Redefining Banking: Innovations shaping tomorrow’s financial landscape

DM: Welcome to Banking Blueprints, a podcast with Zafin, and me, your host, Dharmesh Mistry.Throughout this inaugural season, we’ll delve into the realms of banking innovation, exploring strategies for breaking free from traditional constraints, and innovating beyond the core.

This week, my special guest is author, multiple author John Blicq from NAB in Australia.

So welcome John. Can you give the audience a little bit about your background?

JB: Yeah, absolutely. Thanks for having me, Dharmesh. I’m super excited to be here.

So yeah, I’ve been working in the banking and the world defence of industry for the past for the past decade largely in innovation roles where I’m focusing my time on understanding what are the disruptions that banks and insurance companies are going to to face and what are the capability gaps that needs to be addressed in order to in order to be prepared to respond to disruption.

As you mentioned side projects on mine is authoring books, the two books in domains that I’m absolutely passionate about the space of digital twins.

I know it’s a passion of yours as well, Dharmesh, and how is that going to disrupt the financial services industry. And the latest one was on Metaverse and how do banks operate in the Metaverse whether that things become reality or nonetheless the thought of a Metaverse is really disturbing if you work in a bank.

DM: Fantastic. I mean, I love the first book. I’m still to get through to the second and I’m going to have to play catch up. So now you’ve got a third on the way.

But for anyone that hasn’t read the Digital Twins book, it’s a must read because we’re literally like embarking on that journey right now with banks starting to drive like real digital twins, cities creating, you know, their own digital twins, etcetera.

If you don’t understand it, you need to understand it because it’s going to be pretty transformational going forward. But this is the reason why I’ve got John on the show is when we start to think about kind of new products, it’s good to kind of think, well, OK. What we see at the moment largely like 99% of the time is incremental kind of products that you know, we change the rate, we change the charges, we might bundle something like a bit of insurance, etcetera.

Nothing really too innovative, right. And I think the real innovation comes when we start to think like a 10X approach, you know, which is 10 times thinking what’s the wildest thing that we can think about.

And John is absolutely the man to start thinking wild. So this week’s show, we’re going to focus on like what can banks do to, you know, to think beyond their core banking constraints and what’s the wildest products that they should be thinking about. I mean where would you like to start John?

JB: Yeah. So, so to be I, I reflected quite a lot on your brief Dharmesh, because I was also into think all right, if I had a wild card and carte blanche to do whatever I want to do in that bank, what would that stuff be?

And because we are so constrained by the operative environment of the equities. You know everyone knows hyper-regulated capital constraints and tech constraints.

So you have to think within this box. And my work and the work of my colleague is to try to break down those walls and force the organization to think incredibly long-term and think in a world where the competitive landscape is completely different.

And so there is a space which I would love thanks to start operating or at least start thinking and communicating on. That’s good. That’s very controversial, but it’s spatial finance and fundamentally how do you bank in space?

The, you know is that science fiction is that not science fiction. We have very strong signals that this is going to happen.

Space exploration started in the 60s and we sent people in outer space, we sent people on the moon and then there will be missions to Mars and there’s already tourists going to going to space. So this is probably the next iteration of the next situation of mankind and it’s been in collective psyche for an incredible amount of time.

But one of the questions is to ask yourself if you operate in the banking world is if this is the direction where humanity is going to go, how do you, how are you relevant in that world?

If people go on a very long journey to space or start colonizing other planets or the systems, how do you fulfill your mission as a financial institution and enable them to acquire whatever they need to acquire along that journey and transact whatever they need to transact on that journey?

And you literally need to think about what are those key capabilities that are replicable and the ones which actually aren’t replicable and that you have to build.

How do you send money on incredibly long distance where it’s light year’s distance and real time payment? How do you do that on light year, light year distances?

Like you have to understand physics. You have to, you have to be freaking good at finding the right materials, the right, the right mechanism to do this.

Where is value, Is value in a currency, a digital currency? Is that backed to physical stuff, digital stuff? So how do you do all those things and what will people value in those long extraterritorial terrestrial journeys?

Big question mark, right. But unless you start thinking about this stuff now and that’s probably what, 50 years ahead, 100 years ahead, unless you stop thinking about this now, you cannot literally pave a journey to get there.

DM: So I mean the exact that is amazing. You’re actually thinking for the bank 50 years out. I didn’t think this goes on in bank.

JB: Well, you know 50 years I’d probably be retired. I hope I will. But yes, we have this duty to stop laying the foundation of that intellectual journey to make sure that the bank is resilient.

So day-to-day we’re not working on this kind of projects that it’s like it’s very difficult to, it’s very difficult to justify but like we have the duty to actually bring that sort of thinking and distill that kind of thinking to the organization. But that’s an example of what you could do from a retail perspective.

But depending on the profile of of the bank National Australia Bank is not a big retail bank, it’s a significant business bank.

Another example of that thinking could be businesses will go on those we go, we go to space. How do you accompany them there? Same reflection, what will they need? What are their financial needs?

Think about a scenario where mining company cannot operate on earth anymore and has found that the biggest the biggest deposit of rare earth or whatever is hyper-valuable to mine kind is on the moon and they have to set infrastructure, set operations, send people on the moon to start operating on the moon.

How do you do this? Like it will require tons of funding. Require it will require infrastructure, We require tech. It will require you know how do you price risk for this if you’re about like we have no idea.

We literally have no idea. But you need to start thinking this way.

DM: Amazing. Amazing. I mean what about. I mean, let’s just explore a few other ideas because you had some in your Digital Twins book and you know, for those that are listening in, Digital Twin is really a data replica of something, right.

And that could be, you know, you as an individual, it could be your business, it could be the industry that your business is in or it could be an entire city, it could be anything really that has data behind it.

And the idea very much is that you run simulations. So, you know, I wonder, you know, it does wealth management itself kind of change because there’s a digital twin of Dharmesh Mistry. And with the data it predicts, you know, when I’m going to retire, what kind of income I’d like to have based on my lifestyle choices, blah, blah, blah.

I mean, where does this go, John, with digital twins?

JB: Yeah. So you could literally empower your digital twin to make decision on your behalf. And you could say you could sit with 70-year old Dharmesh and ask 70-year old damage to teach today’s Dharmesh on how to manage money, how to invest, how to adjust income and expenses. What are the good decision that today’s Dharmesh should be making in order to force 70-year old Dharmesh, to have the lifestyle that today’s Dharmesh has already strived for?

So all that can be modelled, all that and that. That’s actually one of the power of digital twins. You can model pretty much anything from it.

DM: But actually you mean like how? How does it account for like societal trend changes? Is that is that a different data set that applies to, to my Oh my gosh.

JB: Absolutely, absolutely. You could literally take a demographic data set, you could run economic models, you can, you can run inflation models, you can run all that sort of stuff.

So that 70-year old Dharmesh can tell that today’s Dharmesh. Hey buddy actually you know what like there is chances that we’re going to be on the high inflation and already environment for the next five years.

So you get a ramp up your saving practices by 5% to offset this or and so all the sort of stuff could be could be done.

DM: And and we’re not talking about like today’s kind of I do a report you know Dharmesh asked the question you know a few hours later a report comes back to me and says you know well this is what you need to do.

We’re we’re talking about real time, aren’t we?

JB: We’re talking about real time. We’re talking about real time. And I think the other beauty is that you don’t know what you don’t know. And how do you ask the relevant question if you don’t know the answer, like, and that’s where your digital twin can actually start informing you around.

11:54 Actually you know what, Dharmesh. I’ve downloaded a wealth management module and your digital twin becomes a wealth management expert and start prompting you the way you should be thinking about money management in real time and that’s incredibly powerful and that’s pretty key differentiator with the system we do operate within at the moment which are not real-time. It’s not real time.

Credit decisioning is barely really real time. So yeah, so fascinating. Yeah.

DM: Yeah. I mean, I I like this idea that I can speak to myself in the future and it’s almost like this kind of like hindsight, but it’s here and now. So it’s a kind of foresight, right?

And I get to ask it anything I like, but I mean, I think the whole idea or the concept of other data sources to feed into the picture of your own digital twins.

So today, you know, banks are only dealing with the data, the financial data of Dharmesh Mistry, right?

But when I start to apply, you know what’s happening in the medical field, what’s happening with my diet, my exercise, etcetera, it can then start to predict like, well, OK, based on your diet and your lifestyle, you’re going to live not till the average age of 82, you’re going to live till 97.

Now you’ve got 15 years more pension to cover, right? Today you’ve taken a fairly risk averse approach thinking you’re going to be retiring soon and you’ll only need the money for X years, but you need to cover an extra 15. So you still have the capacity to do that by taking a higher risk portfolio or sourcing more income to go in etcetera, you know what I mean?

So I think I like this conversation I could be having as long as it’s getting other data, right. I mean that’s fascinating in its own right.

What about, let’s take the Metaverse, I mean I’ll be, I’ll put my hand up right. I haven’t quite seen, you know what the Metaverse brings to kind of banking as such.

I get the digital twin aspect of it, like you know, I could be my twin could be in the virtual world simulating you know, stuff that you know is going to happen to me in the future etcetera.

So it kind of visualises stuff. But beyond that what else is there in terms of product innovation for banking in in the Metaverse.

JB: So the cruel reality is that at the moment not much like or barely anything and you know you could base this on experiments which are being run that can be mocked to a degree.

The most famous one is the JP Morgan virtual branch on the metaverse where you get tigers and flying tigers and all that kind of stuff. This you can’t blame them. You can blame the delivery of it, but you can’t blame them for actually trying and exploring and see what works and see what sticks to try to understand what type of people go there and what would they want to experience.

There’s another use case from AXA which I found quite interesting where they used the virtual branch to showcase who they are as a brand, what they do for society and what kind of talent is actually needed to enable them to fulfill their purpose. Which I find actually quite smart because they what you read between the line. The key assumption is that tech savvy people would spend some time on the Metaverse and that’s a way to connect those skills which are in shortage with a big old brand like AXA who’s desperately in need of tech resources.

So I think that’s kind of an interesting, that’s an interesting approach to it. But apart from that in terms of financial products available on the Metaverse at the moment, I’m not sure there are any.

But what I think is actually really interesting and and that’s what banks and insurance companies to another degree needd to start thinking about is business will happen on the Metaverse.

Like it’s just a question of time and if you are a bank, you a business bank, you have to support businesses and you have to go where your customers are going.

So the key question again becomes how do you apply traditional banking and insurance mechanism from the physical world to the digital world. What how do you connect this how do you transfer value? How do you allocate capital, how do you allocate protection mechanism which can go back and forth from digital world to physical world?

And again, like you need to where your customers are. You need to be. So you need to deeply start in understanding what drives people to the metaverse. And if the answer is at the moment, well not much outside of a gaming use case or an education use case, then you need to start thinking about what will drive people onto the Metaverse or the Metaverse is that’s another rabbit hole.

DM: Yeah, yeah. I mean I get the gaming aspect of it and I can also see that social media moves from 2D to kind of 3D environments. And you know you have a much more dynamic social experience there. And therefore, you know once you’re in that social environment, then in comes the retail piece where now suddenly, you know I’m not only chatting to join in my virtual world but I also find some shopping that I want to do etcetera.

We had Kam Chana on the show and she talked about, you know, being able to instead of like actually going out and spending real money on stuff that you didn’t really need the bank encouraging you to spend in the virtual world. Right. And virtual dollars.

So you scratch the itch of buying this designer handbag or whatever it was that you wanted, but you didn’t spend your actual money doing it. And that, I thought, was an interesting idea as well.

You know that that we can push some of the responsibility of the things that you we can behave responsibly in the real world, but in the virtual world we can be a bit more flamboyant and, you know, take a few gambles with our digital cash because it’s not the real money as such.

JB: That’s a really good idea.

DM: Like with all things, John. Yeah. I mean like with all things, John, do you think a lot of these, you know, we’ll take the individual things like let’s say crypto, let’s say Metaverse, let’s say data science and generative AI, all these as individual technologies.

But then when you start to combine them, you get some new possibilities. I mean is that something that you also look at?

It’s I guess, you know, I always talk about the smartphone effect. It wasn’t one thing that led to the smartphone. It was a better screen, cheaper memory, faster processing power, you know, and the Internet enabling apps to be, you know, downloaded, right. So lots of things came together to make the smartphone a reality.

And do you think the same thing will happen with some of these other things they’ll combine to give us a better proxy and service?

JB: 100 percent, 100% I think there is. I’ll go on to a slight different territory than Metaverse, Digital Twins, and Spatial Finance.

But let’s go on to something that is close to all of us and that’s climate change. The question is, if you’re a bank, the question is how do you operate in a climate out of the world and how do you enable your customers to operate and be originate in a climate out of the world.

So you have this traditional 3C’s of banking being credit collateral character and there will be a fourth C being climate. The reason why I go into that territory is because we will soon be in a position to do incredible stuff in the space of business resilience. Personal resilience with the climate lands on.

If you start thinking about science, technology, generative AI and banking and you throw all this into a big pot, all of the sudden you can have banks and insurance company playing a major role in informing their customers on what is their own exposure to climate risk?

What are the unique and bespoke transition options and how do you start embedding finance into those transition options so that their customers are more resilient than the rest and resilient customers are resilient businesses are the one which are going to attract talent, attract capital and attract and attract clients.

So there is a massive vested interest for banks and insurance companies to heavily invest in that space and leverage new technologies to augment science and bring those insights to their customers. Because fundamentally at a customer level you don’t have the ability to get access to the insights.

But banks and insurance companies have such scales and are so predominant in developed economies that they can actually serve those insights to their customers.

So the answer is yes, there is new forms of products, whether it’s banking, whether it’s insurance or experiences which are going to be brought by the connection of those different trends.

DM: Yeah, I mean I love this whole aspect of the climate thing because I’m always going to start calling it embedded climate because in the finance world you can absolutely see some companies starting to use climate data to look at customer behaviour and start to price products based on you know how net neutral they are or how net neutral their business is or how net neutral the businesses they buy from are etcetera.

You know, so we’ve seen some early carbon calculators based off banking data, but I think that’s the very, very early days of this and fundamentally they’ll be products priced around your behaviour towards the planet, right. So I think that’s coming.

JB: It’s, it’s coming in that’s no doubt.

DM: Any other areas John that you know we haven’t, I mean like literally we started off going out to space and into virtual worlds. So what other areas do you think you know would be interesting to cover?

JB: Yeah. Look, I think probably that if you zoom down that notion of spatial finance and you take it from space and you bring it down to earth, one of the possibility and again, if like you are unconstrained by your core banking and all the let’s assume you are unconstrained at all spatial finance for people like you and I, how do you start understanding customers, movement, customer behaviours, customers, physical world? Because banks understand customers from a data perspective or a credit perspective but don’t necessarily understand the physical world they operate within.

So now you can access geospatial, geospatial data, hefs of observation data, meta data, meta location data, movement data, and you can start forming a picture of what is. How is Dharmesh uniquely connecting with his environment?

How is John uniquely connecting and operating within his environment? What patterns do we see? Can some of those patterns be augmented by banking products?

I’ll give you an example. I’m on my way back to work and I stopped by this. There’s a real estate agency just downstairs from where I live.

Imagine that I just stopped by and I have connected lens or whatever or an AR experience where I’m looking at a place and all of the sudden the characteristic of that place, the location of the place, the risk profile of this place is known in real-time by my bank and I received a message hedge on you pre-approved for this property you could go and bet for it.

That’s the sort of possibilities that you can start playing with when you connect geospatial data, asset movement data, earth observation and banking data. But again this is so technically it’s actually not science fiction but at least science fiction for a bank because you are not allowed to operate within those sort of those sort of the sort of environment.

DM: I mean I think there’s two constraints that we see clearly from the banks. One is that they don’t necessarily source non-financial data externally and they source very little external data as such anyway. And 2nd is much more about you know their core banking systems, you know tied to kind of you know basic capabilities around finance, right.

So doing things like dynamic or real-time pricing is not possible because like I think over 50% of core banking systems are not real time today, right.

We think they are because you know sometimes we can get a balance etcetera or transact overnight but that that doesn’t make them real-time, it just means that they’re doing something while the batch job is still running, right.

JB: Exactly, exactly.

DM: But I I like the idea, I mean you know so a couple of themes I think are coming through. One is that you know more of the banking products or services coming in the future will start to rely on external data, different data sets. Secondly, you know things are becoming much more real time and dynamic.

Things that we thought we could only do offline are now becoming real time actions. You know like you say you know you’re walking past an estate agent, you immediately have been pre-approved for an offer. I mean both of those things the, the credit analysis and the real time offer weren’t possible before but they’re absolutely possible right now.

JB: I think it’s just going to accelerate and that’s probably going to sound a bit naive, but one of the biggest threats that the banking industry is actually facing is not coming from other banks. It’s coming from tech companies who actually already have those capabilities.

They know how to deal with orchestration of various sorts of data analysing and bringing intelligence real time. So the competitive landscape is going to change dramatically and we force them to stop thinking like tech companies who happen to be in the business of allocating funding.

DM: That’s a brilliant point. And you know maybe not the topic of this conversation, but it’s worth bringing up because you know when we come to kind of product innovation we typically look at what’s going around right, oh somebody wants to buy now, pay later and how few banks have actually been able to launch the same because actually the business model is totally different to their loans, right.

And their core banking system can’t handle them, right. So innovation beyond the core is absolutely key for things like that, right. But I think you know looking at a broader data sets and kind of real time

processing is a fundamental kind of aspect of big these big tech companies that they’ve got the broadest data sets, they’ve got the biggest computers, they’ve got the best technologies.

Now I guess you know in that question is, do we, do we actually think that they’ll get into banking actually own the licences or will they just capitalize on distribution?

You know, so fundamentally the plus being underwritten by a bank and all the rates are being handled by a bank, whereas they’re just owning the customer relationship.

JB: Yeah, yeah, look that’s my assumption, that’s my assumption. If I were a tech company wanting to play in that space, I would not want to have to deal with The Reg. I would just want to own the customer relationship layer where the value is.

It’s not about manufacturing products, it’s about understanding the customer. So yet you create an ecosystem of relevant offering to that customer and you orchestrate this. So that’s where the value is.

So my bets, my money would be on partnering with an underwriter but being becoming the orchestrator and distributor and this interesting signals coming from the UK you probably heard that Alphabet has taken a serious investment in Monzo last week. So maybe this is the plan and I’ve been looking at Monzo, I’ve been monitoring Monzo with great interest since 2017.

So I’m very, very pleased to see how they’re progressing and the fact that Alphabet is betting on them is probably a testament to their success. But that might be the scenario that you and I just described.

DM: Yeah, I mean I think both, I think a few interesting players in the market right now. One is Monzo where you know they they’ve actually turned the ship around in a spectacular way, right.

Not only are they, you know, in profitability, but their growth rate is phenomenal, right. So it seems like there’s a broader strategy at play obviously to hit some different countries, but you can’t ignore Revolut in that aspect either. You know already, you know, 40 million customers in 35 countries, you know, and still growing. Literally. I interviewed them a couple of weeks ago and in two weeks they had grown their client base by globally by two million.

I mean that’s crazy.

JB: It’s insane, it’s insane. And they just arrived in Australia, by the way.

DM: So and do you know what’s similar between Monzo and Revolut? A brand new core that is not tied to 1 jurisdiction and can handle any product. Right.

JB: Interesting. I didn’t know that.

DM: And it’s project in one country. Yeah. Yeah.

JB: I didn’t know that. That’s really, really interesting.

DM: Yeah. And This is why, you know, like product definition outside of the core is going to be quite important because you can’t be held back by a core that is limiting what you do versus your competitors. Forget about big tech, even if we just take, you know, styling Monzo, those challenges that have managed to scale. Yeah, that sort of thing.

Fascinating. Any last thoughts, John? I mean, we have literally gone out of this world into virtual worlds as well. But any last thoughts on product innovation?

JB: A comment more than a thought, like just never stop exploring, because when you think you understand that space, you probably just don’t. So yeah, never stop exploring. That’s it.

DM: That’s good advice from probably one of the first digital explorers in financial services that I’ve ever found. But thank you so much for your time, John. It’s been really interesting conversation and I hope a lot of people take heed of your visions and future understanding.

JB: Likewise. And thanks again for having me, Dharmesh.