We caught up with Ron Shevlin, author of the blog Snarketing and the book Smarter Bank, to talk about the state of fintech and financial services. Read what he has to say about the possibility of a large fintech competitor, a conversation he had years ago with Elon Musk, the need for banks and fintech companies to build a culture of advice, and why he chooses to be snarky.
Back in June when you debated Brett King and Robert Tercek at NextBank, you took the position that fintech won’t rule the industry. Can you expand on what you meant by that?
Sure, but let me first clarify. My argument for why fintech won't rule is not that fintech won’t succeed. That's not my position in the least. I think fintech will succeed wildly. But fintech won’t rule financial services, and that's because fintech companies are specialists. They specialize in a range of areas such as international money transfers, money management, security, and so on.
Somebody has to pull all the parts together, and I think it is simply the reality of the industry that it takes large organizations to do that. Those large organizations function as a quarterback — or perhaps as a general contractor in building a house. The general contractor takes the lumber, electrical supplies, and workers, and then pulls it all together.
In the debate, Robert Tercek said that the future of financial services will repeat what’s happening in the TV industry, where digital players such as Netflix and Amazon are eclipsing the major networks. What do you think of that idea?
I think the retail industry is a better reference point. When the Internet started up, all the pundits said that e-commerce was going to completely dominate the space because it would allow people to buy things like left-handed golf clubs. But look where we are today: Wal-Mart and Target are bigger than ever, and only one digital company has emerged as a competitor: Amazon. It wasn't like 18 digital mega-retailers emerged and replaced the traditional mega-retail stores.
The same thing will happen with financial services. It's not like the megabanks are going to go away and the fintech startups are going to become megabanks.
If it's better to use the retail industry as a reference point, could there be a digital company in financial services comparable to Amazon?
I don't know of any startup who's attempting to play that role, partly because it's not as easy in financial services. When it started, Amazon didn't need any regulatory approval to do what it was doing. To replace large financial institutions in their general contractor role, it probably will require some form of regulatory approval — if not a banking license. And so it's not as easy for a fintech company to scale to the size of Amazon.
What about PayPal? I ask because at the end of Elon Musk's biography by Ashlee Vance, Musk talks about how he's disappointed that PayPal hasn't reached his original vision for X.com of becoming a bank for the Internet age. Now that PayPal has split from eBay, is there potential for them to offer a range of financial services and become a sizable competitor to traditional banks?
I don't know that they are necessarily thinking of pursuing that strategy, but if you're looking for candidates that could pull it off, I agree. I think they could. They have enough brand recognition and existing relationships to do it.
Your question makes me think of an experience I had 15 years ago, around 2000 or 2001. I was working for Forrester Research and doing a report on the future of financial services. As part of the report I called PayPal to get their view, and they set up an interview for me with Elon Musk. I’ll tell you, I thought I was speaking to somebody from Mars. He talked about financial services in a way that had nothing to do with reality. I couldn't make any sense of it at all.
What did Musk say that befuddled you?
I remember my reaction better than I remember what he said. I don’t remember the details. All I can remember is that I thought the guy was from another planet.
The funny thing is that at that point I wrote off PayPal. I thought, "If this represents PayPal's view of the future, this company's going nowhere." But it was just one guy's crazy opinion, and obviously PayPal has been pretty damn successful. They might be in the best position in terms of non-traditional players to scale up to the size of an Amazon.
We've seen banks acquire fintech companies, as in the case with BBVA and Simple. Could the opposite happen — where a fintech company acquires a bank?
I guess the answer is, sure it could. There's no reason why a PayPal couldn't acquire Regions Bank, or whoever. If Bank of America could acquire them, why couldn't PayPal acquire them? But is that very likely to happen? I don’t think so.
And yet I absolutely think it's possible. With its market capitalization, it's possible that PayPal could do it. In fact, it's also possible that Lending Club could do it. Do I see them heading down that path? No. But it's possible.
What's more prevalent is that fintech companies partner with banking institutions.
Speaking of such partnerships, in your book Smarter Bank you say that financial institutions must pivot from a sales culture to an advice culture that leverages digital channels. Can financial institutions get there without partnering with fintech companies?
I’m going to flat out say no. And the reason I'll say that is because there are just too many areas for development. Even if they have the money to throw at it, I simply don't think any mid-sized institution, or even a large institution, could attract all the talent they need internally to do this. So no, they can't do it without partnering with fintech companies.
And why is adopting an advice culture so crucial?
To understand why, bankers need to ask themselves a simple question. That is, "Why do I do more business with the companies I do more business with?" There are plenty of answers to that, I'm sure, but I would say that it's always because there's a level of trust involved. An advice culture develops that level of trust for financial institutions.
I'm a loyal REI customer, and it isn't because they have a sales culture. It's because when I go there and ask a question, the answer I get always feels like it's in my best interest. And so I do business with them not because they were successful in selling me, but because they made me feel like I got what I really needed — not what they really wanted me to have.
Banks need to be proactive and offer advice before the consumer necessarily realizes they need it. The premise I'm trying to get across is that by providing advice that is right for the customer and not just for the financial institution, that builds relationships.
One more question. You use an atypical voice for the space in your snarketing blog. What is your main motive for using that distinct, snarky voice?
Years ago when I worked at Forrester, I learned how to write. But there was no personality in what I wrote. My boss at the time said, "I know what your problem is." And I said, "Oh, I've only got one?" And he said, "Funny you should answer that way, because that's exactly what your problem is. You're just a snarky guy." And it was almost as if the clouds opened up, and the light shined down, and I had a moment of realization. I thought, "Shit, I'm snarky." I realized I needed to leverage my personality and use it to my advantage instead of trying to change it and be like everybody else.
It was a process. When I started writing a blog, my writing was dry. One day a friend came up to me and said, "Ron, I have a love-hate relationship with your blog. What I love about your blog is that you've got great advice. What hate about it is that none of your personality comes through. When you and I talk about something I'll hear it one way, and when you write everything sounds completely different.” After that, I consciously tried to write in a way that lets my personality shine through.
Why do I write that way? The short answer is that I want to stand out as a thought leader in financial services. I'm sure that my answer should be more politically correct, but whatever. That's the honest answer.
To learn more about how to utilize digital channels to build an advice and advocacy culture read our digital advocacy white paper.
For more on Shevlin, read our analysis of the NextBank debate here.
Also see our review of Smarter Bank.