Fintech Insider Podcast by 11:FS
00:09:55 · Aurélien Bonnel
[00:09:55] S4: A great deal. Firstly, I wanna kind of challenge what Conrad said and that, you know, it might be a slow uptake and it hasn't yet come to fruition, right? We are seeing our clients use MCP all the time, use more context protocol, they use their agents to trigger money movements. It's happening and it's not always the most shiny or flashy companies that do it. The beauty of AI is that anyone that pays for a commercial model with AI has the opportunity to be technically more advanced. And so even companies that you consider older are able to do it and reap the benefits from it. So the deposits are less sticky already, that is the case. It fundamentally changes the way a bank has to think about the deposits. They're no longer free to use for a ten year mortgage across town, right? We basically break the illusion that a deposit is there in your account and also available for lending. So banks have to think very candidly about standing up a model that they can monetize the utility of the bank rather than just making money off the deposits. We think at N3xt, we are a narrow bank, we don't lend. We think there will be two banks in the future. The ones that are full utility play that do not lend and just offer 20 fourseven money movements with deposits that are safe and sound always and available. And there will be specialized institutions that provide specialized credits, specialized lending for the highly complex cases. Both of them need to be monetized independently and no longer as one bundle. And that will change the costs to every customer of the bank.
00:11:47 · Ross Gallagher
[00:11:47] S1: Yeah, I mean, and I think, you know, what you are describing is fundamental redesign of, you know, how we've understood banking to work. Aurelien, if I go back, I suppose to the question that I posed then to Merusha about some of this sort of spotlighting that, uncomfortable truth around the incentives for the banks and the incentives for the customers not necessarily always being aligned in terms of outcomes, do you think that then this fundamental redesign that you're talking about starts to change that? Like is this a better world for customers?
00:12:22 · Aurélien Bonnel, Ross Gallagher
[00:12:22] S4: Yeah, mean, think it depends on who the customer is. Conrad touched on this, Institutional, commercial customers and retail customers have a different appetite for different things. For a retail customer, the speed and the cost are major incentives, for a commercial customer the relationship matters more. You do want a full service offering, sometimes you or you want better guarantees or better rates. So the models are already changing. I think banks are still trying to figure out where they're going to land, you know, which services they're going to offer and which ones they're not. We can already see for example that JPMorgan turned off their agentic workflow and made it in bank, right, rather than just opening up to everyone. I believe the opposite. I think, you know, if you're in a company, you are not just with one bank, you're with five, 10 banks. You don't wanna use five to 10 tools to manage your money, you wanna use one tool. So we are in that space right now where the ecosystem is being figured out, the banks are exploring options, and everyone is trying to see where they can get an edge in the first place, and then how the revenue models need to update to make sense to them in the future. [00:13:40] S1: And Conrad, I guess that's kind of the the fun about speaking about and speculating about where this goes, Because we can sort of place our bets, but actually what we're talking about is such a fundamental change that really we've got no idea, you know, realistically sort of how this plays out in new wins.
00:14:00 · Conrad Ford
[00:14:00] S2: I do think in this topic, we're going to see a classic adoption curve. I think we're going to see the classic crossing the chasm adoption curve. So what that means is it starts slowly and then it suddenly as as as the kind of mass of of consumers take over. I think the the analogy I'd give here, which is a which is a pretty direct analogy actually is the emergence of consumer comparison sites with the Internet. So it was, you know, at the start, they were a pretty niche thing, and then suddenly, just it happened really, really quickly. Suddenly, the majority of consumer financial services were purchased through a comparison site. So this come like slowly then suddenly, which I think is famously a description of how you go bankrupt. But maybe that will be the outcome for some of the banks. So I think that's what we're gonna see. I do I do think we are, you know, I would say we are still in the early adopter phase, but the early adopter are the ones that kind of tell us what what the future is gonna look like. You know, let's put this in context, right? What was The UK savings market alone? It's trillions, right? And there's clearly not trillions at the moment being moved down with agents. So that's how... That's kind of my my my framework of of how we think about this. So it's gonna be an adoption curve and you can guess pretty well where where the initial adopters are gonna be or certainly the the sort of the early bit of a curve is gonna be customers that are taken advantage of and are AI native. And as I said, think I think we can get some pretty good clues there. In my world of SME, for example, I think the kind of modern tech and scale up firms, they're probably already doing this stuff right. You know, we're we're we're the MTPs for our customers and we're not the only ones and that's happening in The US as well. So I I think you will see that classic adoption curve and I think it's gonna be exciting. In the long term, what does this mean for the big incumbents? Because of course, it's still the case that they sit on the vast majority of deposits, certainly in in in most Western markets. And in The UK, that basically means four or five banks are in the deposit market really, and and the rest put the fringes. And that'll be the case in many European markets actually. So what does it mean in practice?
00:16:04 · Conrad Ford
I actually think their biggest challenge is gonna be wide operating costs. So, you know, they have thousands of people sitting in head offices sending PowerPoints to each other, right? This is overhead that's covered by that by that current, you know, lack of or apathy and ignorance. It's covered by that, right? They haven't really attacked that. The other problem they have to deal with, of course, is in in a country like The UK where branch usage has declined massively. They've also got the branches to worry about as well, which is it's not just economically hard to exit, it's also politically hard to exit those branches. So but they are gonna have to face into that cost, operating cost challenge. Because in the end, right, there is always gonna be demand for deposits. It's just you're have to pay more for them because they're gonna be less sticky. So I think it'll actually force the big banks to finally actually confront their own cost basis. Yeah.
00:16:58 · Ross Gallagher
[00:16:58] S1: And and again, I mean, in terms of shining spotlights, I mean, no bad thing. Conrad, I thought you're, you know, the the slowly and then suddenly all at once analogy and then tying that to, you know, going bankrupt. I think that's an interesting analogy because maybe Aurelien, it'd be interesting to get your thoughts on this. You know, as much as it's exciting to see sort of how this plays out and how it transforms the industry. Of course, there's it also there's potential risks associated whether that sort of bank runs and the potential for all of that kind of stuff happening really, really, really quickly. You know, how much should we be worried about the impact that this could have on the stability of the financial system?