized cards, because MasterCard, Visa and the card schemes with tokenization represent about 30% of retail payments today.

Brett King (10:30):

So, for many people, this means a wallet or a FinTech bank now represents the first bank account they've ever had, particularly in markets like LATAM in China. And that's really already reshaped what it means to call a bank account. And that's even before we start talking about real embedded banking or AI-based agentic banking, which is what clearly players are working on now.

Jim Marous (10:59):

So, Ron, I look at those numbers and Brett and I do have discussions every once in a while about the growth of digital-first banks. And we can always say, well, you have law of small numbers where it's easy to get a 200% growth, that the numbers didn't start as big. And you could always say that the FinTech players are growing fast, but they also have the most new accountable meetings.

Jim Marous (11:22):

And you've done some research on this as well. Are we starting to see a shift away from these non-traditional banks being simply the secondary provider, the small balance provider? Are they starting to become primary banks in a lot of people's wallets?

Ron Shevlin (11:40):

Yes, we have to get to a finer distinction and definition of terms around simply using the term bank and FinTech. And again, this will be very U.S. American centric, and it's very much driven by younger consumers who these days means none of the three of us at this table here. But the millennials in the Gen Zs who make up a pretty good percentage of the consumer base in the U.S. are driving this predominantly – here's why this thing is messy.

Ron Shevlin (12:15):

You can't even ask them anymore, “Who's your primary bank,” it's a meaningless concept. They have a primary payment provider, they have a primary this, a primary that, and it's very, very granular. There's a primary credit score provider, there's a primary this.

Ron Shevlin (12:33):

And so, yes, I don't even ask any more in surveys, “Who's your primary bank?” I ask, “Who's your primary payment provider? Who's your primary investing provider? Who's your primary this?” And there's a lot of bankers I talk to say, “Yeah, we're in a digital-first world.” No, we passed digital-first a long time ago. Gen Zs and millennials are not just digital-first, they're actually FinTech-first.

Ron Shevlin (13:00):

And Jim, even though you're kind of not a Gen Z or millennial, you're actually one of the shining examples of this when you keep saying PayPal is my primary financial institution because of the engagement. Now, for a lot of young consumers, it isn't the bank that's their primary engagement thing. It's where they maybe … could be a betterment or Acorns or somebody like that who Venmo-

Jim Marous (13:33):

My son's got a PNC account, but basically, all his transactions are done via Venmo because he got a Venmo card as well.

Ron Shevlin (13:39):

So, the real challenge is that the banks look at their numbers and go, "Hey, we're doing great. Our attrition is down to like 5, 6%." And I go, "Well, how's your engagement and share of wallet doing?” And they don't even know the answer to that.

Ron Shevlin (13:56):

But what I've really come to believe is that it's going to be almost impossible for me or anybody else to measure what really is, which is not even the share of wallet anymore, but it's the share of mind share. And so, it's the share of emotional connection because that's what really kind of drives the loyalty.

Ron Shevlin (14:17):

But it's kind of messy right now in terms of really kind of figuring out where all these players play. And the message that I'm trying to get across the banks is that, yeah, look, we were digital-first, 5, 6, 7 years ago, but now, the younger consumers are not just digital-first, they're FinTech-first, and you're second.

Jim Marous (14:37):

Oh, and they're digital only. I mean, my son opened his account at PNC probably seven years ago, has never ever stepped foot in the branch since the day he opened the account. And he has now transferred because he just got married – he transferred his account to … he went to Chase because it was everywhere. That was his thought process, that basically they were everywhere.

Ron Shevlin (15:00):

But Jim, he's just lucky he probably hasn't had a big enough problem that gets solved. Because when you have a challenge with a lot of these banks, digital or traditional legacy, you find that, huh, God, the mobile app just isn't getting the job done, and you've got to go down to the branch to talk to somebody to help get … or you can try calling them on the phone, but hell, I don't even remember my pin number, it's actually easier to go down to the branch and complain to somebody face to face.

Brett King (15:28):

I think, Ron, you're right there. But I do think, I mean, in terms of the numbers, let's take NEWBANK in Brazil. NEWBANK has 57% of the population have a NEWBANK account, a hundred million people. 120 approximately across Latin America now. And if you compare that with Ital, 57 million, this is the most valuable bank in Brazil second to NEWBANK. Revolut, 50 million customers, HSBC 160-year-old bank, 39 million customers.

Brett King (16:03):

Now, of course, the traditional banks will argue … well, they used to argue, well, the only reason they're growing so fast is because they're so small. You can't really say that anymore to players like Revolut or NEWBANK. You can't say it of Alipay in the Chinese market and so forth. I don't think you can really say it of Chime or Varo necessarily either.

Brett King (16:29):

But if you look at the trajectory on that, the only thing that's sort of left for banks to claim in terms of dominance today is asset size. They say, well, these banks don't have the assets. My reply to that generally is can you explain to me how your asset size is going to help you become AI resilient, or how you're going to capture these next generation of digital opportunities that are emerging?

Brett King (16:57):

And that's where I think things are going from this point forward. And AUM wealth management, things like that, is probably going to stay with the bigger banks for some time over the next 5 to 10 years. But beyond that, as you've pointed out, Ron, I think the way millennials and Gen Zs choose their banking relationships or their money relationships today is like they choose apps: what's the best solution at the current time?

Brett King (17:28):

And you go in Europe for example, and everyone will be using either Revolut or Wise as their primary vehicle for some day-to-day banking stuff. And I think AI is just going to accelerate that flight away from traditional infrastructure, frankly.

Ron Shevlin (17:46):

Hey, Brett, before we get ... sorry, Jim, let me just see if I can reply. Before you get into the AI point, I totally agree with you. There is something though that I think I want to caution on is interpreting or expending or extending the success of a Wise or success of NEWBANK or Revolut to the overall, "FinTech population."

Ron Shevlin (18:12):

Look, if you look at the history of business and technology over the last 50 years, we have one Microsoft, we have one Google. And yes, we have, in the U.S. one Chime and we've got a Revolut and a NEWBANK in Brazil. And I think there are too many folks, Brett, who kind of look at the success of a NEWBANK, look at the success of a Revolut, look at even the success of a Chime in the U.S. and go, yes, that's the FinTech revolution.

Ron Shevlin (18:41):

No, it isn't the FinTech revolution. It's the success of that individual organization who's managed to create the moats that they needed to compete, to get the traction and the customer growth. And actually, Brett, I do believe they will, those institutions, because they're not even institutions technically.

Ron Shevlin (19:02):

Those FinTechs, those companies will expand their product lines – I am worried about Chime. I don't see any product expansion on their front into that, but that's a different story. But I think there are too many people looking at the success of NEWBANK and Revolut and extending that to the general FinTech world, and I don't think that's-

Brett King (19:22):

I don't disagree with you, Ron.

Jim Marous (19:24):

On that same subject though, guys, if you look at the traditional banking world, isn't Chase that same organization? I mean, the reality is it used to be the top 10 and the others. I could argue very easily, it's the top one and all the rest.

Jim Marous (19:43):

There's no organization right now that has the product diversification, the digital transformation chops that Chase does. And you look at everyone else and they ... yeah, there's the second through nine and they're kind of the same, and they're really big and they're very powerful. But when you look at how different are they?

Jim Marous (20:04):

You look at, as you mentioned, the Chimes, the Revoluts, the NEWBANKs, they're very different in the way they operate, and they do it extraordinarily efficiently. You look at Chase in the U.S., but even more so look at Chase in Europe, the growth that they've had, there's no other bank that's doing things the way they are, the growth they are.

Jim Marous (20:28):

Brett, we've had a lot of conversation about the brand structure. The reason why the brand structure works for them is they have so many credit card customers, and basically, they use a branch simply as a cross-selling tool for all these customers that were single service customers.

Jim Marous (20:41):

I'm wondering, the way we're talking about the difference between the leaders and the rest is Chase's not the same type of organization right now. Silence is Golden.

Ron Shevlin (20:54):

I'm a big Chase fan, my boss accuses me of being a Jamie Dimon. Well … what's that?

Jim Marous (21:05):

A groupie.

Brett King (21:05):

A groupie.

Ron Shevlin (21:06):

Yeah, a groupie, he thinks I'm a Jamie Dimon groupie. But listen, I think you're right about the branch struck approach. And I have written that just because Chase is investing a lot in branches doesn't mean the rest of the banks should follow. They would love for that because there's no bigger waste of money for a lot of the other institutions to throw that kind of money at branches.

Ron Shevlin (21:29):

But listen, they've also done a great job of ... I think somewhat quietly moving into the embedded finance space as well. And as have a couple of other large banks like Synovus and Fifth Third – Fifth Third actually, acquired an embedded banking platform and have been moving into that space.

Ron Shevlin (21:51):

So, I think the whole ... I mean, we're kind of getting off the pure FinTech comparison here, but I do think there has been a lot of innovation and good thinking in some of the larger banks. At this point, I-

Brett King (22:06):

But very few, Ron, I don't think it's a lot. Like if I was to count the number of banks who have really innovated and kept pace with just user experience of the best FinTechs, there might be 10 in the world. And then that concerns me because when you start talking about AI and the tech stack requirements for running AI (I know I keep coming back to this), I think it'll be generous to say 10% of banks are going to make it through this phase.

Brett King (22:36):

But that sort of means that we're going to have sort of chaotic consolidation in markets like the U.S. where you have a lot of smaller, less technical banks particularly with the constraints in terms of their technical platforms.

Brett King (22:54):

But to your point, Ron, about the sort of inference that … and Jim, to your point about Chase is essentially the leader and dominant in that respect, we may see exactly the same thing happen with AI, where new players may emerge in the AI banking space that aren't necessarily FinTechs or traditional banks. The FinTechs have probably got a better chance at it, but we could see a whole new wave of players that build this sort of agentic AI capabilities.

Jim Marous (23:27):

Using that as foundation for discussion, we keep on talking about AI, and Brett, you brought up earlier, the potential for an agent that can actually do your banking on your behalf or be aware of what's going on with all your relationships.

Jim Marous (23:42):

How soon is this? We make these predictions and we're always off. But the reality, it just feels like it's something that is very much in the scope of our vision in the near future, where very much like I'm going to take it on a very simple thing where my Uber rides.

Jim Marous (24:01):

Now, think about when I leave an airport overseas and I'm going to a hotel, they're hitting me up on what I may want to have delivered to the hotel for a meal based on my previous eating habits that they track very regularly, or what restaurants I may want to go out afterwards. So, it's thinking on my behalf to make my life easier.

Jim Marous (24:21):

How close are we to having either a bank, a FinTech, or Brett, as you brought up, a completely different organization, in Apple or whoever it is, think on our behalf for how we manage our banking or our money relationships. Because to me, at least, it feels very close. And it takes trust, it takes a lot of identity issues and everything like that. But is this close or is it far away? Maybe I'm just visualizing-

Brett King (24:48):

Well, the answer is yes and no. It's both close and far, and I'll tell you why. When you're talking about what you would have someone in a call center, for example, handle for you, then most likely, we're very close to that. In fact, we can see evidence of that fairly quickly.

Brett King (25:06):

As long as you can hook into an API and have some element of controls over the rails that execute a payment, for example, or transferring money or whatever it might be, then we're probably going to see some of those things emerge over the next couple of years that are very cool. And you just talk to your phone and get it done.

Brett King (25:29):

But when it comes to more complex instances, for example, the AI actually handling the payments rails and choosing the optimal payments rails and so forth. Or maybe making a stock purchase for you or an ETF fund purchase, something like that – no, we're quite away from that because the technologies like Chat GPT, Claude and so forth that we're using to underpin this, they have not been trained on financial services data.

Brett King (26:02):

So, they're trained on conversation and language. And for that, those things are getting … the scaling laws are coming into play, but when it comes to technical elements of the banking system, we need financial services LLMs, and at the moment, that's wide open. There's almost very little data training going on of dedicated LLMs in that space. And we'll probably end up with some sort of multimodal approach, but we're still probably three, four years away from that.

Ron Shevlin (26:35):

Jim, I think the challenge in asking how far away are we from anything is that … and I totally agree with Brett, there are pieces of it that are here. The problem is it's never quite perfect, and it takes a few years to kind of get better, but there's a certain set of functionality that tends to be available much earlier than the total set of functionality that's needed.

Ron Shevlin (27:01):

So, there's a lot of pieces of that agentic AI stuff doing it for that's here already. It just does not accomplish everything.

Brett King (27:09):

It's not ready for prime time. It's not ready for prime time.

Ron Shevlin (27:12):

No, I agree, not ready for prime time. But I look at South State Bank in the U.S. and Chris Nichols and the work that he and his team do of developing what he likes to call large action models, not just large language models. And you got to believe there's a lot of work going on at Chase, and probably even Bank of America as well.

Jim Marous (27:33):

I was going to say Bank of America with the Erica Foundation of seven years of transactions that were not done with the traditional media.

Ron Shevlin (27:41):

No, but meanwhile, just the other day, I had to ask Erica a question that didn't even freaking understand what I was asking about. So, there's my little Bank of America-

Jim Marous (27:51):

Well, the question you asked was about Jamie Dimon, and it refuses to answer anything about Jamie Dimon. Okay, so Ron, getting back into the weeds a little bit right now, banks’ financial structure, their income sources, the way they generate deposits, everything has been attacked quite a bit, both by interest rate shifts and even more so now by potential regulatory changes.

Jim Marous (28:19):

How do you think financial institutions have to prepare for the potential attack on their traditional revenue streams. The way they've done banking in the past, they got saved a little bit when the interest rates rose a little bit, but that's no guarantee. How resilient are these financial institutions getting to be prepared for the shifts that may happen in the future?

Ron Shevlin (28:43):

Well, the last part of that's really easy to answer because they're not resilient at all. The challenge is really kind of looking at your business model, looking at your sources of income and revenue, and figuring out how to best diversify so that when there are really major shifts that challenge the stream of one particular income or revenue source that you're already positioned to refocus on others.

Ron Shevlin (29:14):

And we've talked about this a lot. We're actually, kind of, you actually started off by commenting on how banking has just fundamentally changed. And I think the challenge is that there are a lot of banks looking at trying to refocus on fee income and things like that, but it's much broader and more strategic than that. It's really kind of figuring out who are your customers and what do they want and what will they want? And can you sell them?

Ron Shevlin (29:46):

So, it's beyond just sort of the traditional checking account, loan, financial product, financial account, to a broader set of money management type of approaches. And I think this is where some of the FinTechs do have an advantage because they're already coming to the table with tools and technologies that do some of that financial management/money management types of stuff.

Ron Shevlin (30:11):

But on the other hand, listen, I've known somebody who swears that he was in the room when Jamie Dimon said, “I'm not worried about the FinTechs. If they get big enough to threaten me, I'll just buy them.”

Ron Shevlin (30:22):

And that's a true reality that that's where the consolidation will happen – is not just consolidation of FinTechs, but the banks or what's happening, and I know where Brett's going to go with this, where he talks about valuations, it's the other way around.

Ron Shevlin (30:37):

Shoot, if you're going to force me to have a banking license to operate, shit, I'll just buy a bank and we actually see some of that already. But there's a potential that some of the larger and more successful banks will get acquired by some large technology company for that purpose.

Ron Shevlin (30:56):

So, I don't think a lot of banks are really resilient to the need to diversify their revenue sources. But I got to tell you (and Brett will argue with me this), there are a lot that are doing good stuff. And I think part of the reason it's not very visible is because they tend to focus more on the commercial side of the coin than the retail side. And the retail stuff is what gets all the heat and light. But there's a lot of interesting stuff going on the commercial side.

Jim Marous (31:29):

So, let's take a short break here and recognize our partners.

[Music playing]

Jim Marous (31:35):

Welcome back to Banking Transformed. Today, I am joined by Brett King and Ron Shevlin, two very good friends. We're discussing the changes happening in financial services in the US and globally, and how financial institutions can be better prepared for what's coming in 2025 and beyond.

Jim Marous (31:53):

Before our break, Ron was talking about the challenge of financial institutions being resilient, but actually, making a very good point that some institutions are better prepared than others because they've already changed what I'll call their traditional business model.

Jim Marous (32:08):

So, Brett, from your perspective and you're looking a lot more FinTechs than most of us are, and you're looking at organizations in Asia and such, what can U.S. banks learn from the technology giants, the ones that the WeBanks or the NEWBANKs, the La Casas even cases. What can traditional banks learn still from these organizations to make them more resilient?

Jim Marous (32:35):

Because again, I had a gentleman on from EY the other day, and I said, “What capabilities are most important for financial institutions today as they move forward?” And his comment was resiliency. And actually, working on your core to say you've got to be prepared for what you don't know is going to happen in the future because we have already seen that a quick right turn, quick left turn, quick reverse is bound to happen.

Jim Marous (32:58):

So, what have you seen, and you've been knocking out of the walls for quite a while around the things that traditional financial institutions have to do. In a nutshell, what are those things?

Brett King (33:10):

I don't disagree with the assessment. I think it's technical agility, and I think it's culture. And when you look at that, if I was to look at ... I get asked all the time, I'm sure you guys have had this question: who's the best bank in the world at digital that we should be copying?

Brett King (33:30):

And the answer to that question displeases most bankers, because they say it's not a bank, not in the traditional sense. It's going to be someone like Ant Group, Alipay, look at their SME lending product, for example, in China, 40% of the SME lending market. Their Yu'E Bao savings product, which at one point, was the single highest deposit pool of retail deposits in the world.

Brett King (33:56):

Or look today, at Revolut and NEWBANK or Stripe. Look at Stripe from a smart contracting and payments agility perspective. They're the organizations that have the technical excellence today. But to get to the level of that technical agility as a traditional bank, you've got some major technical depth and challenges with traditional architecture. And when you throw AI in the mix, that's only going to get more acute in my view.

Brett King (34:29):

So, technical agility and cultural agility around technology adoption, the fact that that is the modality of banking moving forward is still very difficult for a lot of banks to achieve.

Brett King (34:42):

One of the most common reactions I get, because I present a lot to boards of banks – I presented this week to the Central Bank of the United Arab Emirates at the launch of their innovation hub, here in Dubai, I'm heading to Turkey Istanbul to present at Akbank on Monday. And the reality is one of the most common reactions I get from board members is, “I'm so glad I'm retiring next year and don't have to navigate this.”

Jim Marous (35:13):

Yes, “I don't want to change. The good news is I'm just going to leave.” There's the flight. Well, you wanted to say something, Ron, go ahead.

Ron Shevlin (35:22):

It's funny, I get the same question too, very much from a more U.S-centric and a lot from community banks and credit unions, who's the best and who should we copy? And they don't like my answer either, which is, “You're asking the wrong question. You shouldn't ever be copying anybody.” If you're a mid-sized financial institution, you simply cannot copy Chase or Bank of America or even PNC and US Bank strategy.

Brett King (35:50):

Well, they spend like $1.8 billion a year on tech right now. How can you compete with that, yeah.

Ron Shevlin (35:56):

It's crazy, so the answer is really figuring out the niche that you're going to focus on and serving that niche. You talk about technical agility, all that. When I get asked, “What is the skill when we need?” I usually go to product design and development.

Ron Shevlin (36:17):

If you really think about what's happened in the U.S. banking market, the product design and development has been outsourced to the digital banking and core provider. They are the ones who come to the table and go, “This is your product.” And then the banks and credit unions look at it and go, “Well, can you tweak it this way? Can you do this? Can you do that?” And sometimes they get some of those features and functions. Sometimes they have to put band-aids and workarounds on it.

Ron Shevlin (36:46):

But there's no fundamental product design and development competency in most mid-sized financial institutions. And I would even guess in a lot of the large ones too, you've got product managers, but they're just there to sell the product, not do new product design and development. I think it's a huge missing competency in the banking industry in the U.S.

Jim Marous (37:05):

It's interesting, you both mentioned the culture issue too. And the financial institutions that we all meet with say, “Who should I be doing business like? Who should I replicate and who's the best at this?” And yeah, they think about the big banks, but the reality is there's some amazing success stories. You mentioned South State Bank, I can mention a bank in the Silicon Valley that they’re just doing almost all the things, but it's really about the leadership.

Jim Marous (37:35):

So, the problem is, when you have a leader that asks the questions, “How do I replicate what the best you're doing?” You go, “Well, number one may be getting rid of yourself” because these organizations really have a hard time getting out of their way.

Jim Marous (37:49):

You mentioned Brett, that the organization, “Thank goodness, I'm going to be leaving in a year or two years.” And at the end of the day, the technology has never been easier to acquire and to partner to get, I mean, it doesn't matter what-

Brett King (38:03):

It's a technology problem in respect to available tech, Jim, you're absolutely right. It's the application of that tech, and it's the culture that allows you to do that.

Jim Marous (38:12):

Well, and thinking outside the box, WeBank, you've been there, Brett, I've been there. And the reality is, one of the major business differences they have is that you look at risk differently.

Jim Marous (38:25):

They take on every single mobile phone owner because they can determine if they're going to go bad or not based on their mobile phone usage, but they may take on a customer that does $25 worth of business a year, but they make enough money on them and all others like them to make a good business case for going forward and being a bank to these owners and the ability to pay for their next phone.

Jim Marous (38:50):

When we look at the challenges also going forward, and we're coming up on the fact that Bitcoin is approaching a hundred thousand dollars, which is just insane the amount of growth that's had. But we're also looking at decentralized finance. We're looking at CBCDs and things of this nature – how's that going to change traditional banking, or is it?

Brett King (39:13):

Well, this is probably the thing I spend most of my time talking about right now, Jim, is, when you start looking at how AI's going to change the world's economies, it's autonomous business. This is where it's going to be applied from whether it's automating a factory, like putting robots on the factory floor, whether it's using autonomous vehicles to transport stuff like drones and robotic trucks and robotic delivery vehicles, autonomous shipping and so forth. It's the application of those technologies to make businesses more efficient.

Brett King (39:50):

But you need to have machine readable finance, you need to have machine readable banking. So, this is what we'd call smart contracts. And if you're doing cross-border trade, that's most likely going to have to be central bank digital currencies, wholesale CBDCs because it requires them to mirror trading agreements and mirror trading blocks.

Brett King (40:12):

So, you're going to have sort of defined relationships. The Bricks trading group is probably going to be the dominant one there in 10 years because of the players involved.

Brett King (40:25):

You then have, at a local market level, you're going to have stable coins. JPMorgan Chase, HSBC, others, have already deployed some projects on stable coins, but Stripe is also doing incredible stuff in that area.

Brett King (40:40):

And then you may have tokenization, which is sort of the digital twin concept, and that sort of more of is a measure of utility rather than money transmission. But all of that, the simple truth is you're not going to be able to run smart contracts on a banking core system, and you're not going to be using fiat currency.

Brett King (41:01):

So, none of the historical competencies you have built for traditional, tradify systems are necessarily going to carry you into that new era. And that then comes back to who has the technical agility to be able to integrate smart contracts into their stack.

Jim Marous (41:21):

Ron, anything on that? Anything more on that?

Ron Shevlin (41:23):

Yeah, a couple things. Before I do address that though, I do want to go back to your comment about it's never been easier to buy and acquire the technology.

Ron Shevlin (41:32):

I want to share with you, I was at a meeting yesterday, had a bunch of community financial institution folks that are focused on financial wellness and health here in the Boston area. And by the way, if you are listening in from the Boston area and interested in financial health and wellness, let me know so I can connect you with this group.

Ron Shevlin (41:50):

And I had to email this to myself because it was such a great quote, and sorry to pick on any one vendor, but it was mentioned, so I'm going to do it. Somebody said, "We made a big investment to buy Adobe's personalization platform, but we didn't make a big investment to deploy Adobe's personalization platform."

Ron Shevlin (42:12):

And that could have been any vendor, not just Adobe. Oh, it wasn't Adobe's fault there, it was the fault of the organization to recognize that you make an investment to acquire, but you actually have to make an investment to implement and deploy. And I thought that was a great quote.

Jim Marous (42:27):

Well, we've talked about that before in events we've been together, Ron, that it's one thing to give somebody the tools, but unless you help them … and we know some companies that do a really good job of holding the hands through the entire process so they can deploy against it. But the reality is that's where they drop the ball.

Ron Shevlin (42:47):

Just quick comment to follow up on Brett's comment, because I totally, totally agree, but I do want to add a little angle to this.

Ron Shevlin (42:56):

I don't know what you guys – God, I don't even know if you went to college, Brett. I know Jim you did, and I don't know if you took economics classes in college, but when you take economics classes in U.S. universities, there's usually two different courses. One on microeconomics and one on macroeconomics.

Ron Shevlin (43:14):

And so, Brett, I think what you were referring to in terms of sort of the wholesale change around away from fiat currencies and all that kind of stuff is really the macro banking approach. But I do think there is a micro banking approach to AI, which is getting … I think you're kind of alluding to, is you get the technical agility to deal with the currency changes and all of that by having the operational changes, the operational agility to do that.

Ron Shevlin (43:46):

You're talking to bank boards internationally, I'm generally talking to bank and credit union boards domestically here, and what I find really helps communicate the message is to have them think back 40 years ago when PCs came around. And when we started seeing PCs on everybody's desk and all the software that came out, spreadsheets and all these word processing and all these, calendaring management and email management things, and how that changed the nature of work.

Ron Shevlin (44:19):

And back then, consultants and analysts and the pundits were saying, “You've got to speed up your deployment of these things.” And it took a while for those things to happen, but then the world kind of shook out. You saw a lot of consolidation of the tools, a lot of consolidation of the players. And we achieved huge, huge gains in productivity from that transition from a manual world to a more automated world.

Ron Shevlin (44:48):

This is now building on top of that infrastructure and capability. We could not be doing the things that we do today with AI had we not gone through PCs, local area networks, the internet, the mobile, the cloud, and now, we can build this on top of it.

Ron Shevlin (45:05):

So, the banking institutions, and really across every industry, the companies that are going to be the ones that will hurt the most are the ones that have not deployed cloud, that have not gone mobile, that have not done a good job of leveraging the internet and the connectivity.

Ron Shevlin (45:26):

So, there's a whole bunch of stuff, and what I try to tell these institutions is it's not just automating lending. It's not just AI and lending, and it's not just AI and customer service – it's AI across everybody's job. It's going to change the way we schedule meetings. It's going to be the way we write things, it's going to be the way we do marketing.

Jim Marous (45:47):

What we do when we go into work. I mean, just basic functionality. It's interesting, Ron, because when you look at that, everything's changing so quickly and maybe we're segmenting what's happening in the political and governmental world and what's happening in the banking world.

Jim Marous (46:04):

So, my last question to both you, and it could go on forever, and this is going to be interesting how we answer it; is that globally and now, especially in the U.S., there's obviously an uproar around traditional organizations.

Jim Marous (46:19):

Governments, the way we've done things in the past, we're seeing it based on in the U.S. Again, the cabinet choices, every one of them has to do with changing the way we've done things forever and not assuming things should stay stable.

Jim Marous (46:33):

We've seen that in Europe, we've seen in other places that the traditional bastions of solid … the trust and the feel good, the government units being them right or being them wrong, are being attacked because there's so many people right now that feel left out, that feel that they're not being listened to and not being heard, and the world's revolving around the rich and no one else. And that's a very small segment.

Jim Marous (46:59):

With that as the foundation, is the banking world, the ecosystem, what we've considered to be that big building on the corner, are these organizations at risk in a world where the populace is angry at traditional structure of government and of financial services? I'll start with you Ron because I know Brett's got no problem on that subject. So, I'm just wondering, Ron, how about you?

Ron Shevlin (47:31):

I don't think there's an easy yes or no answer to that, Jim, because I lean to actually, no, they're not at risk because of this. And the reason is, is that, look, the U.S. at least, the vast majority of financial institutions are community-based institutions.

Ron Shevlin (47:52):

Now, I argue a lot that the notion of community is changing from geographic construct to an affinity construct. But the reality is, is that if you're a small business owner, where are you going to get money from? Generally, it's that local bank, you know that local banker.

Ron Shevlin (48:10):

You listen to Hank Seale who started Q2 and now Hapax, he'll tell you the story about how a community banker loaned his father money to save the ranch. Do you know what I mean? And there are a lot of stories like that.

Ron Shevlin (48:24):

So, I don't think that the alienation of a lot of folks with an institutional perspective is translated towards the majority of banks in the U.S. I think it's more a Wall Street versus Main Street problem. And I think if you're a Goldman Sachs, that's who are now basically out of the retail banking business. I think that's where the alienation comes is Wall Street versus Main Street, not banks in general.

Jim Marous (48:57):

Brett, I'm going to give you the same question, but under the greater umbrella of saying, "People don't need banks, they need banking." So, how does that all play in this whole evolution of what's going on in the marketplace today?

Brett King (49:12):

Ron is both correct and wrong, and let me explain why. In the U.S., he's correct. And this represents a massive problem for the US financial services system competitively offshore because I think fundamentally what we're seeing in places like Brazil, China, India and so forth, ASEAN, even in Europe, is that trust has changed. Trust is now built around utility.

Brett King (49:44):

So, like you described your relationship with Uber, Jim, this is how people are describing the way they transfer money with Revolut or Wise. This is how people describe their trust in the Alipay mobile payment system or WeChat Pay in China, or in NEWBANK in Brazil or PIX and UPI rails in India and Brazil for example.

Brett King (50:06):

And so, the way they trust the system now is defined by utility, how efficiently this works, how it responds to their needs in real time. You've got about 900 banks are on Fed now. I think if you look at UPI rails, 80% of retail transactions will go across the UPI rails in India in 2027. PIX, it's 90% of the Brazilian population on PIX real-time payments now.

Brett King (50:35):

And if you're looking at AI automated payments, you're going to need real-time rails. So, this is not infrastructure that has been embraced as yet in the United States. So, you don't have that same shift or transference of trust that you have in these other economies as yet based around utility. But it has to happen at some point.

Brett King (50:55):

Having said that, there is also an argument for decentralization which would allow for community banks and so forth to participate in this if they have that sort of technical agility to that. And that's sort of where the problem comes in.

Brett King (51:15):

But I do think the broader problem here and the sort of large-scale system thinking (and I'll leave you with this thought for another show sometime), Jim, is that the more automation we put into the system, the less we're probably going to rely on traditional institutions.

Brett King (51:33):

And that's difficult because we want the utility and the convenience that all of this technology brings us, but at the same time, how do we preserve cultural elements of society that aren't technologically framed?

Brett King (51:48):

And that's something that we see the tension right now, but like in the populous movement in the US and other countries where we're trying to reinforce traditional values. But at the same time, you are injecting people like Elon Musk into the economy who are really trying to get large scale technological changes happening even quicker.

Jim Marous (52:09):

Gentlemen, it is always a pleasure to speak to both you. We're getting close to holiday the U.S., so Ron, happy Thanksgiving. Brett and both Ron, you both happy holidays coming up next month as well. But it's interesting because it's ever-changing. We got to do this more often. I think we say that every time we get together. Because whatever we talk about today will change tomorrow and we see that.

Jim Marous (52:34):

The good news is I think we all have the same mission, and that is to try to make banking and bankers better, and make them so they're more prepared based on what we see. We're very blessed in the fact that we see so many different people and organizations and can frame a reference as to what's the difference between those that are doing well and those who aren't, and try to give guidance accordingly.

Jim Marous (52:58):

So, thank you very much both of you for your time today. Appreciate that.

Ron Shevlin (53:02):

Thanks, Jim.

Brett King (53:02):

You're welcome.

[Music Playing]

Jim Marous (53:05):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoy our work, please give us a positive review. Finally, check out the articles we’re writing for The Financial Brand and our fantastic research we're doing for the Digital Banking Report.

Jim Marous (53:21):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage; audio engineer, Chris Fafalios, and video producer, Will Pritts.

Jim Marous (53:30):

I'm your host, Jim Marous. Until next time, remember, the future of banking is close to impossible to predict, but it’s clear that the most resilient and agile firms will be the winners.