Brett King is a futurist, an Amazon bestselling author, an award-winning speaker, host the globally recognized radio show Breaking Banks, is the Founder and Executive Chairman of neo-bank Moven. He advised the Obama administration on the Future of Banking. Brett has spoken at TED conferences, given opening keynotes for Wired, Techsauce, Singularity University, Web Summit, The Economist, IBM’s World of Watson, CES, SIBOS, and many more. He has appeared as a commentator on CNN, CNBC, BBC, ABC, Fox, and Bloomberg. He previously advised the Obama administration on Fintech policy and advises regulators and bank boards around the world on technology transformation.
This episode is every Fintech enthusiast’s dream. We talk about the current state of banking, what is possible, and where banking is headed. And most importantly, Brett gives some advice on how to be part of the future of banking. We talk about different technologies like AI, blockchain, but also soft skills needed to succeed, like having the right mindset. We go over lessons in technology from all around the world, like China.
Links
https://www.tencent.com/en-us/
https://www.td.com/ca/en/about-td/
https://provoke.fm/show/breaking-banks/
https://www.linkedin.com/in/brettking/
https://www.worldbank.org/en/home
https://www.goodreads.com/author/show/7779.Arthur_C_Clarke
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Luke, Leo & Andy
EPISODE 67
[INTRODUCTION][00:00:04] ANNOUNCER: Welcome to The Wall Street Lab podcast where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.
[00:00:23] AVH: Hello and welcome to The Wall Street Lab podcast. As you all know by now, software is eating the world. Technology is creeping into every last corner of society and especially finance and banking. And this is why I’m super excited about today’s guest. With Brett King, we have a fantastic guest to speak about Fintech. Brett is a futurist, an Amazon bestselling author, an award-winning speaker and host of the globally recognized radio show Breaking Banks. He is also the founder and executive chairman of the neobank Moven. He advised the Obama Administration on the future of banking. And Brett has spoken at TED conferences, giving opening keynotes for Wired, TechSauce, Singularity University, Web Summit, Economist, IBM’s World of Watson and much, much more. He’s been a commentator on CNN, CNBC, BBC, Bloomberg. Has written several books, among others, Bank 4.0, which I’ve really, really enjoyed and which got me to reach out to him to come on the show. And I had the pleasure to talk with Brett about so many cool things. I was super hyped after. And I hope you enjoy our conversation about fintech across the world especially with a focus on China. We dive into Tencent, WeChat Pay, Alipay. We talk about embedded banking, banking based on first principles and how you can try to have some impact and bring fintech into your bank. And then my probably favorite part, Brett goes all out futurist and talks about the world. How it could be if we allow technology to change our life for the better? And I think it’s a super exciting episode. I hope you like it too.
And now without further ado, my interview with Brett King.
[INTERVIEW][00:02:32] AVH: Hi, Brett. Welcome to The Wall Street Lab podcast. It’s so cool to have you on the show. I’ve read your book, and I think within five or ten pages I’m like, “I need to interview this guy.” So I’m really glad you’re here.
[00:02:44] BK: I’m glad to be here, Andreas.
[00:02:46] AVH: For our listeners that might not have read your book, I definitely want to get into the book later, but could you just introduce yourself. What’s your background? Where are you coming from?
[00:02:59] BK: Sure. So I’m an Aussie that currently lives between New York and Bangkok, COVID permitting. I have for the last 20 years lived offshore. I spent time in Hong Kong and in DubaI and in New York and obviously Thailand, prior to that was from Australia. Left Aus in ’99. My background is dominantly technical. I started as a programmer back in the early days. Programming in Basic and C++ plus and Clipper and so forth. Then migrated into sort of business role, sort of acting as a translator if you like or negotiated between business teams and technology teams which in the early days of sort of broad technology transformations was an important skill. That led me to lead Deloitte’s e-business practice throughout Asia in the late 90s in the dot com and then moving to a digital advertising agency. I ran a digital agency out of Hong Kong called Motor Media. One of the first digital advertising agencies globally. Did that for a few years and then effected a management buyout of that company in Hong Kong and created my own digital consultancy, boutique consultancy firm called User Strategy. It still exists today but in sort of different guys.
During that period I spent about 10 years in the trenches with organizations like HSBC, Cathay Pacific, Citibank, American Express and others basically building .com strategies for them, digital strategy. In 2009 rather I took some time off to write my first book called Bank 2.0 which looked at the digitization of the banking sector, and that sort of launched a new career for me in the digital banking space. Well, a new career in respect to a different career as sort of a thought leader. I built my own startup out of New York called Moven, which was the world’s first mobile challenger bank. In these days we operate as a banking as a service platform provider and enterprise software business. And I have the largest fintech radio show and podcast in the world called Breaking Banks, which we started in 2013. And I’m just now finishing off my seventh book which is called The Rise of Techno Socialism, which hopefully will be out later this year. But my most recent book on banking was a continuation of the series I started previously. It was called Bank 4.0: Banking Everywhere, Never at a Bank. And, yeah, in addition to that I worked with the Obama Administration back in 2014 also on fintech strategy for U.S. I’ve worked with many regulators around the world on regulation around digital transformation. Starting to do the same for artificial intelligence and so forth now. And I love sci-fi. I’m a gamer. And I have my pilot’s license and I like to scuba dive. So that’s what I do in my spare time. Is that complete enough?
[00:05:56] AVH: That’s very, very complete and super interesting. I didn’t know so much about you. This sounds like an exciting life, right?
[00:06:06] BK: I think so. I’m pretty happy.
[00:06:08] AVH: Yeah, I can feel that. So tell me a bit, let’s start a bit from the beginning. What brought you from programming to doing business then to digital strategies? Like did you have any kind of – Did you just stumble into that or was there a certain way of thinking behind that?
[00:06:24] BK: The key problem I saw was that engineers were not good experienced designers. One of the things I learned fairly early is that if you give an engineer a form, like an application form as an example, they’ll just translate it to a form online and just directly copy it over and add the code to make sure the rules for accepting the data are correct whereas technology has the ability to simplify our life. One of the reasons we implement technology, for example, in the service industries or in e-commerce or in banking and so forth is that we make a customer journey simpler. But that required sort of a design premise. It required some sort of fundamentally different thinking. And when you looked at IT departments and even businesses when they sort of set the metrics for what the technology project should achieve, it was very clinical. It was about cost saving. It was about speed and things like this. It wasn’t really about making people’s lives better.
I was, in my heart, always a techno optimist where I thought technology had the potential to make the world a better place but only if we had that intent. And so I found that as an engineer, while I could affect you know programs that were attractive or worked well, I would have more success at sort of basically helping organizations see the potential of the technology better and helping drive engineers to sort of lift their capabilities from a design and experience potential. And so it was that human customer experience sort of design premise that sort of shifted me out of being purely an engineer into sort of figuring out where technology fits in the world.
And the fortunate thing about that is there was very few people back in the mid-90s when I was sort of making this translation that had that ability to communicate clearly about the sort of problems that we were facing or how technology could be better utilized. And so that sort of communication skill that I developed in my career became essential as a tool for I think making me more effective at implementing technology.
[00:08:50] AVH: This is because I feel like we can very well integrate your history with the learning from your book and I kind of like want to jump around a bit. And you said one thing just now that is a really good segue, and one of the things that I personally got out of your book Bank 4.0, and that’s first principles, right? Can you elaborate? Because I feel like it’s bit what you described just now.
[00:09:12] BK: It’s important. Yeah.
[00:09:14] AVH: What are first principles design thinking for a bank? And can you then give some examples?
[00:09:20] BK: Absolutely. So first principles is really being able to break down the problem in a very simple way. And so where we have gaps today from a technical implementation perspective or where we create problems for ourselves is we tend to iterate on existing systems. So we call this design by analogy. So if you take a bank account for example, how do we iterate or innovate around a bank account? Well, today what we do is we add additional channels so you can get access to your bank account through your phone or through the internet or through an ATM or an IBR system, but essentially the bank account itself hasn’t changed.
And so part of the reason we have some restrictions from a design perspective is internal bank policy. Part of it is the way the bank account and general ledger have been designed in the mainframe system and the limitations around that, and part of it is just simply the way banks have classified a bank account as a product that customers will buy from a bank rather than thinking about how people use their money. So a first principles approach to the problem of designing a bank account, you start with what do people use money for? How do they use it in their daily life? And is a bank account that we have today designed to augment that or improve the way you use your money?
And so if we look at sort of the basic requirements of a bank account, what’s the number one thing a bank account should do for a bank account holder? An individual? And I believe it should help you save money and it should help you manage money. But, see, inherently in a bank account that you get from a bank when you walk into a branch, you sign a piece of paper and they give you this plastic debit card, it doesn’t really help you save money and they don’t give you any guidance on that. They might talk about interest rates. But to look at getting you to save money requires us to behave differently. And so a bank account would have to be sort of like a financial coach or something that helps us modify our behavior over time to be better with their money. And so this is actually the problem that a bank account should solve.
So from a first principles engineering perspective you sort of break it down to the constitute physics of what should a bank account achieve and then you use technology that we have available today such as artificial intelligence and data science and modeling and access to real-time technologies like smartphones. Use that. You incorporate that in the design of a bank account that lives with you, that is embedded in your life and helps you save money. It becomes very different from the way a banker thinks about a bank account itself. But from an engineering or design perspective, it makes that product or that service far more useful to the individual once you design it based on that premise. And so that’s the leap in terms of design.
A couple of other quick examples to illustrate first principles, right? Think about the car, the automobile. The automobile was the first principal’s rethink of personal transportation. At the time the automobile appeared the most common form of personal transportation was a horse and a coach or a horse and a cart know or riding on a horse individually. And to translate from that to automobiles we needed to sort of redesign cities and we need to think about rules for cars on the road. And it was a big departure from the horse, but obviously from a first principal’s perspective it accomplished transportation for individuals better, safer and faster, but also radically changed the transportation sector.
The iPhone is another great example. Steve Jobs and Jony Ive, they didn’t take the Motorola Flip or the Nokia banana phone or the Blackberry with its room keyboard and iterate on that. They essentially designed a new personal computing device with a multi-touch screen that also enabled you to access the Internet and make phone calls. And that first principles rethinking of what a phone or a personal computing device in your pocket should be like meant that after the iPhone, every new mobile phone essentially had to look like an iPhone because they had changed the rules. So that’s one of the benefits of first principles thinking, is when you adopt that type of thinking and you do it effectively, you can change the paradigm with which your service fits in the world.
[00:13:56] AVH: That leads to an interesting thought, because as you said, for example, if we take the automobile, right? It then change so much in and around the world that one has to ask, “Do you as –” Let’s just call it inventor or like a first principles thinker. Do you have to look into the future? Like this is where it’s going to be and we will make the infrastructure later? Because I imagine like when the automobile first came along, the roads were terrible. They were not used, right? What does have to be first? Do I have to first think the whole world was like, “I need this road?” Or do I first make the automobile and have it on this bad infrastructure? How do I go about this? Do I first make the thing, the automobile, or do it make sure the infrastructure is there first?
[00:14:47] BK: No. I mean you first make the automobile. And then you have to worry about, “Well, how do I get gas for the car?” The roads are bad because they’re designed for horses and horses have horseshoes. The tires and the wheels on cars will break when there’re potholes. And so you have to start thinking about putting a surface on these roads that make it friendly for vehicles. Then you have to have laws. What happens if you knock someone over in a vehicle? Are you responsible? Should people have training to drive a vehicle? Do they need a safety harness to stop injuries when the vehicle is in an accident? Where do we put a car when we stop on the side of the road or in a city? We need a car park. So all of these things flowed on from that first principle’s thinking.
But to your point, when Daimler and Benz patented the first automobile they were obviously thinking into the future, and I think that’s probably a good way to describe the difference between first principles design and design by analogy, is that when you design by analogy, you’re by nature looking at what you’ve done in the past and just trying to improve on that given the available technology. With first principles you’re saying, “Where can we really go with this? What are the possibilities?” And then you’re trying to within the frame of that use the technology to meet the objectives of that design. So it is much more forward thinking in nature.
[00:16:15] AVH: And by looking at the opposite, if you want to bring first principles into your organization, into your bank, don’t be afraid because the technology isn’t there yet, right? Just like go ahead. Make it. Make the infrastructure later, right? Don’t be the person saying, “Oh, well. There’s not the supporting infrastructure around it. I can’t do it.” Just do it and then worry about the rest later.
[00:16:39] BK: Agree. Well, one of the things you have in banking is that bankers who’ve been in the banking sector for decades, their first reaction when you want to do something that’s very new and breaks those conventions is they’re like, “Well, what would the regulator say?” Or, “We don’t have the technical capability to do that.” And so it just sort of put in the too hard basket. Whereas fintechs who come to this space, fintechs are like, “We want to push the boundary. We want to invent new technologies that will enable this sort of thing. We want to go further.” And because they realize that that represents a strong competitive differentiation from the way traditional players in the industry work. And so if you’re Daimler and Benz inventing the automobile or you’re Steve Jobs and Jony Ive reinventing the mobile phone, you do so on the basis that you want a strong competitive advantage over your competitors who are still stuck in the past.
[00:17:38] AVH: Absolutely. And I think this now turns me back to another, even to the subtitle of your book, Banking Everywhere, But Never at a Bank, right? What are examples where this embedded banking in the realworld would look like? And I feel like in Asia we have this a lot, right? We have it I think more than in Europe. I don’t know about the U.S. But could you give some examples on how embedded banking looks like? And then maybe if you can talk about the difference across the world.
[00:18:08] BK: Yeah. No. China is certainly one of the most advanced economies in the world when it comes to innovation in financial services. It might surprise some of your listeners to hear this, but China is probably seven to ten years ahead of the United States today when it comes to fintech, financial technology, particularly around day-to-day spending and access to credit and so forth. In China you use facial recognition to pay for items at a store. You don’t sign. You don’t put in a pin number. You don’t use a username and password. These things can be easily stolen, but your face is much more difficult to steal.
And then from a contextual perspective this means that people in China are getting access to things like basic credit and so forth in real-time. They don’t have to apply for it and wait for the bank to assess their risk and approve a line of credit. It just happens all instantly within seconds, and so that’s a pretty advanced ecosystem when it comes to that.
In terms of real-world experiences, let me give you a couple as an example. One is like a classic example I use is going into a grocery store. Now you walk into a grocery store, you fill up your cart, you get to the checkout. And I’m sure all of us have had this happen at one point in our life where you swipe or you tap your card and the cashier gives you this funny look and says, “I’m sorry, sir. Your card was declined.” And so what do you do? Well, you might go, “Can you try again? Maybe more money will magically appear in my bank account this time.” But then you realize, “Oh, yeah. My salary may have not hit the account yet because it’s a Saturday and my bank payroll system doesn’t work on the weekends.” And so then you’re like, “Alright. Well, here’s another card. You try this card.” Now that’s in a world where you’ve got access to an alternative. But if you don’t, then what will the bank say? Well, the bank will say, “Well, you need a credit card in case this happens again.” So apply for a credit card with our bank. If you’re not too risky, we might give you a credit card and then you can use it to do your shopping, whereas a technologist using first principles design would think about this problem very differently. We’d say, “All right. Well, what information or data do we have available?” Well, you go to this grocery store regularly every two or three weeks. You tend to spend roughly the same amount, between three or four hundred euro, and today your bank balance is 150 euro. So we know there’s a fairly high chance that you are going to have a problem in this grocery store, and we know you’re in the grocery store because we’ve got a geolocation tag that has enabled us to see you’ve just walked into a grocery store.
So now what we can do is we can think about the solution very differently. We can say, “Well, when you walk in the store, why don’t I let you know you don’t have enough money in your bank account today and offer you credit so you can complete your grocery shopping?” You can maybe choose the level of credit you need. So, “Hey, would you like an extra 200 euro to complete your grocery shopping today? The fee for that is going to be five euro. Would you like to proceed? Yes or no?” Very simple. There’s no application form. You don’t have to wait for a plastic card. You don’t have to – You’re not at risk of having rejected because you’ve got some data point wrong on the application form. It’s a very simple embedded experience.
And so when you start then thinking about things like smart glasses in the future and things like that, walking into an electronics store, and your smart glasses, it can determine where you are and maybe you’ll put a reminder up in your head up display that you have to pay your rent in two days so you can think about budgeting for buying a new TV or a new laptop based on that restriction that you have to pay your rent in a couple of days as an example. So they’re the types of experiences where the utility of banking will be embedded in your life through these technologies and make your financial life much simpler than stopping what you’re doing, going to the bank, signing a piece of paper and then waiting for the bank to respond to you, which is the way the system has worked traditionally.
[00:22:33] AVH: Now you have done or like I bet you have tried exactly this with Moven, right? What are some examples that you can give from this very real, how to actually implement this techno-futurist vision of yours?
[00:22:50] BK: Sure. So let’s take one simple example, opening a bank account. So when you open a bank account on a mobile phone, the conditions are very different. Now from a traditional regulatory perspective we have this concept called KYC, know your customer within banking. I joke that sometimes it means kill your customers with paperwork. But the concept is how do you get enough information to know that this customer is real?
Now the way we used to do that is you’d walk into a bank branch and I would show you a driver’s license or a passport, some photo ID, and that would be used as a basis for determining you are who you say you are. Of course a driver’s license can be easily counterfeited today if you’re on the dark web and so forth. But putting that aside, how do you then replicate that process digitally? Well, you have to now look for data that’s going to support your thesis that this is a real person and not some hacker sitting in Eastern Europe trying to fake a bank account opening. So how do you do that? Well, there’re various data sources you can use. You can look up historical registry information. I can use your passport number or your driver’s license number to check it’s valid with the local authorities. But there’s even some simpler things you can do. For example, if you put in that you – And this is one of the technologies we use for Moven as an example. If you put your address in California and you said, “I want my card shipped to California. This is where I live,” and you put the address in and the name of the person and their social security number associated with that if you’re in the United States. But your mobile phone is sitting in Kiev, or in Jakarta, because we can look at the IP address of the browser or the app that you’re using. That’s a red flag. We know that that’s highly likely someone trying to pretend to be you, right? And so there’re various technologies we can apply like that.
Another one that’s interesting is around – And a couple of features we are deploying for other banks as well now based on our technology. One is we created a mechanism to help you save money called wish list. Most people would sort of think like this is goal setting. But we have a slightly different approach to sort of the typical budgeting approach with goal setting. Traditionally, for the last hundred years or so, we’ve set aside different buckets. In the past it was envelopes. You’d put cash in envelopes for different purposes. And so when banks sort of tried to implement budgeting, they allowed you to create different savings accounts for different goals or different buckets. We just have one bucket of savings, but we allow you to sort of prioritize within that all of the things you might need to spend that savings on in the future. So we created what we call the wish list, things you’re saving for.
The wish list also shows us your intent. What you would like to buy in the future? And so once you’ve got enough money saved up, let’s say half of – You want to buy a new iPhone. You’ve got half the funds available for that. Next time you walk past an Apple store we know you want to buy an iPhone. So if we can give you a 12-month interest-free deal on buying the iPhone adding to the money you’ve already saved, then that’s not necessarily going to put you under financial pressure and it’s credit that’s sort of purpose-built for your intent.
Another area is cash flow. We can predict about 90 days out whether or not some of the bills that you’ve got, recurring payments, or recurring transactions such as say a car insurance payment or your children’s school fees or something like that. If you’re not going to be able to pay that, we can make you aware of that so over the next couple of months you can come up with a solution or we can provide credit to help you solve that problem. So if you look at it, it’s very behavioral in nature. Even the basic receipt we give a customer when they transact, the receipt is very graphical. It’s not like the paper that you get printing off the machine in the store. You’ll see here’s the merchant name, a restaurant in Berlin that you’re eating at. Here’s the total amount that you spent on your dinner. This is how much you’ve spent on dining out this month already. This is what you typically spend on dining out. So you’ve got a frame of reference. And it’d give you the ability to sort of change the category of spending if you want or tweak that.
So just when you get a receipt, you’re immediately being aware of what your spending is doing. I’ve spent already 300 euro on dining out this month? That’s crazy. And then that switches your behavior. That that changes the way you think about the use of your money. And that’s really sort of holistically some of the sets of capabilities we build into the day-to-day banking experience differently and move it.
[00:27:55] AVH: That sounds already far from whatever bank I ever banked with. So the obvious question, I bet you got this 100 times, why are you an enterprise b2b business? Why is there like no – Or is there a moving retail bank and what made you then go into the business side?
[00:28:16] BK: Well, when we started moving, there was no such thing as challenger banks. In fact the press, the industry press used to call us non-bank banks. That was the industry term, because there was no better way to describe a challenger bank or neobanks back in those days. It wasn’t until about 2013 that the term neobank emerged. And then in the UK, as the UK regulated the FCA, started issuing licenses for new banks, they became in the UK challenger banks that were challenging the incumbents. And so that’s where the terminology came.
Moven was founded in 2010. And so this was you know three, four years before this terminology existed. And we had about a quarter of a million customers on our platform by 2014, but we couldn’t raise any money because the traditional VCs were like, “Well, we don’t know if challenger banks are going to work. You’ve got some customers.” But when we went to, for example, Andreessen Horowitz on the west coast. This is back in like 2013. Moven was – Our debit card offering was about a year and a bit old. For example, we had, I don’t know, probably at that stage maybe 60, 70,000 customers and we went to Andreessen Horowitz and they’re like, “Yeah, we really like what you guys are doing, but we’re looking for the Facebook of banking.” We want an app that has a billion customers on it for banking. How are you going to do that?”
And so my question to Andreessen Horowitz at that time was, “Well, a billion customers, you’re going to have to do that across multiple geographies, multiple jurisdictions.” So you’ve got the issue of banking licenses in each of those individual geographies, but you’ve also got the issue of capital adequacy. So we’ll have to solve that problem as well. And the response from the VC guy was, “What’s capital adequacy?”
And so back in those days they just didn’t even – The guys who had the money that could put into big consumer brands, things like that, didn’t really understand the business at all. And so that was the disconnect. So we were sort of really making a market, but were underfunded, dramatically underfunded at the time. So pragmatically we had banks coming to us all the time saying, “We love Moven. What you guys have done is incredible. Could you license the technology to our bank?” And to keep the business alive, ultimately that’s what we had to do and.
So today the Moven retail function has been rolled up through Varo, who’s an enterprise partner of ours. We lend some technology to them. They’ve taken over our U.S. retail consumer base, but now we’re out building challenger banks all around the world, STC Pay, Saudi Telecom’s Unicorn that they’ve launched in Saudi Arabia. I mean, four and a half million customers on that platform already. We’ve essentially built the challenger bank frontend the sort of the experience for STC around that. And we’re working with others around the world in Indonesia and elsewhere as well.
For us, it’s about getting as many people as possible using the technology and this sort of distributed approach also creates more revenue for us.
[00:31:41] AVH: I guess in the end you have like a network or a distribution effect. Then we keep coming back to this like global, right? To this like view of how different areas are. And I want to reiterate on that, because for example why is China 10 years ahead of us? Why are – For example, is there no U.S. or German or European-based bank where you would say, “Oh, they are 10 years ahead of all their competitors.” Do you have any idea on what’s the reason behind that?
[00:32:15] BK: Well, there’s a few different reasons. Europe is actually doing pretty well. Obviously Europe has birthed some household names when it comes to fintech. Klarna just raised a billion dollars at a 31 billion dollar valuation if my memory serves correctly. You’ve got TransferWise, now just called Wise that is doing very well. You’ve got Monzo, N26, Revolut, Starling, etc., who are sort of household names in the fintech and banking space. One in 20 Britons has a Monzo account as an example. So there is some success in Europe.
But the thing that made China different was China had never really accepted the plastic card business. There wasn’t a lot of plastic card penetration in China, and so day-to-day people use mostly cash. And cash in the digital world is extremely inefficient. So you have this explosion of mobile commerce, but you have this problem of how to pay for stuff in China, and you don’t have legacy. You don’t have plastic cards. You don’t have checkbooks. You don’t have any of that infrastructure that we have in the West that has to first be sort of replaced, right? And so all you had to do in China was come up with a better method for paying than cash, and that’s what Alipay and Tencent, WeChat Pay did. And fascinatingly they did it with a sort of a non-traditional use case or scenario, which was the lì xì, the red packets that people give each other at Chinese New Year.
And so Chinese New Year is sort of the equivalent of Christmas from a gift-giving perspective in China. Christmas is not a big thing there. So at Chinese New Year you give your family maybe some gifts, but you would give people around you, your colleagues at work, people that provide services for you like a maid if you have it or your dry cleaner or your taxi driver that you regularly have or the doormen at your building if you live in apartment there. You give them this red packet to express your thanks for the work that they’ve done for you the previous year, and typically that was cash. But these mobile wallet schemes introduced electronic red packets. So it made it very easy to give someone a gift. Now you’ve got some money sitting in a mobile wallet. What do you do? You have to spend it. And so you look for merchants where you can spend your electronic money. And so that spread the growth or created the viral effect or the network effect as you rightly point out to create this network of accepting payments and then creating this. And once merchants accepted payments and people saw it was common, they were like, “Oh, I can pay for this with my wallet and I mean with my phone? I don’t have to carry my wallet?” And it all took off.
And so last year in 2020, just those two mobile wallet schemes in China did about 56 trillion dollars of total value of payments. That equates to more than twice all of the plastic card transactions in the world. And so that’s just in China. So if you live in China today, you’re much more likely – You’re three to five times more likely to use a mobile wallet for day-to-day purchases than you are a debit card you got from a bank.
[00:35:30] AVH: Yeah, I remember when I was in China for a couple of days in Shanghai, I used cash because as a German traveling there for a weekend, it’s basically all I could get my hands on.
[00:35:41] BK: People are like, “What am I going to do with this?”
[00:35:43] AVH: Yeah. I remember in one restaurant I paid with cash and like they didn’t have coins because who the hell pays with cash in China, right? And I was like, “It’s okay.” It was like five cents, right? But they made a huge effort just to get me back this like cash. They tried to find coins everywhere. And then like 20 minutes into my meal like, “Oh my God! We found your cash.” I’m like, “Oh God! I was so embarrassed for not having a mobile wallet.”
[00:36:09] BK: Well now you can link foreign cards to the Chinese mobile wallets. That’s only recently been possible. In the past what you’d have to do is you’d have to get a friend in China, you’d have to give them money and then they would basically take that cash and transfer you the equivalent on the mobile wallet. And that’s how you top-up your mobile wallet. But today you can add foreign cards to that.
[00:36:33] AVH: Do you think Alipay and Tencent, when they started, it’s a red package giving? This was kind of the scheme to get where it is today? Or was it just like a nice idea and just completely outgrew the expectations they had?
[00:36:50] BK: It is first principles redesign of your wallet. That’s what it was. And when you look at Pony Ma, who’s the founder of Tencent, and WeChat Pay’s entry into this, they were first. Alipay followed. Alipay I think probably did it better, but when WeChat Pay was launched, it was clearly with the intention of getting people to use their mobile wallet for more of their super app platform and services that they had. They figured out quite early that wēixìn in or WeChat as we call it in the west as a super app would need to be tied into financial services to allow people to transact and pay for stuff. And they realized there was a real opportunity there. So it was definitely by design.
And then on top of that you’ve got new features that have come or new capabilities as well. So you’ve got a mobile wallet. Let’s say you have a bit of money sitting in your mobile wallet at the end of the month. If you’re a banker, a banker probably thinks, “Well, if you’ve got money sitting in your mobile wallet at the end of the month, you put it back in your bank savings account,” right? But that didn’t happen. People just started to have more and more money sitting in these mobile wallets and they weren’t earning interest on that.
So Alipay then came up with the concept of Yue Bao, hidden treasures, which is a one-click savings capability in the wallet. And so at the end of the month they give you a little message saying, “Hey, you’ve got a thousand won in your wallet. How about earning a bit of interest on that?” Yue Bao literally translates as hidden treasure. So it’s like you’ve got this hidden treasure you’re not using properly. Let us give you some interest on that. And that as an example became the largest single deposit product in the world, at its peak over 300 billion dollars of deposits. That’s more than most banks have on their balance sheet. And it did that not because it was a better savings account than what banks in China offer, but it created savings behavior. And so it was definitely by design.
[00:38:54] AVH: Interesting. It’s incredible the scales where they operate. And it kind of makes me curious, what would you say to banking executive banking or like just people starting out trying to get some new ideas into an existing bank? How they could approach this thinking? Because they have legacy infrastructure, right? What kind of thoughts? What kind of motivations or what kind of tips could you give to them?
[00:39:21] BK: Well, I do this all the time. I get paid to do this. So the first thing I talk about is how do you create thinking that’s different inside a bank? And that starts from a cultural perspective. It starts with the leadership. If you were to look at the leadership of, say, Deutsche Bank or HSBC compared with, say, Alipay, or Tencent, WeChat Pay, one thing becomes very obvious from the get-go is that the board structure and the executive team that manages the business in Alipay or Ant Group and WecCat are all technologists, with deep technology experience. In the bank you might have a couple of technologists.
And so if you want to be a technology company – You spoke about this at the start, the banks say this all the time. They’re going to be a technology company. If you want to be a technology company you need to build an org chat and leaders in the business that are technology capable and technology-focused. Now some people can make that transition and educate themselves on the tech and be technology advocates, but ultimately you need that strong support of people with deep technology experience. So that’s the first thing you recognize when you look at these two types of organizations in terms of their operating capability is that they need to really lift their skill sets, and so lifting technology capable people to the fore.
Secondly, you’re not going to be able to do it on your own. So you need to partner with others. So you need to partner with tech giants .You need to partner with techfins or fintechs. You need to incorporate that. Why? Ultimately because it’s much faster and much cheaper to partner with someone than build it yourself in a bank. And so, again, that is a skill that a lot of banks don’t have. They don’t even necessarily have a division of the business that works on building these relationships and partnerships outside of the bank. They call them vendors that go through procurement, and that’s not a partnership process. That’s very different.
And so being a good partner as a bank to fintechs and other tech players is a skill that needs to be developed. But most of all really comes back to that CX layer, the customer experience layer. And the biggest shift for Bank 4.0 is the shift away from putting your existing products on digital channels to rethinking the way the utility of the bank is surfaced through the technology layer to create banking every day, banking experiences. You don’t need to put a plastic credit card in a mobile phone. You need to give a customer the ability to access credit to solve a cash shortfall.
And so if you’re thinking about we’ve got to put the credit card on the phone, you’re really missing the key opportunity, which is you can redesign that experience to be much simpler and much better for the customer and therefore more competitively differentiated if you forget the credit card product entirely and just enable access to a line of credit experientially in real-time.
[00:42:34] AVH: What are some of the biggest hindrances that you came across when trying to work with a bank? So I was also in fintech sales, right? So I work for a startup. I kind of know – Based on this background, I’m curious, like who tries to get you in touch to work, for example, with you? And then who are the ones blocking the progress and what’s the biggest things that stop banks from actually innovating?
[00:43:01] BK: Thankfully it’s changed significantly in the last couple of years particularly because of COVID and the pandemic. The whole arguments about are people still love coming to a branch to see a human as an example? Which is the mantra many branch bankers have sort of convinced themselves with. Fortunately, those types of you know arguments that don’t have a lot of merit have sort of disappeared. So people are now talking more about how do we do this rather than if they should do it? And so thankfully that’s the case.
But I will tell you when I would go and talk around the world about this in the early days, particularly say 2012, 2013, I had one branch-based community banker in the United States accost me in a hallway of a hotel and threatening me saying, “How dare you? How irresponsible of you?” because in his mind I was attacking his way of doing business. So that sort of thing did happen.
And then you know the other issue is compliance and risk, compliance, risk and legal within the teams within various businesses. Now that’s starting to evolve, but when we did one of our first technology partnerships with Moven was with TD Bank in Canada to implement the technology to launch Moven in its white label state at TD, which is called TD My Spend. It took us about three to four months of work building out the app, the companion app as we call it there, that sits aside their mobile banking app. And it took us about three to four months to build that. It took us nine and a half months to get the contract sorted out.
And so that just shows you operationally the preparedness that these organizations have. And as a startup, as a fintech, what am I doing looking at an 80-page legal contract that was written originally for IBM’s software? Like is this really the best use of my time as a CEO of a fintech to be looking at this legal document and trying to see whether there’s any gotchas you’ve got in there that would enable you to take ownership of my business if I fail to deliver or something? That’s operationally some of the challenges. Thankfully it is definitely improving these days.
[00:45:31] AVH: Yeah, it reminds me of one story I had with a bank where they said, “We like what you do. We would love to work with you. But I can tell you now you don’t have the financial resources to go through our vendor onboarding process, which usually takes one and a half year, a lot of legal and you would have to pay all the lawyers everything yourself.” So it’s good that it’s looking up and I feel like it’s getting more and more accepted.
Staying on the topic of change and like what’s happening. From Bank 2.0 to Bank 4.0 how many years were in between and what were the key features that changed over time?
[00:46:14] BK: Yeah, good question. I finished writing Bank 2.0 on Christmas day 2009. I remember it because it was Christmas Day. The book launched in April of 2010. It was funny because my publisher –There’re some big publishers around the world in financial services one of them being Wiley. I pitched it to Wiley and Wiley said, “No. This is crazy stuff. No bank is going to read this. This is way too out there.” Yeah, this is Bank 2.0. But my publisher in Singapore, Marshall Cavendish, Marshall picked it up. But they said, “Look, this could go either way. It could be a huge success or it could be a flop.” So they just did a very small print run, about 2,000 copies of Bank 2.0. And by month three we’d done five different print runs. And so we’re in our fifth edition in terms of print runs. So they were very happy. And then we went from launching in Asia at the Singapore Banking Summit, then to London, and then New York and L.A. So from a book tour perspective with me sort of bootstrapping and sort of launching that.
By the time I finished that, Bank 2.0 was a bestseller. It was been translated into half a dozen languages and it had been a much more of a success than I anticipated, but it was still fairly simple. It was really about the imperative for digitizing banking and it was really about the fact that customers were adopting these technologies like the smartphone and social media and so forth. So banks needed to also. There was some future thinking about payments like NFC technology and things like that, but it was really about that imperative.
Bank 3.0 came out in 2012. It was a sort of a revamp of the Bank 3.0 book. It brought in to play sort of the fintech space and a number of things there. I did Breaking Banks in 2013, which was interviewing a bunch of fintech leaders and sort of showing the different thinking that fintechs had with banks. In the midst of that I think in 2012 I also – No, 2013 was when Bank 2.0 came out. 2012 I did Branch Today, Gone Tomorrow, a little ebook. But Bank 4.0 was something very different. The first principles thing that we talked about earlier in the show, that was sort of the epiphany that hit me to describe what was happening in China versus what was happening in the rest of the world that tended to be iterative. And then it involved a ton of research about first principles design and so forth. So that was the epiphany I had that sort of explained things.
So Bank 4.0 was a very different book in terms of the language and the way I talked about the problem. Obviously still looking structurally at the org chart within the bank, looking at the technology systems, looking at things like crypto and so forth and the leadership skills that you need. But ultimately it was about the fact that if you just iterate on the existing banking model, if you just take the existing products and services and put them out on a mobile phone or in a voice smart speaker, you’re missing the point. Banking is fundamentally changing. And so that comes through 10 years of learning operationally, having been around the world and seeing the different examples of fintech and so forth, and it was a learning curve for myself as well.
[00:49:35] AVH: You mentioned leadership skills. You talked about what it takes to kind of survive in this world. And what I like to do at the end of every podcast is because we have young listeners, and especially in this field where we talk about the future and there’s so much changing, right? I think this is relevant for everybody. What are, A, soft skills that one should bring to the table to succeed? And, B, also hard skills, right? Like you talked about technology crypto. What should I – Or should I learn anything of those in particular if I want to go somewhere or I should just like have one of those meta skills, learning to learn or something?
[00:50:15] BK: Yeah. Look, I do think that learning to learn, or I would phrase it a little differently, your adaptability, your ability to see an idea that challenges your preconceptions and to say, “All right, I’ll look at this and I’ll see if this works and explore this,” rather than sort of immediately going, “That’s not within my frame of reference.” I think that is a core skill for the 21st century, learning new skills frequently.
Look at what Elon Musk has done with rocket science. I mean, Elon Musk built PayPal. What did he know about rockets? Well, he taught himself the physics and the engineering around rocket science and is now one of the top rocket scientist engineers in the world, chief engineer for SpaceX, a company that has reduced the cost, getting a kilogram of mass into orbit by 98%, right? And that’s first principles. But, also, Elon is quite unique in his ability to sort of learn those new skills. So I think the adaptability, absolutely.
But if you think about AI and how AI will impact the world, AI is better at bringing up raw intelligence and processing things according to like a set of conditions or rules. It’ll always be better and faster at sort of bringing that basic process type thinking to a problem than a human ever will be. And so if your business or your role right now is process-based, and AI will most likely replace you in the future. What it can’t replace is the soft skills that come along with it. So, for example, I could look at some data and determine, or I could look at, say, facial recognition and I could determine if you’re happy or sad in a given instance by looking at your facial structure. I don’t know what the implications of that are as a machine, but as a human I can understand those implications and mitigate both of those conditions better.
So I think the creative elements, the ability to communicate, storytelling, the ability to inject humanity and love into our business designs. I think that’s important. But I think, overarchingly, the one skill that’s going to be really important for the future is collaboration. If you look at the problems the world will face over the next just 20 to 30 years, not even the next hundred years, our ability to collaborate across border, within teams, across language and religious and cultural differences to solve the problems of climate change and how automation disrupts employment and all of those types of issues is going to require us to have a focus on humanity collectively as a species versus economic competitors based on the ground that we were born under, I mean born on top of. That I think is a mindset shift from a global species perspective that is going to be super critical for us in the future.
[00:53:19] AVH: I just got so hyped when you spoke about that. I got like really shivers. I’m like, “Yes, this is so exciting.”
[00:53:26] BK: That’s what I’m writing about right now. So I love that you reacted like that because that’s exactly how I want people to feel.
[00:53:33] AVH: I’m super curious about your new book. And let’s stay on that topic before we wrap up just a bit more, because when we started chatting before the episode you said like we’re going to go all out technologists, right? I’m really curious, as the last part of today, what are your predictions for like 20, 30 years ahead? You talked about the bad stuff. You talked about climate crisis. Like loss of employment, duty automation. What is the good stuff, the really cool thing? How would your perfect utopia look like in 20, 30 years?
[00:54:05] BK: So this is really the way I’ve organized my thoughts in the new book. I talk about four principal outcomes for economies, and it’s really across sort of two broad spectrums. One is chaotic versus planned, or you would maybe call it dystopian versus utopian. And on the other side, inclusive versus exclusive or exclusionary. And so when you look at that you really come up with sort of four possible outcomes. One is where we reject technology. So let’s call it Ludder stand, right? Named after the Luddites. The other is where we just don’t respond until it’s too late, and so we have a failed states as a result of our ability to – Lack of ability to plan and anticipate these changes. So you have failed stand. Then the two most likely outcomes, which is where we’re forced to act because of economic uncertainty, climate change, AI and so forth, pandemic is continuing, is you get either techno-socialism where you use technology to build cheaper, more efficient government and you have much more collective view of humanity as a species to create these positive outcomes, or you allow capitalism to create greater inequality with access to technology, giving you longevity and so forth and the poorest, having to survive how they can. So this is what we call neo-feudalism, right?
The reason I like techno-socialism is it solves some of the biggest problems that humanity has faced in history, which is homelessness, famine, improving education, longevity in health care. All of those things, it’s within our capabilities right now as a human species to make sure everyone is fed, clothed, housed, educated and lives a healthy life, but not if we just leave it to the free market. The free market is not necessarily going to have that outcome. Technology allows us to do those things.
So if you could provide you know some sort of form of universal basic income, you could provide free education, free health care, because the cost of delivering those service plummets with the application of technology, then that allows you to say, “Well, hang on. I don’t need to go and work this nine-to-five job just to put a roof over my head and food in my children’s bellies. What would I do if I had that economic flexibility? What am I really passionate about? Where can I make the biggest difference in the world?” And that’s where I think it gets really interesting. I think the very nature of work itself and its role in our life will change.
I think there’ll be whole industries dedicated to climate mitigation and I think they’ll be very important for society, and I think people will emotionally commit to those types of things. So building sea walls to stop sea rise, carbon sequestration, pulling carbon out of the atmosphere, maintaining the polar ice caps, maybe spraying polymers on glaciers so they don’t melt, removing pollutants from the ocean and trying to cool the ocean temperatures, all of these types of things, retooling the world for renewable energy versus fossil fuel-based energy. There’s a lot of work to be done, a huge amount of new industries that will come along with this, and so you’ll have the explosion there.
But ultimately I think what’s really exciting about this is when we come out the other side of this humanity won’t need to worry about going to a nine-to-five job to survive. We’ll be able to pursue those interests, which we’re most passionate about. That will move the entire human species forward in leaps of bounds that’s simply not possible with the current systems we have.
[00:57:48] AVH: This is so inspiring. I’m definitely going to go out, like try to change the world.
[00:57:54] BK: I appreciate it.
[00:57:54] AVH: And this conversation definitely inspired me. It reminds me a bit of 22 Lessons or the 21st Century.
[00:58:00] BK: Right, Yuval Noah Harari.
[00:58:03] AVH: Exactly. Yes. Thank you. And I definitely think this is one book that listeners in any how interested in the future should read, and definitely Bank 4.0 they should read. And I haven’t read it yet, but I know your new book is going to be amazing. What other resources could you recommend for people interested in that? And I’m going to make a list out of that and read every single one of those books.
[00:58:28] BK: Yeah. Well, I’ve done so much research looking at the World Bank, OECD, WHO, UN. I’ve consumed a huge amount of information trying to research this book and worked with some pretty interesting people. Jack Maher has made a contribution to the book on the future of education. Arnold Schwarzenegger is writing the forward for the book. So it’s been a wonderful experience. But for me, what inspires me personally, Andreas, is sci-fi. And so I read a ton of sci-fi, and not the dystopian sci-fi generally. Sort of more positive stuff. So I’m a big fan of guys like David Brin, Kevin J. Anderson, Arthur C. Clarke and things like that that showed the possibility of humanity. And so that’s where I get a lot of my personal inspiration.
[00:59:18] AVH: Awesome. I’ll check them out and I’ll definitely link to everything in the show notes for our future techno optimists and techno socialists. Brett, thank you so much. I’m really eager to now try to change the world and to do something positive. So I hope we managed to inspire a couple more people to think more positive for the future and do something about it. Thank you so much for coming on.
[00:59:43] BK: You’re very welcome. Thanks for the opportunity.
[OUTRO][00:59:47] AVH: Hey, again, this is Andy. I hope you enjoyed the episode. If you did, please leave us a five-star review on Apple Podcasts or wherever you get your podcast from. Share the episode with your friends, with your colleagues and everybody that is interested. And if you want to reach out, feel free to drop us an email, a message on social media. And I look forward to hearing your thoughts, your comments, your feedback. And thanks again for listening. Have a great day.
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