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Fintechs are here, and here to stay. Will banks and these agile new tech companies join forces or dig in and compete directly?
Mobile bank start-up Moven does both. Founded by author and entrepreneur Brett King, Moven operates as a challenger bank in the US in partnership with CBW Bank in Kansas but also licenses its money-management app to overseas lenders such as Canada's TD Bank which have integrated it into their ecosystems. In Canada, there are more than 1mn users on the app.
During a recent conference in Chile on digital transformation in the financial services sector, BNamericas sat down with King to talk about this.
King, whose new book Bank 4.0: Banking Everywhere but Never at a Bank is due out at Christmas, also told BNamericas what traditional lenders in Chile must do within five years to maintain market share.
BNamericas: Can you tell us a little about Moven?
We sit on top of a US bank called CBW Bank in Kansas. They hold the deposits for us. But as far as our customers are concerned, we're the bank. In the US we are direct to consumer, so we act like a bank. In the US we are essentially a neo-bank. It was more effective for us to launch on top of a bank-as-a-service platform rather than get our own charter. In the US the charter process is extremely long-winded and very expensive: you are talking about US$2.5-5mn just to get through the charter process and then that doesn't include capital adequacy, and so forth. But the biggest reason we didn't get our own charter in the US is the US regulations still require every bank in the US to have bank branches, and we were ideologically opposed to that. It was cheaper and faster [the approach we took.]
But we now license our technology to other banks around the world such as TD Bank in Canada, Westpac in New Zealand, BCA in Indonesia, and others. In TD it is called MySpend; in Westpac it is Westpac CashNav, so they tend to brand it themselves.
BNamericas: Fintechs and banks. In the future do you think we'll tend to see collaboration between the two or do you think each party will entrench and compete?
King: I think both. Obviously for us we're competing with banks in the US but we're partnering with banks outside the US. We could be accused of doing both. I think the benefits for a fintech in partnering with a bank are that they get scale and they get revenue, and that's something fintechs are challenged with. For banks, what a fintech can do is it can deliver a technology innovation at a fraction of the cost far faster than a bank can do it internally. It does surprise me many banks we've talked to do insist that they're going to build it themselves. There are banks that we met two years ago talking about Moven that said "no, no, no, we're going to build this ourselves" and still haven't launched anything, based around the technology that we could have deployed in literally six weeks. I do think that if banks are smart, what they will realize is that the best ideas now are coming from these new thinkers, the fintechs.
There's no way a traditional bank could complete with a fintech in terms of rate of innovation, so if you want to be an innovative bank the end result is that you really must partner with fintechs.
BNamericas: From what you've seen, can you give us a rough idea of what stage Chilean financial services firms are at in the digital transformation process?
In terms of Latin American progress they're fairly well along, but if you look at other developing economies like China, or even some of the economies in Africa, like Kenya or Nigeria, or India, they are probably behind. The use of mobile-as-a-platform right now in Chile is sort of considered a channel for banking whereas in these other countries I've just talked about mobile is becoming the dominant form of banking, and so that mental switch hasn't yet occurred fully in Chile.
Also the regulation needs to make some progress here. Regulation still requires physicality, physical face to face, physical signature requirements. And then you have restrictions on the use of cloud, for example, in terms of deploying solutions. Both of those problems would need to be solved to see real progress made.
BNamericas: Brett, if you were in the room with the CEO of a small Chilean bank that perhaps is still adopting the traditional model, and the topic of discussion is digital transformation, what would you tell him or her?
King: I would point to experiences like in China where you have Alipay and [internet giant] Tencent WeChat. They are now catering for 90% of mobile payments in the Chinese economy, beating out the banks. I would say this is a model for the future in terms of where we're going. If you want to compete there is one simple thing you need to do, which is make sure every product you have can be delivered in real time on a mobile phone within the next five years. If you can't do that, it's likely you're going to lose market share, you're going to lose business.
About Brett King
Brett King is an author and CEO of challenger bank and money-management app Moven.
About the company
Moven is a financial services provider which partners with CBW Bank in Kansas, along with other vendors, to provide digital banking services.