Transcription

• Speaker #0

  Welcome to FinTrends, the podcast series where we explore the hot trends and news in the financial sector with experts. Today, I'm happy to welcome Nicolas Miachon, product director at SBS. Nicolas, hi.

• Speaker #1

  Hi, thanks for having me.

• Speaker #0

  It's great to have you here with us. Today, we're taking you to South Korea, a country where banking does not look like a bank anymore, but rather like a super app. if we take the cacao ecosystem As an example, it first started as a messaging app used by most of the population. And then around it, they added financial services like Kakao Pay for payments, Kakao Bank for banking. And they added also mobility, shopping, content. What's really interesting about that is that people first started to trust the messaging app, Banking Camp Second. But beyond this Korean example itself, this shift... tells us something much bigger about banking today. And that's exactly what we're going to talk about. But before we dive in, Nicolas, can you please introduce yourself briefly?

• Speaker #1

  Of course. Thanks, Caroline. I'm Nicolas Niachon. I'm Product Director at SBS. My job is to add differentiators to our existing digital banking suite. And on the side of it, I'm also a PhD student at the USMB, where I conduct doctoral research about AI and temporality.

• Speaker #0

  So can you tell me what does that shift tell us about how customer expectations are evolving today?

• Speaker #1

  Yes, you are right to say that it's a shift. We went from a product-centric world where customers were looking for products to a task-centric world. Basically, they want to do a lot of things throughout the day. And they are no longer thinking in terms of, I'd like to open a draft account. but they are thinking about micro tasks throughout the day, splitting the bill, going until the weekend without going overdraft, creating a budget for their next holidays, and so on and so on. And it has massive consequences, which means first that the banks themselves are competing against everyone else on the mobile phone. You no longer are doing your payments only through the bank app. You might have a dedicated app for this. In South Korea, it's cacao. In Europe, we have many of them. We will probably talk about the difference between South Korea, Super App, and Europe. But it's a massive point of convergence. Then the bank, because it is competing against everything else on the phone, it's also competing for attention. And this is something relatively new because banks are trusted entities. But now with the new consumers and this shift, They have to think in terms of attention and not only in terms of making sure that they are operationally efficient and they are doing just their regular jobs. So they are moving a little bit outside their comfort zone. In the case of Kakao Bank, it's very interesting because you said they didn't start as a bank, which is true. They started as a chat app, but the numbers are massive. It's a big difference between... The chat apps we are using in Europe where we don't have clear winners. And what we can see in South Korea, where almost half of the population, I think they have 26 million users, something like this, 26 point something. And half of the South Korean population is on it. If you exclude the elderly and the very young ones, almost everyone is basically using it. And inside this super app, you have banking options and you have many more. which means essentially that people before the shift, they wanted bank and now they want banking, which is a different job.

• Speaker #0

  Do you think this kind of model could emerge in Europe?

• Speaker #1

  It could, but in a different form. First of all, South Korea, it's a very homogeneous market. Obviously, we're talking about one country, so they share the same language, the same habits, the same culture, and so on and so on. I'm not going to draw the picture about Europe, but it's very, very different. The regulation also plays a big role in Europe, where it can be differentiated between countries, where in South Korea you have homogeneity, and so on and so on. The other big difference is that usually when you compare Europe versus South Korea, we tend to say we have our own KKO, we have Revolut, with 70 million retail customers. It's different because Revolut comes from banking and goes to platform, which means... Z'chav. achieved somehow getting the level of trust of a regular bank. And now they're competing for attention. In the case of Kakao, it's the other way around. They started as a chat. They have built their trust on top of operational excellence with a lot of micro actions that go through and nothing fails. And now they move to banking. So I would say another equivalent of Kakao, instead of being Revolut, is probably... the hundreds of small apps that you have in each European country about embedded finance. If you cut all the banking actions, payments, for instance, you can perfectly speed the bills when you are drinking a beer or whatever you like with your friends, but you are not necessarily using your bank application. You have another one for that that is probably offering a better UX, a better UI, and so on and so on. So we might end up in Europe with Not one cacao, but hundreds of smaller cacaos.

• Speaker #0

  So what's striking, and you said it, about these super app platforms is that banking is not the core product. It's the feature among many. And these platforms are designed around user journeys, not products. So what would a bank change to move from a... product-driven approach to a customer experience-driven one?

• Speaker #1

  I think you have given a lot of clues in your question. I don't think it is all about UX. UX is something that you show when you're failing somewhere else. And this somewhere else today is organizational, I would say. When you think about what bank customers are doing today, you don't think in terms of products. We just saw this. You think in terms of journeys. But the issue is nowadays, the incumbents, which are the legacy banks, they're still thinking in terms of products, which means when I, as a customer, I just bought a house, for instance, so I applied for a mortgage. And I had to go through different teams, the savings teams, the mortgage team, payments team, probably a little bit of regulation as well, but it's invisible to me, but they are there, which means. For each team, you're going to have a P&L. You're going to have teams optimizing for the product. But the journey, they cut across this logic. They cut across those P&Ls, which means it's very hard for split teams that do not speak to each other to optimize for a consistent journey. When you have a look at Kakao, it's the other way around. They were competing for attention against everything else on the phone before the banks. So they have massively optimized the journeys and not the product. And now they have kind of a giant P&L and they are splitting by journeys. That's one thing. The second thing is you cannot optimize what you are not measuring. And because you are measuring around the product and not the journey, you are measuring the number of sales and you are not measuring in terms of outcomes. Did my customer manage to split the bill with its friend? It's rarely a measured KPI. But essentially, because you are competing on the phone against everything else, that's definitely... something you should be measuring.

• Speaker #0

  So you're talking a lot about trust. What do you think builds trust in banking today?

• Speaker #1

  It's a very complex question, and I believe there were a lot of studies about it. There is not only one type of trust. I would say you have three types of trust. The first one is the institutional trust, which means essentially that you are giving your money to a regulated entity. that cannot fail. If it does, the state is here for you and you know that it is safe. Okay, institutional, it is safe. Legacy trust, banks own, keep this trust. This is where the newcomers are struggling a bit because they don't have this past history. Then you have operational trust. And I think in that case, banks sometimes are winning and sometimes are losing. We used to say, I come from a product background, we used to say in product, you build trust one micro action after one micro after another, but you fail in macro failures. We saw in France two weeks ago, there was a notification sent to all the customers of a particular bank. They knew it was a danger for the trust of this particular bank. So their communication team quickly reacted, made fun of it. on the social network. And I believe it went well. But it's typically... the kind of dangerous zone you're trying to avoid as an incumbent and it is typically where cacao and other super apps are exiting because you have made so many bill splitting you have created so many pfms of personal finance management cases creating budgets for your holidays and so on and so on and they never failed you know because they never failed for one million times for the next time it's gonna be perfectly okay. And the last... type of trust is relational. And this is where you have a new battleground for banks and for newcomers and for all the new apps that are being launched. Because it is the idea, relational is the idea that you are slowly building a relation, not only because the micro action is not failing, but because the micro action happens at a time that makes sense for you. You don't get spammed. All the recommendations make sense. You are being nudged and you know it, but you give consent to it and so on and so on. And here I cannot see a clear winner between the incumbents and the banks. As we have seen with the bank I was mentioning about the notification being wrongfully sent. The battle is still happening. And well, that's quite exciting and strategic for them at the same time.

• Speaker #0

  And also trust is particularly important when it comes to data. because these models rely heavily on the customer agreeing to share their data. So if banks want customers to share their data, what do they have to get right concretely?

• Speaker #1

  Okay, what's the magic potion?

• Speaker #0

  Yeah.

• Speaker #1

  It's also very interesting to see what they are doing and the reaction of the customers at that time. I don't think you have a clear alignment here and you can make more progress. I have a few ideas. I used to do a lot of digital marketing and I believe it helps a bit. First of all, you have a psychological effect that says that if it's easy, if it's easier even to revoke the consent rather than granting it, then you grant it in an easier way. It's easier for you to grant it because... you know that you can cancel it at any time. And psychologically speaking, it's better. Okay, so make your consent replication easier. Second, I don't see the consent as a danger or as a risk, but rather as a value exchange. If you give me consent, you get that in exchange, which means the timing really matters. Banks today tend to ask for consent at the step one of onboarding. And they're not asking for micro consent for a specific action. They're asking for everything, which means you as a customer see it as a massive danger. You know you're getting spammed and you don't really know why you're giving the consent. Or maybe you can read the 700 lines of why you're giving the consent, but it doesn't really make sense. A counter example to this, instead of asking everything step one of the onboarding flow, you might ask on a particular action. For instance, if you detect as a bank that I just purchased a plane ticket, probably the action could be, hey, do I have your consent to categorize your future spendings that are related to this travel? So that I auto-create for you a budget. It's easier to follow. You won't spend money on unnecessary things. And I can send you notifications. And I can send you notifications, which means you grant me consent for this. This gets yes easily. I tend to think that banks have the data of a super app, just like Kakao, but they are leveraging this data the way that a mailing company in the 90s would use them, which means they are lacking the momentum sometimes. They are lacking real-time event infrastructure. They are lacking the right organization to know who's making the decision to push what notification. Again, as the example two weeks ago in France showed, and so on and so on. So consent, don't see it as something too permissive. Don't see it as a risk. See it really as a value exchange. The value should be immediate. Timing matters. And it should be revocable at any time very, very easily.

• Speaker #0

  And, well, banks already collect a lot of data. But where do you see them creating value for? customers today.

• Speaker #1

  Okay, that's an interesting one because it's a little bit counterintuitive. Actually, the cases on which you have a clear return on investment today, they are more narrow than it seems. The first one is very legacy. We're talking about trust. How do you maintain institutional trust? You maintain institutional trust. So you have many ways. But when we talk about data with fraud detection, AML, and anti-money laundering and such. So it's a little bit of data application running in the background. But customers, even if they don't see it, even if it's invisible, they know it's there. So a big ROI. Then you have all the cases around what I call PFM. It's not very academic to say that. but you know So everything that has to do with category spending, cash flow management, all these kind of things, it's extremely useful. It is so useful today that most of the time it is outside the mobile app, the banking mobile app, sorry, which means the banks customers today are making the extra effort to onboard themselves on a third party app. So it's extremely useful. and usually in banks when you have yearly surveys. It's the number one feature that is quoted. So it's really something. And then you have all the cases of hyper-personalization. It's the kind of cases that gets most of the hype today, but the value is yet to be proved for this one. And then you have all the cases that I don't believe create a lot of value today. It's everything around financial education that no one has asked for. It's all the nudges that you receive, all the spams that you receive when you're traveling, for instance. Sometimes because you have granted your consent, step one, you get spammed by a lot of things. Data allows it, but it's not because it allows it that as a customer, I feel respected and it will create a lot of value.

• Speaker #0

  Also, AI is accelerating value creation for customers, especially in how services are delivered or personalized. And I'm curious, where is it that... AI is making the biggest impact in banking?

• Speaker #1

  Usually, we have to go over the hype when we're talking about AI and banking because the biggest value created by AI in banking is invisible to the customer. The number one biggest return on investment quoted by all market researchers, Gartner, Forrester, not to name them, will tell you it's about productivity, gains of productivity. So how do you help? your relationship managers, which are by far the biggest headcounts in incumbents. How do you help them making their job? How do you make them preparing their meetings faster? How many meetings can they take more than usual with AI? How can they sign contracts faster? What is the next best offer and so on and so on? So all the co-pilots, all the employees in banks that will be augmented by AI. are the number one for gains of productivity and therefore carries the biggest ROI for AI in banking. Second thing, it's everything that is legacy, so not generative AI but machine learning on top of data. So we saw anti-monitoring, anti-fraud, but you can also power your marketing engine with this, with a lot of rules and so on and so on, still invisible to customer. The third category, I would say customer service. So it's a little bit of a subset of what I've explained before with raising the productivity of your employees. But this time, it becomes visible to the customer. In customer service, I believe the next 18 months will be very different from the last 18 months. And everybody is dreaming about an automated end-to-end customer service with a human in the loop. whenever it's needed. So you have to get the detection right in the loop so that you are efficient, but still you are saving costs. And last point, the one that everybody is looking for, the one that gets a lot of money with hundreds of use cases right now, being prototyped, so not yet in prod, but I'm dreaming about it. It's AI facing bank customers for a lot of either existing cases or creating new values. And here, we don't really know what the golden use cases are. We know that bank employees need to be augmented by AI, but we don't really know how to multiply by two or three the value delivered to clients today.

• Speaker #0

  So what is still missing for banks to deliver truly personalized and real-time experiences?

• Speaker #1

  More than what you would think. The first one is... a unified view of customers, I believe. Bank evolved in a very complex environment. There are many, many channels. ATM is a channel. Greek and Mota meetings, physical meetings, sorry, it's another channel, web, mobile, and so on and so on. And today, each channel is good at gathering the data. But then you need the infrastructure to really aggregate everything, analyze everything, normalize everything. At SBS, I know that we have a data platform and we spend a lot of time and we have invested a lot of money to go from what we call the bronze layer of data. to the gold and maybe tomorrow platinum level of data that is not leverageable data to something that actually makes sense either to feed an ai system or to feed a legacy but yet a very useful bi system so point one unified vision of the customer the second one has to do with infrastructure everybody is saying i deal with real-time events but most of the time in banks it's another it It is an overnight batch being processed. So you push a giant CSV. Something happens or not at 2 a.m. in the morning. And then the next day, you are ready to push your notifications. Well, it's not really real time. If we go back to my plane ticket example, it would make sense that the second you understand that your customer is traveling, you may offer some services, credit on point. categorizing the future spendings, maybe on insurance, whatever makes sense. But in order to do this, you have to catch the momentum. So there is a right timing, okay? And with the overnight batch infrastructure, probably in 12 or 24 hours, if you're unlucky from that, maybe your client will get it, but it's already too late.

• Speaker #0

  Yeah. I've noticed that you've talked about... invisible experiences from time to time in your speech. And I was wondering, are we moving toward a world where banking becomes invisible, embedded into our daily experiences?

• Speaker #1

  Yeah, it's a quite complex question because to me, it's not the future. To me, it's already here. Obviously, Cacao... Through KakaoChat and KakaoBank, it's a massive example. It's the most obvious example. But there are hundreds of applications being created every day on top of embedded finance in Europe. Extremely useful. They are catching massive market shares. So banks, usually they have a very defensive position. Make or buy, acquire, and so on and so on. But I believe in the end, they are at a crossroads with two options. let's say, option A being the indispensable infrastructure. What I mean by this is that we'll still be here tomorrow operating a massive infrastructure of billions of micro events, taking a small cut on it. So a lot of volume, a small margin, but it makes sense from a P&L perspective. That's one model. And the other one is being here for the moment. Whenever in life, everybody has very important moments. I just purchased a house. That's a moment. A newborn is a moment. Selling your business before retiring, two very important moments, and so on and so on. And here the margins are way higher. The volume way lower. But it requires a different P&L, a different organization. We haven't talked much about organization. From product to journey, that's something. But aggregating everyone. around one model versus the other one is another point as well. And right now, they're at the crossroads. A few will make a clear choice. What they don't want to become is a regulated pipe, which means they have to be there. The regulators know that they exist. The customers forgot they exist because all the banking features have been embedded somewhere else and they're just operating. And in the end, they lose the relation. The relational trust that we've talked about that will slowly disappear in favor of newcomers.

• Speaker #0

  So if we take a step back and to conclude, because the podcast is coming to an end, what we're seeing is not really a technology shift. It's more a complete rethink of how AI fits into our daily lives. So if you were in a bank shoes. What would be your top two or three priorities to remain relevant in the next few years?

• Speaker #1

  Of course, I believe the number one would be to understand the journeys rather than optimizing for products and apologizing for UX. Quite complex sentence, I just made it up. The second one is a fork question. Do I want to stay an infrastructure that everybody is going to forget about, but I will still be here to be reliable? I will still be making money? Or do I want to fight on the new battleground of relational trust? Well, it is difficult, extremely difficult, because super apps are coming. But point number three. How do I leverage my super app data in the way the super app are doing? That is operational excellence. That is timing, getting consent, and so on and so on. So three points to better shape the future. And AI, it's a tool. In all of this, it's not a foundation. Data is a foundation. AI is just a way to leverage the data better.

• Speaker #0

  Thank you so much, Nicolas, for being with us and sharing your insights with us.

• Speaker #1

  Thank you, Caroline.