In our third article in series on how the fintech industry is being covered at Davos 2017, Henry Blodget, CEO and Editor-in-Chief of Business Insider, opens up the discussion to the panel to discuss the digitalisation of payments, and generational divides within consumers.
There’s a new generation of consumers who don’t have the habits that we grew up with. In financial services, there is such trust built up in banking and brands over time that it feels very risky, especially with your money, to trust a new start up or a new brand that you haven’t heard about. Younger people who start their financial lives don’t have that, they’re much more open to it. How much of what’s driving your growth is skewing younger or are you reaching everybody?
David Craig (Prseident, Financial & Risk, Thomson Reuters): Yes, the user base is skewing younger, and they expect different things. They expect a far more digital experience. They also expect you not only to be one source of news, but also to bring all of the environment to them. A lot of it is noise, and they want a filter: They want to understand what’s really going on.
We’ve seen many examples on social media where things are reporteded that aren’t necessarily true. That might be fine in a consumer environment, but if you’re making big split-second trading or investing decisions, that could be a real problem. You can’t ignore it, because it's out there. We’ve actually built tools that analyse social media and try and distinguish between fact and fiction: It’s a very powerful way of extracting news from all that noise. People want the trusted wire and the people behind it, but they also want to know what’s going on and what to act on.
Eric Jing (CEO Ant Financial Services Group): No matter what kind of technology you're using, trust is the most fundamental thing when it comes to financial services. Yes, you can use different ways of consumer marketing to get many users in a short period of time, but if you want to sustain a business, it has to be based upon trust. You have to protect the interest of the consumer, give them better security, create value to them, that’s the only thing you’d want to add to a sustainable business.
Alipay has been in this sector for 12 years. From day one, Alipay was not created to provide a payment solution, it was created to solve the issue of the trust barrier. We created escrow payment, where we send the money in escrow, the escrow account then notifies us, our buyer receives the money and confirms, and then the escrow can then release the money. It’s all about trust.
From day one our focus was on whether we create revenue for the consumers. We’ve kept innovating for the past 12 years. We did not innovate for innovation's sake, we innovated for revenue creation, where we can really create revenue for our consumers. If you can create revenue, you will definitely have profit and consumers. You’re providing a trust for them.
Dan Schulman (CEO, PayPal): I think that foundation is based on security, privacy and service. Those are the things that form the foundation of trust. But if you look at surveys across the world, in many ways tech companies are now some of the most trusted companies in the world. Whether it’s Google, Alipay, Paypal – these are very strong brands, [with] very strong trust. And then if you look generationally, it’s very interesting to see the differences in generations as well. The gen-tech, those that were born with screens in their hands, their public/private boundaries are very different to the older generations.
The thing that makes Venmo so popular is that it took a transaction and it turned it into an experience. 95% of all Venmo transactions are shared with friends. It’s the leading app in the US for the Millennial generation on how they manage and move money. For every one of those transactions, they can opt to share with their friends, and they can comment on it, and 90% plus comment on their transactions, and then share it. There’s a very big difference between generations. If we think about where the system is going, ten years from now, who is the next generation? What are their needs going to be?
We’ve got two billion people in the world right now that are underserved: They need a basic system and platform for financial transactions. I don’t think we should extrapolate what was, but we ought to re-imagine. In a world of mobile, software and connectivity, how would you build a financial service platform to serve the majority of citizens, so that managing and moving money is a right for all citizens and not really a privilege to the affluent.
Francisco Gonzalez (Group EC, Banco Bilbao Vizcaya Argentaria SA): Now we’re seeing an explosion of companies who are creating specific products for the value chain. For the time being, there is no one player who is able to supply the entire value chain. If you want to be a real and successful player in the future, you have to understand how the details work.
First: Keep margins very low, have extreme transparency, and lack of conflict of interest. As a bank we have to become the trusted advisor for our customers. Over the next few years, we will have a platform where we won't produce our products anymore, because we don’t want to have a conflict of interest with our consumers, but we will pick up the best products and experiences in the world, package those products, and produce a specific experience for our own customers.
The question is: What will the competition league look like? We will work not only with financial products but other products too. What is going to happen over the next five or ten years is really incredible, in terms of change. Nothing is decided yet. You have the Facebooks, the Google’s, Paypal’s, Ant Financial Services, probably a couple of old banks, nothing else.
Cecilia Skingsley (Deputy Governor, Swedish Central Bank): I’d like to challenge your concept of trust. Trust can easily disappear. At the end of the day, people want to know: “Is my money safe, and is it accessible to me?” I appreciate there are surveys showing technological firms rank high in values and trust, but that was also the situation with the big banks. And then 2008 came and people across the world really started to ask “is my money safe and accessible?”. And it turned out that a lot of it wasn’t.
Even if you had your money included in a deposit insurance scheme, a lot of people started to move their money around because they wanted to have it accessible. So a word of caution here is that yes, trust with this generation is happy to adopt a new technology, but we still haven’t figured out the voidance of financial instability and various kinds of backgrounds, and there will be times again where people don’t trust the place where they put their money.
Then the crucial questions is: Are they certain, are they protected by the deposit insurance scheme, and if they’re not we’re going to see a lot of flow back and forth and a lot of instability, the same way as saw in 2008. We have to look into the fact that this could happen again.
Francisco Gonzalez: Regulation is so important. It will either accelerate or hold back the process, but regulators will in some way shape the future of financial systems, so it’s very important for them to balance innovation, customers, customers rights and of course financial stability. Regulators are not prepared today to understand what’s going to happen. We have to pay attention to events because the role of regulators will change and shape the new financial system.
Henry Blodget, David Craig, Francisco Gonzalez, Dan Schulman, Eric Jing and Cecilia Skingsley were all speaking at The Global Fintech Revolution conference at Davos 2017.