The Great Banking Debate Rewind

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. Recently, I had the opportunity to join Ron Shevlin in a unique debate on the future financial services, refereed by Jason Henrichs, the CEO of Alloy Labs Alliance. This debate was done in the style of a championship title fight, complete with so pros, a digital timer, and an enthusiastic audience that attended the MX Money Experience Summit, in Snowbird Resort in Utah.

Jim Marous:
We debated the future of FinTech, challenger banks, the current digital banking trends, challenges in the marketplace, and the hottest topics in banking today. I am fortunate to have Ron Shevlin, Director of Research at Cornerstone Advisors on the bank and transform podcast today. We're going to do a recap of the debate and share insights on what may not have had time to discuss during the actual event. So, Ron, after spending a number of days together with you in Utah, I'm surprised you even joined me today. But I think we both agreed that the format of this event we did at the MX Money Experience Summit, was a tremendous upgrade from the typical panel discussion. Don't you agree?

Ron Shevlin:
Absolutely. There are couple other things I think made it great. First of all, Jim, everybody should know that you and I have round one of this battle a couple months ago over Zoom. So we knew what we were getting ourselves into. The other thing that I think people might not know is, look, you and I have been good friends for 15 years now, maybe close to that.

Jim Marous:
Long time, yeah.

Ron Shevlin:
And we have a back channel conversation on what's going on in the world of banking and FinTech that just continues on a weekly basis. So this was not like two strangers walking into the room and battling it out. We know what we're getting ourselves into.

Jim Marous:
Well, for those of you who weren't at the event and watched live stream or haven't yet watched the recording, the format included 12 rounds of questions that were shared in advance with Ron and I. What most people didn't realize is we didn't know until the event started who would be able to respond first, which meant that Ron and I basically had to have two completely different perspectives for each question ready to share. The first verbal punch to each question would alternate with Ron and I are each getting an opportunity to be first, and then the other person responding.

Jim Marous:
As I said, the referee for the debate was Jason Henrichs, the CEO of Alloy Labs Alliance. I'd be really negligent if I didn't tell you. He did everything that made this event possible. He created the format, the questions, and created the fight day silk robes and the championship belt. So, Ron, as a recap of the debate, what are your thoughts on the entire format of the event?

Ron Shevlin:
I think you just said, Jason did an absolutely fantastic job. He really made it happen, brought a lot of energy to it, and asked some great questions. And more than just the great questions, he really gave it a structure around global trends, experienced trends, looking out to the future, and so forth like that. So the only thing that I would really knock on the actual format was the voting procedure. It was not unlike what's really happening in real life.

Ron Shevlin:
There was some serious voter fraud going on in the session with your wife and neighbor there in the front row, right in front of the microphone that was capturing the decibel levels. I guess that's my own fault for not letting my wife attend and getting her off to the spa because I thought she would just create too much of a distraction for me. And I'd be too worried that afterwards, she'd spent a couple hours telling me what I should have said, how I should have looked, what I should have worn, and so forth. So that was really my only complaint about the format, was the voter fraud at the end.

Jim Marous:
Well, excuse me. Well, we don't have time to discuss every round of the debate. We both did come out swinging from the opening bell discussing whether FinTech was overheated, whether European or US challenger banks would win in the US, and if traditional banking should be involved in crypto and DeFi. What are your take on one of those broad topics and share some of your thoughts?

Ron Shevlin:
Well, first of all, we agree that FinTech is far from overheated. There might be some players in the space who are overvalued from a valuation perspective. Look, I think we were both in agreement that there is so much room for FinTech. My take was that we've really seen kind of an evolution of FinTech over the past 10 years or so at this point from the FinTech really being front end oriented and changing the user interface to what's happening now of reworking or rebuilding of the financial infrastructure, the plumbing, the pipes.

Ron Shevlin:
And that's going to take a few more years and has a lot of room to go. And that hasn't even touched the upcoming or the influx of decentralized finance potential. That's probably another 10 years out. So certainly, nowhere near overheated. And I think you agreed, although you had some great rationale for why you thought it was not overheated.

Jim Marous:
Well, yeah. And the challenge was, as you mentioned, we have some FinTechs that really are providing no business value, yet they're getting a lot of venture capital. And so, you run into the whole thing of going, whether even be a business case here. While other institutions, we talked about not even as part of the debate, the fact that, can everybody go after the underserved customer? And is there money to be made there? And we're seeing this in the payment space that the whole building, that dynamic of, is FinTech space in the right place right now?

Jim Marous:
Or are there going to be a lot of failures? Those are all going to come about. Another area in the same section was the whole issue of if the US or UK challenger banks would win in the US. And in that one, I said, I was, number one, surprised that we only limited to the US and UK because there's so much going on in Brazil, so much going on in Mexico, so much going on in the Middle East, so much going on in China. That limited to those really is minimizing the impact of FinTech globally.

Jim Marous:
On the other hand, I did mention that we have a challenge because it may not even be a FinTech firm that's going to come out the winner. Now, between US and European, you did challenge me and say, I believe you're restructuring the question for your benefit. Well, yeah, I did, which was basically, I'm more concerned, much more concerned about the big tech firms get into the financial space, and I am of any one of the FinTechs. I think the competitive marketplace in the United States is so heavily structured around banking, that we have no lack of players.

Jim Marous:
And so finding a winner, I think, overall, we need scale first. And I think we both agreed on that. And then on top of that, you look and say, you look at the market from Goldman Sachs, which has all the pocketbook in the world, but they're still very small. But you look at PayPal, you look at Google, you look at Amazon, you look at Apple, they can all be much bigger players with a lot more impact in the US. And it's one of those great questions that it was structured in such a way that they wanted us to pick a winner. But overall, I think the challenges and to what scale and what timeframe, because there's a lot to be played out in that marketplace, for sure.

Ron Shevlin:
Yeah, a couple thoughts to that, Jim. First, you didn't answer the question. And it was really who was going to win in the US. I couldn't agree with you more that was happening in South America, Mexico, and so forth is really exciting, I think, on the leading edge of things. But I don't see a lot of Brazilian neobanks necessarily coming into the US, unless they're taking a very niche market approach, which was actually my answer to why I thought that the US neobanks would win.

Ron Shevlin:
Because so many of them are starting with a narrow focus, a niche, what I like to call the community FinTech approach. And, yes, I think a lot of non-US FinTechs could come into the US with a niche approach. But that does not seem to be the approach that the N26s and Monzos and Revoluts have taken. The other thing to your point about the big tech, and I agree with you more, however, I said, rather I do agree with you to a large extent. However, I do see the big taxes not necessarily being threats as much as being partners and providers.

Ron Shevlin:
And having said that, literally, two hours ago, three hours ago from when we are talking about this right now, Google announced that it was shattering its Google Plex account. And I think that was core to my argument of why Google was going to be a great partner and vendor to the banking space, was that they were going to help banks improve their innovation capabilities and provide a great product to the market. That's funny. I've used Google Plex as an example of the impact or the benefit of big tech to a lot of banks and credit unions. And thank you, Google, for screwing me up and making me look bad. So I appreciate that Google. I'll get you back for that.

Jim Marous:
It makes both of us look bad because I also thought the most interesting thing was going to see, how do you get out of religion with Google once you've made your jump in bed with the devil type thing or the Trojan horse in an example. Yeah, exactly. So you know what, after we discussed the global landscape, we got into the trends of user experience super apps and what was considered white whale of the industry. Where's the industry wasting their time?

Jim Marous:
Now, we discrete certainly on some of the finer points around user experience and whether or not user experience will actually replace marketing. And I think that was an interesting discussion because it was really looking at ... We looked at different aspects of marketing. So I think in that place, I said, yes, I think there's a good possibility that user experience could become more important than marketing. But it's not going to kill marketing, it's going to kill advertise in many ways. But you took a different perspective on that, I think, than I did.

Ron Shevlin:
Well, the question was, will user experience replace marketing as the mechanism for attracting consumers? And my argument was, well, first of all, I didn't think the question made a lot of sense. Because I think user interface is marketing. And my argument is, well, what is marketing? Marketing are the tools and activities you have to influence consumer's affinity, preferences, and overall satisfaction and loyalty to a provider. And isn't that what good user experience does, is influence consumers likelihood to buy satisfaction and affinity?

Ron Shevlin:
And so, my argument was user experience is marketing. But I would disagree with you about advertising, Jim. I'm surprised to hear you say that as being an old database marketing guy, is that for years, we heard about the depth of advertising, and yet it still continues to be a strong way of generating awareness, generating affinity, getting people into the pipeline, into the fold.

Jim Marous:
One of the first place that we're really different, we've taken different nuances in certain things and certainly had some disagreements, was on the perspectives of what wasn't attainable, the white whale. Why don't you go over what your perspective was on the white whale, and then I'll discuss mine.

Ron Shevlin:
Sure. Well, first, we had a pre-battle discussion about what white whale meant. We could have actually just debated that. Because I looked what white whale was, and it was something that people chase, but shouldn't be chasing in the first place. And so, I answered the question based on that concept, and my argument was personalization is the white whale that a lot of financial institutions are chasing. My logic being that what a lot of people or a lot of firms are chasing around personalization is personalized messaging. And to a certain extent, personalized advice.

Ron Shevlin:
When my argument is what people really want is a personalized product or service in and of itself, something that's right for them. It's nice if you can say things like, hey, Jim, we saw that you were browsing on our site yesterday, and would you like an offer for this? Or something that looks at your spending patterns and says, Jim, you're spending too much money on cigarettes and alcohol and you should cut it down. That's all very well and fine. But I don't think a lot of people really want that kind of advice nor see a lot of value to it.

Ron Shevlin:
But a product or service that is truly customized or personalized, and every time I say that now, I've got Simon Taylor from the UK, his voice in my head, and he's got a great accent, of course, so it's not a bad thing to hear. But him telling me though, that's not personalization. Well, yeah, sure. Well, it is personalization if you customized a product or service for a particular person's needs and wants. So that was my white whale around personalization on why I think so many firms are chasing it, but have a misguided purpose for doing so.

Jim Marous:
Well, it's interesting. I think we agree on that. I've actually thought that the one thing that was unattainable is loyalty and in a way, it's taken the same perspective as personalization. We continually, as an industry, keep on talking about wanting to generate loyalty. And the reality is, loyalty today is fractured. We have accounts that we can say have demonstrated, but the relationships have been fractured. It is expanded. Now, I think you came back and said, yeah, but that doesn't mean the loyalty is gone because they still have the accounts with you.

Jim Marous:
But even your research says, is it's still the primary financial account. That's to be debated. Where's it going to go in the future? And unless we start building open banking solutions, which we did not discuss and to debate was open banking, which was unique too, is that if we look at what's going on in the marketplace today, if somebody said, what's your primary financial institution? We may know who we banked with the longest, but is that really our primary? That was interesting dynamic.

Jim Marous:
And I think it was another one of those moments where both of us provided very different opinions. But the audience seemed to agree with both, which was the value of this debate in the first place was there is a deeper depth of knowledge provided without just a correlation of thoughts. And the final thing before we take a short break is we also are different on our opinion where the banking model is broken. Now that was probably more of a definition just like the white whale was.

Jim Marous:
But I think I said, in fact, I know I said, that the model itself wasn't broken, but the way we deliver services was. And I think you said, to one point, Jim, I don't think you've answered the question. And then you did say that the model is definitely broken. Can you provide a little insight into what your perspective was, and I'll come back and talk about why I said it wasn't really broken?

Ron Shevlin:
Yeah. First, let me preface this by saying I think a lot of the differences we had came down to how we define the various terms in the questions versus having a truly different opinion on these things. Because my ...

Jim Marous:
We wanted to be right. That's what it was. We wanted to be right, so we want to make sure we got the question right.

Ron Shevlin:
Yeah. So I interpreted the question, which was the banking model as the business model, how do banks make money today? And, yes, they certainly make money through interest and so forth. I don't think that's necessarily broken. But the non-interesting side of the coin, which is very fee driven and specifically punitive fee driven, like overdraft fees and so forth and just regular monthly fees or inactivity fees, my take was that there was a disconnect between the fees that are charged and the value that consumers get from the products and services that they use.

Ron Shevlin:
And that's why I concluded that, yes, we have a broken model because of that disconnect and value. And especially when you look at a lot of FinTechs where they're either closing the gap or have already closed the gap on that value fee discrepancy. You look at someone like Acorns, who has a tiered pricing structure. Certain things are for free, but you want to get more than you have to pay for more. But you only pay for more if you see and perceive and get the value for that fee. To me, that's why I thought the banking business model was broken and really needed to be fixed.

Jim Marous:
And I took more of a historical perspective and said the the model itself of banking isn't broken. But I did say the delivery systems are all broken, that the way we deliver financial services is broken, that we're not responding quick enough. And I think it gets back down to the experience. And actually, to your point, it gets back down to a value transfer. If my appearance, if my engagements is not going to be fast and simple, then that value proposition has gone down. If my finances chooses not to be empathetic, then that value proposition go down.

Jim Marous:
And actually, the way people want to do banking has changed. So I guess I took a little bit more of a, as I said, a historical perspective and say, we're still taking deposits, making loans, and doing investments in keeping money safe. But the reality is, everything behind the screen is broken. It's like the wizard. So, let's take a short break here and recognize the sponsor of the podcast. This episode of Banking Transformed is sponsored by FIS. The way we move, money is changing. We want to send money in real-time to the other side of the world.

Jim Marous:
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Jim Marous:
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Jim Marous:
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Jim Marous:
For more information, visit microsoft.com/financialservices. Welcome back. I'm joined today by Ron Shevlin, the Director of Research at Cornerstone Advisors. As you can tell, if you're on the video feed, we've been doing a recap of the unique debate we participated, the MX Money Experience Summit, where the debate was structured like a championship fight with 12 rounds. So, Ron, another question that we disagreed on was whether or not community banks needed to take a stand on ESG issues. Now that was interesting.

Jim Marous:
Because again, I looked at the question, thought, geez, do they have to start taking a stand? I think the way the thing was done. My perspective was while the industry as a whole is not doing well, certainly, community banks are doing quite well looking at environmental issues, social issues, and governance issues. And their participation in the community and the way they support community, there's always support of the community, even the way they have a more diverse board base in many case in the community, really was what I was hanging my hat on. However, you had researched it really different from a global industry perspective, didn't you?

Ron Shevlin:
Well, I was really focusing on the E component of ESG, the environmental. And look, there's no question that there are a lot of banks, large and small, credit unions, and so forth, that are looking to respond and be more environmentally friendly from a zero emissions type of a concept or looking to minimize their carbon consumption, and so forth. But my argument really comes, again, from the consumer side and consumers saying that environmental concerns are one of the most important social concerns and for many consumers that they consider to be the most important social concern.

Ron Shevlin:
And that more than just being concerned about it, that they want, A, they want to do business with companies. Not just financial services, but that's included in there. But they want to do business with companies that they believe have environmentally friendly policies. So that's number one. But number two, and I think this is even the more important point, is that they want from their banks and credit unions, financial products that reflect environmental friendly procedures. They want their banks to offer them the ability to track their carbon consumption.

Ron Shevlin:
One of the interesting things that came out of the survey, Jim, that I did was that even among the consumers who say that environmental concerns are the most important social concern, as well as those who said it was very important, very few of them actually track their carbon footprint. And the reason is because they don't know how. They don't know where to get the tools to do that. And they want that from their banks and credit unions. But even more so, they want features that are built in to checking accounts, things like recyclable plastic in their debit and credit cards.

Ron Shevlin:
They want policies that the bank will not fund environmentally unfriendly providers and so forth. Now, not every consumer wants that, of course. But there's a growing number and a significant to the point that this is a segment of consumers. And I think that's proven out by companies like Aspiration and Ando and so forth, who are targeting and serving consumers who are looking for environmentally friendly companies to work with.

Jim Marous:
That's interesting. After the event, you and I were approached by a number of people, not only saying how much they enjoyed the format, but also how important some of the questions were. And one of the most important questions that I heard about from the ringside audience after the event was the question around what is the biggest challenge facing banking today. Now, while we didn't diverse too much from another, both of our perspectives resonated very strongly.

Jim Marous:
I talked about the need for stronger leadership and leadership that really is ready to embrace change at a time when firstly, no financial institution is losing money. So I addressed the fact that we have, in most cases, leadership at certainly mid-level firms especially, that are a bunch of guys that got together 30 years ago and management training and haven't been separated since. And they had the same perspective, has had the same victories, have done very well by the way for their financial institutions.

Jim Marous:
But the challenge is all we're talking about, all the things that need to be done are not really being embraced by that leadership because they're not hurt. It's just like going to the doctor and find out ... If you're going to be told you're in a really bad shape, you may listen to what the doctor says to do, but you may not do it, you may not change your behavior. And at the end of the day, it really is leadership that's holding up investments, they're holding up changes in the way they addressed a digital consumer.

Jim Marous:
They're holding up a new training program for employees to let them know they are part of the digital future. Now your perspective was very close, and that was about culture. Do you want to discuss a little bit about why culture is so important as well?

Ron Shevlin:
Yeah. And actually, Jim, you had a great answer. I'll definitely give you that. But I almost saw it as we were talking about the same thing. Because what is culture? Well, culture is a lot of ... You mentioned this too, I'm really not big on the squishy terms like that. But when I think back and try to follow the chain of what's driving the problems, I think we came to the same point about leadership. But to me, that was reflected in the culture of the organization that didn't make tough decisions, didn't really look at how their customer and member base is changing and react to it.

Ron Shevlin:
I would definitely agree that there is a segment of leaders who are just trying to hunker down and get to retirement. But I have to tell you that, I deal with a lot and says to you, a lot of banks and credit unions will map senior management team, and maybe it's a thing of self-selection. Maybe the ones that are hunkering down don't ask me to come talk to the management team or talk to the boards. But of those that do, I have to say, I don't see anybody hunkering down. I think they're very hungry to adapt and change.

Ron Shevlin:
And I think the biggest challenge they have is, how do we do it? And where do we start? And that's not a bad problem. And I don't think that's a legacy leadership issue. We need help in figuring out how to get there, though I would certainly agree with you that there's probably some segment that are just trying to hunker down and wait it out and hand off the problem to the next generation of leaders.

Jim Marous:
Well, it's interesting. Because after we discussed the biggest challenge and after talking to so many bankers at the MX Money Experience Summit, it became clear and it's become clear over the last two months that I visit with bankers face to face, we're talking about these global issues that most bankers can't change. The real problem in banking, I wrote an article about it yesterday, actually, for the financial brand, was that most bankers right now are buried in the daily tasks that face them. They know what they need to do going forward.

Jim Marous:
They know what they have to move towards. But bottom line is right now, keeping pace with change, keeping pace with what needs to be done, what has to be done in a somewhat crisis mode, in a post pandemic world is probably the biggest challenge. Because if we can't have time to move forward and don't hire new people to help us out with that, that's maybe a bigger, more relevant challenge to middle market our middle level employees in an organization.

Ron Shevlin:
Yeah. Jim, if I could change my answer to that question during the debate, I was thinking about this afterwards, I might change it to that the biggest problem are people like you want to find, who are constantly out there writing and telling bankers about what the biggest problem is. And so, what they hear is 10 different things from 10 different people. And then they have to figure out and weigh these, what's the biggest problem, culture, leadership, lack of data, lack of technology, regulation, consumer change?

Ron Shevlin:
There's just so many different things that, honestly, probably what I should have responded back to Jason was, there is no one ... It can't boil it down to one biggest issue, because then you're ... So let's say, if you were to score these things on the magnitude of the issue and one item got a score of 97 and the other got a 95, really, is that that big a difference? And so, look, there's just a lot of things that you have to deal with as an executive in a financial institution these days, and to boil it down to which one is the most important. Once again, probably should have hit Jason with the bad question, let me answer a different one.

Jim Marous:
Okay, so taking that as the starting point, let me ask you a question that wasn't asked, which is very similar. If you have one thing that you'd recommend the average, and I know that it's hard to get an average on financials. But as an industry, what is the one thing they should address first right now, which is really what a challenge is? But what should they address right now? What's the most important thing if they're doing the strategic planning process and said, boy, I'll tell you what, guys, I hope you get this solved by this time next year?

Ron Shevlin:
I would encourage them to focus on what I would think of as the data infrastructure, the ability to get data, use data. It's two sides of the coin. You got to get it, you got to use it. And you might not know what you're going to use it for and you might not know exactly which data elements are most important today. But you don't have the luxury of waiting and letting other people figure out what data elements are important and issue and how to get it and how to deploy it, and then figuring out how to do it.

Ron Shevlin:
This is what I think a lot of firms have suffered from, is the sit back, wait, let somebody else do it, this. And you know I've written about this many times over the past couple years, what I call the fast follower fallacy, the idea that we're fast follower. That's actually harder to do than being on the front line. Because then you're just out there making some bets and experimenting and responding to those things. That's actually easier than being a fast follower, has to monitor what's going on, and having an ability to respond quickly.

Ron Shevlin:
Because most financial institutions don't have either the ability or luxury to respond quickly. But I think there's so much that you're able to do if you are gathering and using data today. And I think a lot of financial institutions don't have that data infrastructure in place. I think they are building and have a decent technology infrastructure, but not a data infrastructure.

Jim Marous:
That's interesting. Because I would have said that the thing, and I've said it before, the thing that I think is most important right now, if we've got to fix a lot of this, the back office items that really make it so you can't deliver digital. So my example I always give is new account opening or digital loan applications that all these institutions made the capability for somebody to do it possible because of the pandemic is there was no other option. You couldn't go to the branch and do that.

Jim Marous:
But they put it in in such a way that it still took 10 to 15 minutes to complete it, which on a mobile device, it's an inordinate amount of time. Now, recent research I just completed shows that over the last 12 months, organizations have done a much better job at making it an easier process. Well, last year, the average for new account opening and digital loan application is 12 to 15 minutes. The average is now about five minutes, which is a whole lot better. However, it's still far from what is acceptable from just as a consumer.

Jim Marous:
And that's all held up because the back office is many times to put together with chicken wire and duct tape where it may look digital on the output, the back office still is structured in a legacy banking environment. And I'll tell you what, organizations that don't fix that are normally losing about 60% of their possible account openings or loans because people drop off and we don't have any way to recover those in most case, because most organizations don't track those people that drop off.

Jim Marous:
So really, we have to look and say, are we building the back office to support digital experiences? And I think you're answering my answer, if we had another question out there, what do you have to do tomorrow when you go back to your office? That's probably a missed question, but no problem with the debate. Another question we were asked was interesting ...

Ron Shevlin:
Wait, wait, wait.

Jim Marous:
Yeah, go ahead.

Ron Shevlin:
Before you get off that question, you never cease to amaze me, Jim, to say exactly what I just said, but using different words. Jim, what is the digital application process? It is the process by which data is collected and used. It is. The application process is the data infrastructure and ability. I mean, you ...

Jim Marous:
But I'm talking about automation and actually, even the process flow. So I think you're right, my answer certainly includes your answer, but even it adds a little bit more that automation, the processes, even the process order. I know what a digital loan, and you know what a loan process used to look like. It's still broken. We're still doing too many things manual. But you're right, it is a data and analytics infrastructure. Good point. What was interesting, this is a question that was asked by Jason, that I knew whoever had it first was certainly going to have an advantage.

Jim Marous:
Because I think there was only one answer. And I thought we would both agree, and we did. But we, obviously, for the benefit of the audience and benefit of the program, we had to say different perspectives and different answers together. And that was, which P2P platform was going to be the winner, Zell, Venmo, or the Cash App? And I knew right off the bat that Zell was not going to be the winner from our perspectives as far as a P2P platform. Because I think we both agree that there's a bigger perspective with Zell. So I knew it was going to be between Venmo and Cash.

Jim Marous:
And I knew that I wanted, if I was going to be first, to pick the square Cash App for various reasons. But most of all, because it's got the best platform. However, you got to answer it first. Why don't you give the reason why you pick Cash? And then I'm going to have to show why I picked Venmo, which was not necessarily my first choice.

Ron Shevlin:
Yeah. Well, first, my answer was there is no winner because this is not a zero sum game and all of them have strong growth numbers behind that and will continue to have strong growth. But they go in very different directions and strategies and they didn't give into this. But Zell's strategy is really to be ubiquitous among the banks. And I think, ultimately, where they really are going is more to be a B2B platform versus a B2C or P2P platform. Venmo has had strong growth as well, but is looking to expand more again into more of a B2C versus P2P and get their card being used in retail transactions.

Ron Shevlin:
Whereas Cash App, of course, is competing with Venmo on that same front to a certain extent, but I ultimately said I thought they would have the strongest growth numbers, because I'm a huge fan of what Square is doing in terms of really building out a network and a platform of users and merchants. And in fact, one of my recent posts on FinTech Snark Tank was about the square TiKTok partnership. And it's interesting how a lot of the media channels point to the fact, oh, TiKTok has a billion customer, a billion users. Well, that's irrelevant.

Ron Shevlin:
What's more relevant to this equation are the number of people who use TiKTok to generate revenue, the creators. And what I see Square doing there is looking to try to capture the creator economy. So I think they've got just a lot of tailwinds behind them. I don't think there's one winner out of the three, meaning the other two are losers. But I'm really impressed. And I think the biggest threat to the banks is not Venmo, but I think the bigger threat is Square and Square Cash App.

Jim Marous:
And I think we both agree that if we were asked to invest in one of the three and they were all investable property, we would probably pick Cash. What was interesting about Venmo, and this was ... As I said, we had to prepare for two different answers. And so, I said my backup was Venmo. You have a bigger user base. It's not as profitable on a per customer basis as Cash, but it's a bigger user base. And scale does give you something. In addition, Venmo is part of PayPal, and PayPal has huge pocketbooks. And they had the ability to move market share if they invest in such.

Jim Marous:
Now some would question and say, PayPal fell behind the buy now pay later front. And there's those that say okay, now they're playing catch up. That's sometimes the case with PayPal. I referenced that PayPal sometimes is thought of as being the legacy FinTech, and that's not a negative thing. It's just says you deal with what you deal with until you find out that, geez, somebody picked up my heels, very much like the banks, it was regular FinTechs. And I think Venmo is a very interesting base. It's much lower profitably per.

Jim Marous:
And as you said, it's not as broad of a platform as Square or as Square Cash, which was interesting. And it was funny, because at the MX event, I did run into Lew Goodwin, who I'm going to be interviewing a couple weeks here on Banking Tranformed podcast, and I've known him since he was with GoBank and some of the things he's done, and just a great person. I said, "By the way, I may be put in a position to pick a company other than yours. I just want you to know that I still believe you guys have a great platform."

Jim Marous:
As you said earlier, you always want to make sure that you're not biting the hand that feeds you or debating it against somebody that you really do believe in anyway. Finally, I think Jason did a great job asking when he thought of the most ... He asked about what was the most overhyped concept in banking today. And this was fun, because this is an open issue. And I think we both thought, this is one that if I go in a good direction, I pretty much know that Jim won't mention it or I pretty much know that Ron won't mention.

Jim Marous:
You mentioned buy now pay later, which a lot of people I know initially thought, what? And then it was like the best question and the best answers from you. And I think, not patting myself on the back, but going to it, that both of you was happy because you were both coming out of the blue that they didn't expect. So can you explain a little bit of why you thought buy now pay later maybe just an overhyped concept?

Ron Shevlin:
Yeah, I thought it was overhyped because ... Well, first of all, there's just so much hype around it, but I like to go back to the numbers. And reality is, is that in 2020, US consumers purchased about $24 billion worth of products and services using a buy now pay later program, and that's out of $5 trillion of retail spending. Yes, this year, even I will project that buy now pay later in the United States will quadruple to 100 billion, but that's still only 2%. And so, I think overhyping the potential for buy now pay later to cannibalize all the other forms of payment.

Ron Shevlin:
However, two points I'd like to make, Jim. One is the one that I did make in the argument. And the debate was that, even I said, "Look, I might be proven wrong with this over the next couple of years because what's really happening is that there's the potential for buy now pay later providers to become the credit card of the future and displace some of the issuers." I think it's very important. I didn't get into this in the argument. I'd written about this in a Snark Tank post a couple of weeks ago, that the real potential for buy now pay later is really broader about how payments is playing a bigger role in the marketing mix.

Ron Shevlin:
You're an old marketing guy, I'm an old marketing guy, we probably took marketing in college and learned about the four P's of marketing, product, place, price, and promotion. And I think payments are becoming the fifth P of marketing, to the extent that it can influence. And so, what's important is that the banks, this is what the banks don't get, Jim, is that they look at buy now pay later as simply a payment mechanism. That, oh yeah, we can offer that too.

Ron Shevlin:
But what the Affirms and Klarnas and Afterpays of the world understand is that buy now pay later can influence consumers choice of products and how much they spend, and it influences them earlier in the decision making cycle. And that's the big advantage that they have and why this could evolve to really being something big, even though I still called it the biggest hype. The other point I want to make is I had a conversation with some folks afterwards that really got me thinking about my answer and why I had some weaknesses in it.

Ron Shevlin:
And that I was looking at buy now pay later and the overhype of it very much from a retail product's perspective. But there are certain types of purchases or really expenditures that we, as consumers, have that can really be enabled by buy now pay later. I'm thinking specifically of things like elective medical procedures. One of my favorite buy now out pay later vendors is one that focuses specifically on elective medical procedures.

Ron Shevlin:
And the ability, if you're in a doctor's office and you want to get something done, it could be not just superficial type things, but whatever it might be, the ability to have an ability to finance that on the spot becomes very important. I was really looking at the overhype of this from the perspective of, do we really need a buy now pay later program to buy a $50 pair of jeans? And so, that's what kind of got me thinking that I might have had a better answer for that question.

Jim Marous:
Well, it's interesting because I was standing there and really loved your answer. Because I think you're right, it does have a big hype. And then I also thought about after you said, is it buy now pay later the thing we're fighting? Or as you said, payments become a bigger aspect. And the ability to have instant credit availability is different, but similar to buy now pay later. But what we're both know, our friend from M bank in Poland that built a great mobile platform that gave credit availability to most everybody instantaneously on their mobile had different levels, and then could reapply for greater lending ability.

Jim Marous:
And so, in front of the scenes, you go, gosh, depends on how it's defined, but it's probably the future of visa and credit, which is a completely different thing. So my thing that I thought was overhyped was the merger of mid-tier banks, and that the combination of multiple mid-tier banks makes a better bank for the consumer. I know it makes a much more efficient bank and I know that every bank is promoting the fact that they're going to be a better digital bank and be able to answer more of the consumers' needs on a digital basis with this merge, gets around more funds available.

Jim Marous:
It's a closed branch to do anything. But it's a very thinly veiled objective of efficiency. And now, while it may make a more efficient bank, it doesn't necessarily make it a better bank, and certainly not from the consumer standpoint. Now, there could be ... As you said, you rethought about your answer and said, boy, I could be wrong in this. My weakness on this, if merger start to make better banks with better leadership, I referenced back to one of my earlier answers, which was legacy leadership is still a big underpinning of a weakness of financial institutions.

Jim Marous:
And when most of these mid-tier banks merge, they take the first leader and then he leaves in two years, and the second leader takes over. And I referenced some examples of, do we end up with a continental united merger that really never merged, except on the efficiency basis and still have the separation of organizations to such a degree that when you walk into a plane, I can tell you exactly if it's a continental or united plane being from Cleveland or continental head to headquarters.

Jim Marous:
But at the end of the day, all these organizations are doing is creating efficiencies that, at some point, the government may say, wait, well, we weren't getting fewer banks, but not better banks. So it's one of those things that I took a stand on it. I think what was interesting that there are the ... This is a question that ended the whole debate. And I think we both ended with really good hard hits to what's going to be going on out there. You always look at the audience, see what their reaction was. And this was another one that afterwards, there was a lot of buzz after the event, saying, really like your guys going back and forth on these things. So thought I ...

Ron Shevlin:
One thing I say to you quickly to that, I really liked your answer about the mergers. I wouldn't have even thought of that, because I didn't think of mergers in the light of hype. But, look, when it comes to the mid side, totally agree about that are not making a better bank. I'm less worried or concerned about the mergers of mid-sized institutions, because I do think that they need to achieve better scale. But where I would really knock is the big bank mergers. And I don't want to slough anybody ...

Jim Marous:
Yeah. Well, I agree with ... That's nothing.

Ron Shevlin:
... at SunTrust and BB&T or US Bank and who they're looking to acquire now. But at that point, you've got 500 billion in assets. And so, do you really need to fit another $50 billion bank? What are you really getting when you're doing that? I think the smaller institutions do need to continue to look at mergers and acquisitions as a way to scale. But the larger banks, I'm really missing the value proposition here.

Jim Marous:
Well, and we've agreed in the past and saying, I'm not too sure if the customer gets any benefit there. So scale is one thing. But at some point, the consumers going to have to win to make it win for the long term for the banks. But, Ron, thank you very much for revisiting this whole concept. It was fun. It was different. As you said in the beginning, it's something that we do on a daily basis anyway, is take our jab and say, I don't agree with you on this. And I'll tell you what, it makes us all stronger. It was a great event overall, I think the fact that it got people thinking.

Jim Marous:
But at the end of the day, the thing that we took for granted that was really the best part of the event was seeing people in-person again. I hope we come at this in 14 days, whatever the time is, is not be about it as we do now. But I'll tell you what, having live events, getting behind the stage and seeing the stage from the backside again, it's been 18 months since that's happened with me to get back on the stage and it shows that much like bicycle riding, you don't learn how to ride a bicycle. But it was a lot of fun to have my first event in 18 months to be with you. Thanks, Ron.

Ron Shevlin:
Thanks, Jim. Thanks for having me.

Jim Marous:
Thanks for listening to Banking Transformed, raise a top five banking podcast. I genuinely appreciate the support you've provided since we started this endeavor. If you enjoy what we're doing, please be sure to follow Banking Transformed on your favorite podcast app. In addition, please take 30 to 45 seconds to show some love in the form of a review. It means the world to us. Finally, be sure to catch my recent articles on the financial brand and check out the new research we're doing for the digital bank report.

Jim Marous:
This has been a production of Evergreen Podcasts, a special thank you to our producer, Leah Longbrake, audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous. Until next time. Remember, if your thought process is not moving forward, you're falling behind.