Let’s start with an introduction to you and your work. You've had a really incredible career founding Tandem and other businesses. I'd love to know, why FinTech for you? What do you really love about the industry right now in 2022?
There are three big threads to my career. I started as a VC, and then my first business was a telecoms business. Then, from my second business onwards, it's been Fintech or what we called ‘technology disruption’ or ‘retail financial services’ at the time.
I like building purpose-driven companies, and I like complexity. I want an excuse to be able to hire the smartest people in my businesses. In the early 00s, after founding my second business, we realised there was a really big opportunity in financial services to disrupt.
I also think financial services is at this odd intersection where all other businesses go through it, so there's a 10x opportunity to have to have influence and positive impact. There’s also opportunity to build great scalable businesses where your businesses are powering 1000s of businesses, that then go on to have their own impact and results. That’s why I find Fintech so exciting.
In 1994, Bill Gates said that “banking is necessary, but banks themselves are not.” How true is this becoming? Where do you see the future of banking heading?
Banks are defined, at least in the UK, by a banking licence which is actually only a deposit-taking licence. The activity that the regulator sees as banking is essentially the holding of savings accounts. So, it's not really a current account, because we can now do that with a prepaid card pretty effectively. This is what the consumer associates with banking and, to some extent, even the business consumer see it as ‘this is my current account’.
I actually do think there's a role for banks and that it’s actually a much more traditional one of having the deposits, controlling deposits, managing liquidity and risk, so that they don't lose consumers money. Now, that's not what Bill Gates was talking about. Bill Gates was talking about banking as in money going in and out of a current account being important.
Interestingly, the lending side of it can sometimes be better done by non-banks in certain sectors. Doing that careful risk managed deposit taking, and thinking hard about where that money goes, is what I define as the role of banks.
On the topic of a more more traditional, older style of banking, perhaps even having a bank manager, where does financial advice fit into this vision of yours around where it should go?
Well, I'm not sure banks have ever been very good at financial advice. If I were to look forward to the future, I think there are certain traditional legacy banks that should focus on the stuff they're good at, which is actually not payments or cards, it's on fundamentally taking people’s deposits and looking after them.
With SMEs, what’s interesting is the customer relationship. I see this moving away from the banks and retail almost altogether, although some of the neo banks do capture it well if they specialise – a bit like Monzo.
On the B2B side, the truth is the bank business model for corporate management has never really worked for anybody on the B2B side, apart from the largest businesses. If I was running Barclays, and I wanted to have a franchise which was totally in contact with the customer, I'd look at ‘how do I build out my enterprise, international, multinational, company portfolio?’. Or, ‘how do I design services, so I can really service those corporates across multiple jurisdictions?’.
Imagine we're going forward 10 years, it's 2032. Who will you be banking with? How will you bank and how many Fintechs or big tech firms could you see becoming a top 10 financial services provider?
I think there's a couple different pieces to that. The first one is that there are two regulators. A lot of the pooling equilibria that we've ended up with in terms of market structure is driven by the regulator. So, the regulator wants some competition.
The UK has become quite a leading spot for neo-banks and other licence holders. Ultimately, the PRA wants an oligopoly, so they don't want too many banks. They have teams of people that work exclusively with a bank and monitor it very closely. And that's great, and they do an awesome job of that, but it means that they're not going to want 500 banks longer-term.
What that means is that, outside the banking community, we'll end up with a tiny number of banks in the UK, not like in the US where they have thousands. In Fintech, I think you will find champions in certain areas.
If you were looking at top 10 Financial Services providers, I think you will end up with a significant number of both neo and old banks. I’m guessing probably half of that top 10 will be neo banks because they have that scale of licencing.
What do you think is the right balance for banks and Fintechs to strike between self-service and human service? And how do you see that customer provider relationship changing in the next 10 years?
This is an interesting one, and I have a lot of personal experience from playing with that interface at Tandem. There’s a difference between B2B and B2C, but we can stop talking about that and just talk about the value of customer relationships in both sectors.
Ultimately for digital players, there's almost an obligation on the providers to make the self-service experience so good, that you don't really want to contact the bank. I think that's been a challenge for ourselves, for Monzo, for Starling, and all the guys who were scaling customer numbers in the millions. They were then finding that they had these hundreds of person overheads for customer service, in order to give a marvellous customer experience.
In the next five years, companies will need to automate further down that curve than is currently economically viable. Customers will have an expectation for something that, sure they might only do three times a year, but they want to do online in 10 seconds instead of waiting on the phone to call centres.
Changing the topic slightly to biometrics, Tesco recently launched its first no-checkout store, and we've seen Amazon do this. The Metro in Moscow have rolled the world's first mass scale facial recognition payment system. Where do you see biometrics going in terms of payments? And is it scary in your view?
We’re honestly living in this moment where we're pretending that this isn't already happening. When you go to Kings Cross, although they backed off it a little bit now, you're being surveilled whether you like it or not. They've already identified that that's Frederick Knox, and they've already linked it up with whatever his credit bureau data is available and monthly spend.
It's not being used very widely, but the tech is so available right now that of course, people are going to use it. So, I don't think it's scary. I think some people find it scary, but they’re unfortunately being unrealistic about how the worlds already moved.
Regulation aside, what would you personally like your ideal bank of the future to offer you?
Tax! I’m an American and English citizen, so whether it's business or personal, ideally for me it would be somebody that combined both. I’d love to see a bank sort that out.
It might even be separate companies underlying that, but sorting that admin by the press of a button would be ideal. If you’re a really small business you may do this yourself, and if you pay lawyers and advisors it’s never quite right, so you still end up having to do a lot of work yourself. Then, ultimately, you end up with a lot of leakage that billionaires don't have to worry about because they've got 42-person family offices working through this stuff, but everyone else does and everyone else just generally mucks it up.
I think that's a really interesting space where you can create a lot of value. You’ve already got the data, and it would make my life a little bit easier
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