DIGITAL, PURPOSE-LED, RELEVANT AND ACCOUNTABLE
A checklist for any financial institution that's in it for the long run
Interview with Chris Skinner
best-selling author on the financial markets and Fintech
Chris Skinner discusses the future of the finance industry, what traditional financial institutions must do to stay relevant, and why, despite everything, he’s quietly optimistic about how technology will facilitate a breakthrough in financial inclusion.
Unsurprisingly, Chris Skinner believes emphatically that digitalization and Fintech are central to the future of finance. So how does he explain that we've all constantly heard that the industry’s future lies with tech giants like Google and Apple, and yet they’ve still made hardly any inroads? “I often say that if something that’s essentially workable doesn’t work today, it can still work tomorrow, when the world is ready for it. Take biometrics. For a long time there was talk of the benefits of biometric verification, but it never took off—until the smart phone came along, making facial and fingerprint recognition easy and convenient.”
But while Chris foresees big tech giants like Alphabet and Meta taking over many financial services, he doesn’t see them ever becoming full-service banks. “Banking is tightly regulated, licensed and controlled, and that’s anathema to a big tech company that prides itself on being quick and agile. So while companies like Amazon might offer a lot of financial servicing around credit, lending and paimants, they’ll never do core deposit banking since it’s the most difficult area and the most regulated. That’s why the tech giants are seeking partnerships with traditional banks, such as Apple’s partnership with Goldman Sachs.”
“I’d like to get a mobile phone in the hands of every human on Earth, so they can trade and transact with no barriers or fees.”
Designed for inclusion
With inclusive finance being so critical to the future of vulnerable and remote populations, it’s reassuring to hear that Chris has little doubt Fintechs will continue to enhance financial inclusion. “When I talk to Fintech companies, I tell them not to try to replace banks, but to do what banks either don’t do or do badly, like online transactions. Companies like Adyen and Stripe are thriving because they’re solving problems traditional banks simply aren’t equipped to solve. And if you look at successful new banks like WeBank in China and NuBank in South America, you see that what they’re in fact doing is building banks designed for financial inclusion: for people who were never served before. Previously, banking could only be delivered face-to-face in a physical building, which was obviously very costly. Today, you can serve everyone simultaneously, remotely and peer-to-peer at very low costs. So financial inclusion is a fantastic growth area, particularly across Africa, South America and Asia.”
Chris also sees how traditional banking in Europe and North America still reflects a time before the internet. “Take the traditional banking concept of APRs (Annual Percentage Rates). The only reason APRs are annual is because in the pre-digital era you couldn’t deal with each customer more frequently than annually. But now that most processes can be automated using tools like AI or chatbots, you can deal with every customer in real time. Even if they want to interact several times a day, it’s no problem.”
“You’ve got those who make things happen, those who watch what’s happening, and those who ask ‘what happened?’ ”
Opportunities, not threats
In a time when humanity faces so many uncertainties, Chris singles out AI as one area at least where perhaps people needn’t be so concerned. “I’m far more excited about the opportunities AI offers than any of the threats it brings. By automating the mundane, AI will augment the human, enabling lifestyles more geared to enjoyment and happiness.” And he is optimistic about the supposed threats AI poses, such as towards jobs. As an example of how he thinks things will play out in practice, he cites the introduction a few years back by JP Morgan of an AI engine that reads and analyzes the wording of contracts far quicker than any lawyer. “As a result, JP Morgan saved 350,000 hours of legal time and could sack 1,500 lawyers. But they didn’t. Instead, they got those lawyers to focus on client security and other areas requiring human intelligence.”
Chris feels that the age-old luddite concerns about any new technology are today exacerbated by the entertainment industry, which feeds us Terminator- and Black Mirror-like dystopian visions of the future. “But the world of the future will, of course, be just like the current and past worlds, only with the benefits of technological progress.”
“But the world of the future will, of course, be just like the current and past worlds, only with the benefits of technological progress.”
Chris sees huge possibilities for financial services to help mitigate the impact of climate change, but they must be prepared to act. And the pressure for them to do so continues to grow. But because banks are making huge profits from fossil fuels—some 14% of European banks’ profits are currently generated from fossil fuel companies—they are resisting change. At the same time, big institutional investors and pensions funds are actively campaigning for financial institutions (FIs) to make themselves accountable not just to shareholders, but to all their stakeholders, and start protecting our planet’s future. “So there’s a squeeze from all sides and there are few financial institutions left not actively doing something now to address this issue.”
100 companies creating
of the world’s greenhouse gases emissions
And the stakes could not be higher: Chris feels the planet’s very future is essentially in the hands of the financial sector. With 100 companies creating 71% of the world’s greenhouse gases emissions over the last 50 years, you could put a halt to that activity almost overnight if you stopped funding it. “Meanwhile, if biofuel companies can access credit then they can grow; if they can’t, they’ll wither on the vine.” And both scenarios are, of course, down to the financial institutions.
Thankfully, Chris does see signs of FIs finally moving past greenwashing and starting to take serious action. “HSBC, for example, recently said they won’t be funding any more fossil fuel projects which, if it actually pans out, would be a fantastic result. I talk to senior people at major banks all the time. Pretty much all of them say they understand the issues around the climate emergency. Yes, they still repeat the mantra that they’re ultimately accountable to their shareholders (and funding fossil fuels does make a lot of money!). But I think these people also have kids and grandchildren, and are increasingly aware of their wider accountability.”
A bankable future?
And this brings us to the fundamental question that Chris believes FIs must be able to answer if they want to survive: what’s your relevance to a world trying to address huge challenges, such as the biodiversity and climate emergencies? “Banks need to have a purpose. They need to discover their moral compass, decide where they stand ethically on key issues, and know how they can use finance and technology to achieve that purpose and make the world a better place.”
From the changing expectations society has of financial institutions to the extraordinary speed of technological progress, Chris believes the real challenge facing FIs is equipping themselves to keep pace with rapid change. “They say there’s three types of people or organizations: those who make things happen, those who watch what’s happening and those who ask ‘what happened?’. FIs need to make sure they don’t find themselves in the last category.”
For his book Doing Digital, Chris talked to leaders at JP Morgan, ING, BBVA in Spain, DBS in Singapore, China Merchants Bank and others to learn what they were trying to do to digitally transform. “The first message I took away was that if a bank is still starting on its digital transformation process, it’s about ten years too late. And secondly, if they’re delegating that process to a project with a budget led by a Chief Digital Officer or whoever, they’re going to fail. The point is, making the digital transformation isn’t a functional change process, it’s a corporate transformation process.”
“With institutional investors pushing from one side and activist consumers from the other, banks are feeling the squeeze.”
Looking forward, Chris sees grounds for optimism when it comes to sustainable, inclusive prosperity in the Global South. “The developing world has seen a lot of digital innovation in the last decade, starting with M-Pesa in Kenya, NuBank in South America and others. And it’s all based on mobile technology. As we move from 5G to 6G to 8G and onwards, we will see these banks thrive simply because they’ve developed their entire business concept on the principle of inclusion. The CIO at WeBank, for example, talks of the bank’s ABCD: AI, Blockchain, Cloud and Data Analytics. The result is that they can provide a blue-collar worker with banking services for USD 0.49 a year (including admin and overheads). It would cost a traditional bank USD 20-50.”
The one pivotal development Chris would like to see over the coming ten years? “I’d like to get a mobile phone in the hand of every human being on Earth, so they can trade and transact with no barriers and no fees. It’s a development we’re seeing already with crypto currencies, which offer immediate, low-fee, peer-to-peer transfers of value, globally. This is particularly attractive, for example, in countries where citizens have little trust in their government.” Perhaps no surprise, then, that the world’s most active country when it comes to Bitcoin is Nigeria.
With people now able to buy in crypto currencies and Fintechs focused on the ABCD described by WeBank, Chris feels we are witnessing a world being turned on its head. “That said, I don’t think most people in Europe or North America even realize what’s going on. Though with the likes of Blackrock, Citi Group, HSBC and others getting into the idea of crypto, it’s becoming increasingly mainstream.” Put it this way: it would seem that not only the future of finance, but also the future of millions of people around the world who are currently financially excluded, is bound to be digital.
Chris Skinner is an independent commentator, blogger and best-selling author on the financial markets and Fintech, and widely regarded as one of the most astute and influential pundits out there. He also helped found one of the world’s first mobile banks, and has advised CEOs and leaders from every continent, including at the UN, the White House, the World Bank and the World Economic Forum.