As banks move from closed to open platforms, Galileo CEO Derek White tells PYMNTS those that want to survive — and thrive — will need to develop new products, services and mindsets that will keep them in the middle of consumers who are increasingly on the move.
“We’ve lived through the internet wave, the mobile wave, and now we’re moving into the open wave.”
That’s the worldview Galileo CEO Derek White shared with PYMNTS’ Karen Webster in a sweeping conversation that envisioned the possibilities surrounding nascent technologies, such as Banking-as-a-Service (BaaS), embedded finance and even invisible payments.
In fact, if there is one thing that these up-and-coming developments and others that exist beneath the open banking umbrella have in common, it is that they are all pushing the boundaries to find new ways for improving human interaction.
At stake, he said, the very idea of what it means to be a bank will be redefined as financial services find themselves tightly woven into the fabric of lives lived online, touching every industry, every activity.
From Closed to Open
The financial world’s transformation from closed systems to open systems, White said, is not unlike the evolution of paper-based Rand McNally Maps that simply pointed the way to a destination to the modern Apple or Google digital varieties that move with you as you move through the world.
So will be the case with banking, which White said will move with individuals across a continuum of interactions. At a high level, consumers want embedded identity and payment credentials in place as they navigate these open ecosystems. They’re increasingly comfortable with having their app and device be the gateway to, well, everything.
It’s a sentiment backed by PYMNTS research as noted in the most recent “How Consumers Live In The Connected Economy Report,” in which 92 percent of 15,000 respondents said they had placed at least one online order recently, one-third of which also qualified as “highly connected” consumers who conducted online business across several aspects of their lives.
Taking a Cue from Big Tech
Banks can take a cue from Big Tech as they seek to become ever more connected to the consumer. Initial success is not measured necessarily in monetization but in interactions, he said.
Consider the case of Google, whose “next billion users” initiative focuses on uncovering research and insight that will drive the connected economy.
While monetization eventually arrives on various platforms, it first needs to be cemented by the creation of the ecosystem and the affinity of consumers who are incentivized to return again and again.
“These ecosystems are built through eCommerce, through chat, through media — even gaming,” said White.
The leading indicator for every industry, after all, lies with human beings, how they interact with technology, their social spheres, and when it comes to financial services, how they interact with their own money.
Monetizing Financial Services
While all firms want to monetize those interactions, he said, monetization in financial services is, at least for now, based on just a few connections with consumers: There’s the tap on the glass (with a mobile device), saying “yes” or signing a piece of paper.
But open banking is, well, opening up new use cases — and open banking just got validation in Visa’s deal to buy data aggregation company Tink, he said.
“The open exchange of data, and businesses’ and individuals’ ownership of that data, are essential, and the exchange needs to be done in a safe and secure manner in real time,” he said.
Instant money movement, where funds move at the speed of the internet and real-time payments infrastructure will become a standard feature around the globe, will transform financial services. At the same time, he said payments will increasingly act as the bridge between these digital, socially driven ecosystems and the monetary, connected economy, and they will eventually lead to lending and deposits and a roadmap for consumers to navigate across a variety of products and services.
Banks are in a unique position to glean real-time insight into a range of activities, such as seeing how consumers are behaving, how B2B payments can be streamlined, or what risks must be considered in order to underwrite a million-dollar loan.
Banking’s Transformation
There is room for traditional banks in the mix, said White — there will just be fewer of them. There are tens of thousands of traditional financial institutions (FIs) in the world right now, he said, and eventually that number will be whittled down to dozens who have survived, having carefully crafted the ways in which they want to build and serve the connected economy.
These banks have to decide whether they want to be the infrastructure of money, or whether they want to enable the end user experience. How they monetize those experiences will be essential to the future, he said, stressing that “banks are not a lost cause.”
He noted that, increasingly, Galileo (which powers money movement for 90 percent of the neobanks in North America) is being tapped by traditional banks to help establish their own neobanks. For those FIs, the move toward the connected economy has been a journey. They started with their end user mobile applications but now are looking at their core banking systems.
“The legacy systems are 40 years old — and now is the time for them to make the decisions that the next step is to update them,” said White.
The Mindset Shift
In transitioning to open banking and the connected economy, the mindset of traditional FI’s will also have to shift, he said.
“You don’t start with monetization as the first point,” he told Webster.
Banking has traditionally embarked on new product and services development by starting with the offering itself and selling it to the consumer. It’s a siloed approach to development — with checking in one silo, deposits in another, investments in a third, as an example.
Most FinTechs and neobanks start with one endeavor and then expand as they’ve perfected the end user experience, he said. Eventually a flywheel effect takes shape. Monetization comes later.
“There’s a community of users where people want to come back to the platform because they know something new is coming,” he said. “They know that by being part of the community, it’s not just a transactional product relationship.”
By offering banking products as a service touching more than 70 million customers globally, he added, Galileo has been able to help these digital-first and digital-only upstarts be far more than just a prepaid card wrapped in a mobile app — and by extension, can bring traditional FIs to the next generation of financial services.
“Payments are the bridge between banking and every other industry, between banking, currencies and government, between sovereign nations and their citizens,” said White.
Looking ahead, he said banking has moved from physical interactions in branches to the age of glass, and soon will be truly connected.
We’re not too far from the use case in which a consumer can drive down the street, see a home for sale, make an offer through the channels enabled by the connected car, and see if that offer is accepted — all of it done hands free.
“You’re making a down payment before you’ve even turned the corner,” he said.
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