Launching a Digital Bank by Chris Skinner

In today’s episode, Jason Hartman is joined by Chris Skinner, Chairman at the Financial Services Club and founder of Finanser. They start the show by talking about banks being challenged technologically and the antiquated banking systems that need updates recently forced by COVID-19. Jason and Chris discuss launching a digital bank and switching gears to robotics and technology in the future. They also posed this question: on robotics and essential work, what happens when people no longer need to work?

Announcer 0:01
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Announcer 0:12
Welcome to the American monetary associations podcast where we explore how monetary policy impacts the real lives of real people, and the action steps necessary to preserve wealth and enhance one’s lifestyle.

Jason Hartman 0:29
It’s my pleasure to welcome Chris Skinner. He is chairman at the financial services club and founder of financer, he’s author of the best selling books, digital bank strategies to launch or become a digital bank, digital human. The fourth revolution of humanity includes everyone in the new book doing digital lessons from leaders. Chris, welcome. How are you?

Chris Skinner 0:51
Yeah, I’m good. Jason. Thanks for having me on.

Jason Hartman 0:53
It’s good to have you. And you’re coming to us from Poland a great place. I’ve been to many times, what city are you in?

Chris Skinner 0:59
Just outside Warsaw in the suburbs? Luckily, we moved to a place with a big garden in November. So it’s not been so bad for the last three months, we couldn’t get out

Jason Hartman 1:08
of the house. Right? Absolutely. Yeah, the world has really changed. And all of this change is accelerating what economist Joseph Schumpeter called creative destruction. And it is really accelerating change in the world in so many ways, a lot of it for the good. I mean, a lot of things that would have taken five or 10 years to happen, in terms of convenience, technology, so forth are happening right away. And so there’s definitely some good, good that’s coming out of this, no question about it. But tell us what’s going on in the world of money and banking, and how that affects all of us and in the economy in general?

Chris Skinner 1:47
Well, I’ve been saying for a long time that banks are challenged fundamentally by technology, because they have, in many instances, not upgraded their systems for over half a century. A stunning statistic from Reuters is that 43% of the big bank systems in America run on COBOL. That was developed back in the 1970s. In most cases. So this is a issue because today, everything has been born on the internet. And everything is moving to be cloud computing based, and allowing people to plug and play software wherever they want to be able to work in whatever way they want. And that’s led to what’s called a FinTech revolution in the last decade, and in particular, in the last decade, there’s been a big pressure on banks to move to being more digital. And they’ve resisted that move, because they have leadership that doesn’t understand technology that well. And then the lockdown arrived at one had to work from home. And they all suddenly found that they left those decisions way too late, because they didn’t have a digital backup, the physical operations only had physical backup. And suddenly they needed digital backup, and they didn’t have it. So we’re going to see a massive change, not just in banks, but in retail and normal institutions to the digitalization over the next couple of years that you might have might have taken a decade is going to happen in 12 months.

Jason Hartman 3:08
Yeah. So their old systems, the software that runs their businesses just won’t integrate with the internet, or how does that play out?

Chris Skinner 3:18
Well, a lot of people describe the systems of any large institution that’s been around for more than 50 years as spaghetti structures. And what they’ve got is a lot of underlying core technology that some dating back to the 1980s 70s, or even in some cases, the 1960s, you unbeliev and they’ve layered everything on top of it through the years. So it’s now become incredibly complex. And I liken it to the New York subway, you know, if you try and put it in a brand new subway line, navigating through the existing subway system is incredibly difficult. And that’s what banks are trying to do, and large companies are trying to do when he add the internet to the old systems. Instead, what they should be doing is re architecting completely fresh and new for the internet era and the digital era, and eventually dumping all those old systems.

Jason Hartman 4:09
So tell us how it will change. I mean, what can we expect in what will happen to the criminal organization known as Wells Fargo? Or the criminal organization known as chase or Bank of America? You know, they’ve all had their, their foibles. But lately, Wells Wow, it’s like one scandal after another. It’s incredible. Are these banks just going to kind of fade away? Will we all be using Venmo? Or what what’s going to happen? What does this future look like? Well, I

Chris Skinner 4:40
keep coming back to the fact that unfortunately, the big banks will not go away and they’ll just get bigger, you know, we thought they would disappear after 2008 and the global financial crisis but they’ve actually gained market share and they’re bigger than they ever were, and they’ve consolidated

Jason Hartman 4:53
more there’s a lot less choice right? Because the the too big to fail, created a consolidation of

Chris Skinner 5:01
Exactly. And that will continue. And a lot of that has to do with the way in which the financial system is completely integrated into the governmental and economic system. And so you can’t take that away. And because a lot of it has to do with trust, and regulation, then it’s very difficult for it to change. And in my lifetime, I’ve spent many times thinking that banks would eventually disappear, but they just get bigger because of that regulatory structure. There’s an interesting statistic again, in the US, which is the average bank in America deals with 128,000 regulations, the average technology company deals with 27,005 times more regulations to deal with. And if you’re dealing with pure technology play, but what is happening is the pure technology players are starting to make an impact, particularly around credit loans, payments and savings. So you’re absolutely right, when you mentioned Venmo, or square or stripe, or Lending Club, I’m Sophie, all of these new companies have just appeared in the last 12 years Born on the internet after the financial crisis, I really started to have an impact. But the impact is on the margins and profits. It’s not on the core business of banking.

Jason Hartman 6:10
But stripe isn’t a bank, for example, that’s just a merchant credit card processor, right? Or is it? Is it more than that? Well,

Chris Skinner 6:17
it’s a little bit more than that. I mean, that my favorite FinTech company, and FinTech is this term that describes the integration with finance and technology that’s come around in the last just over a decade. And a lot of that’s resonating around cloud computing the internet and platforms and marketplaces, which will turn you in but but

Jason Hartman 6:33
I don’t get it I mean, authorize dotnet a big old credit card processor. They have a website. So does stripe stripes is better. But what’s the real site Jason

Chris Skinner 6:45
stripes unique aspect is it they offer beautiful sort of piece of code that allows checkout to be created really easy and simply for anybody trying to do merchant checkout as a company on the internet and the code, and they launched in 2011. And they’re now worth 36 billion.

Jason Hartman 7:06
I know, they’re they’re amazing. I follow their

Chris Skinner 7:09
context. And one of the oldest and biggest banks in Germany is commerce bank. And stripers, over seven commerce banks in value. So amazing. Isn’t this a phenomena?

Jason Hartman 7:19
Yeah, but just to ferret that out a little more. And we don’t, you know, we don’t have to belabor this point. If you sign up with authorized dotnet, to do your merchant processing, that’s sort of an old company, or you sign up with stripe. I mean, they both have integrations, a lot of various merchant websites, just have like a one click integration, they’ll both integrate, right? or What am I missing there, that makes stripe such a big deal.

Chris Skinner 7:43
I think this is the simplicity and beauty of the code that they do accept an offer and that they do have competition does not from companies like authorize dotnet. It’s more from companies like ad yen, or alipay players with different industries and countries in different markets. And the reason why stripe has been so successful is that they got a lot of traction with the new big players, the sort of Ubers, or lifts or Airbnb ease of this world. And as a result, that traction gained a lot of momentum. And when people are developing code, they look at the plug and play code, which are called API so they can get from other players. And what they tell them is stripes, the you know, the engineers and developers that are developing code online, look at their code and go, Oh, it’s just art. It’s beautiful. So it’s almost like saying, Would you rather have, you know, authorize dotnet? Which will be let’s see. You, you too? Or would you like to have Snow Patrol? Or Taylor Swift or whatever, but it’s kind of just some old guys on the block on your new guys. Yeah,

Jason Hartman 8:48
something a geek would appreciate for sure. Okay, what about all the other services that banks offer? I mean, banks offer a variety, a whole cafeteria of services, and they largely suck at it. They’re pretty bad. The surface is pretty terrible at banks, everybody complains about them, kind of the way people used to complain about the phone company, the old traditional phone company, you know, are these services all discombobulated among a bunch of different companies now? Or, or maybe none of them exist outside of banks. And in terms of, you know, certainly services. I mean, there’s a whole infrastructure of various services, right, a big variety. Yeah,

Chris Skinner 9:27
I mean, what’s happening, and I often talk about this specifically is that there’s 1000s of new companies doing one specific thing like the stripes and the origins of this world and the squares, just doing a retail payment or merchant payment online with a bit of code. So that’s stuff that is replacing just a very small piece of processing within the financial network. And when you think about the financial network, investing in mortgages and real estate and payments and high street deposit, taking full service accounts, etc, etc. There’s a myriad of services that banks are offering And what’s actually going to happen over time is they’re going to start providing those services by picking these guys who the new kids on the block and bringing them to the customer. I call it the curation of technology, which banks haven’t got there yet. But some are moving in this direction. More and more quickly are saying, we know we can’t develop everything ourselves, we’re not good at everything, we’re going to start bringing the best things out there to the customer. And we’ll do the integration, we’ll do the delivery, because why should you or I, as a customer, don’t find out Can I trust stripe or square or add Yuan or Ali pay, let the bank do it for me, and then bring that to me and make it something that’s a really great service.

Jason Hartman 10:36
One of the bank names that comes to mind, that was probably from the sort of the bubble era is Ally Bank. You know, I remember I called them once, and it seemed as though the disconnect was they just do consumer banking, and I need business banking. So they want for me, these old fashioned banks really seem to still have a lock on like, real business level services when it comes to banking. I mean, I assume that will change. But with all the know your customer rules, and so forth to how do you really operate an online bank when you can’t meet your customer? That’s a, I guess, another part of it right?

Chris Skinner 11:16
Well, times are changing. And it’s all around timing, to be honest. And it’s um, you know, for many years, there’s been many technologies at once forecast will change the way we do travel, shopping, buying houses by doing banking, you name it. And it hasn’t actually made huge differences yet. So alley bank was kind of maybe before their time, and they got China in the US, which are doing pretty well. And in the UK, it’s been really interesting, because there’s lots of new banks that are being launched. The two biggest names on monzo, and Starling and stalling certainly been going for three years already has almost 3% of the UK small business marketplace, Monza has got 3 million account holders, which is pretty substantial in a market of 30 million accounts. So you start to see changes happening. And it’s just timing. And one of the really interesting things about lot the likes of chime, and monzo is what they end up doing is becoming quite hip and cool as brands because people like to show their card and their service. And so they get your lifestyle payments and and services. And the old banks still maybe you have an account with them, you still might have an account with a wells or Chase, but they become boring or bank with boring All bills. So it’s your utility bills for electricity and gas or whatever is your mortgages and loans and foreign exchange. But your everyday living is in the new hip and cool bank.

Jason Hartman 12:40
Interesting. Let’s switch gears and talk about your other two books for a moment if we can Well, really not too. But first of all, strategies to launch and become a digital bank. Can anyone do this? Is this? Is this a business opportunity for the common person? Or is it still only for banksters? banksters.

Chris Skinner 12:58
This is for anybody that’s for absolutely anybody. One of my favorite stories was a bank that was launched in Britain. Unfortunately, it didn’t succeed for various reasons, mainly to do with funding. But it did get quite a lot of users and a lot of support amongst the millennial and Gen X community. And it was a bank called loot launched by 21 year old University dropout.

Jason Hartman 13:23
Yeah, I love it. So, but but in the US, I mean, you’ve got to get FDIC insurance. And that’s got to be super complicated, right? navigating that you’ve got to have, you know, a million FBI background checks and tons of regulations. So when you talk about launching a digital bank, is that outside of the US, or can you do it?

Chris Skinner 13:45
I mean, Monza and then 26, and others are coming to the US and Europe. And what they’ve realized is that the best way to start a bank is not to be a bank is to be a prepaid card with a cool brand. And then you build the online community, the social network, and finance. And you do it in such a way that people like the way that you talk and the transparency that you offer, and gradually launch more and more services. And yeah, Luke’s going back to being watched by 21 year old University dropout. Again, it wasn’t a full bank, what it provided is the front end app, and then brought in API’s and back end services from other providers who did a lot of the regulatory piece, for example. So y card is a big financial back office provider in Europe that does a lot of the pain of regulation and allows people to go on do the cool stuff at the front.

Jason Hartman 14:36
But how much capital Are you talking about that someone needs to start paying? I mean, that sounds like a just a giant undertaking. I do see the way I see the path that you mentioned. And I think that is really cool. By the way. You start with your audience. And you you start with maybe one application, and you build from there and just to keep adding services, but when do you Become a bank bank, you know, sort of what’s the definition of addicts, I guess when you take deposits, right? That’s a bank.

Chris Skinner 15:07
I mean, to build to be a full bank, you have to take deposits. Yeah, that’s you have to have the FDIC, capital coverage of all of your operations. And you also have to have the due diligence of the Federal Reserve, looking over your shoulder making sure that you’re doing the right things, you’ve got the right governance, the right people on the executive team, etc. That sounds

Jason Hartman 15:25
like a lot of money and compliance costs, and lawyers, accountants, auditors, etc.

Chris Skinner 15:31
So first off is Jason, the minimum amount, you need to be a full service bank from the get go is $30 million. And that’s just to get the license, that’s not to launch the operations, that’s just to get through the gate, right.

Jason Hartman 15:42
So $30 million, is considered ultra wealthy, 30 million net worth and above. And so I don’t think a lot of our listeners will qualify for that, I actually know that a couple of them will.

Chris Skinner 15:55
If you roll it back to my university dropout, you can launch the tertiary services with $50,000, you don’t need 30 million. And then you build and build and build. And as you get the momentum, you get the venture capital and investor support, you get the customer support, and you take it from there. So it’s step by step, don’t try and eat an elephant all at once. Do it one piece at a time.

Jason Hartman 16:18
Okay, so the future and you know, in your book, the digital human, you talk about robotics and other fascinating things. Let’s switch gears and talk about that a little bit. Yeah, I

Chris Skinner 16:29
mean, I’m a big fan of technology. I’ve always been in the technology industry in financial services, which is why I was talking about those two things. And I always focused on the future, because that’s what we don’t know. But what was interesting is that until the pandemic, I’ve pretty much been traveling non stop for a decade, and I’ve seen nearly every nook and cranny of the world. And I generally ended up in museums and churches and temples, learning a lot about the history of humanity. And it kind of struck me during those travels that we initially became human because of shared beliefs, because we could communicate because we have a voice. And then we had another revolution when we became civilized and created farming, so we could live in cities and towns. And then we had, and at that point, we invented money. And we had another revolution when we started to connect across borders and across continents, and went through the Industrial Revolution, which is when we invented banking. And now we’re going through another revolution because for the first time ever, in humanity’s history, every single human on Earth can connect directly in real time, anytime, all the time. And you and I are experiencing that right now. Because we’re on different sides of the world. And I have zoom calls almost every day where I’m meeting people in every single country of the world. But the fact I still have that global connectivity, although I’m sitting at home for the last three months is quite incredible. that’s never been something available to humanity before. And it’s changing the way we think and do things. And a lot of what’s happening right now is going to turbocharge that technology transformation. I just was writing something about 2030 arrived in 2020, which is because when everyone’s been locked in at home, suddenly everyone said, Well, we have to do things differently. We have to shop from home, get everything delivered. And that behavioral change is going to be a fundamental shift that blankly and it will impact your audience massively, massively because of the real estate drop. You know, in the UK, I just got a statistic and they just ease the lockdown and everyone’s gone to the shops. But compared to a year ago, the numbers that went to the shops is down 69%

Jason Hartman 18:28
Yeah, absolutely.

Chris Skinner 18:29
Yeah. Amazon and co are going through the roof. Yeah, right.

Jason Hartman 18:32
And you know, the three primary value drivers for real estate have always been even since we were living in caves, location, location, location. And eight years ago, in 2012, I started saying that location is less meaningful than it’s ever been in human history. I started saying that on my show back then, eight years ago, and I was primarily saying that not necessarily because of all the technologies and you know, we had WebEx 20 years ago, okay, you know, this, we had Skype many years ago to these technologies are not really new, but the adoption has been, you know, somewhat mediocre, really, until the last three months, which is great. I mean, there, that’s wonderful that people are finally, really, really using these things. I mean, even my mother now will use all this stuff, right? She wouldn’t work. And the reason I said that in 2012 was because of the rise of autonomous vehicles, the self driving car was gonna change the location being so meaningful. And you know, like you said, You live in Poland, in somewhat out of the way place it sounds like and you can still be fully connected. That’s great. That’s incredible. You know,

Chris Skinner 19:48
I was just gonna say there’s two big big behavioral shifts that happens immediately this lockdown came in. One is that for some reason, everyone wants to connect on a video call which we never did before. quite happy with You know, a phone call. Yeah. And actually, you know, we’re connecting more and more often. So take your mother and my mother, I mean, my mom is 92. And I’m talking two or three times a week on zoom, when I used to speak to a one time a week on the telephone, yeah. But the other second big shift in behavior is that people have downloaded loads and loads of apps to have more things that they can do easily on their mobile devices, specifically, mobile banking. And a lot of people were worried about using digital bank services, that’s, again, completely fundamentally shifted. Now, we’re not going to go back to the way that we were doing things before. And one of the trends that I spotted going to your point from 2012, about location, location location is, you know, I saw it in China first, which is, and, and India, which has a lot of entrepreneurs, who had to move to cities to get work, have now gone back to the villages, because they’re using the internet to work, right. And that is a massive shift in the way in which urbanization and society will operate.

Jason Hartman 20:59
Right. But it’s also a digital divide, because some people can’t do that. And then that’s what, that’s what we’re really seeing. And I think that’s going to shift the pay structure a lot. I think all of these people that have been doing these physical jobs have sort of been getting gypped, they haven’t really shared a lot of the prosperity in the economy. I mean, it’s kind of odd to me that, like, Why do Why is it always been that food workers get paid so poorly? You know, if you’re a waitress, you can make good money with tips, right? Or at least in the States, you can. But you know, if you’re the cook in the back, unless you’re like a famous celebrity chef or something, you’re getting meager wages, and that job isn’t very enjoyable, in my opinion. It’s just sort of a it’s odd that it’s that way. Like I don’t know why it evolved that way. I mean, obviously, a lot of people have that skill, a lot of people can cook. So there’s there’s not a rarity to it. But a lot of people can do digital work to the technologies become so easy. thoughts on that

Chris Skinner 22:00
was interesting. Going back to your earlier question, which I didn’t really answers some about robotics and artificial intelligence, the word robot actually comes from where I live right now, Poland. It was first used in the Czech Republic, which is next door country, and it to describe forced labor, doing drudgery. And that’s what robot means that it’s doing drudgery work, right. And so many people are doing that sort of work about What amazed me. And again, to your point is that when we had this lockdown, who were defined as essential workers, well, it wasn’t bankers and technology. Exactly. Right. And hospitals and driving buses

Jason Hartman 22:39
and working at the grocery store. Yeah,

Chris Skinner 22:41
yeah, exactly. And so what’s gonna happen? And this is a huge debate, and I don’t know the answer, being honest, because I’m not an economist. And this isn’t an economic question is what happens when people no longer need to work? What? How will we structure society?

Jason Hartman 22:57
I’ve been wrestling with that forever. I mean, is it universal, basic income. You know, when you look at the robotic revolution, it’s way more than just these menial, repetitive tasks, you know, flipping burgers, etc. It’s writing music, writing articles, doing all sorts of things humans do now. Are we all just going to live in this world of abundance that’s created by the machines? Or is there going to be massive unemployment and civil unrest? I mean, which way is it going to go?

Chris Skinner 23:23
Well, we got a little bit of an answer around it during the last three months in the some Coronavirus crisis, which is, what have we been doing at home? Yeah, in my case, I’ve been getting much closer to my loved ones sharing a lot more time with them, learning trying to learn to speak Polish, which I’ve never had the time to do before. I’ve been getting better on the piano, which I played 40 years ago, but haven’t touched since. And that sort of stuff. And so it really says that online a lucky position because I can afford to do that. If you don’t have the, you know, universal basic income, if that has some way that we would just get the basics of food and shelter, then you have an issue. And I think what we’ll see is that governments will be forced in the next 10 to 20 years as more and more jobs are automated, that they will have to give people food and shelter as a basic human right.

Jason Hartman 24:09
Mm hmm. Yeah, I agree with you. Even my most libertarian friends that don’t want the government to do any of this stuff are saying UBI is the future. It’s it’s gonna happen. And it’s all we’re already seeing evidence of that now. You know, I agree. I had Andrew Yang, the presidential candidate on my show that was a big part of his platform was universal basic income. And that’s going to happen, right? That’s it’s just got to do

Chris Skinner 24:36
maybe, because the adapt there’s a downside to it, which you’ve seen, maybe on the first peoples reservations in the USA, or we’ve seen in experiments that have been taking place in the Nordic communities in Finland and Norway, which is if people are given everything, so they don’t have a work ethic. They can fall fall off the wagon and start to abuse themselves. So it’s kind of where’s the pride in not doing anything? You have to encourage people to do something. But the question is, what are we going to encourage people to do? Is it to be creative and share emotions and relationships? Or is it going to be to do drudgery? It definitely might be to do to drudgery. So it will rise to be something new above what we are today, I

Jason Hartman 25:20
hope. Yeah, there’s definitely a moral hazard in that, and we’re already seeing it with these enhanced unemployment benefits in the US, people won’t come back to work. Now that we’re having things reopen. A lot of people are just deciding, yeah, you know, I’ll just stay home and collect, collect my government money. So it’s quite interesting. Yeah, yeah. Wrap it up with a closing thought and give out your website.

Chris Skinner 25:42
sure that the website is the with an S, because it’s short for financial services, and also Chris Skinner dot global, which is where you’ll find everything about me.

Jason Hartman 25:52
All right, any closing thought you want to mention?

Chris Skinner 25:55
I think bottom line is, you know, some people said that I’m way too optimistic because digital human ends with the view that eventually we moved to being far more like Star Trek, and Gene Roddenberry when he invented Star Trek, categorically refused to allow money to be exchanged, because in the future, his view was that we deal with the betterment of humanity and not with the generation of wealth. That’s an interesting thought. Whatever happened, I don’t know. But it would be interesting if you’re just a better humans.

Jason Hartman 26:23
Right. That would be interesting. We’ll see if that can happen. Chris Skinner, thank you so much for joining us today.

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