I’m delighted to share with you an interview with Nanda Kumar, the founder and CEO of SunTec, a revenue management and business assurance firm with several banking clients. He is also the founder of Nuwaza, a recently launched payments technology firm.
I used to be head of marketing for SunTec and I remember Nanda predicting the fintech situation and disaggregation a few years ago. I was keen to chat with him at Sibos 2015 about the fintech revolution now that it has actually happened. His predictions for the next trends are worth noting.
What are your thoughts on the power of disruption that fintech has? Is it something for banks to worry about?
There is a very fundamental possibility in financial technology. If you look at banking, all content is completely virtual. When the whole world is moving into the virtual mode, the very first candidate for embracing this transformation should have been the financial services. Unfortunately, it didn’t happen due to the way in which the banking systems are architected, and with the old hidden motive of making maximum money from customers. Today, when the whole world is becoming transparent, and external organizations are challenging them, I don’t think they have a choice.
Fintech plays a phenomenal catalyst role in transforming this industry in the way they’re blowing up the friction areas and making it an open playing field. Take the case of elements such as payments infrastructure, blockchain, Ripple Labs or even Ethereum – it can completely take away the need for anything proprietary. But is it going to take away the banks from the whole ecosystem? I think the answer is no. There is always a possibility of banks collaborating and creating a distributed ledger embracing the blockchain framework. However, fintech companies may disrupt this. The moment that happens, when all the walls are destroyed, you have to transfer into the whole virtual world. That’s a possibility that opens up.
Coming back to how fintech started, it was because the customer experience wasn’t great and they wanted a simpler, more intuitive interface. What are the gaps in customer experience that exist in banks in your experience?
In the telecom world, the availability of a network is not something you think twice about. What’s more important is the kind of transaction or service you can add on top of that. What app is working? What kind of services can I create on top of it? So if you really look at the telecommunication infrastructure or the service that was a phenomenal service 20 years ago, it has become omnipresent and insignificant in our lives, but what’s getting noticed are transactions done on that infrastructure, be they mobile banking or Uber, or anything that is enabling. For banking, it’s all about what customers are going to get or what service is going to be provided on top of normal services. It’s about how banks are going to enable people’s businesses and help them make the commerce happen. Digital acquisition is vital and is the reality.
Do you think the vertical industry concept will be less defined in the future, especially when there’s widespread cross-industry transaction data sharing?
We have been talking about this eventuality for a long time. If you look at the whole economic ecosystem, you will see people come out with products or services and they build the organization managing everything from sourcing to manufacturing to supply to servicing. But in the last decade what has happened is the industry getting horizontal. The industry is changing into two sets of people. One with customer owners and the other with the service providers.
When I use the iPhone I may sometimes forget the presence of Apple, but if I am making my payments all through the Apple ecosystem, then their presence is going to be there throughout the transaction. Now, let us say if Apple tried to orchestrate various services – for example, they are about to launch leasing service for iPhone – this opens up enormous opportunities. Tomorrow, Apple can buy billions of minutes from AT&T it can be one of the products you will buy on iTunes. It can completely flip the industry.
Even minutes can become a digital value in your iTunes. Facebook has already applied for a banking license and will evolve into a people identity engine, and the Gen Y is happy to do that. Now, if they bring in biometrics into their identity services Facebook can probably open it up. They might already be thinking about it.
However, nobody else has the amount of financial intelligence banks have today. The insight on every financial transaction is not even available to Google or Apple. They only get it through an external secondary or tertiary source. So with that, banks can actually make a big difference if they start acting quickly. If fintech disruption comes into the bank, they wake up, they take up this kind of strategy, they can be the winners of the world.
What do you think of banks trying to build over legacy systems?
They should ideally build a lateral system that should be allowed to flow into other areas, gradually eating into it rather than trying to completely break and build another one. The strategy should be to achieve a fluid or agile transformation. At some point, you integrate all of this into one layer.
Do you think technologies such as blockchain can help improve transaction monitoring as well as costs?
Forget about all new protocols and infrastructure. What it’s fulfilling about the blockchain is the possibility of making payments to anyone anywhere in the world by taking away all borders and all constraints. It also reduces the cost and is pretty much omnipresent. This is one of the major areas where banks make a lot of money from service providers, so that’s going to go away. Financing customers at the right time, at the right place with the right amount may be more meaningful than trying to charge an x amount of dollars for the payment transfer. You need deep insights into customer behavior.
At some point, it can become an internet, so that anybody can transfer money with absolutely no cost, if that protocol still supports that open source. It’s a question of how people are going to adopt it. You won’t have to pay anybody.
How will SunTec work with these new technologies?
Our focus is all about the value creation to an end-customer when a transaction happens. It’s about how we would help the banks to monetise them, so to us, the technology does not matter. It is the context and if the customer feels there is a value in a transaction fee associated with that, we’ll have them to monetise this, whatever be the technology. It doesn’t matter to us whether it is blockchain or something else. But yes, in our context, we can provide a channel because we already have eWallets and payment wallet engines within the system and that could be using these technologies as a mode of transmitting the payment request.
Can banks really achieve the customer experience they yearn to create?
Fintechs are going to disrupt and break barriers in every area of financial services, so banks have to embrace them or collaborate. Ultimately what matters is how you orchestrate the experience to the end-customer. Banks are in a better position to do this.
Why did Uber become so successful in such a short time? They took away all elements of friction in the value chain, right from the requesting of the service to the settlement and the security of the passenger. Every dimension of that one chain is fully taken care of by Uber, and banks should learn from that experience.
Can you talk about your new payments venture?
We find that payments, as a capability, is a universal requirement with any industry. A simplistic view of a bank is all about a small ‘e-wallet’, like a ledger with all the services around it, with the ability for people to offer any kind of services around it. It’s very critical to have that capability, so we are orchestrating that as a separate possibility. The new product will be an independent platform for anyone who wants to create their own wallet.