LAUREN FOSTER: Hello, and welcome to this episode of Take 15. I'm Lauren Foster, a content director with CFA Institute. And joining me today, to talk all things digital banking and fintech, is David Brear.

David is cofounder and CEO of 11:FS, a fintech consultancy. He's been immersed in the technology of financial services for his entire working career and is considered one of the most influential people in the world of banking, insurance, and technology.

Welcome, David. Thanks so much for joining us today.

DAVID BREAR: No problem.

LAUREN FOSTER: Most people would agree that digital banking is the wave of the future. But not everyone agrees on what "digital banking" actually means. So, help set the stage for us. When we talk about digital banking, what are we actually talking about?

DAVID BREAR: I think it's very difficult to define, because I don't think we've seen it yet. Arguably, what we've seen is digitized banking. And actually I think what we've seen is almost the analog products, the analog mentalities of the physical world be digitized to actually represent what is arguably the digital world. And we really haven't seen anybody really move beyond that.

So, what we've seen is analog products delivered through digital channels. We're seeing 300-year-old products be sort of manifested and distributed via websites. And so, for me, digital banking hasn't actually arrived yet.

LAUREN FOSTER: So what's the biggest driver behind digital banking and the need for innovation?

DAVID BREAR: I think customer desire. I think there's a wholesale sort of change coming with the level of trust that customers actually have with traditional banking systems. We're seeing sort of a swathe of entrants doing incredibly interesting things with very low levels of investment, very low levels of people.

But arguably the tone's been set in other industries. You know, people's level of expectations of what you can do with your mobile phone, for music or travel or shopping, is kind of setting where the tone is for banking. And, for me, nobody's really delivering upon that promise yet.

LAUREN FOSTER: OK. One of the speakers yesterday sort of joked that banks regard technology as a necessary evil. And I've seen you previously talk about banks as being not so much too big to fail but too big to succeed. So, expand on that a little bit. I mean, are banks really capable of making the significant change? They're not seen as very innovative or nimble.

DAVID BREAR: Yeah, I think the arguments around technology being kind of a necessity are definitely there. For me, I think the technology is actually pretty straightforward. If you get the right architecture, you can spend 25 minutes with a whiteboard and actually define what your technological road map should be.

The trick is actually making it happen. You know, the change in terms of moving people forward to understand that there are new opportunities or new ways of doing things or really embracing what it is that those technologies can actually do. That is the inhibitor, within most of the banks.

LAUREN FOSTER: OK. You've spoken about the fact that you believe that banking is only 1% finished. So, what's the coming 99%?

DAVID BREAR: Well, I think at the point where you start seeing properly digital products, I think we actually start to see a very different banking. If you look at the services that are actually being delivered by a lot of the challenger banks coming through, the way in which you interact with them, the way in which the data is being used to actually give you real-time insights in terms of your spending, your tracking, how you compare with other people in terms of what you're doing, you know, it's very simple things like having the security to turn on and off your debit card. You know, this is something that takes probably a couple of million pounds to actually implement in a large bank. And actually this is just something that is a standard within a lot of the challenger banks coming through.

So, for me, I think there's 99% worth of opportunity. So I expect a lot.

LAUREN FOSTER: So, switching gears a little bit, some believe that Western Europe is actually overbanked. Consumers have access to cheap or free bank accounts and transactions. So how would blockchain offer anything to the consumer?

DAVID BREAR: I think there's probably cause and effect there. I'd say we do have free banking in Europe, by name. Actually, if you look at what banking actually does, there are sort of punitive charges around actually how they monetize those products. It means that banking isn't free. You know, arguably, the sort of bottom 5% pay for everybody else to use it by straying into their overdraft or doing payments in the way that they shouldn't be doing payments.

So, for me, banking isn't really free yet. But actually the democratization through where fintech's going actually could start making it do it. I think, from a blockchain perspective, blockchain has the potential to change many different things in that sphere. I think many people sort of talk about blockchain as a kind of a collective of, like, 100 different disciplines. And, for me, I think actually unpicking some of those things and looking at specific use cases where it could happen.

You know, the trust within international payments, the reduction of operating cost in terms of international payments. These are places where actually it can start making proper banking accessible to everybody, because actually it doesn't cost 40 pounds to send some money to South Africa, for example.

LAUREN FOSTER: So, sticking with blockchain, where do you think we're likely to see the biggest breakthroughs, and why?

DAVID BREAR: I think a lot of emphasis has been placed in payments. We've seen the Ripples of the world do really interesting things, in terms of either international payments or local payment systems. And arguably, you know, they're being set up as a SWIFT alternative, in the coming years.

But, for me, similar to the areas of banking that are going to be most disrupted is the places where you've got the largest amount of inertia, you've got the biggest companies playing with one another, and you've got the largest amount of paper being pushed around. So, places like Asset Management, for me, are where very, very significant changes could happen, both in terms of the trust around the actual interactions and the value exchange that's taking place. Things like what Barclays have done with the ISDA digitization into a blockchain. You know, that, for me, is an implementation that has the potential to take billions of pounds out of that industry.

LAUREN FOSTER: The term "fintech." You've said before that fintech is not "a" thing. It's an approach, an ethos to using technology to improve services and efficiencies while reducing cost. And you often see "fintech" and "revolution" in the same sentence. So, do you think it's a revolution, an evolution, neither, both? Where do you sort of go along with that scale?

DAVID BREAR: I think this is sort of similar to the argument around sort of musical genres type thing. I think we get into, what is rock and roll? What is pop? Right? For me, fintech is a way of going about doing things. You know, banks can get into fintech as much as small startups can do, in terms of what they're doing.

Mostly, I feel it's a mentality. And I think the mentality of aligning small teams who are highly skilled to achieve difficult things.

LAUREN FOSTER: Earlier, we did a poll at the European Investment Conference. And we asked, what's the most exciting trend in fintech? And one of the two choices as AI and blockchain adoption. And you said you would have voted Other. So, what would your Other have been?

DAVID BREAR: The other-- I always sort of find the most exciting thing about fintech is, while banks were all competing with one another, there was no real impetus to change. So, while your most immediate competitors weren't innovating, they weren't changing the dynamic, they weren't really sort of reinventing how their business models worked, then nobody did anything.

And arguably, now that you can get 25 people with small amounts of investment really disrupting very, very large parts of the industry, then banks' ability to do nothing anymore has kind of gone away. So, for me, the Other is always-- it's about immediacy. You know, I kind of feel like the impetus now that is put into financial services to make real significant change, both by fintech, by regulation, by technology is just amazing. And, you know, it's the best time to be working in this industry, for sure.

LAUREN FOSTER: Here's a final, futuristic question. If we were sitting here, and this was 10 years in the future, what do you think we'd be talking about?

DAVID BREAR: I think 10 years into the future, you know, the advancements that we're seeing around artificial intelligence and robotics are definitely sort of staggering. The amount of industries that are likely to see wholesale decimation, in terms of what humans do within them, is quite scary and quite significant. So I think at some point we're going to be in a situation where the bank of the future is actually completely automated for us, in terms of actually what we're doing.

So the arguments around customer choice or capability are going to be very, very different. Like I said, the advancements that we're seeing in things like automated vehicles and the disruption that that could bring about with regard to insurance are significant. But equally machine learning, artificial intelligence can have so much of an impact, really, just in regular, everyday banking.

LAUREN FOSTER: This has been a fascinating conversation, David. Thank you so much for joining us today. And thank you for watching.

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