Borrowing, insuring, and investing will not be unique destinations on their own, but a ubiquitous service that is offered throughout everyday life. Finance will increasingly be invisible to the consumer.
The front-end application will own customer mindshare and the resulting data. As a result, incumbent banks, insurers, and asset managers run the risk of becoming utilities with low brand awareness, little differentiation and diminished customer loyalty.
For example, ANT Financial (the world’s largest fintech) simultaneously serves the function of PayPal, Moody’s, Citi, Blackrock, Western Union and American Express for it’s Chinese customers. This data-driven disrupter was founded only five years ago and today is worth almost as much as Citigroup with 1/20th the number of employees.
Digitally-native banking, insurance and investing, coupled with AI, will make finance much faster, more real time and predictive.
The time to get a mortgage approved and funded will shrink from weeks to minutes. Insurance claims will be paid immediately. Your tax returns will be paid the moment you finish with your accounting software. Financial products will be delivered to you immediately.
Underpinning this speed is data. Data empowers better risk management, enabling money-related customer experiences that meet the same demands for instant satisfaction that we hold other sectors to.
For example, ANT Financial’s on-line bank, MYbank, has a “3-1-0” business model, where an applicant takes three minutes to apply, the AI takes one second to make a decision by analyzing over 3000 variables. Zero employees are required to complete the end-to-end lending process. The default rate is just 1%.
Data will bring vast segments of our population out of the shadows of banking in the 2020’s. It will change the way you think about and interact with money. It will make life much more convenient and open up new opportunities for millions. It will be an exciting decade to be a customer.
Junta Nakai is the global industry leader for financial services at Databricks, a company founded by the creators of Apache Spark. Databricks pioneered the Unified Data Analytics platform that makes it easier for companies to leverage big data and accelerate their AI initiatives. Databricks recently completed a $400 million fund raising round at a $6.2 billion valuation. Investors include Andreessen Horowitz, Blackrock, T Rowe Price, Tiger Global, Alkeon and Coatue. Junta is a former head of APAC sales at Goldman Sachs.
Junata Nakai spent 14 years at Goldman Sachs and is now the global industry leader for financial services at Databricks, a company founded by the creators of Apache Spark.
In this op-ed, Nakai gives his prediction for how money will look and feel in the 2020s.
Data will play a critical role in bringing “vast segments of our population out of the shadows of banking in the 2020’s,” he says.
How will money look and feel in the 2020s?
In three words:
The 2010’s were good for the economy. The past decade saw America add $5 trillion to its economy, a figure bigger than the entire output of the world’s third largest economy: Japan.
Yet, over 50 million Americans remain underbanked or unbanked. Despite the billions being invested in fintech, the 2010’s actually saw very little change in the way Americans pay, borrow and invest.
As a result, the current system underserves significant segments of the population. In fact, when it comes to many aspects of modern finance, America is far behind. For example, America’s mobile payment industry today is 1/50th the size of China’s.
Apart from commission-free stock trading and a few other tech-enabled business models, financial intermediation has seen little change from the beginning to the end of the 2010’s.
Banks, brokers and insurers largely make money the same way today as they did in the last decade. The contents of your wallet seem remarkably similar today as it did in 2010.
The coming decade will mark the abrupt end of the status quo. By 2030, your wallet will look different. The way you interact with money will feel different. The brands you associate with finance today will be different.
Data will play a central role in driving the modernization of financial services.
New types of data will enable more holistic and dynamic underwriting, insuring and banking.
Consumers will stop obsessing over FICO scores as more reliable and personalized metrics become available. Today, FICO and other credit bureaus rely on a very narrow set of data.
For example, whether or not you pay your rent on-time is not factored into assessing your credit worthiness. The status quo requires individuals to already be part of the financial ecosystem in order to become customers.
One reason is the economics of serving the underserved is not favorable to incumbents. As a result, those at the periphery end up paying more for less.
But as the use of new and alternative data sets becomes more prevalent, a big swath of the population — from gig-economy workers to new immigrants — will have significantly more options than before and at a lower cost.
Things are starting to change. On December 3, 2019, regulators released new guidance related to the use of alternative data. The guidance encourages the responsible use of alternative data to “improve the speed and accuracy of credit decisions,” especially for customers that are outside the mainstream banking system.
Source:: Business Insider