Hosts:

Brett King – Futurist, author of Branch Tomorrow and Bank 3.0
J.P. Nichols – Managing Director, Alloy Labs Alliance

What Happens When Fintech Faces a Cooling Economy?

HOST (J.P. Nichols):
Today, we’re looking beyond the headlines of a cooling economy, funding cuts, rising costs, and tightening credit. What does this mean for financial services and fintech in 2026?

HOST (Brett King):
Even as the economy slows, the future doesn’t wait. Innovation continues, from AI, real-time payments, and digital identity rails. The critical question isn’t if change is coming, it’s who adapts fastest.

• Despite talk of “branch banking” resilience, digital transformation dominates investment.
  
• JPMorgan Chase spends over $18 billion annually on technology, roughly $1.5 billion per month on digitization.
  
• The world’s top 50 fastest-growing financial institutions are digital-only.
  

QUOTE: “If Chase really believed branches were its future, it wouldn’t be spending $1.5 billion a month on digitization.” — Brett King

HOST (J.P. Nichols):
Exactly. Branches won’t disappear overnight, but digital infrastructure delivers the bang for buck. For every dollar spent on a branch, ten go to digital.

• In-branch customer acquisition: $300–$450 per customer
  
• WeBank (China): $1.75 per customer
  
• Nubank (LATAM): $7–$8 per customer
  
• Revolut (EU): €30–€40 per customer
  

QUOTE: “Digital acquisition isn’t a trend, it’s a structural advantage.” — J.P. Nichols

Are We Entering a Structural Economic Shift?

HOST (J.P. Nichols):
Economist Tim Mahidy recently described our current era as VUCA, volatility, uncertainty, complexity, and ambiguity. The softening cycle isn’t just cyclical; it’s structural.

HOST (Brett King):
Exactly. We’re watching deep global changes:

• Home ownership decline among Millennials and Gen Z is a global issue.
  
• Inflation and interest rates may rise and fall, but inequality and access are long-term problems.
  
• Technology-driven unemployment will widen structural divides.
  

QUOTE: “We’re heading toward a permanent renter class, the feudal landlords are back.” — Brett King

HOST (Brett King):
AI investment, over $800 billion in 2024, is propping up the U.S. economy. Without it, we’d already be in recession. But these aren’t traditional bubbles; we’re entering a new economic paradigm built around AI productivity and automation.

What Does an AI-First Economy Look Like by 2035?

HOST (J.P. Nichols):
After the dot-com bubble burst, the internet still transformed everything. Are we seeing the same setup for AI?

HOST (Brett King):
Absolutely. By 2035, economies will divide into two categories:

• Smart Economies – built on automation, AI, and adaptive energy systems
  
• Industrial Economies – slower to evolve, reliant on legacy infrastructure
  

China’s investment shows the roadmap: autonomous transportation, smart grids, high-speed rail, and AI-powered logistics. But the real bottleneck? Energy.

• AI computers are now constrained by electricity supply, not chip supply.
  
• Future economies must redesign around renewables, next-gen nuclear, distributed grids, and AI-optimized energy allocation.
  

QUOTE: “The next industrial revolution is already here, powered by automation, constrained by energy.” — Brett King

The Rise of Human-Less (and Human-Lite) Corporations

HOST (Brett King):
AI isn’t just augmenting humans; it’s restructuring business models.

• Agentic AI can now generate full financial statements and forecasts autonomously.
  
• Startups can move from idea to operation without traditional human scaling.
  
• The concept of the single-person unicorn, one founder powered by intelligent agents, is becoming reality.
  

HOST (J.P. Nichols):
That means shorter runways, leaner teams, and more automation at the core of early-stage fintech.

QUOTE: “We’re entering an age of human-lite corporations, AI isn’t removing people, it’s redefining the scale of work.” — Brett King

How Should Banks Prepare for AI in 2026?

HOST (J.P. Nichols):
So, if you’re a regional or community bank, where do you start Monday morning?

HOST (Brett King):
Step 1: Technical Agility.
Do you have the tech stack to adapt quickly? Legacy cores will limit AI integration.

Step 2: Cultural Agility.
AI adoption isn’t a tech issue, it’s a people problem. Leaders must require teams to experiment with AI daily, even in small tasks.

Step 3: Cloud-Native Transformation.
Players like Fiserv face pressure because they’re not cloud-first. Modern banks like Starling Bank’s Engine or Mambu show how agility beats size.

QUOTE: “You could build a bank today without a traditional core, AI can rewrite your infrastructure.” — Brett King

Stablecoins, Smart Contracts, and the Platformified Bank

HOST (J.P. Nichols):
Stablecoins are already outpacing Mastercard and Visa in transaction volume. What’s next?

HOST (Brett King):
By 2030, 20–30% of global cross-border trade will use stablecoins through autonomous smart contracts.

• Smart contract marketplaces will dominate automated finance.
  
• Tokenization will enable AI-to-AI transactions for supply chains, logistics, and payments.
  
• Banks that fail to build platformified ecosystems will lose relevance.
  

HOST (J.P. Nichols):
So even smaller banks must think about API-driven services and agentic-AI integration.

QUOTE: “The future isn’t fintech versus banks, it’s fintech with banks.” — Brett King

Why Human Trust Still Wins in a Digital World

HOST (J.P. Nichols):
If AI handles transactions, what’s left of trust and relationships?

HOST (Brett King):
Trust shifts from people to systems. Institutions like Revolut, WeBank, and Nubank now have higher trust scores than traditional banks because their platforms simply work.

• Reliability is the new relationship.
  
• Frictionless design replaces branch reassurance.
  
• “If you need to see a human, that’s a design flaw.” — Henry Ma, WeBank
  

Customers no longer hire banks for relationships; they hire solutions to get jobs done, seamlessly, predictably, and instantly.

Looking Ahead: Marketing to Machines, Not Humans

HOST (Brett King):
By 2027, Mastercard and Visa predict that 60–70% of discretionary payments will be made by agentic AI. That means banks will soon market to AI systems, not humans.

• AI agents will decide where to allocate funds, invest bonuses, or refinance loans.
  
• Banks must design experiences and APIs that integrate with AI intermediaries.
  
• Marketing must pivot from emotional storytelling to machine-interpretable value propositions.
  

QUOTE: “You don’t have a plan for marketing to AI, and that’s two years away.” — Brett King

Final Insights: The Future Won’t Wait

HOST (J.P. Nichols):
So what’s the Monday-morning action plan?

HOST (Brett King):
In the next 90 days:

• Audit your tech and culture for AI readiness.
  
• Prioritize cloud migration and API modernization.
  
• Start internal AI training programs.
  
• Reframe product strategy around utility and jobs-to-be-done.
  

The future will not wait for fintech, or for anyone. The only question left is whether your institution will adapt, automate, and accelerate fast enough.

Memorable Quotes

“If you need to see a human, that’s a design flaw.” — Henry Ma, WeBank
“The next industrial revolution is powered by automation, constrained by energy.” — Brett King
“You don’t have a plan for marketing to AI, and that’s two years away.” — Brett King
“Digital acquisition isn’t a trend, it’s a structural advantage.” — J.P. Nichols
“The future isn’t fintech vs. banks, it’s fintech with banks.” — Brett King

Raw Transcript:

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.

What happens when a futurist, a venture capitalist, and a recovering banker walk into a bar? Well, we are about to find out, although at the last minute, our resident venture capitalist, Jason, was not able to join us. It’s hard to get all three of our hosts in the same room and even the same cities, and none of those are true today, but at least Brett and I are on the line. And we’re going to look past the headlines of what’s happening in the economic backdrop of a cooling economy, how it hits financial services and fintech, funding costs, credit deal flow, evaluations, and what gets cut or doubled down on in 2026 budgets.

I am J.P. Nichols, your resident recovering banker, and Brett, our resident futurist, is here. He’ll paint what’s next, and I’ll try to translate all that down to what actually gets executed on Monday mornings at 9 a.m. So we’re going to try to separate the shiny objects from balance sheet reality and talk about how to navigate a softer economic cycle without losing the plot on modernization. Because Brett, even as the cycle turns, the future still arrives.

AI, real-time payments, identity rails don’t pause. The question is, who adapts the fastest? Well, you know, I mean, we’ve been debating this for 10 years, right? But more recently, one of the things that I’ve noticed, particularly with the launch of the new book, Branch Tomorrow, is a lot of our U.S. audience is still very much attached to the idea of branches and arguing that Chase is still investing in branches. But I like to remind people that Chase is spending $18 billion a year on tech.

Yeah. Right? Well, I like to think about it as $1.5 billion a month. Yeah, yeah, yeah.

Right. So $1.5 billion a month on digitization. If they were really, really convinced that branches were the future of Chase, would they be spending that money on digitization? No way, you know? And so, I mean, and let’s, you know, the other, the factor that I like to talk about, I’ve mentioned it, and so the listeners can forgive me for this, but it’s worth repeating, is of the top 50 fastest growing financial institutions in the world, all of them are digital direct pure play players.

And if we look at the top 20 retail fintechs versus the top 20 retail banks today, it’s not even close. 4 billion customers amongst the fintechs and 2.7 billion customers amongst the top retail banks. Now, you can argue they’re not wealth management clients and they, you know, the asset base isn’t as big and all of those sorts of things you can argue, but what that data is telling us right now is that the traction is behind digital acquisition and the traction of the smartest banks and the most effective growth engines in financial services is all digital right now.

Yeah. I mean, we have to acknowledge that the U.S., like most well-developed mature economies, have a little different base, right? So when you think about a business cycle, as Jeffrey Moore calls it, we are in the infinitely elastic middle, right? So this age of, you know, banks aren’t going to go away. In 1996, Bill Gates said, you know, we always are going to need banking, but we may not need banks.

I think it was about 10 years later, somebody else I know said, banking’s no longer somewhere you go, it’s something you do, right? So I think all of those trends… That quote still gets traction these days. Yeah, it was not only a great quote, but prescient one when you think about the… Am I right? Was that 2000? Well, you know, I mean, you’re right. It was 2013.

It was when I did Bank 3.0. Oh, well, you weren’t that smart then. I thought you were before the launch of the smartphone. Oh, you know, so yes, so 20… Well, 2005, you know, which was the precursor for Bank 2.0, which was a research paper I did for HSBC in 2005.

That was where I predicted 2008, internet’s going to overtake branches in terms of transactions. And 2015, mobile’s going to overtake both branches and internet together. And by 2016, wallets will outperform cards in terms of transactional payments.

Those were the big predictions back in 2005. And they were mostly correct. But to be fair, I did also say checks would be phased out by 2018.

Yeah, well, we all did. Remember, check 2000, we were talking about this in the 90s. But my point is, you are absolutely correct.

And that doesn’t mean that banks turn into dust at midnight, right? That they’re still going to be branches around because we still have lots of customers that are used to them. And we have some rural markets and all of that kind of stuff. But directionally, I think if the question is, where does my next dollar of investment go? I have a really hard time saying that it belongs in a traditional branch, right? You may want some sort of physical location with human beings in it if you’re opening up a new market.

But for my money, I would, for every dollar I did there, I’d probably do 10 in digital infrastructure. Well, I think the point is, if you’re looking to grow, then let’s look at bang for buck. Because the average cost of acquisition of a customer in branch for Chase is something like, let’s say, between $3 and $450 US dollars.

Now, they’re the best in class at what they do. And they are pretty good at converting that into deposit activity. But you’ve got WeBank, who is the largest digital bank in the world with 450 million customers.

And they can acquire at $1.75 per customer. Nubank can acquire at $7 to $8 per customer. Revolut, European market, it’s tougher.

But they’re still acquiring at 30, 40 euro per customer. So if you are looking to grow your financial services business, I don’t see how you could justify the economics of putting millions of dollars into branches when those digital acquisition channels are available to you. And to that point, this is where we need Jason on the recording.

I haven’t seen a single VC argue to those neo-banks that they should deploy branches because it’ll help them grow faster. Right. And we’re also missing Jason for a whole host of reasons.

But another one is he would challenge some of those acquisition costs as reported by some of those digital banks. So they say, well, we don’t spend any money on marketing. But then when you look, there actually is money that’s being spent on that.

However, it doesn’t deflate your point because it’s still… I mean, even if it’s offered by a factor of two or 300 percent, it’s still cheaper. It’s an order of magnitude. Right.

It’s an order of magnitude. So absolutely. So let’s drill down just a little bit on the economic backdrop.

So a few weeks ago, I had a show with Tim Mahidy. He’s the former chief of staff for the San Francisco Fed. He is a CEO and chief economist of Access Macro, and he serves as chief economist for Alloy Labs.

And so the theme of that show was Surviving the VUCA Bazooka, Volatility, Uncertainty, Complexity and Ambiguity. Jason and I just caught up with Tim on Monday as we’re thinking about the next cycle, the next year. You know, what are we seeing? And he pointed out something that I hadn’t thought about.

He said, well, you know, the real trouble right now is with the U.S. government being closed, we’re not seeing any numbers at all. So there’s a whole lot of uncertainty of those, you know, four words. Uncertainty is the one that’s really rising up.

So we’re looking to things like the 10-year treasury to understand where are risk premiums. We’re seeing certainly at least smelling smoke in terms of auto lending is becoming very, very delinquent. There’s some underlying causes.

Oh, really? Yeah. Yeah. You know, there’s also been a lot of bad loans spent, a lot of subprime auto lending.

I think the average car loan term now is over 60 months, if I remember that correctly. Oh, wow. Yeah, exactly, for a depreciating asset.

You know, the average first-time homebuyer is in the U.S. is now 40, 40 years of age as a first-time homebuyer because, you know, prices have gone elevated. Inflation is going to continue. It’s above the Fed target rate.

There is really no end in sight, even if the Fed continues to cut rates. So we can debate about the finer points around all that. But I think it’s going to be fair to say we’re in a softer patch of the economy.

Well, I mean, we are. But at the same time, home ownership at, you know, for younger generations is a global problem. You look at the U.K. market, you look at Australia, you look at Hong Kong, Singapore, you know, you look even now in Thailand, you look at the United States, and home ownership amongst millennials is much lower than what it was for their parents’ generation.

And so this is a structural problem in the global economy. It’s not just a soft economy or interest rates. People argue maybe it’s because interest rates are higher in the U.S. right now.

But this is a structural problem we’re seeing globally, where the majority of kids born today, children born today, will never own their own home. They’re going to become a permanent renter class. And, you know, this is, you know, we’re getting back to the days of the feudal landlords.

You know, it’s a really key structural problem. And my argument as a futurist is, when you see those sort of macro signs, you’re seeing actually the need for a much greater economic shift than just thinking about monetary policy and interest rates and so forth. We’re talking about, you know, it’s time to really ask the question as to whether capitalism is working in terms of its core, you know, mandate of wealth distribution and wealth creation at the economic level.

And AI and technology-based unemployment from AI is only going to accentuate that. And I don’t know whether you saw the job openings for the S&P 500 recently that was shown a graph. I think Brian Claggett put it on his Facebook page, whatever, off the FT.

And it’s, you know, it’s basically, you know, job openings have declined significantly for the Fortune 500. Now, you could say that’s because of volatility and uncertainty. But you could say also that we are seeing a structural change in the economy in terms of human capital, where people are now starting to factor in how AI is going to be used in terms of, you know, capital generation and deployment.

You know, and the $800 billion that’s been invested in, you know, AI this year in the US economy, we know that’s also holding up the US economy right now. The US would be in recession right now if it wasn’t for that investment. So there’s a lot of really funky stuff going on here that, you know, you could call it a bubble and you can try and explain it with traditional economics.

But as a futurist, I’m sort of looking at these signals and saying, this is different. There’s so many things happening at the same time, that we need sort of new economic thinking. And I know that’s sort of a divergent topic from, you know, the whole investment that banks should be making in digital.

But, you know, it’s part of, we got to think about what comes next, right? Well, I think both things can be true. I think both things are true, right? There are… the cyclical downturns that are happening in the economy, in business cycles, in technology cycles, along with that very long-term wave that you’re describing here. And you brought up exactly where I wanted to go next, which is AI.

The economy, at least the stock market right now in the developed world is, you know, a bunch of old companies and about a dozen AI companies. And so is that a bubble? Maybe. You know, what happens if that pops? But I think that when bubbles happen and pop, sort of to your point, those underlying trends still continue.

If you think back to the dot-com boom and bust, right, of the late 90s, early 2000s, the themes were still spot on, right? That we were moving towards everybody having a computer in the home, which was insane to think of in the early 90s, right? Within a decade, that went from insane to inevitable. And you could have lost a lot of money betting on which individual companies. You know, I wouldn’t have blamed anybody for betting on AOL or CompuServe or CompUSA, the retail stores, or the gateway computers, right? All of those things that are now gone, but the direction was spot on.

So as a futurist, as you think about that now, so let’s try to, you know, blow away the smoke and haze of this company, that company, all that stuff. What does this look like at the end of this decade or 10 years from now? Well, I think the big shift will be that, you know, and we already see it with the Magnificent 7 on the S&P, you know, all of the major companies in the world that are really big profit and capital generators will have high levels of automation. You know, that’s fairly certain, despite the fact that Michael Burry of, you know, the big short fame, just shorting a billion against Nvidia and Palantir.

You know, so putting that aside, you know, by 2035, we’re going to start to identify economies as whether they are smart economies using automation at scale versus industrial economies, right? Or you can call them dumb economies, if you want to be cynical. But that’s going to be really where the competition is. And we already see the foundations of that with China’s massive investment in autonomous transportation, fast rail, the Belt and Road, but also their massive energy, you know, transformation that’s happening because they realize industrial AI is going to have to be powered by much greater energy demands than what we think of for, you know, the data centers even in the U.S. right now.

Like we measure data centers today when we’re deploying data centers globally, we measure them in their energy demands. A gigawatt data center, a five gigawatt data center. We’re not talking about compute power there, we’re talking about the energy demands.

And there’s been a lot of debate in the U.S. public domain about water and electricity usage for these data centers. But the reality is the industrial side of artificial intelligence, you know, think about all these autonomous vehicles driving around. Think about all of these autonomous factories, you know, like they’re going to use just as much energy as these data centers.

So if you want to have a highly autonomous economy, you need to completely restructure your energy systems. You need to, you know, think about massive, you know, massive new deployments of renewables, battery storage, you need next generation nuclear, you need everything. You can throw at this.

So by 2035… Windmills, right? We’re still going to say windmills. Because, yeah, because they hurt the birds or something. And cause cancer.

Yes. But, you know, even tidal generation and things like that. So there’s a lot to unpack there, but the reality is, you know, we are seeing the next industrial revolution around automation, and it requires that sort of next level of thinking.

You know, the industrial revolution, when it came to, you know, Europe in the 1800s, you know, we had a lot of things happening. We had electricity, you know, being fought over between Tesla and, you know, Westinghouse and Edison and so forth. You know, we shifted from gas lamps to, you know, electricity infrastructure.

We upgraded sanitation systems. You know, we had to put in roads for cars because, you know, they couldn’t drive on dirt roads. You know, we had gas stations for, you know, combustion vehicles.

All of this infrastructure that came in to these industrial economies, the same sort of level of investment and transformation is going to have to occur over the next 10 to 20 years for smart economies. And in addition, we’re going to have to make our cities and our infrastructure climate resilient, right? Because as temperatures increase and we have more perennial flooding and more wildfires and much stronger hurricanes and things like that, all of that is going to require significant investment. Well, but the energy part is, let’s not skip over that because that is the major constraint.

Satya Nadella, CEO of Microsoft, just talked about that this week, he’s got, you know, GPU farms that he can’t deploy, not because of compute power, but because of energy constraints. And so to your point, the current energy infrastructure, the reliance on fossil fuels and all of that is going to have to change. What’s going to break first? That is an old, old, you know, multi-country cartel, right? Partially, seriously and specifically OPEC, but even just beyond that, right? This interconnected, there’s an energy economy in and of itself.

And how’s that going to shift to provide us more capacity? 50% of the global shipping industry worldwide is shipping, you know, energy resources. So, you know, it’s a massive, massive business. That’s not going to disappear.

You know, we are still obviously going to require, you know, even if we make all of our vehicles electric and we get rid of all of our coal plants, which, you know, will probably scare some people to hear that in, you know, some of our demographics that we serve. But even if we did that, we still don’t have a solution at scale and won’t probably for 40 years, 30 or 40 years for, you know, large-scale transportation like shipping and aircraft that doesn’t require, you know, fuel. You know, we’re not going to be able to run those off batteries.

Battery density is not going to be there for quite a while. So, you know, you still, even if you shift energy grids to, you know, fully renewable and nuclear, next generation nuclear and so forth, you know, in these solutions, which, you know, is happening because the commercial demands for that is already happening. You know, like solar and wind are the lowest cost electricity generators on the planet right now by a factor of about, you know, six or seven times cheaper than coal generation.

So, you know, it makes sense to invest in this infrastructure. But we’re talking about massive shifts here. So what are we going to need? We’re going to need different thinking.

You know, it’s not going to be central generation. You know, these big farms, yes, but we’re going to need distributed grids. We’re going to need, you know, rooftop solar.

We’re going to need people having their electric vehicles connected up at night to store or connected during the day to store energy in, you know, batteries that become part of the grid when they’re plugged in at night and things like that. You know, I mean, we’re just going to need much more flexible thinking in terms of the way we design through this. But this is where AI is probably going to help us as well.

This is one of the problems in terms of energy distribution and next generation energy systems that we expect AI will be able to advance our design capabilities in for sure. Beyond that, we do have some advances in material sciences and things like that, much better battery technology coming along. We are going to see much more effective solar panels like Percovite cells and things like this emerging.

And even, you know, we had Pablos Holman on The Futurists a while back talking about solar farms in space. So 24-hour solar generation in space with satellites that you deploy in the Lagrange point and they microwave beam energy back to the surface of the earth. I mean, this is, you know, I mean, some of the, this is not theoretically possible.

We have China and the US both deploying, you know, test solar farms in space over the next couple of years. This is achievable technologies, thorium reactors. And of course, we could even turn on some of the big fusion reactors by the middle of the 2030s, right? And at that point, you’re really talking about free energy.

So a lot’s going to change in the next 10, 20 years in the energy space for sure. Well, and as you think about costs and you say free energy, you know, compute power is essentially marginally free, right? So that means that the ability to deploy current technologies is extremely, extremely cheap. The ability to start up a neobank or a fintech that does things that a bank can’t do, won’t do, maybe hadn’t thought of.

And so we’re in that phase already. And if we can get to the point where energy is incrementally negligible to free, that is absolutely a game changer. Again, you know, we need Jason here to talk about the VC angle or another one of our VC friends.

But my take on it is this, is that VCs looking at these types of businesses today, they are expecting that the runway is going to be longer because they’re expecting that you’re going to be deploying AI and have lower staffing demands and costs in that early startup stage. I mean, I can tell you some of the stuff that I’m doing with AI right now. You know, we just had this Futurist Summit in Dubai.

I generated a full set of financial reports and financial statements for that on agentic AI. You know, I’m investing in another startup right now, which is medical related tech. And we produce the financial forecast for that, the business plan, you know, so much of this stuff with the assistance of AI.

And it would have taken us months of man effort to do that previously. So, you know, Sam Altman talks about the single person unicorn emerging. But I think we are entering this phase of human-less corporations, not human-less, but less humans required to operate these businesses at scale.

And that’s certainly the case in these digital businesses, because, you know, that’s where these tools are emerging first and foremost. That’s why we talk about, you know, mid-level coders and, you know, low-level coders being eliminated in, you know, the Magnificent Seven right now, right? Well, many might say that the problem is we’ve all become a little bit less human, and that’s not necessarily the direction that we want to go. So we are way off in the future.

We’re going to take a little break and say thank you to the supporters and sponsors of this show. And when we come back, we’ll try to reel it in a little bit closer to 2026 in the next few years. And what are some actions that people can take today to both shore themselves up in a soft economy while also creating options for the future? We’ll be right back.

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That’s fin.ai breakingbanks. Well, Brett, in the first half of the show, we were really looking out into the future, which is what futurists do. I like to look at what are we actually going to get done on Monday morning.

And a lot of banks right now are in the middle of their strategic planning process. They’re thinking forward about, what do we fund? What do we cut? And unfortunately, I think they should spend a lot more time thinking about what they should cut, but that’s maybe another show. So let’s start where we were, which is AI.

So we’re not in that future you described just yet, but we can’t ignore AI. If you were leading a small-to-midsize bank today, where would you put your chips in terms of AI and technology? I mean, I think what I would endeavor to do, and this is, I think, important for any organization trying to make this transition. We talk about technical agility, and that’s really key.

So, do you have the tech that enables you to make these moves? And we should discuss in that context, we should certainly discuss what happened with Fiserv SharePrice last week. But the second piece of it is cultural agility. So if you’re going to be ready for AI, and next year’s going to be a lot of AI integration.

I do a lot of work with our friends at Mastercard, and you can’t walk 10 feet in Mastercard offices without somebody saying agentic AI, right? So the point of that is, is that if I’m a CEO of a bank, looking at those strategic things, I want everyone in the bank using AI on a daily basis, just so they can understand how it works at a minimum. Secondly, so they can start actually generating some ideas of how it could improve the business operationally. Yeah, M-Price Bank in Kansas, one of the Alloy Labs Alliance members, they’ve taken that stance, and everybody has to use it.

They’ve started with some very simple use cases around email responses and those sorts of things. But your point is a good one around cultural readiness and building a culture that is more adaptive and not just stuck in, this is the way that we’ve always done things. The other topic that we’ve been talking a lot on the show lately, and we’re, Jason and I are hearing this all around the country, everyone wants to talk about stable coins.

Too many of the conversations are about a solution looking for a problem, but the big banks are looking at being issuers, small banks are thinking about, how do I make that an endpoint on whatever rails that I have today? They’re concerned about the ability for non-bank third parties to be able to pay some form of rewards, which is a proxy for interest. I think no matter what, our view is that everyone should assume that deposits are going to continue to be more and more mobile and less sticky, and that creates some structural systemic issues for the industry. We all know what happened at Silicon Valley Bank.

I was just going to say SVB. But let’s drill down into this a little bit, because I’ve come up with a thesis on this recently, and I’d love your opinion on this. I think part of this is a generational shift in terms of the use of financial services, and not just about the speed of the internet.

That’s what we argued for SVB, for Silicon Valley. Deposits can move at the speed of internet. But I want you to consider this.

I think Gen Zs and Alphas, and to some extent Millennials, I think they choose their financial services like they choose their apps on their phone. It’s like, I need to buy a car. What app is there for that? And so the concept of a preferred or favorite financial institution, a primary financial institution, this doesn’t exist anymore.

And so as a result, you have to be starting to think about that experiential element of your bank utility that you provide, and how do you ensure that when those moments come up, you know, we used to call them money moments and stuff like that. When those moments come up, where they’re going to start going to look for that, that they’ve seen some messages, or the AI integration, the eugenic AI is going to say, well, you know, you’ve worked with these guys before, and they can solve that problem for you. Because that’s the other thing in this on Monday morning, what should marketers in banks be thinking about for next year? How do I market to eugenic AI instead of humans? Yes, and that’s exactly the question I was going to ask, is when you think about having agents that you authorize to, you know, I’ve got an extra $20,000 from a bonus here, and you know, where should I put it? And the agent should ask some questions about when do you need it, what kind of risk tolerance you have, and so on.

But yeah, it’s probably not going to factor in who has the branches closest to me, or where to put the parents back, right? I mean, we still use that data, right? We still do these surveys, and people choose banks because of the branches close to them. But why? Let’s drill down on that, because, you know, I hear this a lot. And the answer is, if something goes wrong, there’s someone I can go and yell at to fix the problem.

But, you know, we’ve had Henry Ma from WeBank on the show a few times, and I love this quote of his, he says, if you need to see a human, that’s a fundamental design flaw in your bank. Right. And that’s a different way of looking at it, you know, and if you can design out those, you know, crisis support moments in the experience for a customer and just solve that, and certainly with AI, I think you’ll get better at doing that, then the requirement for you to see a human to get unstuck or get a problem solved is going to dramatically reduce.

And that makes the economic case for a branch much, much harder, because today we can say, well, there’s a safety in having the branch, because I know I can always go there and get something fixed. But if I start to develop trust that, oh, no, I’m working with this app or this integrated AI capability now, and it just seems to fix all of these problems for me, then, you know, what do I need the branch for? And we see already, if you look at the numbers, I always tell bankers to look at this if they have any doubts about the future of their branches. Look at the number of visits per customer per year to your branch network over the last 10 or 20 years, if you’ve got that data.

And surprisingly, a lot of banks don’t. But you’ll see that only going one way, you know, going from in the 1990s to twice a month to now, if you’re lucky, once a year. Right, right.

Well, and you said a big word there, utility. And I might even rephrase that as jobs to be done under Clayton Christensen’s jobs theory, right? Customers hire products to do jobs for them. And to your point, it’s not about customers don’t hire a bank to have a relationship with.

No. They may develop a relationship because that institution does the jobs I need to get done well and smoothly and with a minimum number of pain points and all of that sort of thing. So I’m completely with you on that.

The one counter argument to that is, you know, in 2011, I was on the Apple campus and actually got to meet Ron Johnson, who was the architect of the Apple stores. And he said that, you know, the industry misunderstood. Because you remember, this is the time that Gateway and Dell and others are closing their retail stores and their opening stores because it was a place to interact with their customers, not necessarily sell stuff, right? He was very clear.

We don’t care if you buy it at Best Buy or online or at the Apple store, but we want to engage with you here. Is there any parallel that works for banks that is similar to that? I know that, you know, in the mid 2000s, a lot of banks thought that, oh, the secret to the Apple store is to have a minimalist white walls and block wood. We saw a lot of the Apple store bank branch concepts for sure.

Yeah, that wasn’t the answer. Well, no, I think the core problem is, here’s the problem. The reason customers aren’t visiting branches as much as they used to is because they don’t need to, because we’ve got these things, right? And so it’s not a design problem.

It’s not a product problem. It’s a convenience problem. It’s a utility problem, right? So, and this is why trust is also changing.

When you look at, you know, markets that have very big developed digital players like Revolut in EU, Nubank in LATAM, WeBank in China, Alipay and, you know, WeChat Pay in China, those institutions, those digital institutions have higher trust levels than traditional banks today. And I think the reason for that is utility, right? The fact that it just works, right? And that’s why I trust Alipay because every time I want to send you money, or I scan my QR code, it’s going to work. I’m not going to have my card fail or get pay frauded or whatever, you know, whatever those things that might happen in a traditional setting.

But if you look at the utility of branches in that light, you know, and this is the back to the Apple store thing, the problem with branches today is not a design problem. So you can’t design better branches to get people back in the branch. The only way you’re going to get people back in the branch is take away their smartphones, right? And that’s not going to happen.

In fact, AI is going to accentuate that problem. But there is a, there is at a time going to be sort of the artisanal, you know, restaurant, bakery, you know, pottery studio type thing where, you know, yeah, where people may choose it experientially, because it’s, it’s quite to go into a branch and speak to a banker and do that instead of using AI. But, you know, if you’re looking at that to happen to save your business, because you’ve got branches, then you’re out of business already.

Right. Well, let me spin you back, though, to two things. One, stablecoin.

So what do you think that looks like over the, I’ll give you a shorter timeframe now, just five years by the end of the 2020s? Well, so, you know, I think the big milestone recently, and there’s obviously been some debate about this, that still much of this is trading, you know, but stablecoin volume overtook Mastercard and Visa recently in terms of trading volume. So we are going to see that obviously happen at scale. With the efforts that we see with the big banks, HSBC, JPMC, and so forth doing, you know, more stablecoin stuff, and Stripe enabling stablecoin accounts, if you can start getting people building smart contracts, which over the next five years, you will see this, you’re going to start to see a lot more automated finance based on stablecoins.

Because in that automated environment, yes, you can swap in and out of stablecoins in real time and do that quite efficiently. But essentially, what you’re going to have is that sort of smart contract marketplaces are going to be running mostly off stablecoin. So by 2030, my estimate would be that probably somewhere around 20 to 30% of global cross-border trade will be autonomous based on some sort of contract and stablecoin deployment.

If you’re not, if your financial institution and cross-border trade is not important for you, what’s the use case? Platformification, right? Platformification is how, you know, platformification of your bank, even if you’re a regional player like, you know, Fifth Third or, you know, or even say Capital One or something like that, you’re going to be trying to get a lot more interactivity because of agentic AI, you know, between your clients and customers, where there’s strength and relationships, you know. So, you know, you’re definitely going to be trying to build stronger marketplaces for agentic AI and smart contract deployment for businesses, wherever you can do automation. You know, this includes like behind the login, automating accounting tasks and things like that.

But, you know, wherever you need to tokenize stuff, wherever you’re passing it off for autonomous operations, whether it’s an autonomous factory or you’re starting to deploy networks of autonomous vehicles or whatever the case may be, you’re going to have to be using tokenization. So, you know, I see obviously cross-border is a bigger number, but if you are looking to do automated business, you know, particularly if you’re using automated supply chain and you’re trying to automate those elements of it, then you’re going to, you know, there’s no other solution really at this stage. Well, that speaks to size and scale and commoditization and not very many banks are going to be able to win that race.

So, it gets you back to if you say that what makes you different is your relationships with your customers and the level of service you provide, it gets us back to that utility and jobs to be done. And the core business model of a bank is we gather deposits, we don’t pay anything for a good chunk of those deposits historically, and we pay as little as we can get away with for the rest. And if that isn’t enough to fund our loan growth, we have to get the third party or external funding, broker deposits, et cetera, wholesale funding.

And then we mark that up and lend it back out as loans. And most of the banks in the U.S. at least, where I’ve been spending most of my time lately, that’s a real challenge for them because if you just kind of assume, as you could for a couple hundred years, that all deposits are there, right? So, all of the effort around utility and service are just around, let’s assume we have a deposit pool, what do we do with it? And I think that assumption is breaking very quickly. And so, banks have to figure out a way to deliver non-rate value.

So, whether that’s customized products, whether it’s true personalization, and I don’t mean put my name in the ATM and wish me happy birthday, but a real understanding of who I am, what I’m trying to do. Like embedded financial coach or chief financial officer of your financial life. Yeah.

Yeah. So, I think come Monday morning, that’s really the big challenge is to figure out, we can talk about all this technology and where it’s going to go long-term, and I don’t disagree with any of your long-term predictions, but I think in the short run, you’ve got to translate that to something that creates value for customers beyond the rate, beyond your legacy, beyond what you believe your power to be in relationship and service and those sorts of things. And when I look in the microcosm of community and, you know, regional banks in the US, the ones that are winning are the ones that are doing that.

Certainly, deploying technology, but doing so in a way that’s relevant for their customers. And I think, you know, that’s not changed. That’s something we’ve been talking about for 12 years on the show alone and longer than that before the show.

Yeah. Well, you know, if you listen, the CEO of MassCard, Michael Mierbach, you know, CEO of Visa, you know, they both said that by 2027, that they expect 60 to 70% of discretionary payments to be made by agentic AI. Now, if you translate that to the rest of the banking business, even if you say it’s 30%, let’s say 30% of daily financial services decision making is done by agentic AI for individuals and for businesses, then you have 30% of account opening, 30% of credit decisioning that is being delegated by an individual or their business to AI.

And right now, you don’t have a plan for marketing to AI. And that’s two years away. So what can you do Monday morning to start getting ready for that shift? That’s, again, comes back to cultural and technical agility.

Yeah. Well, the other thing before we finish up today is you brought up the pretty massive decline in the stock price of Fiserv. They are one of the big three utility players in the U.S. and around the world of what we call core systems, right? The fundamental record keeping and the connection to all the other tendrils of banking.

So what happened there in your estimation and what does it mean? And should we look for similar kinds of things from Jack Henry, from FIS, et cetera? Shout out to our good friend Ron Shevlin, who did an excellent analysis of this the other day. Of course, Cornerstone has been talking about this for a while. But his assessment was Fiserv was overvalued already and the market just realized it.

But there is a core financial services infrastructure shift here. If you look at the pure play banks that have grown rapidly, they have a much more agile tech stack, a lot more middleware. They may have a core for the ledger, but they’re going to have a lot of other systems and most of them are on the cloud.

If you’re not on the cloud, you’re going to have significant disadvantages over the next decade in terms of agility. So Fiserv being able to get into the cloud and do AI is a lot tougher than sort of a next generation core like Mambo or Thought Machine or something like this. So I think we’re going to see a lot more pressure on AI relevance in financial services, whether you have an AI native stack and a cloud native stack that you can deploy for customers.

And you can say, yeah, we’re shifting to cloud and so forth. But how do you get legacy institutions off of mainframes and so forth? I mean, some of the Chinese banks have done it. ICBC, for example, I think have moved 90% of their mainframe processing into the cloud now, but this has taken six, seven years of massive effort, massive work.

And they’re one of the largest banks in the world. So how does a Fiserv and others like them, how do they enable that sort of transformation for their banking clients? It’s a lot tougher. Yes, we have shared cores and all of those sorts of things.

So theoretically that could shift. But I mean, it is a pretty big task. And I think the industry is just starting to realize the relevance, core systems, frankly, you could build a bank today without a core system.

So that’s the reality moving into this next phase. And in theory, we’ll be able to, within a few years, have an AI that could go in and rewrite the core and transfer everything from your core in the basement to a middleware approximation of it. I mean, it’s all of that uncertainty that we keep coming back to.

The ability to change this sort of technical environment rapidly is sort of, I think, a real concern when you have built your entire revenue business on, you’ve got a very, very expensive core system and it’s going to cost you a million dollars every time you need to touch it, right? Yeah, lots of lock-in. And meanwhile today, the banks are kind of shifting across the big three. One of the ones we have our eyes on is InGen that is from Starling.

So Starling, a new bank out of the UK, they spun out that to say, hey, this is an operating system for others. They just signed their first North American client, Tangerine, from one of the big Canadian banks. And I think we’ll see a lot more of that.

So that’ll be something we have our eye on. Well, Brett showed us what’s next. I’m trying to figure out what actually works on Monday mornings at 9 a.m., but in a softer cycle and in an AI first world, pick one move you’re going to execute in the next 90 days and let us know how it goes.

And we’ll be back next week with more Breaking Banks. 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.

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