Episode 2: The future of banking is rapidly approaching


All The Rod & Gary show episodes

Hosted by Rod Drury and Gary Turner

This month Rod and Gary discuss the rapidly approaching future of mobile banking. The UK and Europe have seen an explosion of new banks targeting consumer retail banking with a completely digital online banking experience.

The guys also discuss Elon Musk’s announcement about building a truck network, and how at every step he’s been implementing big strategy in plain sight. How does this tie in with artificial intelligence and virtual reality? You’ll have to listen to find out.

Episode transcript

Gary Turner: Hey, Rod. How you doing?

Rod Drury: Doing well. Since we last spoke, we've seen each other. It was really fun for you hosting all the team up in London. Really neat week.

Gary Turner: Yeah, we had a busy week. I had to take a couple of days off to recover from it actually because I can't believe how much we crammed in from just sitting down with the troops and reviewing where we were and where we're going next and then had some pretty cool meetings in London. We caught up with Tom Blomfield who's the CEO at Monzo and he gave you a Monzo card.

Rod Drury: Yeah. Thanks for helping me get that set up. I was sort of showing actually, our minister of small business. The way that Monzo cards work, and when I saw this I was so blown away... So it’s, from what I understand, it's a pre-paid card and they're on their way to becoming a full bank. When you go and do a contact list payment, then your Monzo app pings straight away and it opens up with all of the merchant information and what was really interesting is you pre-classify that transaction right at point of sale. When I saw that, it just made me think, that's how mobile banking should be. That's what banks should be doing, doing that pre-categorisation, because if you do that then it's so much easier to process that data magically through any sort of personal tax software or accounting software like Xero.

Gary Turner: Yes, it’s this notion of almost like a tagged or enriched bank feed and the guys at Monzo were doing it and they're going great guns and aiming to be a full bank by next year and targeting that consumer retail banking space. There's a whole host of these new banks popping up in the UK. You've got Monzo, you've got Starling Bank, Atom Bank, Tide... We're catching up with the guys at Tide in a couple of weeks.

And just in the last 12 months, 24 months, there's just been a huge explosion of these new, completely digital, online banking experiences and one of the cool things I think that we see... I mean, the UK has had this Fintech thing going on now for about 4 or 5 years. Natural place in London for it to happen, obviously, London a huge kind of financial center. Lots of technology. In the last 5 or 6 years, we've had the emergence of government support for technology innovation and technology startups around Silicon Roundabout and Tech City.

We're now seeing, I think, the benefit of having all these really smart financial services brains and all these clever technology brains all sitting in the same coffee shops and coming up with the same solutions to some classic problems. It's great to be seeing and being part of that and I think... It certainly changes my thinking and expectations about what maybe a bank feed could look like in 2 or 3 years when they have all this extra data tagged on it. Really, really I think...

Rod Drury: Yeah, yeah well it was neat, and we've always thought that New Zealand and Australia were leading the world with banking, but it's really changed now. I think one of the other key factors, which is seeing the acceleration of the UK Fintech scene is the regulation. It's kind of weird, but things like the revised Payment Services Directive PSD-2, where by 2018, banks have to open up their APIs through Europe and the UK. That’s actually driving all of this innovation and what impressed me, when we were talking to all the banks that we were with over the last week, how they're all now actively working on their next generation feeds.

And that’s where it all must get to and I look at the lack of innovation and how slow some of the banks are in other parts of the world. I really think that London is becoming the most exciting place for banking, at the moment.

Gary Turner: I think you're right. I think you're right. I think it's been a while to get to this point, but it's definitely coming and I think... I mean one of the banks, and we won't name them, when we were talking about PSD-2, raised a really interesting point that I hadn't picked up before and so payment services directive came in... European directive under which the UK is currently bound, obviously, still part of the EU.

The revision to that PSD-2 follows the original one and extends a whole lot of ideas in terms of making it easier to change banks. It's all about addressing this lock-in problem that people often have. It's really hard to change bank, it's really hard to get your data out, it's really hard to be portable. It opens up the whole payments marketplace. To wrap up both of those outcomes then it has to make data accessibility much more open rather than us necessarily having to beat up banks to get individual, discreet bank feed partnerships in place, of which we've got 7 now in the UK.

It could be in 3 or 4 years’ time, we might see this idea of a bank feed being more of a universal thing. The point that I didn't pick up was that this whole thing around managing risk and fraud and financial services fraud. The banks currently... If somebody loses money because they're hacked or compromised, it's down to the individual, then often the bank still has to pick up the tab because, they do. They're the grown up, I guess, in the relationship.

They made the point that PSD-2 could make it much harder to identify if you get multiple parties in a particular transaction or a particular payments workflow, it could be really hard to pin down where the liability sits at any one point in time. I hadn't pick up on that and I think PSD-2's really interesting because it opens everything up, but I think it also potentially opens up a whole load more work for the banks and for consumers and businesses to think about fraud and security in a way that they hadn't done before. It'll be interesting to see how that pans out.

Rod Drury: Yeah and it’s been interesting. I think we've got a really big part to play in that because we see the entire workflow of a small business, so you see these risk issues as you jump transactions across network. I'm really excited by some of the programs we're working on now, looking at this cross-systems fraud. If you go back to what we're really trying to do, if you want to grow small business, it's getting them access to capital and debt.

What I love over the last year or so is we've been exploring more about our financial web. It's not about just intermediating the banks at all. It's about working with them and if we can help them with some of this fraud and security stuff, if we can activate our cross channel to educate small businesses about these new growth services, then I can see online accounting and online banking gets very, very close. Much more than what it is now.

Gary Turner: Yeah. No, it’s fascinating. We are having some really, really great conversations up here. We actually didn't mentioned that fact at the beginning, that we just put our half year results out. You've been probably on TV and lots of interviews for the last couple of days. How's that going?

Rod Drury: Yeah, no, it’s so interesting. We're a really interesting company. I think people are kind of certainly in our part of the world, they're not comfortable with how fast we've grown. So, you know, it’s really exciting. We started this business under 10 years ago and now we're passing 300 million annualized revenue and we're the market leader pretty much everywhere outside of the US. So yeah, we feel really good but this does just feel like the beginning. It feels like we've really only the first wave, where you take accounting folks suddenly from the desktop and do it on the cloud and having now done the platform change largely now. So all of our customer records are now on AWS, we're just pulling out of those last sort of few final services, the ability for us now to really transform accounting by having these servers working overnight is super interesting.

I think a broader issue, not just in the accounting industry, but pretty much anyone who wrote that first generation of SAAS software, who started 5, 8, 10 years ago, all have to re-platform, because the benefits of being on these new engines is just so clear. It's really interesting. I think we're going to see, not just in our category but in a bunch of different categories, the traditional brands have all of the issues now of moving from the old desktop to cloud. You've kind of got to move from cloud one to cloud 2 or cloud 3. It's a pretty fascinating time in tech.

What I'm really excited about is we're taking all of our staff on that machine learning and AI journey so for every part of products there and every bit of work we're looking at moving forward, how do you make it smart? How do you make the servers do the work?

I had actually a great session with a large bunch of accountants last night and really talking about us being the golden age of services as we get away from the traditional model. We're actually just processing the numbers. If those are done for you, we've got to make sure that we're delivering playbooks for accountants to go in and truly be these growth consultants.

One of the quotes that got picked up was I really do think there's going to be more innovation for the next couple of years than we've seen in the last 10.

Gary Turner: We're about to go on the road. We're doing 5 road shows in the UK over the next couple of weeks so I'm going to be packing my suitcase. We're going to be seeing, I think, a best part of a couple of thousand registrations coming along to this event.

We're in London, Edinburgh, Birmingham, Manchester and Bristol. By the time this Podcast is published, I think we'll have gone public with the numbers. We've done some research and it's just interesting. We spoke to, I think, it was 1000 small businesses and at the moment... So the numbers that popped out for me was that 59% of small businesses don't think they'll need an accountant in 10 years’ time.

That's largely based on... Well what I use my accountant for today, and that's going away and becoming automated or becoming digitized. And accountants definitely have a job to do to reinvent the value that they currently offer. It doesn't mean that Rubox or automations is coming to eliminate jobs out of accounting.

In fact, there was a really great feature in Wired this month where Wired got Obama and one of my loose contacts, who’s a really interesting Japanese entrepreneur called Joichi Ito. He's on the board at Sony and he's currently director at MIT Media Lab. It was Joichi Ito and Barack Obama talking about AI and where's it all going. Obama made the point that a lot of the time when you talk about bringing machine learning or AI or automation to an industry or to a task, people jump straight to that kind of Hollywood scenario... And I'm being asked by journalists all the time at moment to comment on features they're writing about AI. You see all these lists of the top 10 most at risk jobs of becoming redundant because of robots in 10 years.

We have a habit, because we’re at the beginning of a journey of simplifying it down to... Well, nobody's going to have a job, because everything's going to be automated. Obama made the point in this article that actually that's way, way down the track. We're not going to be completely... Unless you're doing something very, very low level. It's not likely to be automated completely. But, so that in fact generalized AI, or generalized automation is some way off and the kind of Skynet dystopia isn’t going to happen any time soon.

What is happening and what is interesting is the specialized AI. Taking a discrete process or task and making that automated. What they're doing at Media Lab at MIT is actually moving away from calling it artificial intelligence, because that frames the conversation in a world of HAL 9000s and robots. They actually refer to it more and all their researchers about extending intelligence. It's about taking a job or taking somebody in a particular profession or category of work and actually enabling them to do more.

I think that's where we are. I think we'll get over the AI, sci-fi thing pretty quickly and become habituated to what it actually means in terms of helping you just do your job more effectively. Yes, there will be people that probably do very, very basic transactional roles that might... Won’t be around in 10 years, but for the majority or people and I think for accountants, a lot of them are on that journey already and thinking about how they can reinvent the value.

So we’re going to be sharing the survey results on the road and it'll be interesting to see what feedback we get from accountants to that.

Rod Drury: It is cool how there are some amazing technologies now which are actually, even for us and technologists, are really blowing even us away. I was really interested to hear about your virtual reality experience. Did you buy a new toy over the last couple of weeks?

Gary Turner: I got the PlayStation VR headset for the PlayStation 4. I hadn't really... I hadn't played with VR at all. I hadn't played with Oculus or anything. I kind of went into it with relatively low expectations and was actually really blown away by it.

It is obviously version one. There are a couple of things that will need to be ironed out. So screen resolution. If you have a digital display close to your eyes, then you're going to see, even if it's... I think it's HD quality in eye, but even HD quality resolution, you still get a vague screen door effect over the image in certain situations. You quickly zoom that out.

I found that the combination of... You put this headset on and it blocks out your reality and all of a sudden you're sitting in this space ship and then put a pair of headphones on, so that blocks out your audio environment and it's incredibly engrossing. You are... Clearly you don't believe you're in the space ship, but it's ... Holy crap, it was amazing in terms of the way that it grabs you and you're looking around you and you're looking around in 3D.

From a simple gaming perspective, it marks a whole step forward in terms of just how much focus... Playing on a PlayStation or playing on a video game right now is kind of antisocial, but at least you have a degree of objectivity. If my wife walks into the room, I can hold a conversation with her if I'm playing a video game or watching TV on the sofa. The thing about virtual reality headsets is that you might as well not be at home.

Rather than casually playing a video game, you kind of really have to commit to it because you're effectively stepping out of the room and into this other virtual space and you can't hear what's happening around you. You can't see what's happening around you. For all intents and purposes, you may as well not be at home. Notwithstanding the fact, I think we might see an increase in divorce rates and people being burgled without being realized or house fires.

I think VR has a whole social dimension to it that we're going to have to adapt to. I was blown away by it. I was really blown away, really captured my imagination and I can't wait to see version 2 and version 3 in the next few years. I…

Rod Drury: What's the state of the software you buy now? You're just walking through worlds or you're actually playing a game?

Gary Turner: You can be driving a car. The experience of VR, and kind of motor sport simulation, is you're looking around you. So, instead of just looking straight ahead at the road, you're looking ... You can look out the window, you can in the driver's door mirror or you can look in the rear view mirror. Look at the passenger seat.

If you're in a spaceship, you're in this cockpit and you're looking above you and around you and below you and it's incredibly, incredibly... It really captures your imagination and you're in that new place. You could drive a car, you can fly a plane. The simulation aspect of it is fascinating. I think in 5 years, it will be just... Once they get to 4K resolution in each eye, it will be incredible. Even gen one, I was blown away by it.

Rod Drury: Fascinating. I think about how good that is now and how it will be in 20 or 30 years when we stop working and we're in our sort of, old folks home. It’s kind of not – you know, I kind of think that what'll happen is that you'll find people that you knew through your life and you'll go ... You'll be able to talk to them and be able to go and visit some with them.

We've got this really interesting company in Wellington which scans you so you can get your digital representation to load into these games. If you think about how that technology will go in the next few years, I think you'll probably go and get a scan maybe ever 5 years and then maybe you can even put some of your photos in and it can use that to build the models. It should be able to interpolate what you look like at that particular period of time because when... Say in 20 or 30 years, you go back to chat to somebody that you knew in your 20s or your 30s, I think the protocol would be that you would meet them in the same virtual body as you would at that age.

Maybe there will be a whole business around maintaining your avatars through that kind of life... Through all those life stages. Just interesting to see where all of that goes.

Gary Turner: If you subscribe to Elon Musk's world view, this is all a simulation anyway, you know, what I mean. Actually, it's really interesting. There's this Swedish philosopher who wrote this paper about are we living in a simulation. I have to say, since I got this PlayStation VR thing, I can see they might have a bit of a point.

Video games started off as Pong like a bat, 2 bats and a kind of dot on this screen and we're now and the point where you're flying a spaceship and you believe you are, momentarily at least suspending belief, that you're flying some kind of X-Wing space ship. If you then project, hypothetically, if we've gone from pong in the 1970s to PlayStation VR in 2016, extrapolate for another 30, 40 years, even 100 or 1000 years and the capability of technology to render very believable simulations could be incredible. Could simulate pretty much everything and therefore this very world, this reality we live in could be a simulation and we don't know it.

So speaking of Elon Musk, he's just on another level, I think. He's done Tesla, which is electric cars, but now autonomous electric cars, so that's like two categories in one. He's got the Space-X project, trying to come up with low cost travel to other planets. He's a big investor and, I think, is just in the process of acquiring Solar City, the solar roof, solar energy company.

I saw a thing this week where they've just launched these new Solar City roof tiles that are solar panels and they look like roof tiles. He's managed to sell you the car, sell you the means by which you generate the electricity to run the car and selling you these big batteries you put in your garage to store all the electricity. That's kind of like Shell or one of the big oil companies getting into the car industry. It's fascinating, how many disciplines he's spinning up. He's definitely one of these kind of Edison, once in a generation guys. Incredible.

Rod Drury: I just love how he implements strategy in plain sight. One of the things that blew me away when they were putting these super chargers, and I read they're 18 months to 24 months ago, seeing these progress and so rolling out the Tesla model S, this was before the model X. They were putting a super charger network right across the US, right across Europe.

It always sort of bugged me, it's like, why would they be doing that when they're short of capital? Why would they be rolling out this massive infrastructure just so you could potentially drive your car across country, which no one would ever do. Most car journeys, you drive out to your jobs and you come back at night and you can charge up. Then, in his last big Tesla announcement, he said they're building trucks and it was like, oh my God, he's been building a distribution network, a transport distribution network, in plain sight. Of course the super chargers are for trucks.

Then when you do a bit of research in that, it's not just that you'll have autonomous trucks, what you'll probably have is trains of trucks with one driver just being there to sort of push the button if the thing goes wrong, but you might have 10 trucks just all digitally connected to each other and then they can just go on, park outside one of these super charge stations, charge up and they'll be some fast charging or you just swap the truck itself out.

He is running multi-dimensions, big strategy in plain sight. Every so often, when you think you've got your head around it, he peels back one more layer. So fascinating.

Gary Turner: I saw that there, there was the first trial of interstate autonomous truck delivery that delivered a load of beer from one location in the US to another one. I thought that would make for the world's worst Smokey and the Bandit rip off. I think we'll miss the days of people driving trucks and cars. The other thing that I thought was just so clever... So they’ve announced that all Tesla's pretty much from now will have all of the hardware and software for autonomous driving built in, even if it's... And it will be not available to the owner to use it. It's going to be running in stealth mode. So, you'll be driving your Tesla and going about your business and doing everything else and meanwhile the autonomous brain and cameras, and everything else, will be recording everything that happens.

The reason they're doing that, and they're doing it in stealth mode, is they're now actually building up a database of... So when somebody crashes their car, they'll be able to work out whether the autonomous car hardware would have avoided the car crash or not. They're going to build up this case file of however many accidents over the next couple of years that Tesla's are involved in where it’s human error. Then, they'll make a case, "Well, actually, if the car had been driving you wouldn't have crashed."

They'll then use that data to then argue with the US regulators to say that you should give us a license to have autonomous vehicles on the road because actually we've just proven after multi-thousand, maybe tens of thousands, maybe hundreds of thousand Teslas will be generating all of this data to make their case that autonomous driving is better than people driving. They've just decided to build it into the cars to prove it. I thought that was such an audacious and clever way of making an argument. We'll just do our survey for 2 years and prove it to you. Incredible.

Rod Drury: Yeah, but it's like, they're putting 8 grand worth of kit into every car. It's interesting because I tried to order a Tesla model X, they said they were in New Zealand... That was when Elon Musk tweeted me back, I have to tell everybody. They actually weren't, we were presented like a state of Australia so when I went to buy it, you had to buy... It was all the Australian luxury car tax, but from this month actually I think you can order cars down here.

So I'm pleased I waited because you would want to have all of that extra hardware in there. Also, what fascinates me is that every car has the experience of every other car, so your car has the experience of millions and millions of miles that have been driven. If you see what they're doing with AI now where it's not prescriptive, you can imagine with all of that data, because AI loves data, they'll be able to basically have the network of the Tesla cars working out how to drive better than any human can.

I was actually at the New Zealand Angel Association presentation this morning and there was just an amazing AI presentation from Creative HQ and AI has got so good now that even combat pilots get beaten by the combat AI that runs on a raspberry pie. That's not teaching the AI how to fight. That's letting it see experience and it works it out itself.

A great example... Was it IBM Watson or the Google one where it just bet the Go Player, they didn't show it how to play. They basically gave it the rules and it started coming up with these audacious moves that nobody has ever seen before. One of those sort of jokes going around similar to the Elon Musk, you know, the probability is we're living in a simulation. With the Go game, it lost quite a few times and the question becomes: was the machine faking it?

Gary Turner: Yeah, because obviously any sufficiently intelligent artificial intelligent being would want us to not discover that it was actually running everything. So, it has to lose a few games otherwise we get suspicious. Listen, we can't finish before talking about the new... You were talking about the Apple stuff on the last Podcast and they've just dropped some new MacBook Pros which have upset a few people.

Rod Drury: Yeah, so I've watched it and my emotions have changed over the last week and of course I've ordered one. The thing that really bugs me is... I think there's some certain values and you should look after your customers. I'm sitting here with a ... I've got a number of 27 inch monitors, now I've got some 5K iMacs, I brought... I'm on my second 12 inch MacBook, and none of the stuff works together. You would think that, for all of the might that Apple has, and out of respect for their customers, they would give you the pathway for things to work. You can't even buy one set of gear that works.

I really... I've actually changed from wanting to plug the same notebook into different work stations to actually having different work stations. My 12 inch MacBook stays in my bag and I use that when I'm traveling because now everything's on the cloud anyway. So that means I can just go straight to my desk and turn on my 5K iMac, but nothing connects.

I just bought the new iPhone 7, I've got the new thunderbolt, what’s it called the – the new earphones. You can't even plug those into the new device. I kind of get what they're doing, I just think there's these values that you... Product companies need to look after their customers and that's the big thing, I just don't feel looked after by Apple anymore.

Gary Turner: I think [John] and I have got into a bet with some PC manufacturers that they could build a bigger dongle business than... They're going to build a multi-billion dollar dongle business off the back of this, and that was a drunken bet one night. But I think, yeah, so, the new MacBook Pros have got this little touch screen, which is interesting and has gone all USB-C and all the Pro community are thinking, "Oh my God, Apple have abandoned us." I think the reality is, they are probably building for a different demographic now to what they were 10 years ago. The people that would have bought a MacBook Pro 10 years ago were probably in the creative industry. Probably producing videos and definitely in the arts more than PCs in those days.

I think it's okay for Apple to change it's focus. I think the one thing that signaled to me that they are definitely thinking about a different user and definitely want to signal moving on to another generation is that they removed the 'bong' sound. When you boot up an Apple Mac, it does this, "bong," at the beginning. The new MacBook Pros don't do that and that was almost like a deliberate poker tell to say, "Look we're moving on, you have to let go of your old expectations for what a Mac should be and just chill out a little bit."

Interesting. I haven't had a look at one yet, they didn't have them in the local Apple store when I was there a couple days ago. I'm going to have a look. But I think, yeah…

Rod Drury: I think you're right, I've been thinking that for a while that we're not their customer anymore. In fact they have to, because they're such a big company, to move the needle. They've got to do big things, which isn't necessarily about having the latest cool thing. It's actually about opening up these massive, massive markets that move the needle for them. So opening up China and all the effort they're putting into that is probably more important for them than some of the things they’re driving.

But I still look at the amount of R&D that they're putting into things and I'm not seeing it coming out the other end. Even though we’re doing it all on par, well that hasn't happened. It just doesn't add up. There's missing, multiple billions of R&D. They're R&D percentage, I think, has gone up slightly and of course, as their numbers have gone up, the amount of absolute billions of dollars they’re putting into R&D has obviously moved forward. But it isn’t there.

The problem with us not being their customer anymore is it's very difficult to build a niche PC business, because you need so many other technologies, so that would be fine if the market really worked and we saw some really neat new technology that we could jump onto, then that would be fine, but it doesn't feel like there is. With the exception and contrast, the new Microsoft device, which was something that was really new and really quite exciting. Though, again, over the course of the week, as I kind of researched a bit more about it, I don't know how practical it will be for the sort of use that I would have, but massive respect to Microsoft for thinking out of the box and bringing in something that was generally exciting. Especially that dial thing they put on the screen and allow you to change colors and do all that sort of stuff, what a neat bit of hardware that was.

Gary Turner: I think that's the good thing about... So, competition, you could argue, has been lacking in that space for quite a while. It's great to see Microsoft getting back into it and innovating again. The Microsoft share price has never been higher in like a decade. They are slowly but surely kind of reinventing that organization, which is a huge endeavor and much kudos to them for doing that and finally giving Apple a run for their money on things like hardware, or Google doing their stuff.

I think ultimately, I love it because I love technology and I love seeing all these things coming down, but it's great for the customer at the end of the day, although maybe some painful transitions in the process. Listen, we've run out of time so we should knock it on the head and save some of the other stuff for the next one.

Rod Drury: Fantastic, talk soon.

Gary Turner: Have a good weekend.

Rod Drury: Thanks, everyone.

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