EXCLUSIVE: “Jalopy or a beamer?” – Matthew Williamson, Mobiquity; Ruby Walia and Brett King in ‘Discover Money20/20’
Avid readers of letters from bank CEOs to their shareholders will have noticed a significant shift in their content in recent years. The financial jargon and traditional banking performance metrics have been largely consigned to the margins, replaced by the kind of language you’d usually associate with Hacker Way, not Wall Street.
Such is the growing primacy of technology in banking that Jamie Dimon, CEO of JP Morgan Chase, admitted in his April 2022 letter that ‘decentralised finance and blockchain are real’. That’s quite the U-turn from the man who previously stated that he’d fire any employee ‘stupid’ enough to trade in cryptocurrencies.
Dimon’s far from the only big-bank CEO to be working his way through a large helping of humble pie. Yet his is a telling admission. DeFi and blockchain – as well as tokens, e-wallets and the metaverse – all herald the next generation of banking services. And it’s one that poses a whole new threat – or opportunity, depending on your mindset – to traditional banks.
Contextual finance, as it’s being increasingly labelled, will see embedded finance supplemented by the granular behavioural data we’d normally associate with the likes of Google and Facebook. The result, as futurist and renowned fintech thought leader Brett King explains, will be something quite different from anything banks have traditionally offered to their customers.
“In the future, instead of selling a mortgage, you’ll be supporting a ‘home-buying experience’. If you walk into a grocery store, your smart wallet will tell you ‘Hey, you don’t have enough cash to buy your groceries today’, and give you options of how to [deal with] that.”
Clearly, that would rely on a platform that tracks geolocation and behavioural data. That’s not data banks currently collect. And mobile wallets, which King notes overtook plastic cards in terms of day-to-day payments back in 2017, are delivered by tech intermediaries Apple and Android, not the likes of Citibank and HSBC. Crucially, it looks unlikely that bank brands will be front and centre
of contextual finance services. Often maligned for moving too slowly, it’s a frequent refrain that incumbent banks will soon be side-lined by tech giants, fintechs, and the all0in-one apps they’re set to build.
Ruby Walia, formerly HSBC’s head of digital banking in North America and now a digital technology advisor to Mobiquity, believes that’s possible. “Banks have always prided themselves on the trust their customers have in them,” he explains. “But with contextual finance, banks might actually be relegated to becoming more of a background player, while other organisations become more prominent in customers’ minds. Over time, that familiarity morphs into trust. It’s an amazingly important phenomenon. I think leading banks recognise that and are trying to step up their digital game.”
King agrees. “That’s exactly what happened in the Chinese market with Alipay and WeChat Pay,” he says. “The utility of those mobile wallets led to a shift in trust, where those organisations were more trusted than the traditional banks, because the utility factor was so high.”
Trust is a major asset for traditional banks, which consistently rank as the most trusted institutions in surveys.
That trust is built on their regulatory alignment, centuries of experience and their healthy aversion to risk. Unfortunately, the rise of contextual finance calls for banks to conduct risky experiments outside of traditional regulatory red lines. Meanwhile, they’re losing market share (although not as quickly as some predicted) to challengers, which are far more comfortable conducting such experiments.
“The fastest-growing financial institutions in the world are all digital,” points out King. “If you look at the UK market now, about 38 per cent of salaries are paid into challenger bank accounts. We have a number of fintech banks that are now the largest banks in their respective markets, or on track for that. Nubank is the largest bank in Latin America, with a $50billion market cap. You’ve got WeBank, in China, with 240 million customers. There’s Rakuten in Japan, and N26, which just overtook Commerzbank in Germany as the second largest bank in the market.”
While incumbents have fought back admirably to keep pace with the challengers, the rise of the metaverse looks to be yet another phenomenon that could siphon customers towards alternative, future-facing financial institutions.
“If you think about what’s happened with fintech, that’s going to replicate itself with a whole bunch of new businesses that will start in the metaverse around digital, decentralised finance,” predicts King.
Matthew Williamson, VP of global financial services at digital transformation experts Mobiquity, is sceptical about banks’ engagement with the metaverse to date.
“If you look at JP Morgan, they’ve recently announced their metaverse entrance with the Onyx Lounge, launching in Decentraland. They even have a head of crypto and the metaverse now. But the question is: what are they actually going to do with this? Are they going to partner with those that are investing heavily in Web 3.0 – and will all of this make a difference to the consumer’s desires and experiences?”
In essence, do banks even know where they should spend the billions they’ve earmarked for digital innovation? Do they understand how consumer behaviour is set to change? With the challenger sharks circling, gestures of innovative intent may simply be made to placate shareholders anxious about the buoyancy of their assets.
“Big bank statements often say, ‘we’re worried, we’re concerned, let’s just throw some really big, interesting numbers out there, that appear to demonstrate we’re taking this really seriously and we’re on top of it’, when, actually, it’s not necessarily the case,” confirms Williamson. Add to that the reluctance of banks to be found to have financed a failure.
“Remember, a challenger will build something, knowing it may only last for two years,” explains Williamson. “It’ll spend $10million, then throw it out the window and probably spend $100million to get to the next level. You take that thought process into a bank and they’ll say, ‘what do you mean you’re going to spend $10million on something that’s obsolete in two years?’. So, unless we see a change in digital thought leadership, internally in the banks, they are going to struggle.”
So, banks have a cultural issue to overcome. But they also have a technological one, with mobile wallets set to become fundamental for our future financial lives, inside and outside of the metaverse.
“The wallet is an interesting focus point,” says Walia. “If you look at who is investing in wallets right now, it’s the platform players like Apple and Android. Apple’s done so much with its wallet – you can store not just credit and debit cards, but, in the US, I can store my health insurance card and my driver’s licence. I can add loyalty cards, tickets to events, even train and plane tickets. It’s developing an ecosystem around the wallet and doing much more to make it central to people’s lives than any of the banks are in a position to do, frankly.”
So, wallets are another field of battle upon which non-bank institutions enjoy a significant advantage.
“I refer to this period as the smart wallet wars, or the smart bank account wars”, says King. “Fintechs and tech giants will start to compete with emnbedded finance offers. All of the emphasis will be things that aren’t related to bank products and services. It’s more about managing your financial health and wellness, giving you access to credit when and where you need it, and helping you achieve what you want to in life.”
“That’s the big bet that the big techs are taking,” adds Williamson, “that society is going to shift and evolve in this direction.” He’s of the belief that banks need to reimagine and reinvent themselves entirely if they’re to thrive in an increasingly virtual world of contextual finance.
“Banking has an opportunity to reframe itself, and I’m going to use the example of Tesla,” he explains. “Most people say Tesla is an electric car company. Actually, it’s not. It’s a transport company – that’s how it sees itself. It just so happens that the thing it currently transports is people. In the future there will be extra vehicles, autonomous trucks, and it’ll move on, and on.”
Banks, according to Williamson, must similarly start expanding their remit. If they stick to banking alone, they’ll be swamped by competitors which are geared up to provide so much more. By imagining themselves instead as lifestyle-enabling companies, they’ll stand a chance of seizing new opportunities presented by the metaverse and contextual banking.
In his letter to shareholders, JP Morgan’s CEO asked them to return to one key question: “Do we have real wins against some tough competitors, both in the banking world and in fintech companies?” That might be dictated by choosing the right moment to jump into the contextual banking fast car. Too soon and banks will risk costly failures; too late and they’ll be left like old jalopies in the dust. A bank branch in the metaverse is a start, but Williamson, King and Walia believe it’s not nearly radical enough.