This year at Future Banking 2020, QUALITANCE CEO Mike Parsons brought challenger banks and traditional banks back into the conversation, highlighting 8 valuable lessons of great use for any company that wants to build better products and services.
Mike’s keynote speech is now available on BottomUp Skills, the e-learning platform created and supported by the QUALITANCE global thought-leadership team for innovators, makers, and creatives who want to sharpen their skills in innovation, design thinking, and technology. If you haven’t signed up already, you can do it here – lots of free masterclasses, case studies, and podcasts await.
To skim more easily through ideas, you can find below a transcript of Mike’s keynote.
Hello and welcome to BottomUp Skills. I’m Mike Parsons. I’m the CEO of QUALITANCE and this is a great opportunity to talk about neobanks, fintech startups, but most importantly, to also bring traditional banks into the conversation. Today we’re going to dig into my Future Banking keynote, namely into this question – What can fintechs and traditional banks learn from each other? I’ve got eight big ideas, four from Revolut, and four from traditional banks.
Let’s see what we can learn from them and let’s see how we can go out there and build better products, better services, better businesses. I hope you enjoy it. All right, let’s get into it.
What can fintechs and traditional banks learn from each other? Now, this is a really timely discussion. We hear so much about fintechs. We have venture capitalists writing notes that software is going to consume, eat the world. And frankly, we hear so much about fintechs, neo banks, challenger banks.
There’s literally hundreds of new businesses and entrepreneurs building and creating new offerings. Do you have services and new products in the financial services space? It is booming. And this is really because it’s such a good fit. I mean, think about it. You know, money very much today is zeros and ones.
And so software is just a perfect match. Throw in some machine learning and artificial intelligence, and you get some really crazy exponential effects when you put technology and finance together.
But what’s really interesting is we’ve sort of left out the traditional bank in this conversation. And what we’re going to do today is we’re going to look at both sides of this equation.
Let’s not forget the world’s oldest bank in Italy. I mean these guys have 543 years more experience in banking than Revolut. So there’s gotta be something for us to learn from traditional banks. And look, we want to build the best products and services period.
So let’s not only learn from the fintechs of this world, but let’s also learn from the traditional banks and let’s really take the best thinking, the best practices and put them into our own products and services. My point here is there is a lot to learn.
So what I’m hoping to do today is to share with you four big learnings from traditional banks and four learnings from Revolut, who were great proxy of the larger neobank in FinTech. Well, so hopefully in each of those eight ideas, there’s something for you that will help you build a better business, a better product, and to delight your customers. Alright, let’s get into it. Let’s go into the world of revenue.
Let’s see what they have to offer now. I’m going to share with you four ideas from Revolut. In fact, I have well over a dozen ideas from Revolut in the case study that you can download from Bottomup.io, and check that out because we don’t have enough time now to go to all of them, but I’ve picked four of the best. So if you’d like to know more head over to bottom up.io.
All right. Number one. This is a really powerful lesson from Revolut that we can all win, not only in banking, moreover, but I think as an engine into any industry, into any vertical and they see their offering, they position themselves. When they think about tech and product, they think about it very much in terms of banking as a platform. And this is really important because this determines how they build different features, different elements, different modules in their stack, and the choices about how they do that. But it also has a really profound effect on how they look at their business overall.
So I want to give you an example. You know, many traditional banks will go out and license or purchase a card fraud detection system and plug it into their platform. In fact, they’ll plug it into many other legacy systems. In fact, somewhat of a patchwork of systems, you might say.
But not at Revolut because they look at what they’re doing as building a banking as-a-platform. What they do is they very often build the different components of that platform. And here you can see an example of where they built Sherlock. Their own fraud detection system and a lot of their whole architecture is built on the Google cloud platform. What you’ll also see is they saved a ton of money and actually they’re getting some very good results.
So, 30% of showings for predictions actually turned out to be correct. So, this is what happens when you think about building, not just a product, but actually an entire platform is that you actually go out and you’ll build really high performance elements that actually sit within that ecosystem. But there’s more!
We’ve been very fortunate to find a great quote from Nikolai Stornoski, the founder and CEO of Revolut.
And I think this is really instructional. On how banking as a platform can actually affect creating an amazing business. Let me read to you this quote from the CEO of Revolut.
“The reality is what we’re trying to achieve is to build a 10 X better financial services company that is 10 X cheaper as well. And the only way to do it is not by building one product, but building a platform with lots of products on top of it.”
So there you go. So he says, look, if they want to create customer experiences, it’s 10 X. If they want to offer a service in the world, that’s actually 10 times cheaper. The only way they can go about doing that is by banking as a platform, and not just as a singular product.
So there you have it. That’s lesson number one from Revolut.
Let’s go to lesson number two, and this gets very much into their culture and people and how they work together – some of the behaviors they have in their organization. In our case study, we found that Revolut has a pretty hard and fast high-performance culture.
And it’s built around several tenants. One of which is getting it done. And I wanted to share with you a quote from their Head of Executive Search, because it really paints a picture of what that looks like internally. And I think we can learn a lot from it. And this is from Rebecca South at Revolut.
“The individuals that really set themselves apart and really thrive at Revolut are the ones that take the initiative to put themselves out of that comfort zone and take ownership of that tech and to learn something.”
So they’ve created a high-performance culture about taking ownership, about learning, about putting themselves outside of the comfort zone.
And I think any traditional bank can learn from this, but more importantly, I think as entrepreneurs overall, I think the high-performance culture really requires this idea of taking ownership. And this comes from somebody who really celebrated this idea – Jocko Willink, a former US Navy Seal, an amazing and inspirational guy.
He wrote “Extreme Ownership”. In it there’s this really compelling idea of taking extreme ownership, getting it done, as they would say at Revolut.
So that’s the first two. The next two we’ve got coming up right now. And the first one is the growth teams.
Again we’re also tackling not only the tech and the products and the whole stack, but we’re also looking at how they organize. A huge part of getting high performance out of any business and growth teams is absolutely at the essence of how Revolut launches into new markets. So let’s break it down.
I was very fortunate to find some of the key execs talking about how they’d build their growth teams. And I think this is huge. I mean, you may have heard of skunkworks, you may have heard of agile teams. This is how Revolut does it, particularly when they’re going into a new market.
They have the country manager there at the top, who’s all about delivering the growth. And then there are four key roles in a growth team: the marketer, the business developer, the comms manager, and the community manager. Marketers are all about the brand and the story. The business developer is about choosing the right product for growth. The comms manager is all about the message – getting the right message to the right people. And when it comes to those people, the community manager is going to activate them. So if you’re launching a new product, my challenge to you is – have you got your growth team? Because we can certainly learn that, with 10 million-plus customers in just five years.
When we talk about growth teams and the way these growth teams work is that they set a strategic goal that might be to acquire some new customers. It might be to activate new accounts. It might be to get their customers to transfer their first amount of money to another user.
They’ll set these goals. They’ll have it like an idea about how it works and they go through this process. They prioritize the most meaningful experiments. They test. They look at the results, they process it. And then that informs the new set of goals. That’s how these agile teams work. Continuity is key.
It’s not stop-start. It’s not top-down. In fact, often these growth teams are very autonomous too, so it’s another great learning. That’s the third learning from Revolut.
Alright, now this one’s a killer. This one comes off the back of our first one. This four or five years of what we can learn from Revolut is that no middleman gets in the equation for them.
And let’s talk about what we mean here. I need to set some context. In a recent study, when banks were asked about the key challenge to growth, they didn’t say customers, they didn’t say marketing, they didn’t say sales.
They said their number one challenge was their legacy systems. These legacy systems are really creating a challenge. And as a result of that, when you’ve got all of this middleware from third parties in a sort of patchwork, it creates enormous challenges for banks. But have a listen to how Revolut has thought about this.
I think this is really powerful about removing the middleman and taking total ownership, not only for your product, but actually for your platform. Here’s what Nikolai Stornosky had to say about removing the middleman and taking ownership of the platform effectively.
“When you run all the infrastructure in house, you can actually make money out of this business. And the business becomes quite profitable.”
So you can see here that what he’s saying is that you’ve got to take control of that platform. You can’t be held into a patchwork of complex integrations workarounds because it becomes paralyzing. It stops you from growing.
Okay, we’re halfway through there. These are big lessons from Revolut. Now what I’m going to hit you with is four lessons from traditional banks. And what I’ve done here is I haven’t picked one traditional bank.
What I’ve done is I’ve grabbed a snapshot of data from the US and the UK, which really illustrates some of these really interesting lessons from banks.
And what’s gonna be really good is these are quite different from what we can learn from Revolut. So let’s get into them – the four big lessons from traditional banks.
Number one building trust from advice. You know, this was really interesting when we dug into the data and we used a study that was done earlier this year. It’s quite recent.
There was a really interesting thought that was really the top line of this study is that most Brits actually don’t trust challenger banks. They have quite a lot of trust for traditional banks. In fact, 68% said they trust their current bank. And only 17% said the same thing for challenger banks.
So what you can see here is that traditional banks have done a really good job of building trust in the financial services industry. That being said, there’s still work to do because, as an industry, compared to others, it still has got a lot of ways to go and trust.
Neobanks, fintechs, they can learn a lot from traditional banks on how to build trust. Now, what was interesting is a study that was also done by YouGov pinpointed – the areas where the trust breaks down, particularly with banks or with mobile banks. And then number one is security, very closely followed by privacy.
So, obviously users trust traditional banks for security and privacy. And this is a huge learning for any fintech and any neobank. You’ve got to build trust and that’s built around security and privacy – huge insight. And there’s a lot of learnings from traditional banks there.
All right. Number two from traditional banks is investing in branding. These companies, these traditional banks have built enormous brands. They’re not only big in banking. They’re not only big in financial services and the economy overall. I would say these have become social institutions, where every town has got a bank, where every region has a provincial community and a local bank.
I think there’s a lot to learn here. Now, this is getting really fascinating. I want to take you back to that same study that YouGov did and found that consumer awareness for fintechs and challenger banks is extremely low. So when they asked people if they could name a challenger bank, this is what they said. Very recently, only 9% of Brits could name any challenger bank at all – just 9%.
So this was really fascinating because it shows there’s a ton of work to be done, but it also shows you that building a brand is crucial.
If you want to get into the mainstream, if you want to scale, here’s how to do it. This is some data from last year from eMarketer showing you where ad dollars were invested, where investment in advertising and branding happened as an industry. What you can see here is financial services is in the Top 3 in the US this is the core engine of what we call awareness.
This is at the core of creating spontaneous recall. This is all about engaging customers being top of mind so that they can build an affinity, perhaps even trust with the bank. So, this is a really interesting lesson and it will be a great challenge for all those fintechs and challenger banks, because this is going to mean spending a lot of dollars and really activating national, global even, branding campaigns.
All right. We’re almost there, just a couple more thoughts to share with you. A huge lesson, perhaps the most profound lesson that we can all take from traditional banks is that they have been building businesses to an enormous extent. I mean, if you think about small business as a sub-segment of the larger business ecosystem, small businesses rely upon their banks to an enormous extent.
I mean, just imagine. If banks did not extend lines of credit to small businesses all around the world, businesses would come to a stop. So, banking plays a huge role in funding – the short- term cash needs of businesses. I’ve got this great study from the US, it’s from the small business administration, and they found that in 2017 banks loaned small to medium businesses $600 million in the US alone.
And what was really fascinating is that over half of that investment was used for growth, for expanding the business. It’s not just consolidating different credit lines. This is to grow the business. So, traditional banks have been a core at driving small businesses, and we all know these small businesses are the key to driving employment in any modern market.
And here you can see from where all that money came, alternative lenders making up a micro proportion of the lending that’s been happening. And the average loan was actually in 2017 for small businesses, with $633,000. This is a huge amount of money that is mobilizing the economy in the US and, in particular, small businesses.
The last thing that we can learn from traditional banks is they do an amazing job of servicing building relationships. You might say the majority of consumers. Now let’s talk about what we mean by that. If you get, we live in a bit of a bubble, we’re all building new products. We’re probably super interested in tech, a little bit geeky. We all know about the Revolut, Monzo, and N26 days.
Well, here’s the reality. Most people not only don’t know about these other banks, these new challenger banks. Traditional consumers, just think perhaps your mom and your dad, your grandparents, they have no idea that exists. But more importantly, they’re actually in this YouGov survey from earlier this year. They’re actually pretty happy with their existing banks.
And so what’s really interesting is the NPS in that study. So we’re talking 2020 in the UK, 51% said they’d recommend the bank.
48% say their bank provides good service. So if you look at what banks have been able to do, despite all the change thus far, they’ve still been able to go out into the larger segments of our communities to service them, to satisfy their needs.
And as you can see here, 13% say that they wouldn’t recommend their bank. So we’re really, really looking at a situation where they’ve been able to service and own the majority.
All right. So, then you have four thoughts from Revolut, four thoughts from traditional banks. I hope at least one or two of those have really inspired you and given you something that you can use in your product, in your business.
But I have one more thought and I want to kind of wrap up this investigation and frame this in a larger context.
The truth is that when Edelman did a big study at the end last year, about what drives the long-term choice of financial services by consumers, they got amazing stats. The biggest response, 53%, was that customer experience integrates into all aspects of their life.
This is the Holy grail. This is the North star. This is what fintechs, neobanks, and traditional banks need to deliver on. And yes, some features will cause switching maybe on a transaction account. But when we talk about long-term needs, when we talk about loan services, credit services, and all the associated, related financial services, such as investment management and so forth, what everyone is looking for is someone that manages the entire finances of their life. This is the race that is on and thanks to quarantine, we don’t have as much time as we may have thought.
In fact, check this out. Recently, Tobi Lutke – the CEO of Shopify, a great product doing really well, came out and said that the transaction activity he’s seeing on his platform is what they were predicting for 2030.
2030 is already here. Your digital transformation has just been put into hyperspeed. And, to put a finer point on this, just yesterday, Zoom came out with their earnings report. Here they are at the beginning of June. They came out with their earnings report and, wait for this, they have doubled their revenue forecast for the coming financial year.
Doubled! They had already been growing massively over the last few years. So, 2030 is already here.
So the question to leave you with is who’s going to provide a bank for all aspects of the consumer’s life. And are you the winner of this race? Are you going to build the products and the services to delight customers in all aspects of their lives?
The reason why this is really important is that you don’t have 10 years anymore. What I truly believe if you look at everything that is happening, this massive acceleration that had already started has now gone into hyper speed. You’ve only got 24 months to what we call the great banking consolidation.
We have so many fintechs, so many neobanks, so many challenger banks, so many traditional banks, this market has to consolidate and the winners will be those that can service all parts of your personal and financial lives. I hope you are the winner. Thank you.
So you have a ton of ideas and inspiration from traditional banks, from revenue. I hope you really got something out of it.
If you’d like to go deeper and know more about this, head over to bottom up.io, where you’re going to find all sorts of goodies to help you build better products, better services. You can get, you can download the deck. You can look at masterclasses. You can get podcasts. Oh my gosh, everything is here.
Thank you for spending your time with us today. I hope you’ve enjoyed it. We’ll see you next time on BottomUp Skills.