Last Tuesday Anthony Jenkins, former group chief executive of Barclays, delivered a landmark speech – Approaching the “Uber Moment” in Financial Services – offering his opinion into the future of the industry. The Uber Moment speech is an incredibly powerful wake up call for incumbents, particularly banks, because here we have a former chief banker telling the industry that it will be significantly disrupted by the fintech sector. The Chatham House talk by Anthony Jenkins has been heavily covered in the press and social media and so i thought i ought to take a look and see what the guy was saying.
It is worth starting up by saying that Anthony Jenkins is a firm believer in the transformative power of technology, describing it as a “unstoppable force which often has a hugely positive impact on the way we live…work, consume and…learn”. Following are my notes from Anthony Jenkins’ Uber Moment talk…
1. The Next 10 Years
Ok, this is the bit that is making the headlines. Anthony explains…:
“I’m predicting that over next 10 years we will see a number of very significant disruptions in financial services, lets call them “Uber moments” driven by companies in the so-called fintech sector. The world where financial services and new technologies link together.”
And this is specifically what he outlines for incumbent banks over the next 10 years:
- Huge pressure from the fintech sector – i suppose this is what CB Insights refers to as “death by 1000 cuts”
- Inability to implement new technology at the same pace as its fintech competitors
- The above will put pressure on returns and profits…
- This will force the banks to try and cut costs by automating more of their business…
- Which will result in the reduction in the number of bank branches and people employed in the financial sector — interestingly Anthony distinguishes the financial sector, “as we know it today” — by 50%
- Even a more conservative outlook Anthony predicts, will result in at least a 20% reduction
2. What Does a Disruptive Company Look Like?
Anthony Jenkins outlines the recurring disruptive themes across industries:
- A group of founders create a company that uses new technologies to dramatically improve or disrupt a “vertical” – a market focused on a single niche
- The company eventually starts to dominate the vertical
- The service or product starts to grow globally
- The technology, entrepreneurial mindset and fast growth has the ability to significantly weaken some powerful companies – as has been the case for Nokia and Kodak
All of the above according to Anthony is enabled through the digital revolution which is making our lives easier (..hmmm!) and making available these services and products to people globally. In many cases it was inconceivable that such products and services would be available to certain segments of the population – again the digital revolution is changing this!
3. What does an Uber Moment in Financial Services look like?
- Disruptive – It must be disruptive and dramatically improve the customer experience (by at least 10 times!) , or create a new customer experience
- Technology – The service must be driven by Technology, and technology must be at its core
- Ubiquity – Giving the Uber example, Anthony explains how Uber is in 300 cities in 58 countries
- Dominance – Of the market
4. The Silicon Valley Start Up Model
- Pick a niche
- Understand how to transform it using new technology
- Prototype it
- Scale it
- Make it profitable
- IPO it!
The next wave of transformation according to Anthony Jenkins will hone in on more complex markets such as financial services, health and education…
5. Fintech 1.0, Fintech 2.0… Fintech 3.0
Anthony explains how some would argue that right now there isn’t that much technology in many fintech companies, sharing how a lot of payment processing rides on top of the existing banking system. And how despite heavy investment we still haven’t seen “really transformative projects, the ideas that will revolutionise financial services”. The developments to date, Anthony suggests can be referred to as fintech 1.0
That said, with the amount of activity and investment “we surely cannot be too far away from truly disruptive breakthroughs, from version 2.0 or 3.0 of the fintech revolution”.
6. How will the new Fintech Companies Differ from Incumbents?
Fintech companies are, generally speaking:
- Cost effective
- Digital banks for example will focus on development and deployment of technologies, removing the need for a physical branch network
- Data focused
- Offering customers personalised financial products, delivered to us through online and mobile apps
- Utilise technology to offer services to previously under-served groups, such as the unbanked population
- Check out my post on m-Pesa…
- Need to work with Regulatory authorities to ensure that customer data for example is used with permission
- Have to gain customer trust by tackling cyber-security threats in a appropriate manner
Again Anthony Jenkins highlights how Fintech companies cannot simply be incrementally better, they must be at least 10 times better
7. Incumbents are feeling the force of Fintech…
Anthony Jenkins described how appearing to change is simply not enough for incumbents, they need to undergo a transformation. Anthony describes why banks and incumbents need to change:
- Digital is a game changer – citing McKinsey analysis which reveals how the digital revolution could potentially eliminate almost two-thirds of earnings on some financial products
- Online and mobile banking is forcing changes – last year US banks closed a record number of branches, and in the UK branch usage fell by 6%
- Tight capital rules are reducing profits leading to job cuts – Major European banks (Standard Chartered, Deutsche Bank, Credit Suisse) have recently announced plans to cut more than 30,000 jobs
- Digital revolution will put further pressure on banks to cut costs
8. The right kind of technology
This was interesting, Anthony Jenkins talks about how banks have a lot of good technology but it is not truly transformative. For example ATMs/cash machines, call centres and internet banking applications are all great but they are not revolutionary, they haven’t transformed the existing system. These technologies have essentially made the existing banking system easier to use.
9. Its not all bad news for Incumbents
Anthony spent some time during the Uber Moment speech talking about the good things incumbents offer…:
- Well established brands which customers trust
- A large customer base
- Huge marketing experience
- Regulatory knowledge
- Enormous financial resources
10. Challenges Faced by Incumbents
Anthony Jenkins suggests 3 areas that incumbents need to address:
- Everything is muddled:
- At a board level, financial institutions need to recognise that we live in a discontinuous world, where calculated risks must be taken
- Technology and strategy:
- There shouldn’t be a technology strategy, there should only be a strategy with technology at its core
- Leadership needs to change – according to Anthony, as leaders become more senior they take less risks and suggests that in todays climate “..doing the same old a bit better is infinitely more risky, than being bold and seeking true transformation”
11. Why will Financial Services face Uber Moments?
- The financial services industry is huge and profitable, will attract bright people, further investment and as a result ideas that will transform it
- Interestingly Anthony predicts that the first Uber Moments will be in payments and lending
- The cost of technology will continue to decline
- Growth of artificial intelligence will lead to better analysis and forecasting
- Incumbents are already feeling the strain of a weak macro-economic environment and regulation
- Customer expectations are changing and evolving, there is an increasing demand for cheaper products and services available through multiple channels in real time
So, we all know about the nimbleness and innovative nature of start ups and fintech companies, and how they leverage new technologies to dominate a niche. But what i find really interesting is the heart and soul of these start up companies that Anthony refers to during his speech. The values that the founders have and share with others within the company, combined with an unwavering desire to better serve the customer and change the world – as i see it, that is something that you either have or you don’t. Middle management, consultants, an innovation day won’t give you that appetite, desire and belief – and in my opinion therein lies the biggest challenge for incumbents.