588 Fintech Podcast Mashup Breaking Banks x Fintech Daydreaming

Welcome to Breaking Banks, the number one global fintech radio show and podcast. I’m Brett King. And I’m Jason Henricks.

Every week since 2013, we explore the personalities, startups, innovators, and industry players driving disruption in financial services. From incumbents to unicorns, and from cutting edge technology to the people using it to help create a more innovative, inclusive, and healthy financial future. I’m J.P. Nichols, and this is Breaking Banks.

Well, we are coming to you live from Helsinki today. I’m Brett King, and this is Fintech Daydreaming and Breaking Banks. Yeah, we mixed it up a little bit.

A podcast coming together. Absolutely. Well, you know, we’ve each been on each other’s podcast before, but this is a mash-up.

So for those of you that are listening or watching on YouTube, I’ve been here at Paul’s invitation at an event in Helsinki, and we thought we would do a mash-up podcast episode of the most successful podcast in Finland, of course, for fintech, and the most successful global fintech podcast. Although we like to say the number one fintech in the Nordics. The number one in the Nordics.

I apologize. Partnering with the number one globally. Yeah, absolutely.

So great to be here. What are we going to talk about? So, I mean, you’re back here in Finland. Is this your second time in Finland? I think technically my third time.

Your third time. Yeah, technically. Nordics, I’ve done a fair bit in the Nordics over the years, mainly in Norway.

But, yeah, it’s great to be back. It’s cold, though. I mean, I live in Bangkok these days, as most of our listeners know, and even though I lived in Connecticut for a while, it did get cold in Connecticut, but not like Nordics cold.

So I was up on the Arctic Circle over the weekend in Tromso, checking out the northern lights, and it was like, you know, one in the morning. It was pretty cold. Although I’ve got to admit, I think there’s a whole lot of Finnish people that are going to be watching this or listening to this going, what are you talking about? It’s not cold.

It’s not cold. It’s been plus degrees. The snow is gone.

Exactly. What happened to the minus 30? I mean, apologies to all those who are acclimatized to the cold weather. I was saying to you, because I’ve been living in Bangkok, I think 22 degrees is cold, and I’ve got to put a jacket on the 20 degrees.

By the way, I’ve got to say, we’re right on brand, because we’re talking about weather, like we always do. There you go. So, yeah, so we’re right on brand.

It wouldn’t be the same, would it? We have to start with a complaining of the weather, because I’ve brought that British influence into our podcast. Yes, of course. Let’s talk about the weather.

Yes, and with all our crossover episodes, like in the Marvel superheroes movies, I mean, we have to kind of have elements from all the books. Yes, we have to have consistency. Yeah.

So what’s the consistency we’re bringing from Breaking Banks? That’s a good point. We don’t have Hot Wings, which is Jason’s latest thing. He does the chats over the Hot Wings with the hot sauce.

So we could have done that. That would have been cool. I mean, we’ve got a beer.

But I don’t know if that’s particularly Breaking Banks-ish, but… You’ve got two fantastically famous fintech nerds. Yeah, I’m wearing black t-shirts, which we often do black in the show, but I don’t know. I’m stretching now.

So I guess from my listeners’ perspective, we obviously do a lot of US content being based in the States, but we do try and have a bit of a global flavor to it, and we’ve had some amazing guests from all around the world. But for those that aren’t familiar with the Nordics, particularly the fintech scene, who are some of the big fintech names we might know, that people listening may know from the Nordic region? Oh, that’s really easy. Klarna.

I mean, Klarna was born in Sweden, exploded like a mushroom, is known all over the world now. One of the top European fintechs, for sure, if not the top. Well, Revolute would probably complain about that, Monica.

But certainly Klarna is in the news a lot at the moment with their use of AI, their pending IPO, and they seem to be doing a great job. I would agree with that. I think they’re doing a fantastic job.

I mean, you could argue they also almost invented Buy Now, Pay Later, right? Yeah. I’m not sure who came first, Affirm or Klarna, but it was pretty close. They both happened around the same time.

Well, at least in Europe, it’s synonymous with Klarna VSL, IPO of Klarna, basically. No, I’ve been actually impressed. I’ve seen Klarna ads everywhere, in stores, actually.

And so they’ve got really strong penetration here. And yeah, they’re obviously on track for some pretty impressive growth as well. But I mean, if we step outside of the whole notion of just fintechs and very quickly just go through a number of brands from the Nordic that are really known globally, yes, Klarna.

But it’s also, there’s Ikea, there’s Lego, there’s Ericsson, there’s Nokia. Unfortunately, Ericsson and Nokia now aren’t as big as they used to be. Unless, of course, we’re talking about networks.

Absolutely, yes. And for geeks, that becomes a real good, interesting discussion. But there is something about the Nordics that have generated over time something fantastically big.

My son works for Ikea, by the way. Does he? Yeah, yeah. Yeah? Fantastic.

And actually, Ikea has got a bank, Econo Bank. Don’t let go. That I did not know.

You didn’t? No, that’s interesting. I should have known that. Full disclosure, my former employer, Ericsson, also is one of the leading providers of fintech solutions around the world, which is a less known fact.

They have, I think, close to 400 million users on their platforms for mobile money. Really? Yeah. So Ericsson is the biggest fintech company I’ve never heard of.

So in terms of mobile money, what is it? Is it USCD applications or what? So it’s, yeah, it’s USSD applications. So you would be familiar with with brands like MTN Mobile Money. So MTN Momo is running largely only on Ericsson platforms.

On the USSD. Yeah. And then they have the EasyPesa in Pakistan is running on Ericsson platforms and a number of other smaller references.

All in all, as far as the mobile money market goes, depends a little bit on how you calculate it, but they are the number one, two or three in all the categories for mobile money. It’s really interesting to see how mobile money is sort of reshaping many economies quite quickly now. As you guys know, I’ve been working on Branch Tomorrow, my new book that’s coming out in May.

And one of the things that we looked at was digital payments interfaces, particularly the growth in PIX, UPI and the Chinese mobile solutions, WeChat and Alipay. And of course, the growth has been phenomenal. PIX, three years to get up to mass adoption.

China, five years. UPI now seven years. But Indian digital payments now represents about 46% of all digital payments.

UPI has got such a dominance. Massive. And by 2027, it’s going to represent about 70% plus of retail commerce in the country.

So this has had a significant effect on cash utilization. I think I was telling the story, I’m not sure if it was to you, Paul, or to someone else at the event they were at the other day for Sam Link, which was that I remember going to China in 2012 at the invitation of the People’s Bank and having a debate with the governor of the central bank at that time. And I was talking about mobile payments revolution.

And he said, no, no, no, China’s cash. China’s not going to change from cash. And branches? No, branches are here to stay.

And to think that just two years later, Chinese mobile payments started with the e-money, the red packets, the Chinese New Year, and then transferred into this whole mobile payments ecosystem with Alipay and WeChat Pay, which today has 94% penetration in China. And you just can’t use cash anymore in China. And India, just a couple of years ago, people would have said exactly the same thing.

Demonetization, which was in 2019, they attempted demonetization in India and that really failed. And then UPI comes along and UPI succeeded incredibly where demonetization had failed. And that’s for the first time last year resulted in a decline in bank branches and ATMs in India after many, many years.

And it was the last remaining G20 economy where branch usage had grown in the last five years. Everywhere else it’s declined. And obviously, UPI has accelerated that.

Yeah. I do have to bring one additional element to the India story, or the India stack, of course. So it’s UPI, of course, for payments.

But the other critical element is the digital identity. Oh, yes. So that basically takes the onboarding task to be much, much easier and lower risk for fintechs.

So again, with these two catalysts, we’ve seen an explosion in fintech in India. And looping back to the Nordics, I mean, traditionally, we’ve had bank-led digital identities here in the Nordics. So we’ve never considered the problem to have all our government affairs or our banking things done with a strong digital identity in place.

And I think that has been part of the story of fintech also in the Nordics. So I think looking globally, where we see real-time payments interoperable and digital identity happening in one form or another, we’re going to see this ecosystem of fintechs also growing very fast. But there’s also another interesting dimension to this discussion.

You were talking about cash and the removal of cash. I mean, the Nordics has been, for a long period of time, seen as the forerunners in cash. Yes, of course.

Like, Sweden is supposed to be the country that’s going to go cashless first, right? Exactly. And everybody keeps, you know, whenever you talk about this transition away from cash, the Nordics and Sweden and Finland are always showing up as, here are the leaders. The interesting thing is that the central banks in the Nordics recently have actually started coming out saying, well, we actually recommend that people have a little bit of cash stuck away somewhere.

And we know why. We’re maybe not going to talk about it, right? But with the global situation that’s going on, there’s a notion that says, well, maybe having a little bit of cash in your back pocket or your bed is a good idea. So this whole notion of let’s go cashless, get rid of cash completely, a little bit is trickling back.

And, you know, it will probably switch again at some point in time as the world levels out and things get a little bit better. Yeah, you know, someone at the event we did the other day, Paul said to me, but, you know, we need cash in case, you know, we have days of downtime, right? If the systems, the electronics and digital systems crash. And my view of the world is actually the least of our problems is going to be cash.

If you have to have cash to pay for stuff because nothing’s working, then the reality is that things are going to get pretty bad pretty quickly. And we just have to build more resilience into the system. That’s the answer.

The answer isn’t you’ve got to be able to rely on cash because even when we’ve seen natural disasters occur in high cashless economies in the past, like in places like Christchurch during the earthquake and so forth, ATMs aren’t working to get cash out, you know, and even if you’re carrying cash, you know, people aren’t necessarily operating stores and things like that. So the moments you have where electronic payments aren’t going to be working are so far and few between these days that sort of trying to keep cash in place in case this might happen is not as an effective strategy as just mitigating downtime in terms of the digital payments networks. But actually sort of switches around to another part that we’ve discussed quite recently about, which is this whole acceleration of technology and quantum coming behind it.

And the fact that, you know, as soon as we’ve got Q day, encryption is gone. Yeah. So the bigger problem here is really about, you know, the whole notion of World War III is going to be fought at the cyber level, right? Trying to knock out the infrastructure.

It’s if the infrastructure goes completely anyway, right? It doesn’t really matter how resilient you’ve made it. If everything gets knocked out. I mean, you know, drones, you know, we never really even anticipated drone warfare, not in the way we are seeing it now in the conflict, not far from here.

But, you know, you now have the ability, think about a very small drone, you know, thousand dollar drone or a few hundred dollars flown into a power substation or into a transformer can do incredible damage very, very cheaply. So you don’t need these bunker busting bombs or nukes or anything like that now. And then that’s even before we get into the whole robotics based, you know, warfare and things like that, which it’s a scary time in respect to that, how easily we’ll be able to create chaos and destruction with automated systems for sure.

Yeah. Yeah. I want to come back to the Q&A point that you made.

Isn’t this just another Y2K though? No way. Because again, here’s my point. A lot of discussion about quantum has been happening for years now, especially if you’re working in financial services or cyber security, all you’re worried about with regards to quantum is that how do we defend against it? So I would argue that most of the banks are already preparing or have already prepared for quantum attacks.

So again, making quantum proof decisions along the way already now. So once Q&A happens and we’ve had this kind of almost everywhere available quantum capacity to crack all the encryption, shouldn’t the defense be already there? So if we’re lucky, it’s going to be just another Y2K. So again, potential problem that might be mitigated.

But the only, so the, you know, I mean, again, I’ll give you my technical understanding. The only defense against quantum is to move off of RSA encryption onto post-quantum encryption technologies, right? And that requires you to have a quantum computer somewhere in the stack, right? For the polymorphic encryption algorithms. So how many banks have a quantum computer in their stack? I don’t know of any.

So, but if you’re in the cloud, Azure has a quantum, you know, component to the stack. Google Cloud has a quantum component to the stack. AWS will have.

IBM Cloud will have. So if you’re in the cloud, most likely you’ll be able to turn on quantum encryption as a service, right? So therefore the advice I gave to, I give to banks regularly is, if you want to be post-quantum secure, the best bet is to be in the cloud. How many banks are in the cloud? Well, all of the fintech banks are.

Revolut will be in the cloud. Monzo’s in the cloud. Starling’s in the cloud.

Chime’s in the cloud. Nubank’s in the cloud. But they all have something in common.

They are next-gen neobanks or challenger banks that have emerged in sort of the cloud era. Whereas traditional banks, as you said, you know, there’s a lot of banks in the Nordics, there’s a lot of banks in the USA that still are running batch processing, that still are using mainframe computing. I don’t see how you secure your core system, a batch-based core system, against quantum attacks unless you can move that processing off the mainframe into the cloud.

Yes, which is largely already happening, I would say. If not to the public cloud infrastructure per se, but cloud-like architecture and infrastructure that might be controlled in different ways. Because there’s another dilemma since we’re moving on to the cloud conversation, which is fascinating.

We actually had an episode about this some time back. It was one of our most listened to episodes, by the way. It was around what they call a cloud exit.

And the point is this. If you architect your solution to be cloud-compatible and cloud-native in a sense, being on the public cloud is a very good idea for you in the beginning. Because it allows you to scale quickly, have cost-efficient lower capex basically in the beginning.

But once you reach a certain point in your growth journey, you need to move away from the public cloud. So here’s the thing that has been kind of bothering me for a while. Is a scale issue? Scale issue, exactly.

Because again, the public infrastructure starts to become so costly. It makes much more sense to move on-prem solutions. So you will not get rid of all the… You still need Kubernetes and all that stuff.

You will need the same kind of flexible, elastic architecture that you have built on the public cloud. It’s just about moving away from kind of rented infrastructure to your own or a hybrid one. So again, it’s an interesting conversation.

I think you’re a lot more bullish on Bank’s cloud adoption than I’ve been historically. But let’s open it up to you guys. If you’re listening to this, comment on this on social media, because it’s something that I think is a worthy conversation.

How far along are Banks in pursuit of the cloud? That’s something we’d love you guys to participate in the conversation on. Yeah. But I think there’s another element to this quantum discussion as well, which is around this whole thought that at the moment, a lot of systems are getting hacked to collect the data, not to decrypt it now, but to store it to decrypt when the time comes.

And let’s be honest, majority of people don’t change their passwords. Majority of people don’t make any changes. And how much does that ripple across the financial industry to a certain degree? So I think there is an element that I agree with you, Villa.

As we move on, Banks will harden themselves more and more, but they’re hardening themselves for the future, when there is actually an element of being ready for attack based upon the past. And that’s going to be a difficult one as well, I think. Yeah.

I’d also like to go back to the identity conversation. Because I think, you know, we can talk about quantum architecture and post-quantum encryption and those sort of things. And yes, we absolutely need those advances.

But when we start talking about agentic AI and AI implementation, one of the things that we are going to have real challenges with is if you don’t have digital identity infrastructure, then agentic AI is really problematic, right? Because, you know, first of all, I want to know if I’m in a financial services setting, I want to know if it’s an AI-initiated transaction, or if it’s a human-initiated transaction, if an AI is representing a human or an AI is acting independently, if there’s a smart contract behind, all of those things I want to see, I need to understand the identity of the machine. We haven’t really talked about KYM, know your machine, you know, in this architecture. But this does, you know, we don’t really consider identity infrastructure for AI as yet, you know.

We think about digital identity for people, but, you know, we are going to have to pretty quickly. I mean, we’re talking about running agentic AI right now. We’re experimenting with this.

Manus and other technologies, you know, Stripe is looking at stuff. Where is machine identity in the banking and payments ecosystem? Here I think we’ve got another interesting discussion that separates the Nordic from especially the US, and it’s a social acceptance one. I mean, here in the Nordics, we are quite used to the fact that we have a socially generated identity, right? From the day we are born, we get an identity, we get a sort of security number.

I know you have those in the US as well, but our identity is wrapped around that. So when Wille said earlier, you know, we… Hashtag socialism. Yeah, yeah.

But, you know, we are used to the fact that we have an identity, that identity is protected and is wrapped, and we use that identity in, you know, authenticating to the bank. We use the bank’s certification of our identity to log into the tax office website and those sort of things. Whereas in the US, it’s very much a case of, I want the right of no one knowing who I am.

Solve for an identity in decentralized systems. But it would appear to be almost counterintuitive in respect to what we’re trying to do for machine identity and things like that to deal with decentralization. I mean, you and I were talking about the whole decentralized movement in the last few days, and the fact that if you look at the hacks that have occurred in decentralized exchanges and things like that, you know, we would never accept that level of, you know, problem set in the traditional banking sector.

So decentralization, I know that, you know, I’m a lot of pain from this in social, but, you know, decentralized finance hasn’t worked in terms of creating more secure systems. And with AI, it would just compound it, decentralization. I don’t know how we get agentic AI and financial services on a decentralized basis.

Maybe we can get Michael Casey to jump in on this, because he’s a big decentralization fan. I like decentralization. But again, if we look at the space of decentralized finance today, I mean, there’s always a fun way of talking about this.

Whatever they say, just turn it around. So when they say decentralized finance, you can say, actually, it’s not decentralized and it’s not finance. And then you’re closer to the truth.

In the same way as they say smart contracts. Well, they’re not smart and they’re not contracts. So again, this is another conversation that is a rabbit hole.

Oh, no, we’re going to take this discussion. Before we go there, I do want to come back to the know your machine vis-a-vis digital identity conversation. And that’s interesting because, for example, the European Union, some of the listeners might know, is working on a digital identity wallet.

So again, each of the European Union countries will be offering at least one digital identity wallet for their citizens that will be compliant with the EUID or EUDI scheme, which is defined as like EIDAS2, is their kind of regulation name for that. So part of that is basically identity attributes and being able to delegate certain parts of your identity. And yes, it even has some self-sovereign elements into it.

Now, have they looked at this from an agentic AI perspective? Of course they haven’t, because this program started way, way years ago. And again, nobody was talking about agentic AI then. But I think there’s an interesting conversation to be had.

Can that basic architecture of having identity, verifiable credentials and identity attributes in your wallet be used in a way where AI is, you could actually authorize AI agents to do something on your behalf within certain constraints. And then the question actually is, is it the identity of you or the identity of the AI, or is it a subset of identities that have to be? Again, that’s in my mind, becomes almost like a legal question. So do we have a legal citizenship for non-human actors, for example? I believe the answer would be no for now.

But can I actually own things that I can give certain rights on my behalf to act upon? That I think is doable. So again, and if you’re able to have kind of a digital version of that, that has a clear liability track behind it, then I think it’s… I mean, in the digital twin model of the world, and I know you don’t like the term smart contracts, but if we are digitizing and tokenizing the world, and we’re trying to automate at scale business operations or legal contracts, particularly in the supply chain and so forth, there are components of that that, yes, you can say that the robot acting in the factory is owned by a corporation. You can say that the autonomous truck that’s delivering the shipping container full of goods to the autonomous port that’s going to be picked up by an autonomous ship and shipped around the world, you can say that each of those entities in that value chain have a link back to a human-based organization.

But the very nature of those things having to respond to outliers and so forth in real time require them to have some level of independence in that architecture. So ultimately, I think even if we tokenize, you know, we may not use money, monetary systems, but we could tokenize hours driven or electricity or things like that as part of that. It may be just more efficient to give those units of production their own self-sovereign identity or their own identity from a machine recognition perspective.

I think identity comes down to accountability, right? It doesn’t matter how much identity you give to a machine. If that machine doesn’t have accountability, the accountability has to stop with someone. So otherwise, you end up in a situation where you can say, it wasn’t me, it was my AI, right? And that’s not going to work when… I think, look, I think it’ll work… Brett, I’m really sorry, but I know my AI sent you some money, but it wasn’t me, it was the AI.

Give it back, right? It’s not going to work. Actually, this, you know, I mean, this is one interesting thing is when we start looking at financial transactions conducted by AI and we look at what’s happened with Chachapiti, with hallucinations and so forth, then the reality is, I think it’s realistic to expect we’re going to have to be able to roll back transactions that AIs make, right? Our current payments rails, you know, Visa, MasterCard, Swift, ACH and so forth, don’t have the ability to do rollbacks. They have the ability to do chargebacks when fraudulent transactions and so forth take place.

But when you have an erroneous transaction committed by an AI, you need to reverse that transaction, whether it’s six, you know, transactions ago in the algorithm, right? In the wallet. So I think that the challenges of moving to agentic payments and things like that and agentic AI, I just don’t think human-based systems are robust enough to cater for the type of modeling we need in the agentic world. That’s me personally.

Now, I would like to sort of pivot a little bit and talk about your book that’s coming out. Well, do you want to have a quick break before we do that? Yeah, let’s take a quick break. It’s a quick break on what we call Back All About the Book.

Yes. You’re listening to the mashup between Breaking Banks and FinTech Daydreaming. We’ll be right back.

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The future of everything. The future of everything. A little bit of a view on the Nordics, and maybe looking at Nordics versus the rest of the world.

But there was a point that came up, a good bit of friction here, but I think we’re going to ease off that friction very quickly. You talk a lot about smart contracts, and we’ve had this actually the last couple of days when we had an event here where the notion always ends up, people say, smart contracts must mean blockchain. But you don’t actually mean smart contracts in the way that people talk about blockchain and Web3 and everything else.

You have a slightly different view on this. I know you’re using the term, but maybe we need to tie it up because this ends up being a contentious friction all the time. Even Web3 is one of those terms that sort of the DeFi crypto guys captured and refer to that.

Whereas if you look back in the 2000s, we were talking about Web3, but it was three-dimensional web interfaces, right, for spatial computing and things like that. So even that terminology historically is problematic. But on the smart contract side, and to your point, Bill, I think it’s, you can say it’s not smart and it’s not a contract, but if we’re looking at instantiating legal or business process in an autonomous algorithmic marketplace, I don’t know if there’s a better term.

You could call it an autonomous… Agreement. Yeah, autonomous agreement or something like that. But, you know, smart contract works, because I think the nomenclature is important.

But the reality is, if we start looking at cross-border trade using CBDCs and things like that, there may be some elements of that system that has blockchain in. But more than likely, it’s not necessarily going to be DeFi-based operations. It’s going to be traditional finance that’s adapted to autonomous trading systems and autonomous banking and finance.

Because whenever you start looking at supply chain automation or large-scale application of AI and industrial applications, you are going to, at some point, have to interact with the banking community and the payment systems of the world. And you are going to have to overlay on top of that some sort of system that provides some protection to the traditional finance sector, yet accomplishes all of the goals that we need in terms of autonomous business operations. So the easiest way to do that is to use stablecoins or CBDCs or tokens, which tends to push us into the DeFi world.

But at the same time, what we’re really looking for is we’re looking for an efficient mechanism in use at that level that gives us a layer of protection against interacting directly with the traditional banking system, which is, frankly, based on the Q-day discussion and so forth, just not robust enough to handle the level of automation that’s coming at it with AI. So I think there’s another level of clarity that’s required here as well, because when you talk about this in your presentation, you also talk about the fact that banks need to understand that there is a need to look past fiat currencies as well. But I think we need a little bit of clarity, and I could be wrong here, but my interpretation of that is there’s elements of that transactional value chain that might not be based on fiat currencies, but at each endpoint, we are talking fiat currencies.

It might be that somewhere in this it’s tokenized or something else, but the end result is fiat currency-based. The end result is based upon whatever is the liability of the central bank. When you cash in or you cash out of the autonomous system, you’re either going to do that in a digital currency or a fiat currency, but you’re not going to be having smart contracts or algorithms using USD in traditional USD banking systems with an account number or a card number to run smart contracts, most likely, because it just doesn’t give us the flexibility, rollbacks, and all of those protections that we need.

Don’t we call that virtual account management? Yes, we kind of do. And to the point of what should we call smart contracts, if we want to call them smart contracts, we actually run a project around this. The topic was actually what we call the Industry 4.0 program in the bank where I work.

A part of this was actually how do we define relationships between machines and how do you kind of have a structure for that that is understandable by the digital entities, but also the legal entities. We came up by calling them digital contracts. So again, it’s digital because it’s machine-readable, machine-executable, machine-understandable results.

And then it’s a contract because it’s actually tied to the legal system with actual liability and digital signatures that tie it to the legal system where it’s being operated in. So that’s kind of the notion that we had. So I think, Brett, we talk about the same thing, but from a bit of a different angle.

The way we at banks many times see this thing is that whatever is the law, the legal system, that is the interface to the real society. And in this case, that means that it’s fiat currencies, central bank liabilities, and then ultimately digital identity, which gives you the opportunity to get digital representation of a contract in the real world. Again, executable and enforceable by the governing entities in the countries where you want to get it done.

So this interface, again, how do we then take that real-life interface closer to the digital world is interesting. But where I take exception is that when, like you mentioned, the crypto and blockchain enthusiasts want to hijack or co-opt the whole conversation to be about blockchains and tokens, which is not even really the point. The point is actually to have value, so transactional actual value in the same system where you have the processes that execute the outcome of these agreements between different entities.

And that doesn’t need to be a blockchain, it can be a cloud service for all we care. And the point is that you have a common agreement on a digital application, which is a representation of the actual law behind it. And coming to that agreement seems to be, well, complicated, because whenever you have many legal systems involved, whenever you have many parties involved, you’re going to have also a lot of things to reconcile before you get there.

One way, by the way, just kind of concluding my point here, is that the one way the banking industry in general has done this in the past is to create rulebooks. So that’s the reason why we’re able to do mastercard and visa payments around the world, because there’s a fantastic rulebook which all the parties have agreed. It’s a multilateral agreement on how these payments will work.

Now, can we create rulebooks for more complicated things that everybody agrees to? Of course. That’s the way to do it. And then you create a digital representation of that rulebook.

And then you have a common execution environment where you have kind of verifiable transactions around it. And then we actually have something. And this is why I think CBDCs will have a, you know, the US view is that stablecoins will win the day.

But that’s because the US has made such a fuss about CBDCs and, you know, criticizing the Chinese system because it’s a privacy or civil rights issue. But I think if you want to create a rulebook for cross-border trade, for a trading block, the easiest way to do that is have the rulebook and have programmable money that is aligned with the rulebook, right? And if you’ve got stablecoins, stablecoins are great, you know, in theory, in terms of having sort of stable cryptocurrency that doesn’t have the speculation problem that Bitcoin has, for example. And so you actually are incentivized to use it for trade instead of hoarding it, right? But at the same time, you can’t necessarily build that robust rulebook.

You’re just going to have to leave that to the contracting element. But another part of this, which we bring up all the time, I mean, we’re known, Fintech Daydreaming is known for being rather negative towards cryptocurrencies and blockchains as such. But one of the major differences between a stablecoin and a CBDC is that a CBDC is a central bank liability, whereas a stablecoin is nothing like that.

And therefore, you know, the ownership, the liability, the guarantee and everything else is very, very different. Now, in the US, if they believe the central bank is evil and everything else, fine, then there is an element of a discussion to have there. But generally, particularly in trade, once you start talking about cross-border payments, the central banks are actually quite important in that, right? So I can see a benefit with CBDCs over a stablecoin, particularly as we see stablecoins today.

Yeah. So just quickly on the stablecoin point, again, whose liability is? So again, look at the largest stablecoins in the current public blockchain infrastructure at the moment. These are entities that are being run by, I don’t know, a few dozen people with different kinds of backgrounds.

Not that I get into that conversation. But do people tend to trust them because, again, they’re available? But again, ultimately, you’re trusting this group of people to kind of have your back. It’s not really decentralized.

It’s as centralized as it gets. And so that’s why it’s a little bit funny, this decentralization. Yeah, fair enough.

Yes. And then one more point, you mentioned programmable money. I have to take that because it’s one of my favorite conversations whenever I’m at the ECB and in different forums talking about this future of digital currencies, is that money in itself really cannot be programmable.

At least if we take the definition of money as it’s done in society today, because again, money needs to be fungible. As soon as you have programmability on money itself, then it loses… Yeah. No, I think it’s more around the transaction layer, that it’s an information-rich transaction layer, right? Exactly.

So that’s why the EBA specifically has taken a point of this and saying that we should be talking about conditional payments instead of programmable money because that separates the money itself. That’s a good point. Well, I think we’ve put the cat amongst the pigeons here in this discussion.

There’s going to be a whole crowd of Bitcoin enthusiasts out there screaming and shouting and making comments back to us. So I want to pivot a little bit and get into your book. I think this is a fantastic time for… Every single time that you have released a book since we started the podcast, we’ve had you on to talk about the books.

Thank you. I’d love to dive into your book. I mean… You know, I haven’t talked about it on Breaking Banks much either.

So that’s great. Great opportunity. You pivot the title on it.

It was first… What was it going to be? It was going to be Branch Today, Gone Tomorrow. And then for some reason you changed that. So I released an e-book back in 2012 called Branch Today, Gone Tomorrow.

And I thought I’ll just do that second edition. But the book is so different from that initial book that my publisher thought it might be a nice idea. And given my futurist positioning, Branch Tomorrow seems on brand.

But the core research in the book is what’s happened to branches globally. So are branches going to disappear completely? Is that your view? Eventually. I think that that’s a reasonable position.

The branches as a mechanism is, you know, when you look at the way we do banking today, branches are extremely inefficient for what they do. They’re extremely costly for what they do. And they’re really mostly as a legacy for dealing with outlying use cases which can’t be solved digitally or for legacy customers who prefer the branch.

So let me bring a different perspective in here and maybe I’m dreaming a little bit. In your presentation, you have a little clip from, is it Ready Player One? Yes. Right.

Which shows this guy doing a transaction online, etc. I’ve had this notion for a longer period of time that the future branch is just going to be an ATM on steroids. That you will go up to an ATM and rather than it just being, giving you the cash, it will have an avatar, a represented human from the bank that will do everything that you do today when you go into a branch.

The benefit is here, you go up to the ATM, it might be a bit bigger, it might be a bigger screen, whatever else. You might be in a very small room where it’s just you and no one can listen to you. Yes, you’re not talking to a human anymore, but you’re getting all the same services, you’re getting all the same feelings.

And let’s be honest, research recently has said the younger generation are more happy to share their financial life with an AI because they won’t get judged more than with a human. So I can almost see this almost a regrowth of ATMs, but they are going to be ATMs on steroids and that’s going to be the branch of the future. So what you’re describing is an AI in a phone that you can get cash out with, right? Because that’s the only thing that a physical ATM could do that your phone could do, is it could give you cash.

But in cashless societies, you don’t need the cash function, so therefore everything that you would need in a branch that you could automate with AI, with an AI agent, you could do in your phone. Absolutely, but there might be this, I think that’s the, just a little bit of a crossover of giving people that notion and feeling of going somewhere to do something. I appreciate that it’s going to die away over time.

We’re all going to end up in this future vision of aliens and everybody getting together and having fancy, you know, interstellar drinks. But I think until we get that, there’s going to be a middle step. And in my mind, I really think it’s going to be… How do you order a taxi today, Paul? Come on, come on, ordering a taxi is not quite the same, right? But the point is, like if you take what we’ve done with Uber and Grab and Bolt and these services, is we’ve taken the friction out of that and made the journey as easy as possible.

And if you think about where, you know, if I’m a technologist and I look at the branch problem today, I would say that if you need to see a human in a branch, I’ll take the same position as Nick from Revolut or from… A bank has done something wrong. WeBank is that it is a design failure if you need to see a human. You’ve failed in your design to make that interaction as frictionless and seamless as possible.

So if you look at that on just purely a trending basis, as the AI and the technology gets more advanced and gets easier to use and we take more and more of that friction out, the number of use cases where you need a branch to absolutely get that problem solved shrinks down to a very small amount. And the problem with that is that the economics of holding this branch real estate for customers in for those limited scenarios, it becomes more and more problematic. The affordability of the real estate physically becomes a problem.

Yeah, two points. We used to have internet cafes, remember? Yeah. It’s that computers at their home with internet access.

So we basically went to a public place to access the internet, either a library or an internet cafe. So maybe the future… Jason Bourne would use that. Yeah.

So the near future of branches is that you have these fancy holograms or whatever to do your house loan negotiations, whatever. You might for a while go to a branch to do that because you don’t have the technology yourself to do it in a reliable way, maybe. So maybe there is a kind of a short term kind of internet cafe future for the branches.

But I actually do agree that it will disappear because, again, it will go to the more versatile and different interfaces we have access to all the time. Second point to the point of it’s kind of a glorified ATM. If you go to Spain today, Barcelona, Madrid, any of the larger banks there, they’re already like that.

So the ATMs are becoming like this. You have a video conferencing facilities in front of you. So people go there to do their banking business.

It’s no longer just a cash machine, largely, especially in Spain. And then the final point, again, sorry, I promised two, it’s going to be three. It’s that the older generations that we still have to serve today, of course, will never get to this.

But I think we’re kind of starting to see that people our age are already very comfortable of not dealing with humans. It’s a generational shift there. But my parents, again, of course, are still very much in this, I need to see a person.

Well, let me give you the highlights of the data, what we found. So peak branch, when do you think peak branch is or will be in terms of when globally branches globally started to decline for the first time? It’s already passed, I think. Correct.

2005, 6. But I’m not going to say anything because I know the answer because you presented this two days ago and I sat there right in front of you listening to all this. So I’m not going to say anything. But what would you have guessed before I showed you that? So I honestly thought it was earlier than what you said.

So in the West it was earlier, right? In the West, it started in 1996 in places like the UK and New Zealand and so forth. The States, 2008. But globally, we had a still a little bit of pent up demand because branch density was low in developing economies like China and India.

And because they’re so large populations, you had big branch numbers growing. But 2015, we hit the peak. So since 2015, we’ve been on that decline.

And, you know, this was something that’s only just changed just before the book came out is in the G20 in the Eurozone, there were three economies that still had some anemic branch growth through the 2000s and 2010s, which was China, India and Argentina. And Argentina, it was regulated, but they have a scenario they call ghost branches there. So they keep they force the banks to keep the branches open.

But in some cases, those branches are manned just one day a month. Right. So whether you can call that a real branch or not, and it’s manned around payday.

Right. And, you know, so you look at that. And then China’s been flat now for five years.

And India had the first decline last year in its branch numbers. So there’s now not a single G20 or Eurozone economy where branch use has increased, you know, in the last few years. So this is a pretty significant change we’ve seen.

I mean, let’s face it. This is the first time in 500 years that we’ve seen a decline in branch numbers. Now, the reason I wrote this book, you know, to talk about this at this time, examine this moment is that requires you as a bank to have a very different mindset from this point forward, because you have to understand branches are never going to be at the center of banking ever again.

So if you’re a branch that still, I mean, a bank that still thinks of the branch as the center of your brand, then you are most likely going to go out of existence, just as we’ve seen, because you cannot rely on branches for engagement. You can’t rely on branches for pipeline. You know, the fastest growing FIs all in the world are digital now.

And we know, as we saw in the stats, one of the coolest stats that I came up with for the book was the dominance of fintech for retail business today, where you have 4.1 billion customers for the top 20 retail fintechs and 2.7 billion for the top 20 retail banks. So it’s not even close. And that is largely down to digital acquisition of customers being what’s fueled their growth.

So if you are hoping for a customer to walk in the branch and open an account, you are already losing market share to digital competitors who can do that at scale digitally. So that’s really the key message of Branch Tomorrow. And that’s actually really interesting when we look at the Nordics, actually specifically, I would say, Finland as well.

There is one or two banks in the Nordic region, admittedly small, who believe that their differentiating value is the fact that they still focus on the branch network because they believe that the society in our countries is so dispersed, right? We’re large countries, low number of inhabitants. There are communities of people stuck out in the middle of nowhere. We must put a branch there, and that’s going to be our winning factor.

And there is banks that see that as their unique differentiator still in the Nordics. Well, then they’re basically going out of business. I mean, what do you think, Phil? Well, I mean, if your target customer segment is one that actually really, really wants branches, and then you do it, that’s fine.

But then you have to understand that you’re serving a diminishing customer segment to a large extent. Now, of course, there is, I mean, typically, when you reach that point in your life, or the ones who are in that point in their life now, typically tend to be more well-off than the ones earlier in their careers, right? So again, that might be an interesting business in the short term. But I agree with you, Brett, you are fighting a losing battle in terms of market share, if you are focusing on that part.

So I think ultimately, the conclusion I came to was, you know, if you’re still in the branch business, then you watch out, right? Because digital competitors are coming for your market share, and they are winning market share, the data shows that. But that also means that if you have branches, they only have one job today, which is to support the digital bank. And that is something I think many bankers who might be listening to our podcasts today might find that statement problematic.

But that’s the reality of the economics of banking today. If your branches aren’t supporting digital, and the transition of your customers to digital, then you are giving up market share to someone who is digitally focused. That’s it.

That’s what the data says. So I do want to kind of hedge my statement a little bit there, because even though physical branches as places to go, I mean, that’s one thing. But I still think we need people in banking.

I mean, for example, here in the Nordics. Historically, I mean, especially for the American listeners, the Nordic markets are a very small language area in their own regard. And that’s why the fraudsters have largely stayed out, because it’s complicated to kind of get scale.

Now with AI, doing attacks with even with small languages is very easy. So we’ve seen exponential rise in bank fraud. And they’re specifically targeting the older segment, people with wealth, but limited understanding of digital in general.

So these numbers are going sky high. It’s a very big topic here in the Nordic society, all of the Nordic countries right now. And we see a lot of cases in the bank where they completely rely on the human connection, the person they might know at the bank, to basically get them out of that situation.

And we’ve seen fantastic stories of that working out. And for these people, the digital tools are really not the answer when they are in the control of the fraudsters. So the actual person is very important.

But here I’m actually going to extend a little bit, because the extension of that and also the extension of the branch and everything you’ve said. And I’m going to really focus now on the Nordics and maybe we’re going to go into Finland, but I think this rings true also in the US. The Nordics historically have been, again, seen as the pioneers in digital, right? We’ve been digital this, digital everything.

We were one of the first with digital bank, so on and so forth. But that benchmark has not moved. And I actually think that one of the issues we’ve got in this removing the branches, supporting and everything else, we have not progressed the digital channels well enough, even in the Nordics, even in Finland, to take advantage of how do we really support.

I mean, the digital channels are still just a digitization of the old ways of doing banking, right? Whereas the future is not that. And my argument now is banks are still there going, oh yeah, but we need to look at our channel strategy and we need to look at how do we improve our digital channel. Well, actually, the future is channel-less.

We’re going to a genetic AI. The channels will disappear. The person will pick up the phone, like you said, and they’ll say, hey, flip-flap, move my money to whatever.

It doesn’t go for a channel anymore. Well, here’s the bigger picture again that is implied by what’s happening in the world of payments in particular, is that the bank account is actually not the world’s bank account anymore. That a wallet value store is actually used at twice the rate of a traditional bank account value store today for financial transactions.

So banks are not even the primary form of banking anymore, right? And so when you throw in a genetic AI into that mix, the reality is these wallet ecosystems that we’re seeing, the real-time payments rails that we’re building, the next generation of technology infrastructure built for the fintechs, the wallet ecosystems, the challenger banks and so forth. If you’re looking at a digitally robust banking and payments that’s going to be AI powered, my bet is it’s going to have very little to do with the traditional banking sector unless it’s corporate style transactability. I think for the retail segment, for what everyone calls their bank account in the future, where they store their money, most likely that’s going to be moving into next generation infrastructure.

And that’s where we’re starting to see a divergence from the traditional product set in the traditional approach. We talked about Kleiner here, buy now pay later, or that sort of contextualization of credit. It’s a much more efficient and frictionless manner to give someone credit in the moment than going to a bank branch, filling an application form and waiting for a credit card piece of plastic to arrive in the mail.

That’s going to happen in every aspect of banking. You can even add to that the fact that the notion of a primary banking relationship is gone. The minute a consumer has their relationship across five, ten different financial institutions, they’re going to need something to aggregate that anyway.

Absolutely. This is where your AI agent, we talk about open banking, there’s a lot of debate. The US really doesn’t have open banking right now.

They have Plaid and Yodlee and these various aggregation platforms. The EU does. China does.

China not only has open banking, but they have open fintech. The fintechs have to share their data with the banks and so forth. But when you start talking about agentic payments and agentic AI, you need that open architecture to be really effective of that.

This is another reason why we’re unlikely to see agentic-based payments being led out of the US. I have seen some pretty cool tech from Visa and Mastercard, where they are having agents go and fill out credit card details on these web forms and things like that and doing that automatically. But the reality is, if you look at the restrictions, this comes back to the whole smart contract programmable money thing, the restrictions we have in the old traditional finance system are larger because of the compute power restrictions we had and the telecommunications restrictions we had back then.

When you were trying to send ATM transactions over a copper wire or point-of-sale transactions, when telecoms infrastructure was fragile and very expensive, you had to send the shortest packet available with the least amount of information you could. So it was an authorization for the amount of money, the MCC code, the amount of value of the transaction you wanted, and you packed that into a very small packet to send over that copper wire. We don’t have those limitations anymore.

So why are we separating identity and KYC from the transaction details? Why don’t we have the identity hash, the transaction hash, the auditability, the last six transactions you’ve done in that wallet, the two wallet identities involved in the transaction, the marketplace authorization. We could have all of that packed in a transaction packet and have much more robust systems that don’t have the fraud of the old systems. So the fraud that we’re experiencing and will experience in automation is largely because we’ve tried to stick next-generation AI infrastructure on.

It’s the same reason why trains have wheels that are as wide as two horses’ asses. That’s literally what we’re doing with payments. But I can answer that question of why do we still do it, because it’s the answer that we always get.

Because Brett, that’s the way we always did it, right? But you know what, I’m looking at the time and life always happens. Time flies when you’re having fun. And we’ve got this small thing in our podcast, FinTech Daydreaming, that we always love, which is this, if we see you as the guest now, the guest always shares a joke.

So I don’t know, do you want to share a joke for our listeners, maybe? Well, I’ll just say that maybe I could do that. I could say probably the reason we’re seeing such a decline in branch banking and all of that today and a decline in the use of cash is that we’ve just lost interest. Boom! There we’ve got it.

And on that bombshell. That’s it. That’s it.

But I mean, from my side, Ville, any last words? No, that’s a fantastic conversation. I hope we didn’t bother the audience too much. No, definitely not.

Sure we did. Well, you got any last words? Thanks for listening and we’ll see you guys next week. Yeah.

And I suppose we need to end this the way that we started it. So for those that are seeing this through the FinTech Daydreaming, you can, as always, reach us through our YouTube channel and our website, FinTech Daydreaming. We love the comments.

We love the feedback. Hit the bell, hit the subscribe button. We’d love to see growth.

Particularly, we want to see some cross-pollination here between FinTech Daydreaming and Breaking Banks. But for the Breaking Banks guys or the FinTech Daydreaming guys… Guys, check out Provoke.fm, which we have all our podcasts on, but certainly follow us on X or Instagram. You can check out Breaking Banks there.

And of course, on YouTube, Provoke Cast is our channel there as well. But thanks for listening and we’ll be back with you guys sometime in the future. But thanks for doing this mashup with us today.

Shall we take a little part from your futurist podcast and say, we’ll see you in the future. That’s it for another week of the world’s number one FinTech podcast and radio show, Breaking Banks. This episode was produced by our US-based production team, including producer Lisbeth Severins, audio engineer Kevin Hirsham, with social media support from Sylvie Johnson.

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