Biggest Fintech Winners of 2019

Jim Marous:
Hello and welcome to Banking Transformed. I'm your host, Jim Marous, founder and CEO of the Digital Bank Report and co-publisher of the Financial Brand. On today's Podcast, we'll be taking a look back on 2019, and getting a glimpse of the future of digital transformation of financial services. Automation and digital technology aimed at improving financial services continues to impact the banking ecosystem, from mobile payments to digital lending and budgetary services. Fintech and big tech providers are revolutionizing how consumers and businesses handle their finances. These changes are happening faster than ever before. It will never happen this slowly again.

Jim Marous:
To get a perspective on the past and future of fintech applications and their impact on traditional banking, I'm joined today by my very good friend Ron Shevlin. Ron is not only one of the foremost authorities on what is happening in the banking industry. He is also personal mentor, and one of the people who is most responsible for my professional transformation a decade ago. Ron is the managing director of fintech research at Cornerstone Advisors, author of the book Smarter Bank, and senior contributor on Forbes with his weekly Fintech Snark Tank articles. Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events.

Jim Marous:
So Ron it's great to have you on the show today. We go back a long ways. As I said in the intro that the reality is we go back more than a decade. And you were actually a key player in me doing what I'm doing today, which is writing and speaking and doing reports, and all that. And you're still in my mind the best at all those categories. I follow you quite a bit. But I see that we're coming up on, I think, a year of you contributing to Forbes, and it looks like you just got upgraded to being a senior contributor to Forbes. Is that true?

Ron Shevlin:
That is true. It was about a year ago, I got an email from Forbes and they said, "Hey, how would you like to be a Forbes contributor?" That took me all of about a microsecond to make that decision. And published my first post, I think it was January 2nd, on why Robinhood's checking account was doomed to fail. And we are now at, well mid December of 2019, I'm coming up on about 63, 64 posts. And yeah, I got an email just the other day from the editor of the fintech section who said that, "Great news. You're being promoted to senior contributor." I then went and told my wife, who immediately asked, "How does Forbes know how old you are?"

Jim Marous:
That's great. And the good news is, it's huge bump in salary from them, I'm sure.

Ron Shevlin:
No. Zero bump in salary. Let's be real. There is no salary. Reality is, yeah, we actually do get paid for this, but that basically pays for a dinner out every month. So I do not do this directly for the money for sure. I do it for the exposure. And I have to say Jim, it has been amazing exposure during the course of the year, and definitely will keep posting as much as I can there.

Jim Marous:
Well and it's great because I remember at the very beginning I was talking about the whole issue of continuous content, and needing to keep a cadence and a continuous flow of articles. But on the same day, same time. And it's great every Monday I know I can go to the Forbes site, look at your Fintech Snark Tank posts, and it's always thought provoking. As you know, we talk quite a bit about the fact that sometimes some of them draw more views than we thought and sometimes less. I think Robinhood is still your number one page view, is it not?

Ron Shevlin:
By orders of magnitude, by far. Yeah. I'm generally disappointed where I write something where I think, man, this is like the best thing I've ever written. And then it's like, wow, look at that. It's like nobody's reading it. Come on. But, hey, that's the quality of the readership, not the quantity, that's important. And I generally have come to the point now, Jim, where I'm gauging the success of the post based on the social media response, not just the page view count. I know from the Twitter feed if it's resonating or not.

Ron Shevlin:
And I say or not because my last one about the PNC Venmo flap is probably the one where, man, I'm taking grief for this one from a lot of people who are disagreeing with me on this one. But I might be wrong. But hey, it's good, I'm learning. And what I love is that it generates some discussion. So that's good.

Jim Marous:
It gives you a chance to really vent and also provide your perspective. And speaking perspective, I think a couple of weeks ago you did an article in Forbes on the fintech winners and losers from 2019. Do you want to talk a little bit about who you thought the winners in the fintech space were last year?

Ron Shevlin:
Yeah. Will do. I do want to preface this though, Jim, with a caveat that I totally admit the fact that my perspective in looking at this suffers from two problems or issues. Number one, I'm probably a little bit more American focused than I should be or could be. And number two, I am definitely taking very much of a banking centric kind of view versus looking at what's going on in the investment and insurance world.

Ron Shevlin:
So would that in mind, I think that you have to say and admit that Goldman Sachs was a huge winner in 2019. It's Marcus, despite the fact that it was reported that it is has suffered a little over a billion dollars, about $1.3 billion in loan losses over a three year period, mind you, not just this year, in its Marcus unit, I don't think that that should detract from the fact that the Marcus deposit gathering steam rolling has continued into 2019. And especially at a time when so many midsize banks and credit unions are struggling to acquire deposits.

Ron Shevlin:
And here comes Marcus going along, and going from, I think it was about 35 billion at the end of 2018 to the last number I saw was about $50 billion at the beginning of December. So that's another $15 billion in deposits gathered in 2019. And then you add on to the Goldman Sachs success, its partnership with the Apple Card, despite the fact that Apple has done its best to diminish Goldman Sachs' contribution to this by claiming, it's the card, the Apple Card, without a bank. Right? But it has been supposedly the most successful launch of a credit card in the history of credit cards. With the last numbers I saw at the end of Q3 were about $10 billion in credit extended to Apple customers. So my hats off to Goldman Sachs. I think they were definitely one of the winners.

Jim Marous:
Well in a marketplace where the key, as we've seen from both a big tech and a financial standpoint, is number one, can you get trust? Well Goldman Sachs obviously comes with that. Can you get exposure? Apple Card's a great example where Apple is really working very hard at building an exposure for the Apple brand, but also Goldman Sachs. And the ability to have, what I'll call, transactional information on the consumer. And the value proposition, the value transfer between Apple and Goldman Sachs, is a model that so many financial institutions should look at. And they don't get mentioned with the big tech firms, they don't get necessarily mentioned with the traditional banking firms, but really it's a blend of the best of both, isn't it?

Ron Shevlin:
Absolutely. The other thing I'd add into this, Jim, and I think is really important for people to recognize and remember is that they're spending money on good old fashioned advertising. My estimates, based on some things I've seen made public, was that they spent about $80 million just advertising Marcus in 2017, and double that in 2018. And then I saw a quote from someone at Goldman who said that they will end up having spent about $270 million on its retail businesses in 2019. I don't think that's all marketing and advertising. I think that's all in with salaries and technology development and all that.

Ron Shevlin:
But it just goes to show that they're making a big commitment to this. They're putting their money where their mouth is. And you too also talk to a lot of fintech startups as I do. And when I start asking about, "Well what's your game plan from a marketing perspective?" It's always, "Yeah, we're going to rely on word of mouth to begin with. And I don't see traditional advertising a big part of our marketing plan." And I tend to just kind of roll my eyes, and go... and you got to look at what Goldman Sachs and Marcus is doing. It's the model for how to build out a brand name.

Jim Marous:
Exactly. So what other winters did you see in 2019?

Ron Shevlin:
So the other one, and this one kind of pains me a bit, actually. The other two kinds of pain me, which is kind of funny. I have to admit Zelle is a big winner in 2019. It probably is not a good comparable situation to a startup fintech in that it took a floundering consortium of large banks, reformed it within a established enterprise, gave it a new name, recounted all the existing transaction volume as the volume of the new fintech, and voila. There you go. You've got Zelle.

Ron Shevlin:
But reality is is that because of their start in being in so many of the large institutions, their person to person, or P2P payment transaction is now well over Venmo and Square. In fact, I think if I got my math right, it's more than Venmo and Square combined. S&P Global did an analysis recently. And I counted it up, and Zelle is in 21 of the 27 largest banks in the US. And they got two more who will be launching soon. And that doesn't even count big name midsize banks like Umpqua and FirstBank in Colorado.

Ron Shevlin:
So got to give them kudos. They are definitely one of the winners in in 2019. They are definitely gathering a lot of steam in the person to person payments space. I can't say that it's at the expense of Venmo or Square just yet. But this whole thing that just came up recently with PNC, and PNC extensively shutting down access to Plaid, which is what Venmo works with. PNC is basically telling its clients either switch banks, or you switch person to person payment providers. So we'll see how that plays out. But that could just be more good news for Zelle.

Jim Marous:
Well, it's interesting because it was in response to what was going on already in the fintech space and a lot of the fintech P2P players now are doing a whole lot more. It's made them innovate. So you see the tug of war going on, but it's a great space for it to go on because it's the area that was most at threat from the standpoint of traditional banks. Zelle was certainly a late entrant at best, but they got the banks to put all their money where their mouth was and are promoting it as such. So it doesn't matter how we do the counting. Because you know I dispute the numbers from the standpoint of being an apples to apples, but still they have certainly recovered a lot of the P2P payments that were going on. And it'll be interesting to see what the response from the fintech space is going to be in 2020.

Ron Shevlin:
Yeah, I totally agree. Although I will say this, Jim, the numbers I look at, I conducted my own consumer survey at the end of last year, which is how I came up with my estimates. And I have to say that they pretty much what validated Square and Venmo and Zelle have been supplying publicly. So I do kind of believe the numbers, although I tend to break out the intrabank numbers from the interbank numbers because, yes, if you're just transferring money into yourself, that's not a Zelle transaction, or shouldn't be a Zelle transaction.

Ron Shevlin:
So the other winner that I named was Chime. And again this kind of pains me because you want to talk about not believing the numbers. I don't believe the numbers. Every 90 days, not even 90 days, there's a new press release that Chime has got another million, or a million and a half customers. The last one I saw was early December that put the total at about... and I should actually correct myself. Not customers, but accounts.

Jim Marous:
Accounts. Yes.

Ron Shevlin:
They said that they had 6.5 million accounts, which was up from 5 million in September, which was up from 4 million in June of this year. And I think this is an important distinction. We got to remind everybody that when Chime is announcing its number of accounts, the way that they're structured to work is it's a pretty much good bet that anybody who opens up a checking account is also opening up a savings account at Chime. It's not necessarily automatic, I would put the ratio, maybe not at two to one, but pretty damn close to two to one.

Ron Shevlin:
So again, they're I think obfuscating the customer numbers when they report accounts because number of customers could be somewhere around half of the number of accounts. But regardless, it just seems like every two months there's some really wild number. And I talked about how I was able to validate through my own survey, the Zelle, Square, and Venmo numbers. I've not been able to validate the Chime numbers. When I've asked consumers what fintech companies they have accounts with, my numbers didn't come anywhere close to Chime numbers. But again, I was looking at number of customers, not number of accounts.

Ron Shevlin:
But regardless, I'm going to take their numbers at their word and have to say that they're a winner for 2019. But I will say this, Jim, and I did publish this a couple weeks ago as well in an article called The Warning Signs Ahead For Chime is I do look at their customer base. I think it's very heavily skewed towards low and middle income consumers. Nothing wrong with that except where do you go from here? They're relying very much strictly on interchange fees as a revenue source. That can only go so far over the next couple of years. Interchange rates have to be trending downwards. And so where does everybody go? They go into lending. And if your customer base is low to middle income consumers, that's going to be a tough base to grow a lending business on. So I see some warning signs ahead Chime.

Jim Marous:
So beyond the winners, when you look at some of the fintechs that are out there, let's not even call them winners or losers, are there any fintechs that are out there that you just really like what problem they're solving, or how they're solving it, or maybe their overall model?

Ron Shevlin:
There are, and it's funny because the ones that I tend to like, and this is probably just my own bias of where I view the whole financial services world is I think the bigger problems to solve are within the banks than with the consumers. I mean, yes, nothing's perfect at the consumer level for sure. Nobody's got that nailed down.

Ron Shevlin:
But none of these startups do either. Chime had its own technology problems. All of them seem to... nothing's perfect. The customer experience is never going to be perfect. But I think part of the opportunity is in solving a lot of the problems at the bank level in terms of how they are able to deliver products and services.

Ron Shevlin:
So two ones that just come to mind, and I do like the whole as a service kind of a concept, but companies like StreetShares that are providing lending as a service to banks, or Harvest Wealth that's providing wealth management services to midsize financial institutions as a service. Those are the ones I tend to like.

Ron Shevlin:
I still am big fan of companies like StrategyCore, which are helping to kind of reinvent the checking account space, and really helping to accessorize the checking accounts and make it a more valuable product for consumers through their existing financial institutions. So it's companies like that that I think are doing a good job. And as you say, they're solving the problems. They're actually not solving directly the consumer problems. They're helping to solve the bank's problems in being able to serve and provide better products and services to consumers.

Jim Marous:
So along that same line, are there any, what I'll call, traditional banks or financial institutions that you think have in 2019 kind of became a winner? That they were doing some of the right things?

Ron Shevlin:
Tough question for me to answer. Answer because I know there are a bunch. There are a couple that come to mind and, and I don't know that I could say that necessarily this all happened in 2019, because of course nothing that they do is going to kind of take that short a period of time.

Ron Shevlin:
And in thinking about your question, there's a couple came to mind immediately. And then one, I said, well I know that one of those is not exactly perfect, but there's two that kind of come to mind immediately. And they're both credit unions by the way, not banks, but Alliant Credit Union in the Chicago area who I think has done an amazing job of sort of transforming away from branches to a digital based financial institution. And a credit union in Boulder, Colorado, Elevations Credit Union that over the past couple of years has really embraced Six Sigma and the Baldrige approaches and just has done a great job of great service and also rethinking the products and services that they're offering.

Ron Shevlin:
You know, Jim, just real quickly, it's coming up on five years that I published the book Smarter Bank, and I'm really thinking of kind of reviving that concept of what, in 2020, what does the smarter bank look like? And it kind of occurs to me that both of those banks, credit unions, sorry, boy, I'm going to come trouble for that one, huh? Both of those institutions really kind of fit what the model of smarter bank needs to be in 2020 in terms of how they source talent, how they use data and apply analytics, how they think about and deliver the member or customer experience. So that's why those two come to mind.

Jim Marous:
Well it's interesting because you're really talking about companies that have changed their culture. And in the research that we've done for the digital banking report, we found that culture is obviously been more of a challenge than the technology side of it. But that you have very few organizations that I believe from an outsider's perspective have embraced the culture of what we'll call the digital financial institution.

Jim Marous:
And you named two. On an ongoing basis, I'll name BBVA as a company. And they benefit from the fact that they haven't had a banker in charge there for over a decade, which certainly puts them in an advantageous position to not feel and move like a bank. But it's strange that when you look at the big banks in the US, and a lot of them try to brag about where they are as digital organizations ranging from Capital One to Wells, from Chase to Citi, even taking out the next tier being US Bank, PNC, and now the combination of BB &T and SunTrust and you go, I'm not nearly as impressed with where they're going. Yes, they do some digital things, right, but I don't really see a change in the culture. Do you?

Ron Shevlin:
Kim I'm going to take a bit of a contrarian view on this one. First of all, I just want to mention quickly that on another report I did this year around digital transformation, I conducted a survey, mostly midsize banks and credit unions, and asked them what some of the barriers to their digital transformation efforts were. And I was very surprised to find that not a majority, nowhere near a majority, mentioned culture as a barrier to their digital transformation efforts. And that kind of went against all these things I read everywhere out there on sites like Digital Banking Report and Financial Brand and so forth. And so that kind of surprised me.

Ron Shevlin:
But here's why I take the contrarian view Jim, is that you know how many banks and credit unions all claim to be customer centric and member centric and service oriented and blah, blah, blah, blah, blah. And reality is Jim is if your financial institution truly is member centric, or customer oriented, or service driven, then adopting new technologies and digitizing or digitalizing your operations should be part of that culture.

Ron Shevlin:
It's not a change in culture. You do it because you recognize, man, we need these technologies to deliver better products and services and experiences to our member or customer base. And so, I don't think that there's the need for cultural change as much as people think that it's needed. And I also think that it's incredibly difficult. I mean, I just look at the own organizations that I have worked for in the past 20, 25 years. And then a couple of really sad things come to mind. It's like, man, that's a really long list of companies.

Ron Shevlin:
And then I realized, I was like, I was trying to decide what's the overriding culture of any of those firms that I worked for. And they're not financial institutions, but so what? None of them are technology. There's no technology in the description of the culture. One company, first word that comes to mind is it was juvenile. Another company I worked for, it comes to mind, was professional culture. Another one was misalignment.

Ron Shevlin:
And so the overriding picture of what the culture was was not digital. That's not a culture. And so I think this whole cultural thing is getting overplayed a little bit because I think what it really comes down, it was strategic change and the reality that changing direction of the ship, especially the bigger ship you've got, is difficult. Not because the culture, but because of the way processes are hard coded. And very importantly, because of the way rewards and incentives are structured. You mess around with rewards and incentives, and you're messing around with some really big rocks in an organization. And if you want to translate that to be culture, okay. But I don't think that that's how a lot of people think about their company culture.

Jim Marous:
What's interesting is I think, you work with a lot of the credit union space and what we are finding is that the biggest and the smallest think they're more ahead of the game. But I think a lot of it has to do with, you mentioned it, in the smaller organizations, they're not steering the big ship. They don't have to change culture. Their culture, especially in the credit union space, has always been customer-centric.

Jim Marous:
So that helps a lot. Because if you understand that, that it's not about technology, it's about serving the customer better. And oh, by the way, technology may be part of that. But yeah, it's an interesting dynamic. And as you look to 2020, what are some of the things that you see happening in the banking space that, I'm not going to call it a trend or prediction, but what are you looking forward to the next year possibly happening?

Ron Shevlin:
Let me extend that out. Not just to next year because I don't think things ever happen in just a nice little 12 month timeframe kind of thing. And I do think of this as broader than just being a trend or a prediction. But I think there's a number of issues or debates that the industry is going to have to wrestle with throughout the next decade really.

Ron Shevlin:
I think one of them is, I don't do not think, although we've been debating the future of branches for a while now, I think that's going to really start to come to a bit of a head. And it's not about consumer use, or preferences for branches. This is going to become much more of a political fight that banks and financial institutions that shut down branches in economically disadvantaged areas are going to get a lot of grief for doing so despite the fact that it might be more economically advantage for them to do so on.

Ron Shevlin:
I find this to be a weird argument because haven't the proponents of mobile banking been arguing that that's the key to serving underserved consumers for the past 10 years. So wait, is it the mobile banking that's going to serve them, or is it the branches that's going to serve them? But I think we're still heading for a new type of fight around branches. I think that's one, and that's sort of the one that will carry over from the previous decade.

Ron Shevlin:
But the two big ones I think that we're really going to wrestle with in the next couple of years is around data, and more broadly speaking, AI, and the need for regulation in AI. You see it all the time, the calls that there's bias in AI. And everybody who doesn't like a result that they get from AI claims that there was bias in the AI.

Ron Shevlin:
What's kind of amazing is that people are ascribing AI to decisions that were made by not AI technologies. So all of a sudden everything now is just AI. And anytime you don't like something, it's biased. But I think we're going down a road where not just the ascertation of whether something is biased or not, but the ability to do that analysis is going to become very constrained as AI becomes much more assimilated into existing applications and technologies in the banking world.

Ron Shevlin:
They're not going to be separate chatbots anymore. There'll be part of the contact center systems. There'll be AI that will become part and parcel of loan origination systems and digital banking systems and CRM systems. So the ability to kind of ferret out what was AI and what was not AI in a particular application to determine whether or not there was any kind of bias inherent in it, is going to become very difficult.

Ron Shevlin:
And especially when you consider that what's really driving the potential bias is not actually the AI technology, but the data that's being fed into it. And so we already have regulations around what data we are able to use, that the industry's able to use to make a lot of kinds of decisions. And so in effect, we're actually regulating bias into the decisions, not out of the decisions.

Ron Shevlin:
And the broader issues around data privacy and the use of data are going to be very much forefront page one. And we talk a lot, and you and I both talk a lot, about the need for personalization and better realtime analytics. But the reality is that we may be going down a path where there will be less data available to make those kinds of decisions, not more. And that's going to become a big issue for the industry.

Ron Shevlin:
And then the last one I throw in here, which I think is a longer term trend, Jim, that I think the industry in the US at least is going to wrestle with is whether or not what we've seen in China with super apps from the WeChat and Alibaba's of the world, which I guess those are the only two in the world, right? Will that come to the US? And interestingly, there's folks like Brett King and Richard Turrin who will tell you immediately, yes they are. They're common.

Ron Shevlin:
I actually am doing my annual what's going on in banking survey as we speak. I'm asking respondents what do they think. And so far the running count is about 60% think it won't come to the US, 40% think it will. But I think that whether or not that comes to the US will depend a lot on cultural changes within the US to accept that sort of all in one. And remember, this is very much big tech on steroids in some cases.

Ron Shevlin:
But I think that's going to become a big issue for the industry. Are banks going to just become a little pieces of super apps? I don't think... will there be banks who think that they can become the super app? But I think this is going to be representative of potentially huge cultural changes or pressures on cultural changes to see if that kind of stuff is adopted in the US.

Jim Marous:
Well we have run out of time and as always it's a conversation that we could have going on for hours. It's always great to talk to you. It's good to keep in touch with you almost on a daily basis, one way or the other, either through Twitter, or through email, or by phone. But how do people get ahold of you, or how do people pick up the book you mentioned.

Ron Shevlin:
Getting in touch, Rshevlin, R-S-H-E-V-L-I-N on Twitter, also Ron Shevlin on LinkedIn. Please check out the Fintech Snark Tank on Forbes. And you get the book anywhere. But that's Amazon, called Smarter Bank. But these days, best place to get me is that Forbes on Fintech Snark Tank.

Jim Marous:
Hey Ron, great to have you on the show, and you have a great holiday as well. Thanks for listening to Banking Transformed, just rated as a top 10 banking podcast. If you enjoyed today's interview, please be sure to subscribe to the show on your favorite podcast app. And don't forget to give our show a five star rating. Also be sure to catch my recent articles on the Financial Brand and check out our research that we are doing on digital transformation, retail banking innovation, the digital customer experience, and financial marketing for the Digital Bank Report. This had been a production of Evergreen Podcast. A special thank you to our producer, Brigid Coyne, and audio engineer, Sean Rule-Hoffman. I'm your host Jim Marous. Until next time, have a great week.