The Great Debate
This year's NextBank hosted “The Great Debate: Who Will Rule Banking in the Future,” moderated by Jim Marous, with Michal Panowicz and Ron Shevlin defending banks and Brett King and Robert Tercek defending fintech companies. I wasn’t able to attend NextBank, but I caught the recording on Breaking Banks, and I was frankly blown away by how good it was. Every time one of the panelists spoke I thought they’d certainly had a knock out — until the next person spoke. That’s a testament to the strength of the panel. These guys know their stuff.
In this post, I give a detailed overview of every smackdown and then give a brief analysis of what the future holds. Let’s get ready to rumble.
Michal Panowicz got things going by saying that if banking were limited to the United States, he’d agree with the opposition and say that fintech companies will own the future. However, he said that because the typical banking experience in countries like Turkey, Spain, and Poland are well ahead of the United States, he favors the banks. Panowicz cited the fact that mBank in Poland can provide credit assessment and underwriting in 30 seconds via mobile, a feature that US banks can’t compete with, as proof that the future of banking lies outside the US. “I have seven accounts in the US, and when I log in I feel like I am time traveling 15 years backwards,” he said.
Brett King agreed with Panowicz that US banks aren’t in the lead, but he said that the fastest-growing companies in the finance sector worldwide aren’t banks. “Alibaba, Alipay, Apple, and PayPal have more account holders than the top 20 banks in the world,” he said. “We are going to see this pattern repeat over and over again. For core payments, for core credit, for core savings and bank account capabilities, banks are going to have to partner with technology companies to remain relevant.” King then said that the bottom line is that fintech companies provide a better customer experience than banks do, and that’s why fintech companies will win the future.
Ron Shevlin countered King’s argument by saying that banking is more than the customer experience. It includes a system of support, backend technologies, and fraud protection — and fintech companies must rely on banks to meet these needs. To illustrate his point, Shevlin talked about how King’s own startup, Moven, is now partnering with TD Bank, a sign that fintech companies can’t succeed without financial institutions.
Jumping into the rink, Robert Tercek said that while it was true that banks offer more than the customer experience, everything else is merely infrastructure. He added that the bank will no longer be “the primary point of contact for the customer” and that it’s critical to look at the global shift toward mobile to understand what’s happening to banks. “Consumers are migrating en masse into new territory where banks are not the leaders, where banks don’t come with natural advantages,” he said. “In fact, they come with massive disadvantages because they’re encumbered with lots of rules and regulations.” As a result, Tercek asserted, fintech companies will own the future.
Will Banks Successfully Bring Fintech Into a Traditional Environment?
At this point in the debate, Jim Marous clarified that what was in question wasn’t whether fintech companies are more innovative than banks, but whether banks “are in a position to take the innovation that’s being developed by fintechs and bring it into a traditional environment.” Michal Panowicz said that banks would be able to do this, as proven by the fact that mBank quickly grew an enormous userbase and “delivered 200 singular features within 13 months,” including 30-second loans and FX trading.
King retorted that mBank is an anomaly in the industry and said that traditional financial institutions need fintech companies to improve the customer experience. He said that TD Bank came to Moven for help because they realized that it would take them “3 times as long and cost them 7 to 10 times as much” to do what Moven does. While King admitted that Moven needs to partner with banks, he said that the customer wants something different and that “banking’s had its time.”
Shevlin then turned to history, comparing the whole debate to what was being said 15 years ago when Internet banking hit the scene. Back then, people said that online-only banks would dominate the market, but in reality the only “truly successful” online-only bank in the US was ING Direct. Shevlin added that while large banks will be slow to adapt, they will win out in the end just like they did with Internet banking.
In response, Tercek asserted that to understand why the relevance of banks will be “very, very slight,” we need to look not at Internet banking but at the TV industry. The TV industry felt secure for a long time as the Internet reached maturity, but suddenly, almost out of nowhere, Netflix, YouTube, and Apple started tearing traditional players apart. “What [the TV industry] missed is that lots of small startup companies, who began with relatively small numbers, very quickly developed a new habit of use,” Tercek said. “When consumers adopted to this new habit, they became loyal to this new habit, and when they arrived in large numbers it became impossible for traditional media companies to dislodge this habit.” Netflix, YouTube, and Apple have existed for years, but suddenly “traditional media companies find they have to go through these companies in order to reach the people who used to be their audience.” Tercek said the same thing will happen with banks and mobile banking.
King backed up Tercek’s argument when he said, “there is nothing happening today in terms of millennials that is reinforcing the role of the bank.” In response Shevlin cited research from Javelin that says a majority of millennials “choose a large bank as their primary financial institution.”
When Panowicz reiterated that the discussion needed to focus on more than just the US, Marous brought up the point that most of the examples that Panowicz mentioned don’t have the baggage of legacy software that the US does, and he asked Shevlin to respond to that point. Shevlin said that while legacy software is a major hurdle, there are banks that are working on replacing those systems, and that the bigger challenge for banks has to do with culture. On that front, Tercek agreed. But Tercek said that the legacy software and the culture are proof that the “banks are fatally flawed” and that the fittest fintech companies will eat away at the traditional banking industry.
Now for the final statements. King said that everything comes down to the fact that “the incumbents will have to give way to the fintech companies in terms of ownership of the day-to-day experience.” For King, that means that fintech companies will own the future. Tercek agreed and said that banks’ undoing will be that they “don’t optimize for customer experience” because they’re so focused on optimizing for regulation.
Shevlin gave his final statement in the form of doggerel, which struck the perfect balance of being groan-inducing, memorable, and actually kind of funny:
Don’t be a fool
Fintech won’t rule
No doubt that they’re cool
But they’re just a bank’s tool
Then he turned more serious and said that the bottom line for him is that the binary of bank vs. fintech companies isn’t valid. “You’ve got to become the other in order to maintain your position,” he said.
Finally, Panowicz said that the biggest piece of evidence for him is how many more customers mBank has acquired compared to solo neobanks. For Panowicz, that rate of growth stems from the fact that mBank owns the entire experience.
Analysis: The Future of Banking Will Be a Mix of Banks and Fintech Companies
So who won the debate?
That isn’t an easy question to answer. Honestly, I believe the truth lies somewhere in the middle of the argument.
That is, in all likelihood the future will consist of a mix of bank and fintech conglomerates. Certain forward-thinking banks such as BBVA and mBank will likely maintain full control over the entire experience and will thrive in the digital banking market. In other cases, however, fintech companies will grow such a strong network and brand presence that they will crush a host of traditional financial institutions. Think of where PayPal, Square, Mint, and Venmo are heading as they expand piece by piece. It's only a matter of time before one or all of them reproduce the full banking experience backed by a bank charter.
In short, some banks will win and some fintech companies will win — but in every case the future will consist of bank-fintech conglomerates. Traditional banking is gone. We will never go back to a system based on paper and physical branches.
The best hope for banks is to either quickly build up their team of software engineers or partner with fintech companies that are ancillary to financial institutions. That way banks can maintain complete control over their branding and still take advantage of the latest innovations in digital. Rick Claypoole, Director of Retail Product Management and Marketing at Cadence Bank, put it well in a recent MX webinar when he said, “I do banking for a living. I'm not a technology person ... and so I need people who are really expert in technology to help me think through technology problems.” Moving forward, the integration of bankers and software engineers will get tighter (a mix of suits and jeans, as Chris Skinner puts it), and both groups will need to learn from each other. The banks that partner with cutting-edge fintech companies and put digital experts in leadership positions will stand the best (only?) chance of surviving into the future.
In other words, bankers had better pay close attention to the warning cry from Brett King and Robert Tercek but they should also have hope that, as Ron Shevlin and Michal Panowicz say, the future can still be bright.
Still, I'm left with a question implicitly posed in the debate: Will the future of mobile banking be a repeat of Internet banking, or will it be a repeat of what's happening in the TV industry? Add your thoughts in the comments section below.
For more on how to win the future, check out the white paper 7 Tips to Lead the Digital Banking Revolution.