The Future of Banking: Where Everyone Creates Their Own Bank

Jim Marous:

Hello and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, founder and CEO of the Digital Banking Report and co-publisher of The Financial Brand. Finance is quickly moving from digital platforms into an era of hyper personalization where every user will be able to have ultimate control of their data, their devices, and their value propositions. This will have a profound effect on the way banking's done and the way society interacts with banking. Financial institutions are at risk if this transformation is not fully understood.

With democratized finance, individuals will be able to personalize every aspect of finance, including their products, their services, the currencies, and all aspects of sustainability. I'm excited to have Emmanuel Daniel, global thought leader, financial industry expert, publisher and author of the book, The Great Transition: The Personalization of Finance is Here. Emmanuel shares how financial institutions will need to be organized in the future and the impact the personalization function is going to have on all aspects of the banking ecosystem. Our guest today proposes that the personalization of finance is not about banks offering personalized products and services.

It's about the users of finance being able to create their own personalized solutions based on financial tokens, blockchain, and other technologies in a networked world. This is a massive transformation compared to what we know today, shifting from a platform industry to a world where every user creates their own banking and individual interaction experience. Emmanuel, before we dig into your new book, can you provide a little bit of background on your career and the journey that you've taken to get here today?

Emmanuel Daniel:

Hey, Jim. As we were saying to each other at the beginning before we started recording, we both exist in the same universe. We both know about each other and somehow we've never had the chance to lock in with each other. I started The Asian Banker in 1996 out of Singapore, so that's like the other side of the world. I was trained to be a lawyer and spent 10 years in consulting in the wilderness of trying to figure out what I wanted to do, and I thought that a banking publication, as it were, is an excuse to go around the region. In five hours, you go from Boston to Las Vegas or to San Francisco. But in five hours in Asia, you'd go through seven countries or nine countries.

The big thing is that how do I create a platform that is respected across well over 30 countries in Asia, countries with good banking systems and so on. That was my thing with Asian Banker. Then I wanted to start something which was in what I call a cathedral industry, something which the biggest cathedral industry is government and then comes banking. You land in any country, you know will have to deal with a banking system. You'll meet the most important people who will be bankers, and you will understand the society because it's cradle to grave and so on.

I see financial services as a cathedral industry in any country, and I use that as an excuse to travel to all of the different countries and meet with the CEOs and so on. Because I was a pioneer in that, I'd say that today I'm well connected with chairmans and so on in all the countries that I serve. At the same time, it was also a story of Asia's growth. At first, it was the Tiger countries, Singapore, Malaysia, Hong Kong, Taiwan, and then came China with a big one. To have a front seat view of the development of these countries and to see how they progressed and just ripped it off in terms of becoming very leading edge countries in technology and infrastructure and all that, that is a big satisfaction in my personal career.

Of course, all the time using banking and financial services as the background for the excuse of building a business that is commercially viable and yet capturing the story of the growth of Asia. Today, we are in the Middle East. We are in Africa. The name Asian and Banker doesn't apply. We're not Asian anymore. We're not a banker either. Financial services is not just banks, it's now FinTech and all of the others. It's been expanding that way. One other thing I want to tell you is this, that because we were The Asian Banker, believe it or not, that gave me an excuse to meet a lot of North American bankers who were curious about Asia.

For example, one of my really good and enduring friendships is with Dick Kovacevich, Wells Fargo. I spent three weeks with him. Who gets to spend three weeks with someone who's built such a beautiful organization before all of the troubles? He used to go around Asia with this value statement that he had, and he said that what holds Wells Fargo together is our values statement. And then everything started to unravel. I was able to get a behind the scenes view of the institution that he had built and unraveled my opinion on those things.

People like Vernon Hill, who was with Commerce Bancorp originally, and just observing how he built a bank, which was very liability centric, that means banking is deposit centric. Just by keeping the deposit relationship harnessed, he was able to be the lowest cost deposit gatherer of commercial banks in the US. And then from there, invested that in Wall Street and so on. And then watching him try to repeat that story in London, I think he'd started a bank called Metro Bank. London was different from the Midwest on the US, because it was an expensive city. The idea that the branch should be the linchpin of the relationship didn't hold very well there.

And then more recently, I think he got into trouble in Philadelphia or something trying to build that branch relationship type model, and then seeing that technology had changed the importance of the branch and so on. Although I'm out there away from where you are, I had a view from outside in to be able to see some of the evolutions taking place in North America. That's been my story. And then today because of my book, I want the ideas that I'm developing to be more global and something that's relevant to bankers around the world.

Jim Marous:

It's interesting, Emmanuel, you and I both benefit tremendously by the ability to build content around observing an industry. You mentioned it really well. I have seen more of the world in the last five years, not counting the COVID years, but over the last five years than I ever thought I ever would and met with more bankers, more banks, more different dynamics of how to progress, including the Asia market and visiting WeBank and Tencent and Ant and everything else. We're very fortunate in that, but it also gives us a bird's eye view of what's really happening. It's interesting, I started banking 40 years ago.

I actually started in a bank being a banker, and we talked about personalization even then. In fact, our discussion then was around using datas to drive individualized experiences, but revolving around products and services and channels that didn't move nearly as fast. In your book, you talk about the personalization of banking, but it's not personalization as it was previously defined. How is your application of personalization of finance different?

Emmanuel Daniel:

One of the challenges that I have is when I use the phrase the personalization of finance, everyone in the industry thinks that they know what I'm talking about. Everyone assumes that...

Jim Marous:

Myself included, yes.

Emmanuel Daniel:

Well, you and I both were carrying the narrative from the practitioners. They say, "Oh, personalization means more of my products with the customer and the customer is in love with me because I'm making him feel like I understand his needs." It's supply side definition. The personalization I'm talking about is the user side definition, which is I, as the customer, get to decide what the product should be in the first place. It is not a deposit and it's not a mortgage loan. And then I will go around and interact not just with the financial institutions, but with everyone to try and create a universe that is me.

This is something that people who are on the institution side, on the supply side really need to start harnessing into their thinking that the personalization is not about the institution or on the product, but it's on the user, on the community, on the demand side of the equation. I think that that's very difficult, because that in itself is a transition. Where we see personalization taking place today, it's not even in financial services.

When I was writing the book, I was going through a journey myself in trying to absorb all the transitions that have been taking place and then to make sense of it and understand where it's going before I was able to crystallize it into a truism or an idea that I think we all need to understand. The first thing I would say is that technology itself is moving from its platform era into the personalization era. And guess what? The people who do not believe that is happening at all are the people who are in the platform era. The Facebooks, the Amazons and so on, they truly believe that they're going to continue acing the platformization of technology, of supply chains, of relationships, and so on.

In other words, the business model only works if the customer puts his data, puts his content on my platform and my ability to be able to harness and gather a lot of customers. But that's slowly eroding. I tell the platform people, remember when Facebook first started, it was a desktop application. It nearly didn't make that transition into mobile in 2010. 27 was about when the Apple iPhone came about and there was a lot more power on the mobile device. Facebook missed that opportunity. And then it moved to mobile almost as a leg out because by 2010, the Chinese applications like WeChat and Alipay were more mobile native than Facebook was.

This is the year that Facebook has started to lose customers. In 2022 is the first year that Facebook's customer growth has started to go into decline. And then you look at new mobile native players like TikTok, for example, and you think that they are going to have a run maybe 10 years or so. But even TikTok is under a pressure because the metaverse, the three dimensional universe is going to be reinventing even that mobile native universe. As this is happening, the customer is giving less data to the platforms. The customer is demanding for greater control over his data.

Because of blockchain and so on, when you see some of the developments taking place in cryptocurrencies today, the players who thought that they could ace the cryptocurrency game by creating exchanges are finding that the cryptocurrency players are avoiding exchanges. They're trying to interact with each other directly. The cryptocurrency exchanges are not working as well as exchanges in the past. These are some of the transitions that we need to start absorbing to understand this great transition, the title of the book. That's why I came up with the title because look at what is happening.

It's glacial, but it is right there in front of us. And then all of this has an impact on everything we do in business, what we define as being products. I'm saying to bankers, think about what you think of as product and think about the holiest product that you have, the deposit account. When you read what the IMF says about financial inclusion, IMF tries to say that what the poor need is a bank account. Whatever percentage of poor people around the world do not have a bank account. No, they don't want a bank account, they want a life. They want to be able to buy things. They want to be able to interact with each other.

But a bank account is exactly what they're not asking for. Today, more than 2.7 billion people around the world have got digital wallets, and that's going to double to four point something. I have the numbers somewhere. It's going to double. Juniper Research says it's going to go up to 4.8 billion by 2025. The world is already in transition. The end user, the customer in financial services, is taking more control of where he wants to interact and how he wants to interact. When you think about Kodak and the 35mm film, you wonder why Kodak hung onto that film even into the two thousands when it was Kodak itself that invented the digital camera.

They were one of the players who aced the game of the digital camera in 1995, and yet it held onto the 35mm physical film right into the 2000s and it became a huge cost base to them. I'm trying to challenge bankers in saying that, you know what, there are no holy cows in finance today. It's the customer, it's the end user who's redefining how he wants to interact with financial institutions. And that's the great transition and that's the personalization that I'm talking about. I've said this in using many words in trying to get this message across to you because the transition is actually very complex and very subtle. We need to get the definitions right first.

Jim Marous:

When we look at what you're talking about, a lot of the foundation I believe is there. You have a lot of underpinnings of this transformation. What components from your perspective are in place today and what elements still need some maturation?

Emmanuel Daniel:

That's a very important question because I find myself after having written the book and then throwing the idea out there, the pushback I get is from people with a vested interest to protect the existing order. The existing order has got a gravy train hierarchy of dependence that needs to be disintegrated going forward. It's very difficult to do that. Now, take the American payment systems for example, in Africa today, payments is nothing more than a message between two phone sets. When you take something like M-Pesa, for example, it's two people who own phones, send a message to each other, the payment is completed.

Now, building applications around that is another story. That's a question of bandwidth and also regulation and stuff like that, what the regulator will allow the telcos to do in financial services that they don't allow banks to do, for example. But that's essentially what payments is. But when I talk to an average American, he's happy with credit cards and with the checking system which has layers of dependence. You've got ACHs who benefit from the transaction. To dismantle that and finding a justification to dismantle that is a process in itself. Next year, you will have FedNow coming on stream. What is FedNow?

It's instant payment between two bank accounts. And that technology has existed for many years now already. The UK started that. We have that in Singapore today. The FedNow equivalent in many parts of the world are now even cross border. They provide that service on existing technology, MasterCards, Vocalink interface with the core banking system. It's a done deal. But the reason the Fed had a problem trying to get a buy-in was because the existing players had to be nurtured into a new business model going forward.

You will see next year that with FedNow, that in itself is going to give greater power to the individual to decide which institution it chooses. Because now whether you're a large bank or a small bank, you're both on the same starting line because you both have the same global access to payment in the US, instant access as each other. When you commoditize payment that way, the financial institutions will now need to start competing on another level in a different dimension. Those are the things that slows down what already exists today.

Jim Marous:

What's interesting, Emmanuel, is last week I was with 25 bankers from the largest financial institutions in the United States. When we asked the question, how many of you are planning to implement FedNow when it's introduced, one bank said they were. The reason is they all said... And I asked, I'm going, "What is going on here?" What's happened is they're all looking at saying, "We haven't determined the business case yet. We haven't determined where we can make money on this yet. We need a success case study." You realize this is what's getting in our way.

It's getting our way when we think that the future may not come if we don't support it, when the future's going to come either way. It's just a matter of who we get it from. In your book, you also talk about the fact that whoever controls identity controls finance. This leads to the discussion as to who is going to control identities. Is it going to be traditional banking? Is it going to be tech players? Is it going to be the government? Where do you see this part of the future playing out as far as who's going to actually be the keeper of the identity keys beyond the consumer themselves?

Emmanuel Daniel:

I start my book by telling the story of ice, right?

Jim Marous:

Yes.

Emmanuel Daniel:

And how ice used to be something that you saw out of the lakes out of Michigan and in Boston and so on. Today where do we get our ice? We get it out of refrigerator. Refrigeration is the personalization of ice. I used that analogy to actually attend to exactly the point that you just talked about. What do you mean by who controls identity controls finance? In the ice story, what made the difference with refrigeration was a chemical called chlorofluorocarbon. It is a synthetic chemical and it absorbs heat and then enables ice water to turn into ice. We are looking for the chlorofluorocarbon of finance. It has several elements in there. One is identity. Another is non-repudiation. The third is a credit profile.

There are probably three or four more elements that constitutes that synthetic chemical that will enable us to personalize finance. On the identity front, and here it's a journey in that identity today when you talk about physical identity, that's only one me and there's only one you. But when you talk about digital identity, I could have multiple identities, I can be something to you and I can be something else to someone else. I can take on the identity of someone else and we can share identities and so on. That whole identity dimension is work in progress that is going to be taking shape as we go along. Some of it will be depend on what regulators allow people to do. Some of it is technology.

It depends on where the identity is lodged. If it's lodged in a blockchain, then your identity in a certain blockchain is immutable, meaning that you can't be anything other than who you are because that's where you are. But you can be a different person in another blockchain ecosystem and so on. Identity is becoming complex, but what eventually transpires and becomes commercially viable is the combination of the technology, as well as the platforms on which the business models will evolve. Today, we think of platforms in the way that we've become used to in the last 10, 15 years or so, and it's only 15 years that we defined platforms as being where all of the users generate their content and so on.

But platforms are evolving such that... Just think about this, the magic of cryptocurrency is not that Bitcoin went up to $65,000, but that Jim Morris can have his own cryptocurrency and Emmanuel Daniel can have his own cryptocurrency and everybody can generate their own cryptocurrency. That's already a reality today. What it's working into is that how do I know if my crypto will be commercially more viable than someone else's, or would I want to form a crypto alliance with a certain type of people to create a commercially viable crypto community? And that's what we are seeing as we see all the different cryptos working through their paces right now.

Technology already exists. The business models work in progress, and then regulation will start giving it shape, and then we get into a level of certainty that then we can recognize. What I've not done in my book is I've not tried to be prescriptive. I'm not saying this is exactly what it's going to be. In fact, a lot of what my book is focuses on elements that already exist today. Look at them. Don't ignore them. What's also very nice is this, that as I was writing my book and especially during the pandemic phase, I was actually seeing communities creating commercially viable ecosystems using these new technologies. In the Philippines, for example, there was play to win gaming communities.

Jim Marous:

I was going to bring up gaming.

Emmanuel Daniel:

They actually play to generate tokens, which they exchange for real money and bought food and looked after their livelihoods in the small villages in a time when there was lockdowns. In Kenya, for example, there is a community currency called Safaru Credit, which tries to make a small community commercially viable by recognizing work and creating a token that they could pass around to say that this person has done a certain amount of work and therefore give him food or something like that.

That community right now is trying to put that on blockchain as well. There are examples of local communities around the world who are creating business models around the technologies that are already in existence today.

Jim Marous:

Where do you see the greatest opportunity for what I'm going to call traditional financial entities to optimize their role in what you're calling the personalization era? What do they have to do or what resources need to be applied both the short run and the long-term?

Emmanuel Daniel:

Jim, you said that the book was a little difficult to read because it starts off by laying the groundwork on other setting the scenario, and then you'll see that I actually go into the grunt of banking as we know it today. It's like, why did this guy start this big picture thing and then goes into traditional banking and the challenges that traditional banking faces? What I was trying to do in the middle of the book was trying to decipher again what the real DNA of finance is. Finance is a beautiful system that captures some valuable ingredients, the fiber of society. For example, I tell a story of microfinance in Bangladesh and in India.

In Bangladesh, it was led by this wonderful man called Muhammad Yunus, who won a Nobel Prize, and it was lending to six women in a stable community. When that model was applied on the other side in India to poor Itinerant workers who were migrants between the villages and the cities, it fell apart and it created lots of problems. There were a lot of suicides and stuff like that. The local governments put restrictions on microfinance. Then you say, what is it that enables credit to be applied? Well, it's an understanding of the local society, understanding of your customer, and all that.

In the middle of the book, I'm actually trying to regenerate or recreate the essence of finance that a lot of it has nothing to do with technology either. Now, something else that I say is this, and traditional bankers will resonate with this, the most profitable banks around the world and definitely in the US have been the banks with a strong liabilities base of deposit base and not asset base. In other words, the banks that leverage their lending and had a bigger loans book were less profitable than the banks with a stronger deposit base. That's true about the community banks in the US. I go to many different countries and I test this idea and I see this being true in almost every country.

And then you ask why. It's because the bank with a clear understanding and relationship with a local community gets its deposit at the lowest possible price. It does not compete for deposits and has a very trusted relationship with this depositor base. And then when you apply that to digital finance, for example, many digital banks around the world, they industrialize that process of collecting deposits. In other words, what a bank could do for onboarding 20,000 customers a month, their digital bank can onboard 100,000 customers a month.

And yet, they don't have the stickiness of the relationships that the traditional banks have. In fact, out of nearly 1,000 =digital banks around the world, only five or six of them are profitable today.

Jim Marous:

Correct.

Emmanuel Daniel:

Then you ask, why is that? It is that industrializing the deposit relationship does not necessarily mean that you get the cheapest source of funding. In fact, a lot of them only are able to increase their deposit base through a price war. It's not even the technology that they're using. It's actually I give a higher rate, and therefore I win for a few months. And then the next digital bank that's funded by venture capital comes in and gives a better rate, and then that bank continues. That's an unsustainable business model. I put all that in to show bankers, firstly, that not all of the transitions taking place in finance are viable because of technology.

Secondly, we need to go back to understand the elements that made finance sustainable in the first place and see how they can be applied to a new digital world. Now, having said that, I'll say this, that as the technology was evolving, there were two things that the banking industry missed a queue on or two developments that they missed the music on. One is in the use of APIs, application programming interfaces, banks completely misunderstood that APIs were not patch solutions or IT vendors who were designed to solve problems in the bank's internal technology systems. APIs were meant for the users of financial services to define how they wanted to interact with the bank.

And to this day, a lot of the API development structures are designed around, okay, this are the problems that we have with I'll call banking systems. We're going to get around them by installing APIs. Can all of you figure out which of these APIs you like to develop? Whereas in gaming, if you see what gaming has done with APIs and the companies that have aced the API game today do, like Microsoft and Adobe and so on, they create a platform where little girls can create their own games to connect with the platform. That's also personalization where the user defines how they want to relate to the institution.

Banks have missed the cue on that one. And because they missed the cue on the API universe, they're now going to be missing the next cue on the API universe because blockchains actually designed that way, because you have the transactions that are carried on the blockchain, but the applications developed by whoever wants to interact with the blockchain and so on. These were the things that I was struggling with in the middle of the book. And then towards the end, I go back again into the visionaries element, and then I become clearer about where the industry is going as a whole.

Jim Marous:

Let's take a short break here and recognize the sponsor of this podcast. Welcome back. I'm joined today by Emmanuel Daniel, author of the book, The Great Transition: The Personalization of Finance is Here. We've been discussing the underpinnings of a completely new disruption of financial services industry and the prospects for traditional banks in the personalization era. As you mentioned that I mentioned to you earlier, the book is not the easiest read mainly because you build premises on history, and then take it forward into areas that we're not as familiar with.

We're only familiar with what we see daily. You intertwine not only finance, but society, the technology area and everything else. Do you see the personalization era being more about technology, products, people, regulation, or is it a combination of all those?

Emmanuel Daniel:

America is the embodiment of the personalization of history itself. If history was about communities and countries and so on, today the US is a country of great realization of the personalization of society, which is the individual is important, is the primacy of how society holds together. And then we figure out everything else. Technology is actually abetting the process. It's making it easier as a result. I mean, personalization started with Christianity. How's that? When the Lutheran movement broke away from the Catholic Church, they said that religion is about a personal relationship between me and God. I don't need the church. I don't need to go through the corrupt processes of the church to reach God.

That was Martin Luther's basic tenet personal relationship. Therefore, a lot more emphasis is given to the responsibility and the opportunity to the individual, right? We've been on this journey for four, 500 years already. And then there was the philosophy aspects of that. I put in the book as a by the way statement was Francis Fukuyama talking about the left and so on. Actually whether you're on the left or the right of politics in the US, what you're asking for is a greater accountability of the individual. I think all of society is on a march towards personalization. That process is not a neat process. It's not a progressive process. It's not taking us to a nirvana or a beautiful place.

It's a process that is fraught with a lot of structural problems that we will need to deal with. Now, there's a writer that I mentioned in the third part of the book, which is when I take it off to say, how do we then think about the future? Someone called David Ronfeldt. He wrote this paper in the early 1990s and he was then working for the RAND Corporation. He said that society goes through four phases of evolution, from tribal to institution, and then to markets, and then to networks. I found that perspective very useful to neatly put in place what it is that we're dealing at different points in time.

If you take cryptocurrencies, for example, everything that Charlie Munger says about cryptocurrencies as an asset class to be invested in is true. It is no different from gold. It's no different from shares and securities. It falls into the law of economics, the supply and demand of money, and so on. That falls fully in the dimension of the market's economy that we exist in today. What's a market's economy? It's a buyer and a seller economy. If I sold you my house, I have to sell it to you at the highest possible price and you have to buy it from me. After we've made the transaction, I profit, you get a house, and the transaction is done.There's a winner and a loser in the transaction or a perceived winner, but basically there's a transaction. What happens in a network world is that if you take information, for example, it only increases in value when you share it. When you give it away, you don't lose the information that you have yourself. That's a law in operation in the network world that doesn't exist in the markets world. When we look at the utility of cryptocurrencies in the network world, we are talking about something totally different.

And that is why Warren Buffett and Charlie Munger and so on, whatever they say needs to be put in context in terms of what about that technology we're dealing with today and what about the technology is a promise for tomorrow, and how is that tomorrow coming along, and what of the elements that need to be in place for that network world to finally come about. We in transition. Sometimes we're dealing with an asset that is a buyer-seller situation, and then sometimes we're dealing with a network commodity or a network asset that has a totally different utility to it. That's how I partition what it is that I'm looking at.

The other thing that David Ronfeldt said was that the tribal phase doesn't go away. It's actually T plus I plus markets plus N. By the time you get to the network phase, all of them operating alongside with each other. That I found very useful and I put that in my book.

Jim Marous:

What are the challenges that today's financial brands need to overcome to embrace the future of personalized finance?

Emmanuel Daniel:

I have a whole chapter called The Product Has to Change. I call it reimagining the product. This is something very difficult for bankers to do. I gave you an example of the deposit product. Bankers are so in love with the deposit product and they do not see a day when deposit products will eventually change. That banks would not be selling deposits, they will be selling some kind of wallet. Anyone can sell a wallet. A telco company can sell a wallet, something like that. We should not take any of the products that we are familiar with in finance today at face value. We need to ride the wave of how products are evolving.

Now, even products that were originated in the digital age, if you take peer-to-peer lending, for example, I say in the book that peer-to-peer lenders are misunderstood what the product was in a peer-to-peer lending platform. They thought that the product should be alone or a mortgage, just like banks sell mortgages, except that here the borrower and the lender meet each other and therefore you don't need the bank. But the more they pushed the product as mortgages, the more they started looking like a bank. The more they were subject to the laws of mortgages, credit risk, capital risk, liquidity, and all that.

And guess what? A few of the peer-to-peer players eventually applied to become banks themselves. They throw in the towel, right? I'm saying that when the productization evolves, you'll find that... I'm saying this, that I actually predict that the peer-to-peer revolution will take a new wave when they understand that the product in peer-to-peer lending was the information, was the community, was the sharing of the data with each other until the individual is able to create his own product. The product doesn't necessarily need to be a mortgage. There's a lot of possibilities going forward, like mortgages are a product of the market's phase of human evolution where you buy a house.

But look at what's happening today. Fewer people want to buy a house. They would rather lease a house. They would rather go out and participate in an Airbnb, with autonomous vehicles. There's no need to own a car. The network world is taking shape as we go along. The product there is the ability to share enough information between all of the players in a transaction until they decide how to share the asset or how to utilize the asset. From there, the end user creates his own product. A product is not something an institution sells. It's difficult to imagine this. I see this coming in the near future. In fact, guess what? When I talked to Alibaba, for example, and asked them, "Why did you go into payments?"

They said to me, and now it's published material as well, but we've known them for many years and we knew them in 2010 when they first went into payments, they said, "We provide this platform where buyers and sellers meet each other. There's so much information going in those transactions that the buyers and sellers were themselves telling us, where do we put the money that we are collecting? Where do we put these escrow accounts that were being created?" That's how Alibaba went into payments and that's how financial institutions should go into any products in a network world.

Jim Marous:

It's all information based. Finally, given your vision of the future, will financial institutions as we know them today going to disappear, transform, or maybe some combination along the spectrum? What should financial institutions do today to be more prepared for the future of personalized banking, personalized finance?

Emmanuel Daniel:

Very, very good question. As a precursor to my answer, I'll say this, the United States is the only country which has the great battle between the individual, the state, the institution, and the community. It's the only country where you have billionaires who earn as much money as entire countries, and they stand in opposition to banks and large businesses and so on. Elon Musk can throw a statement out there and affect the entire institution. And then you have the state, which also is a very powerful institution, and it's juxtaposed with each other in that way. I'm very careful in writing my book.

I would even apologize if I don't come across as someone who is blase about the future, because I'm totally internalizing the battle that is underway and how the different players are going to be affecting each other. The thing about institutions is that, firstly, of course, institutions need to reimagine what they think the product should be, but our idea of institutions will also evolve. Because if institutions is a collection of people, if they are organized as a community asset or as a commons, they will start looking different as if they were organized as a for-profit institution. There are different forms of institutions being coagulated and also the goals for which institutions come together.

Because at the end of the day, the profits should actually go to the individual and not to an institution. All of these are in play. The short answer, the simple answer, don't be in love with your products and the role of the institution will evolve. In fact, I say this in several places in my book, which is if you want to understand an institution, look at the balance sheet and what it's made of. When you look at a bank's balance sheet in 1984, it had mortgages in them. Today, if you look at the bank's balance sheet, easily 60 to 80% of it are derivatives, meaning they are derivatives or derivatives of assets. They're not even real assets anymore.

They're ephemeral. Therefore, they're becoming asset light because they are trading assets, they're not fixed assets. The institution is already changing right in front of our eyes. It's just that we think that we go into the office and that we have a predictable experience of selling specific products and so on. But the balance sheet tells us that the institution is changing in the composition of what it holds, but that will also mean that it'll change in the way it views risk, customer, profit, and also business goals. That's evolving.

Jim Marous:

It's interesting, because the entire book, as I made it more concise for me, it's interesting because it really is about the elimination of friction in every way. I mean, everything you talk about is eliminating sticking points that make it hard to move forward at the pace the consumer really wants it. Secondly, and it's always going to be this way, the power of information and insights. You mentioned the Alibaba example and the fact that they got into payments not because they wanted to get into payment, but they knew that that was where the data was.

I think looking back at banking, we got rid of all of our payments products and gave them a way to tech companies and to other organizations that are now conducting all the payments. Instead of knowing about what I'm buying as a bank, what's happening is now almost every transaction, either it's PayPal, it's Amazon, which doesn't give me any insight, which is insight based. Thirdly, I think your book points out extremely well, it's the power of technology to drive this. I look at your early statement about the ice and how the ice industry transformed in the early 20th century, but even more the gaming industry.

The gaming industry has become so much about players from across the world being able to develop their own game, their identities. They change their identities on a regular basis. They're not the same person in one game as they are in another. I think if bankers looked at what's gone on in the gaming industry, we'll understand how frictionless the process is, how games can be innovated instantly and can be developed by the users themselves, and where the insights that are shared, the knowledge of how good a player is or how they get their points, how they apply their tokens in many cases, really is the future of banking.

Emmanuel, thank you so much for being on the show. I apologize because I can't believe we've gone three years without having you on the show. It won't be that long again. In fact, I have a really good feeling we're going to see each other in the next, oh, let's say 30 days. Thank you so much for being on the show.

Emmanuel Daniel:

Thanks, Jim. You and I should gel our ideas a lot more because there's so much to unpack in the conversation that we've just had. Let's build on this.

Jim Marous:

Sharing of ideas. Thank you very much again. Thanks for listening to Banking Transformed, the winner of 3M National Award for Podcast Excellence. If you enjoyed today's interview, please give us a five star rating on your favorite podcast application. Also, be sure to read my recent articles on The Financial Brand and take advantage of our reports on the Digital Banking Report. This been a production of Evergreen Podcasts. A special thank you to a producer, Leah Haslage, audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous. Until next time, remember, change is almost always a painful process, but ignoring change has far greater negative ramifications.