Global Trends That Will Disrupt Finance in 2023

Jim Marous:

Hello and welcome to Banking Transformed. I'm your host Jim Marous, owner and CEO of the Digital Bank Report, and co-publisher of the Financial Brand. The increased digitalization of finance has resulted in massive transformations and disruptions across the entire industry. Opportunities have emerged from these trends like the use of AI to drive personalization, decentralized finance, embedded banking and increased collaboration between fin tech firms and legacy banks.

Driven by the increase of consumers with access to more technology, the pace of change is increasing with innovation at the forefront, and existing business models being challenged.

I'm so excited to have my friend Ali Paterson, editor-in-chief and publisher of Fin Tech Finance magazine, on the Banking Transformed podcast. He will discuss the top financial sector trends from 2023, and we'll share ways organizations must become more future-ready.

In the 2023 retail banking trends and priorities report, we found that financial institutions are actually doubling down on the need to deliver better banking experiences at a speed and scale only imagined a few years ago.

In many cases, the delivery of financial services being redefined by those organizations willing to embrace change, take risks, and disrupt themselves. The question becomes how does a bank, credit union, or fin tech firm become future-ready?

Welcome to the show, Ali. As I was thinking about who to invite to the Banking Transformed podcast to discuss global trends in financial services, you were actually the first person that came to mind, not just because you're continually immersed in what is going on in the banking industry but also because your exposure is actually broader than mine is, looking at Europe and beyond.

What would you say right now, in your mind, is the most important trend that we'll see emerge in 2023?

Ali Paterson:

Well, Jim, thank you so much for having me on the show. I'm very flattered to be on here. It's also quite cool to be on the one looking at the trends for 2023. I'm looking forward to listening back to this in 12 months and going, "Ah, you mucked it. You were all over the place here."

There's a few things to come straight to mind. Something that I think we're going to see happening, certainly, in Europe, and we're already starting to see a little bit of that, there's going to be some casualties in consolidation. Just in the last seven days, Ruki in Germany has gone to administration, but that doesn't mean that it's gone, because I imagine there is other institutions going to swoop in and acquire either the customers or different parts of it. Ruki is ... You know, Ruki is like ... They got about half a million ish customers. They're like a Chime or a [inaudible 00:03:21] or a Starling.

Jim Marous:

Yeah.

Ali Paterson:

I don't know who will pick up those bits, the assets. I think there's going to be a lot of consolidation as VC money starts to become a little bit harder to get, that there will be people banding together. That's not really a positive way to start the year, is it? Yeah. I think ...

Jim Marous:

Let's think the opposite then. What fin tech firms ... I think I agree with you totally on the fact that now more than ever, it's not about how much money you can rate, but how much money you can make. Basically, it gets into profitability, Starling just got some really good press in the fact that they're just going to kill revenues this year and expect to even grow bigger than they are.

You know, when you look beyond Starling and you look at fin tech firms in general, and as well, the consolidation of the regular legacy banking industry, who do you see as some of the winners in the fin tech space in 2023?

Ali Paterson:

I'm going to very strategically, again, take a sip of my coffee cup showing the Starling Bank logo. Yeah. I think 2023 is going to be the year where it's not about how much money you raise, it's about what you can bring in in revenue.

I always find it ... I can't remember who it was but I'm going to take credit for it. I saw a great tweet that I did, which was basically saying I would never invest in a ... I would never put forward seed money for a consumer product, because if it's for a consumer product, and you're not already making money, if you're not bootstrapping it, then I have questions. I agree with the thought process behind that but something like back in the day when all of these new banks were entering the market, it was all about what runway we can get and just getting as many customers as possible, irrelative of the cost and the profitability of them.

Now it is ... We're going to see valuations continue to force it is about what could actually be brought in terms of revenue and Starling, both on the consumer side and their lending side and their business side, I think they are poised, not only to make a lot of revenue but to start to move into other areas, and I am definitely putting myself forward. If anyone from Starling is listening, I would love to try out your mortgage products, so when you start to do that, give me a shout, because when they start to move into that, then they become a proper grownup bank.

Jim Marous:

You know, it's interesting, because a lot have been said about Starling. We've had Anne on the show before, Anne Boden, the CEO of Starling on the show before, I think there's a lot to be said for the fact that they always took a steady route to make a better bank, as opposed to completely disrupting the banking model for the sake of disrupting it. They never basically relied on the outside funding, nearly as much as a percentage of what they did as a business. They continue to have their banking chops.

I think we're seeing that with other fin tech firms, everything from a PayPal to a Revolut, that if you focus really strongly on an area, and you do it better than anybody else, and you keep in mind the fact that you have to make money eventually, it's worked well.

You know, with this whole so-called fallout of the fin tech world, as well as fallout to some degree of smaller legacy financial institutions, as they look for scale or they look for profitability, does this fall out of the VC money, pave the way for really exciting collaborations and partnerships, where solutions can be bought, partnered, collaborated with, traditional financial institutions?

Ali Paterson:

God, that's a lot to unpack there. I want to touch on one of the things that you said, first of all, Revolut is a company I have learned to never, ever, ever underestimate. I mean, it could be very easy ... I know they've had a few historic kind of PR missteps and you go, "What are you doing, Revolut?" Then all of a sudden, they have [inaudible 00:07:38] users, so I never underestimate them.

A friend of mine, who we've done ... We actually sent around the world on a race, a guy called Max Fosh, I always bring him up, because I think it's a good indicator in terms of fundraising. A lot of your listeners would never have heard of Max Fosh but he actually at one point was the richest man in the world. He incorporated a business with I think a million shares and he sold one share for 50 British pounds, or whatever ... I can't remember exactly what he sold it for but it gave his business the valuation of 500 billion, and as the 99.9% shareholder, he had a net worth of 500 billion, making him the richest person in the world. On paper.

Jim Marous:

Without fraud, which is [inaudible 00:08:31].

Ali Paterson:

Without fraud, and without revenue.

Jim Marous:

Yes. Exactly.

Ali Paterson:

Look, it's a lot of sort of vanity in terms of valuation, as opposed to true valuation, and you see things that Revolut is worth like five Nat Wests or Revolut is worth a Wells Fargo or whatever it may be, and it's very easy to almost scoff at that and overlook that, because behind the scenes, they're making a good amount of revenue and beyond that, they've got a hell of a product stack and of such a variety of different things in there.

Jim Marous:

Right.

Ali Paterson:

That much of the marketplace idea, it's something that I always feel has legs, but I've never seen it doing the traction it can. Just to go back to Starling Bank, Starling Bank has this phenomenal marketplace for certain things like zero for accounting, or even like things like eco spend for payments, that you can attach a pension on there and all sorts can be brought in on there. Fantastic. It makes life easier but I think it's a little bit too ... I guess a little bit too technical for the average consumer, both small business and personal. I'm not sold on the idea that that will be the norm, despite it actually being a really good product.

Jim Marous:

They've done that before. They've introduced products that really serve a need but a need that most people, unless they sit down with somebody, wouldn't realize how much they benefit from. You know? It's scalability, again, on a service level but it's interesting. We talk about it often, and one of the key trends underlying all the changes in banking going on right now is the importance of innovation.

In fact, your recent awards program in London highlighted this. My question is where do you think the next greatest amount of innovation will occur in banking in 2023? Have we moved away from the next big thing to more of rapid iterations within marketplace innovation?

Ali Paterson:

Absolutely. I'm glad you've asked this, because my answer's changed in the last seven days. I've been in your neck of the woods, I've been at CES, and Consumer Electronics Show ... My God, it's big. I think we've walked a total of 39 miles just around ...

Jim Marous:

Oh my gosh.

Ali Paterson:

Yeah. Huge. A lot of it I was looking around going, "I want that, I want that [inaudible 00:11:17]" these are things that I want but there's a lot of things that I think it's not a finance event. It's a technology and consumer technology event, and there's a lot of things there I'm looking at, I'm going, "This needs to make money. I can see how this can be incredibly efficient in making money. This is a buzzword but a buzzword for a very specific reason", which is embedded finance.

Jim Marous:

Right.

Ali Paterson:

The opportunity that embedded finance has with just a little bit of imagination is huge. The example that is such a go-to example but it's so good, Uber, I took a taxi in Vegas, wasn't Uber but I got out and I thought, "God, I've got to go back and pay" but the way that it's linked in so seamlessly, love it. Amazon Fresh Doors, I walk in, buy something, don't even think about it, love it.

I think embedded finance also gives us that opportunity to move to that almost life as a service model. You have Netflix, it used to be you have to buy this DVD, this DVD, this DVD. Now you have your DVD selection, your video selection as a service. I can see a combination of everything being as a service and embedded finance that you can go out, you live your life as you want to, and you're not even thinking about the financial implications, because you almost have a tiered subscription to life.

Jim Marous:

If you take embedded finance and open banking in the same conceptual context, it changes revenue models. You know, financial institutions would no longer need to rely on interchange income and spread, which gets narrower by the day. I think you're right that it boggles the imagination what can be done, and then it makes you remember things that we take for granted now that have been around, as you said, Uber.

I love Airbnb and I just got an Airbnb unit in Phoenix for the spring and realized that they have embedded opportunities to rent cars from the house owners, to be able to unlock parts of the house, a game room or a movie room, that would have been locked.

You have some interesting concepts. I've taken advantage of them before, Airbnb Experiences where while you're in the city, they're going to connect you with things that you can do that are very unique, usually one on one experiences around the area that are from eating at somebody's house to getting a lesson of some sort and it's just very interesting what can be, and I think your point too is the fact that this isn't in the traditional banking event. This is part of the ...

Jim Marous:

... banking event. This is part of the much greater consumer innovation event.

Ali Paterson:

1000%. Do you know what I love about the Airbnb experiences? You can't Google them. You can't Google go and have dinner with this person, it's impossible to Google. One thing I sort of see as that really captured my imagination in terms of future revenue streams for financial services, they had pretty much a hole the size of a [inaudible 00:14:32] 2020 dedicated for vehicle technology. You had your hover cars, you had all your electric and driverless cars. But what kind of took me a little bit off guard is you had this concept bus, or not even bus, this concept driverless taxi that you hop in it and it takes you wherever you need to go, but it was all integrated into its environment in terms of promoting various different products and activities.

The idea that as you walk towards this taxi, it's displaying adverts on there to make you go, "Oh, do I fancy an ice cream now?" You hop in and it's on a feedback loop as well, so if you respond positively to that, it then shows similar ones. But it was this ad tech embedded into driverless of vehicle technology combined with that sort of as a service model. So you go, "Do you know what, today I'm going to take an hour of recreation," and it would almost choose what you need to do or give you options according to that. That future, they had that technology there, it's just not evenly distributed. I think it was... Who was it who said, "The future's already here, but it's not evenly distributed?" Gandhi. Yeah, it was Gandhi. I don't know who it was, but that kind of stuff that I hadn't even thought of that, but the opportunity for embedded finance in driverless vehicles, that's an industry in its own right.

Jim Marous:

Well and then those driverless vehicles, are they going to be shared vehicles within the neighborhood? In other words, will a multi-person vehicle have a weekly trip to the grocery store, for those people who still go to the grocery store, that the neighborhood can do that? But you talk about the embedded ads, you look at Uber and when you arrive at a location, they're continually feeding you things that you can do, or on your way to a Vegas hotel, asking you, "Do you want your meal delivered to your room? Here's some options." I mean, it's just amazing the amount of integration of technology and insight that makes us all work. It's interesting, because as we're talking about this, innovation in the payments area probably has taken center stage within banking. How do you see the payments ecosystem changing in 2023? What's interesting is I asked this question in 2022, and we are talking about crypto and NFTs. I'm wondering, are those concepts dead in 2023?

Ali Paterson:

I don't think they're dead, but they definitely stalled a little bit. I think there's certainly, from the likes of Matt Damon trying to sort of shill crypto to people, there's definitely a bitter of taste in people's mouths off the back of it. I know what I would like to see in 2023 in terms of Pam's innovation, the world that we live in has so many options for payments and yet people still are almost a little bit, scared is the wrong word, but a little bit cautious, even in simple things such as faster payments, electronic payments, there's still that lack of confidence in, that if 2023 becomes the year where even if there's no further innovations, but the uptake is a lot more equal across the board.

Things like, I know in the States you love a paper check, to see that decrease and move towards an electronic version. The same with cash payments, because I always find people's attachment to cash slightly... I like the idea of payment choice and I don't think we should ever remove cash in its entirety, but when people are only using cash, I kind of go... You're not creating that record of yourself, you're not creating that audit trail, and if you don't have that audit trail, then it's very hard to then build up a credit limit to then be able to go and get a loans, to be able to get various other products.

Jim Marous:

Right now it's getting harder and harder for organizations that you would like to frequent or know about to know you exist. The ads that we have on Instagram, but also the way we make payments helps to direct marketers. Now, some people may not like this, but I like the fact that marketers get to know more about how I'm living and are getting better and better at pinpointing what I might need. It is also interesting in that, you alk about those pinging of things, we're too connected to cards, plastic. I've said this before, I think to you, and I said in another podcast that, I don't carry a wallet with me, I don't carry cash, I don't carry plastic, I carry my phone. And if a place doesn't accept a mobile payment, I will walk out. I will not have a dinner at a restaurant that hasn't already improved upon their ability to pay without plastic. Because it's interesting, because consumers think, "Well, this is safer." It's not.

I mean, you have double authentication, all kinds of other security controls in a mobile payment that you don't have in a plastic payment and certainly you don't have in cash. It's interesting because I think that's going to become more and more the norm, if not for payments, certainly with transactions, and I'm looking at transactions being the ability to use NFTs to get into a sporting event or to be able to have a record of you attending something important now that paper tickets are pretty much gone. When we look at payments also, we look at the improved use of data analytics and AI. A lot of innovation is being done in many of those spaces right now, and really if you don't have your data in shape or have somebody that you can partner with, you're kind of lost. How do you see the use or application of data and AI really exploding in 2023? Now, I'm obviously leading the answer a little bit when I say exploding, but where do you... Yeah, I realize that's not a good interviewing technique, but where do you see some things really taking place?

Ali Paterson:

A after walking around CS and seeing the physical robots AI, they're terrifying, the AI robots, the dogs. The place where I see it really happening is where it's accessible. There's a company, I'm a big fan of SmartStream and they have a product called SmartStream Air, and the log line that I love is that it has the ability to solve a Sudoku that is 14 million by 14 million. I was like, "Okay, that makes sense."

But the reason I highlighted it, and it's products like this that I think are going to be really the future, is the way that it can link in with your current systems and supercharge them. So if you have somebody say, checking this figure lined up with this figure lined up with this figure, then even if that's on something as simple as Excel, you can use these tools to plug into it and it can automatically zoom down and do it. And the fact that a setup time can be fast, products like that which suddenly make AI accessible, that to me is going to have much more of an impact than something that is even more powerful, but you don't have access to it. But it's about the accessibility of AI as opposed to AI itself.

Jim Marous:

It's interesting, because you talk about AI from the standpoint of improving the back office, I'll call it kind of in a fractionalized basis, but we're also looking at ChatGPT that went nuts at the end of the year, and in fact still is going nuts because Microsoft looks like they might be investing heavily in the technology. But looking at AI from a communication standpoint, but also visual, all the images that you can do with AI, there's a lot of risk there, but boy, there's a heck of a lot of opportunity, especially in financial services that are trying to personalize experiences and personalize content.

Ali Paterson:

ChatGPT, oh my goodness, that's a fun... I know you've had our friends at Personetics on here a couple of times and they are all about that level of hyperpersonalization. On the front en, tools like ChatGPT where you literally will never, it's like a human being that you will never have the same experience twice. It will be tailored for you as an individual at that moment in time based on information that that system has. That level of personalization, that's got to be the norm and got to be expected. If it's just a kind of the computer says no, if it's just a generic response, you're going to get left behind, I feel. And this is the year where it's going to become the norm.

Jim Marous:

I saw a chart yesterday that said that, we're talking about GPT-3 and GPT-4 is going to come out this coming year, and it's exponentially greater in capabilities than what we thought was pretty doggone cool in GPT-3. And there's people blowing holes in it, and there's definitely a good reason for that. But what's going to be interesting, it's going to really put a premium on those people that can ask the right questions and direct the AI into a direction that you really want. In other words, it's going to make you explain it more fully what you want so you get rid of any misinterpretation or dummying it down. I found it fascinating, and as you're probably where I did an interview with ChatGPT and basically asked it questions about banking and did it with their answers only so I didn't edit them and it was a good article.

I'm not too sure if I want to kick myself out of business, but the reality was I found really quickly that if you don't structure the question well, you get an answer like everybody else would get. If you structure it more saying in the tone of a poem or in the tone of an executive annual report and it completely changes the way it speaks, the way it builds answers, it's quite amazing.

One other area, Ali, that needs to be done, and innovation that's being put forth, has been hidden barriers when the back office doesn't support the innovation. My example that I always use is digital new account opening. And we have the ability to deliver completely digital new account opening in three minutes, yet even those companies that are selling it end up selling to companies that all the sudden turn it into a seven, 10-minute project because they can't let go of legacy back office processes or they can't automate certain things, and there's a lot of human elements there. What do you see happening in the back offices of financial institutions, and maybe that's part of what we were talking about when we talk about partnering with fintechs and third party providers, but what do you see happening in the back office of financial institutions as we look at innovation and transformation in 2023?

Ali Paterson:

I knew you were going to ask me this question around this. I have a question to throw back to you. If you hop on an airplane and you're flying back from Florida to Ohio for example, and you expect it to take a couple of hours, you hop on it and you're there in three minutes, would you not, as you walk off the plane think, "What's just happened?" Would you not be, because you have that expectation, would you not think this is a bit [inaudible 00:26:59]? So during the pandemic with my beloved styling bank, there was a bounceback loan system. It took me about seven minutes from starting this government loan scheme to those funds hitting my account, about seven minutes, which was incredibly fast. I think with a lot of people, if that had happened, it would've made them feel a little bit uncomfortable.

I actually, somewhat, slightly cynically, I don't think people are quite there yet, but I think very, very soon they will be. I think there needs to be that level of personalization as to how long people should expect it to take to open an account or whatever, just to give them their own peace of mind so that they think, "Ah, they've clearly done a good job. This is clearly legit. This has verified me." On the flip side, yeah, if you've got the technology to make something happen, it's like having a motorway and then at the last bit having a traffic jam on a tiny little road. It...

Ali Paterson:

... last bit, having a traffic jam on a tiny little road. And I don't know how to do it, but it does need to have that opportunity and that option for that speed to be brought in.

Yeah, it's a tricky one, that one, because I think there's the consumer relevant to it. Do you really want it to be instant? And everyone will say yes, but I would love to see some of almost the psychology reports off the back of that.

Jim Marous:

Oh, you're right. I mean, it's been said that if it's too seamless, they get a little bit itchy about risk, and it's probably different for every person. So I believe that the things are working well in the back office, so I want it faster. If something can be able to be delivered tonight by Amazon as opposed to two days from now, I'm taking tonight all the way along. Now, at the same cost. And what it's amazing is Amazon gives you the choice of do you want it tomorrow or do you want it the next day? And both are free. You're going, oh, okay. I kind of get why you may be asking that.

But as you build more knowledge, again capturing insight, and you find out how people want to transact and what they're most comfortable with, the back office is going to define winners and losers more than the technology, I believe top of glass. Because top of glass is only as good as your back office. And if you're simply digitizing analog process, it's not going to work.

I got ticked off of my bank this week because they didn't intuitively realize that if one of my accounts did not have funds, why don't you transfer from another one of my accounts that you realize, or at least ask me, at least ask me, as opposed to paying it with a charge.

It's frustrating, you referenced it, when people know you can do better, but you don't. When people understand that, geez, if my grocery store can figure out how I want my vegetables ripened when I get them. Or if Amazon understands, don't forward me ideas about something I'm going to wear that's going to be green. It's just never going to fly.

If those organizations can do it, the expectations of a client or a customer or a member is exponentially higher around financial services because they know, customers know you have so much information on them that they're becoming more and more restless as far as what they're going to accept. And we talked about this before too. It doesn't end up in people atriding, actually leaving the financial institution, but it keeps them from growing the relationship. So they're going elsewhere.

Ali Paterson:

Yeah. I'd love to see off the note off back of that. It's one of those wonderful things that are always put in slides from consultants when speaking to banks is people need banking, they don't need banks. But if you take that thought process to its extreme, people don't want a credit card, they want to be able to go out and buy something without thinking about it, with that safety and security. They don't want to want a mortgage, they want to be able to have a house. They don't want a savings account, they want to know that they have that security for the future.

There's almost an opportunity to combine all of that together, again, in that almost life as a service model where you have all of that combined into one. You have what assets that consumer has, this house, this amount of credit rating, this amount of savings all as one account.

And then on the other side you have, oh, they have this amount that they still need to pay on their mortgage, this amount on their credit card, so that it's all wrapped up in one thing. And that way you don't have that issue of, oh, I've got to move money from this account to this amount there. Because that's something I think in 20 years we're going to look back and think what, you had to manually pay in cash into an account? The way that we see that now it's oh, you had to manually move it from one account to another? That's crazy. Why is not just an automatic.

Jim Marous:

As an overarching theme, you keep on coming back to this life as a service thing. Do you see that as an underlying or overarching theme for what we're going to be moving to in 2023 in banking then?

Ali Paterson:

I listened to actually on your friend Brett's podcast a while back with Manu Saadia who wrote a book. I'm not a Star Trek fan, but this is one of those books that has helped define my view of finance. He did Trekonomics: The Economics of Star Trek. And it's basically putting forward three scenarios as to where the economics of humanity will end up. And there is that sort of utopian area of Star Trek where there is no money. Fascinating thought process, but then how do you get there?

And one of the things that is put forward in that if you do end up in, we are moving to more of, in various parts of our life, that sort of subscription model, music. Entertainment is now almost entirely on as a service subscription model. Even food with the likes of Go Fresh, it's starting to become that almost set amount, that sort of set service that comes to you. It's quite efficient.

I wouldn't be surprised if more and more things get that away. And then when those products start to consolidate together, you are having that life as a service model, which is quite efficient in many ways, I think allows humanity to scale. There is obviously a darker side to that and it does seem quite dystopian in some ways, but there's a fine line between dystopia and utopia, I feel.

Jim Marous:

Oh yeah. And it's going to be checked and balanced all the way through. I mean, we talked about ChatGPT, and I think that's one of those things that we have to be careful what we ask for. We don't want to replicate the whole world in that way. But on the other hand, we're going to be checking and balancing ourselves. So Leo, let's take a short break here and recognize the sponsor of this podcast.

Welcome back. I am joined today by Ali Patterson, editor-in-chief and publisher of FinTech Finance Magazine. We've been discussing how financial services trends in 2023 may be the stepping stone for what's going to be a much greater future and what the industry needs to do to become future ready.

So Ali, before the break, we were talking about all these different dynamics from innovation to payments to life as a service as you referenced it. All this is going to make it so that financial institutions really have to become digital ready with an increased need for experience and talent that understands how these future technologies can be deployed.

How do you envision the war for talent playing out? And is this war for talent the opening in the door for FinTech firm collaboration and these really the lifeblood of digital banking really that is not getting the scale they need, but certainly has ideas that need to be implemented?

Ali Paterson:

Oh, my life, I'm very glad I'm not a recruitment consultant right now because the war for talent is crazy. Because there's so many people that I see out there that are looking for work and I can see, okay, 20% of your skill set, that's incredibly high demand. 80% of it, you've kind of almost been made technologically redundant or you're in the process of being made technologically redundant. So yes, I want you to do this, but you don't command those high fees. Equally, there are a certain select few individuals that have the skillset that is in such demand that in order to satisfy the entire demand of the FinTech industry, they've got to be working about three or four jobs.

The flip side of that, war for talent is Covid has enabled people to work remotely. I know there's a few... It's a weirdly controversial topic, but the efficiency and the knowledge of what can be done working remotely, but also what can't has greatly hit every single industry sector. So working remotely does offer that opportunity for talent to be on the other side of the world in some cases.

Jim Marous:

Yeah, it's interesting. My son works remotely. It was a company that was remote before Covid. And his girlfriend is a weather person on TV, a meteorologist on TV. And she, by the nature of the career, will end up changing locations potentially every two to three years.

He didn't think of wanting to work remotely when he first looked for the first job. Now I don't think he'll ever work in a traditional office because of the flexibility it gives him to work wherever he wants to work. And honestly, he gets to go on vacation with us and just take the part of the day that he has to work and then spend the rest of the time doing fun things. I mean, there's a lot of benefits there, but it takes a certain kind of person to be able to make that all work in a way that their organization believes in them and trusts them. Which again, bottom line, it gets down to trust in both directions. It's going to be interesting.

And I do believe that FinTech firms, this is an opening because they have a lot of talent. And some of these firms are not going to survive, certainly not in the way they are today. And I think that's a wealth of information and insight that we've got to be thinking about.

Ali, as we look at the behind the big glossy headlines for banking in 2023, we're looking at things, basically the tactical issues that banks have to get right, banks, credit unions, and FinTech firms have to get right in 2023. So without looking at the greatest opportunities or the biggest change, what tactically do finance institutions have to nail in 2023 to be ready?

Ali Paterson:

I think I've got a good, slightly unexpected answer here. Something that I think is a big opportunity that banks currently have, the technology and the people, and they also have the need for, I think there's a lot of people that have been left behind with financial service in terms of products, in terms of accounts, and everyone is almost chasing those sort of early adopters, the sort of digital first, the Gen Z, the millennials entering the workforce.

But I think there's actually quite a big opportunity for some of the older generations and some of the individuals that have been left behind. I think you could suck those customers up, not just individuals, but also small businesses and such as well, I think you could suck a lot of those customers up into your current workaround and be able to deliver products and value for them and vice versa.

I think that's often overlooked because you're always kind of chasing the next big thing. And by then doing that, you gain their trust and you can bring your entire product stack, your entire offering to these consumers, to these businesses. Whereas if you don't, they're just left on their own.

Jim Marous:

Yeah. Well, it's interesting too because it really gets down to data and technology. The technology can deliver services more efficiently than ever before. The data that you can get on people, a lot of it being what I'll call non-traditional data, can help define pockets of opportunity to make money, maybe not as much, but on a bigger scale than you ever would've imagined. I mean, that's where WeBank and China has done so well. They've built their business model on small loans, I mean very small loans. But they do them in the millions. So all of a sudden that base becomes profitable while individual consumers may not be on their own.

But scale gives you a whole lot of flexibility. And it's going to be interesting to see who does that, because we tend as an industry to focus on those profitable segments, small business, wealthy consumers, and there's only so many of those. And we have way too many banks to serve their needs, especially as the ability to close accounts, open accounts, and transact has gotten so much easier with digital transformations that are going on.

Ali Paterson:

Calm capitalism, I'll call it, and that's sort of, not non-competitive, but there's a lot less blood in the water with picking up the those [inaudible 00:41:10]

Jim Marous:

Oh, definitely. Yep. And the reality is we see little pockets of things. We see finance institutions built for musicians, for sole proprietors, all this. But the reality is there's a much bigger foundation upon, that just on the profile, don't look like they're that great of a set. But with digital, again, digital delivery and education and empathy towards financial wellness, I think certainly I agree, there's a tremendous pocket.

Ali Paterson:

I was going to say, I went to the FinTech Islands event last year, which I cannot recommend enough.

Jim Marous:

You have recommended it to me, and believe me, it's on my list, right up [inaudible 00:41:55] in fact, of things to check in with. Yes.

Ali Paterson:

I was chatting to the CEO of a bank I hadn't heard of, ANSA Bank out there. He's got two, 3 million customers.

Ali Paterson:

It's a bank out there. He's got two, three million customers. I was inquiring to him about his tech stack, and he mentioned a few of the people that he's working with. I said, "Why did you end up choosing those?" He said, "Well, it was really simple. They're the only people that took the time to actually come out and pitch me." If that was a bank in New York or London, they would have a queue of people lining up, but the fact it's in the Caribbean, yes, if you need to physically be there to pitch, blah, blah, blah. But I was just thinking, "That's crazy. We live in such a connected world." There's still a lot of money to be made on the table, a lot of opportunities that can still be actioned.

Jim Marous:

What's the biggest risk in the banking industry right now, as we look into next year, or this year I guess it is now?

Ali Paterson:

Status quoing it, and just thinking it'll be all right. That culture of, "We're the Royal Bank of wherever. We'll be absolutely fine." That feeling of safety. Jeff Bezos always says about Amazon that, "We are always a day one company." I think a lot of banks are thinking like they're a day two company. If they can get their mindset back into, "Yeah, we've got to fight to survive." They've got the customers. They've got access to the capital to be able to do this. There's a lot of technology out there. I think a lot of these banks have the opportunity to ... I mean BBVA is a great example that frankly 15 years ago you would raise your eyebrows at their use of technology, and now they've transformed, and they're punching way above their weight.

Jim Marous:

Oh, and DBS, DBS is no small organization.

Ali Paterson:

I was just going to say DBS.

Jim Marous:

But it's an amazing organization. US Bank in the United States, Chase, being a big one, but Chase in the UK being an up and comer. You look at this and you go, "How complacent can the entire industry be because they're still making money?" I use the term, and they've heard it on my podcast before, that unfortunately many, especially midsize to larger banks, are filled with rooms of executives that went through the entire system together. In fact, to be more specific, white male executives that played golf together as management trainees, and are now in the top leadership positions in financial institutions, and they've never had a losing year. They've never, and probably will never have the threat of going out of business. However, they won't grow.

They're having people actually attriting, without them knowing it, from a relationship basis, while not on an account basis. I have accounts at two different financial institutions, one for a personal account and one for a business account, and unfortunately they don't realize that there will not be another account opened at either one of their organizations until they offer some of the services I can get from much smaller, much more nimble, much more targeted organizations that meet my needs for savings, retirement stability, investment services, small business services.

You're right, it gets frustrating because you go, "How do you wake up in the morning just doing things the way you were doing them in the past?" Well, we've seen on the podcast, people we've interviewed, the most innovative and progressive organizations are those where the leadership wanted to be that way.

Ali Paterson:

Very well said.

Jim Marous:

It's not individual situations. Ali, you're a publisher, you publish a great publication, Fintech Finance. As you're looking to your year next year, what do you see as being some of the headline stories you see coming up?

Ali Paterson:

Every time I've tried to predict this, I have got it so wrong, so I'm going to continue that here, so let's go for ... Here we are, "Revolute Buys Kolana." There we go, that's a headline that I would love to see.

Jim Marous:

Well, that's an interesting concept, because it really gets Revolute out from, what I'm going to call being viewed as a single product company. Okay, great.

Ali Paterson:

I'm not being credible, but another one to throw out there, I love this one because I've actually put it to them, "Starling Bank Acquires HSBC."

Jim Marous:

That's pretty good.

Ali Paterson:

I mentioned this to somebody from Starling. I said, "What would you do hypothetically, if this is the case?" They said, "It'd be phenomenal. Look, all we would do, we would use the ..." In the UK, we have a current account switching service, which moves all the direct debits across.

Jim Marous:

Right.

Ali Paterson:

And they just said, "We'd just use the current account switching service and move all their retail customers across to us, and then just turn off all their technology." I was like, "Amazing."

Jim Marous:

Oh yeah. I'll match you with one. I think that, "Chase Buys SoFi," or, "SoFi Buys A Major Bank." I'm a fan of SoFi, and have been for quite some time. I think they have the technology, I think they have the chops. The anchor is still the student loan portfolio, but they have all the makings of a great cloud based technology company doing banking. I would say, "SoFi Plus X," I'm going to be less aggressive than you are, because I don't know how they grow bigger and better, but I think they're a sleeping giant.

Ali Paterson:

I think Galileo in there as well, that's such a-

Jim Marous:

Oh, exactly right. Give me another one, I like yours better than mine.

Ali Paterson:

Okay, I'm going to go out there. One of the ones that we actually, we didn't break this story, but we were the fastest follower, and I have to admit, when we published this story it did kill our website, because it was too much traffic but, "Credit Kudos Was Acquired By Apple," and that was a very interesting move. I'm trying to think of one in a similar mindset. I'm actually going to go and say-

Jim Marous:

Do you see Apple as being ... That in 2023, they'll be the closest tech company to be in a bank? They're maybe already there, but do you see them even expanding more into that realm? Will they be the leading non-bank bank?

Ali Paterson:

Actually, Amazon's going to give them a run for their money, because Amazon has all of the small businesses utilizing them. Actually, I think there'll be a couple of acquisitions, I think, of some of the big tech firms buying things like Credit Kudos, so I'm going to go out with, "Amazon Buys Minna Technologies." They're a small tech firm for managing subscriptions.

Jim Marous:

Yeah.

Ali Paterson:

I think that could be an interesting one. I've got one more I want to throw in there.

Jim Marous:

Okay, do it, yeah.

Ali Paterson:

I want to bring in the insurance space as well.

Jim Marous:

Okay, yeah.

Ali Paterson:

"Chime and Lemonade Merger."

Jim Marous:

Wow, that's pretty good. Those are two companies I really admire. The CEO of Lemonade was on our show very early in our podcast history, and they totally got what the advantages and disadvantages of Lemonade were. I asked him about digital transformation. I've quoted him more than a few times, almost to the point of making it look like it was my quote, but the biggest hindrance to digital transformation is legacy in leadership. He goes, "I did not know insurance when I got into Lemonade, but I did know technology." It just shows that if you look at it from a technology perspective, without all the legacy thinking around what insurance needs to be, you can drive business in a different direction. It's exciting, yeah.

Ali, this is the first time ... I can't believe it, this is embarrassing, it's the first time you've been on this show. I think I've been on your show a few times. It's not going to be the last time even this year, because I think if we put our heads together from the things we see, as we're writing new articles and doing new features for our publications, it's pretty doggone cool what's going on in this industry. The good news is, is because of what we do, it certainly keeps us busy. Ali, I really appreciate your time today, and appreciate your insights and what we can look forward to in 2023.

Ali Paterson:

Any time, any time. I'm looking forward to seeing you actually in Amsterdam in February.

Jim Marous:

Yeah, I'm looking forward to that as well. One last thing, I've talked about Fintech Finance Magazine. Ali, how does somebody get your publication?

Ali Paterson:

It is available for anyone who wants a hard copy in the post, whether you ... We've got a subscriber in Palau, we've got one person in Palau. So if you want a hard copy in the post, it's a little bit slow because of Brexit, go to FFNews.com, subscribe, whack in your details, free forever, that's the rule.

Jim Marous:

Another thing I'd like to promote on your behalf is your interviews at all these events are truly second to none, and you're doing an interview, but the videos you shoot, the innovations you have, you have some fun posts. The hot sauce ones, the haircut ones. You've got all kinds of new dynamics that are just plain fun, and if you don't think banking's fun, take a look at what Ali's producing at Fintech Finance. It's really, really good, and your event, I thank you again for the great time in London. It was something that was needed from a psychological basis, but it was great to spend some time with your family as well. Thanks a lot.

Ali Paterson:

Absolutely, any time, Jim. Looking forward to it.

Jim Marous:

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed what we're doing, please be sure to give us a high rating on your favorite podcast app. Finally, be sure to catch my article in The Financial Brand, and the research we're doing for the Digital Banking Report. This has been a production of Evergreen Podcasts. A special thank you to our producer, Leah Haslage, our new engineer, Sean Rule Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous. Until next time, remember the banking industry is changing faster than ever, leaving laggards in the dust.