1085. Insights: Are Neobanks replacing private banking?

25:35And those might not be the same way.

25:36Ross Gallagher:But what I love about that example is it shifts your revenue model away from, you know, forcing customers to pay fees towards here's some value that we're going to give you. And you choose the lounge access. It is optional. You are not tricked into it or strong-armed into it or pushed into it out of desperate financial circumstances. You just like 100 % opt into that. And you know, when I look at Revolut and how they've designed their subscription, like their packaged account products and the tiers, I think it's the best illustration of what I was saying earlier about the difference between the what and the how because they have a different brand permission to other banks and their competitors playing in that space and I think it's best summed up by like what other bank could offer to cover the cost of your annual tinder subscription and you would be like yeah I'm gonna go for that right there's just no other bank that can do that but it's also when you sit down and you actually look that you break out all of the um the value that you get from each one of those tiers there's a ton of value like one of those tiers where you're paying i can't remember right but it's in like the i don't know it's like 15 or 17 um pounds a month includes a ft subscription which you would never you know would cost you more to just get that by yourself and that's just one of the options and again it's revolute using their size and being able to negotiate really good deals for their customers.

27:10Ross Gallagher:So it's like value over just cost to, you know, make an overseas transaction, which, you know, from a, again, just value to the consumer is a completely different, completely different thing. Although I think if we had someone from the income and banks here that they would argue that overdraft fees are providing value to consumers because they're letting, you know, blah, blah, blah. You can spend more money than you have access to helpful in a pinch. But yeah, I'm not arguing that. All right. I am going to take us to a break and then we'll be back with you very shortly.

27:48Ross Gallagher:Welcome back to FinTech Insider. Now, before the break, we explored how the biggest neobanks have moved beyond competing on better banking experiences. Now let's look at what that expansion means for wealth management and whether capabilities once reserved for private banking are becoming accessible to everyone. Historically, personalized investment advice, financial planning, and concierge-style services were reserved for affluent customers. Today, we're seeing these capabilities become increasingly accessible. Revolut Wealth, Clear Autopilot, Robinhood Cortex, and Publix Alpha, just a few examples.

28:22Ross Gallagher:But Matt, you know, obviously, with your experience, which you've already talked to in some detail, building out Sidekick, I'm really keen to get your thoughts on sort of direction of travel here and where we're headed. I mean, we've learned a lot. Where we started to where we are today is pretty night and day, I would say. And I kind of alluded to earlier that I think that there's two distinct problems. So one is just getting access to more products that can achieve better financial outcomes is always going to be a good thing and a lot of those things have been locked away. So private markets, not for everybody.

29:02Private equity, it's not for everybody, but it can play a really good role for some within their portfolio and most people have been locked away from that kind of stuff. So I think the market has been on this kind of traditional fintech way, which is like you break the box apart. So you had hundreds of companies all trying to democratize private markets to some extent or you had loads of companies trying to democratize auto saving or uh you know uh challenge a traditional robo advisor with lower cost ready-made portfolios and all those types of things so the box got broken apart but i think like where we're now the most excited is that we've almost kind of caused a problem for ourselves in some ways which is now okay now these things are available but like what the hell do i do like how do i navigate that complexity money is complex but like wealth is particularly complex because what are risk adjusted returns um you know allocation drives everything but how should i allocate how do i even think about what i want to achieve in life it's not as simple as like i have a savings goal for three years like life is messy and muddy i have lots of like behavioral traits which means i do really stupid things we all do you know we buy high sell low all that all that stuff we panic when the markets move So there's all of these things now that if you give people the tools and give people the weapons, they're still going to make pretty poor choices or be really overwhelmed by what choices they should make anyway, because it's just cognitive load and complexity.

30:30So I think the market's in a really interesting space. And I would say this because I'm building in this space, but we've all been trying to blow it all apart. And there's some really great options out there. Now it's about trying to not rein it back, but actually help people use these tools now that are available to them to achieve the great things that they need to in life. So for me, the financial advice is the final boss. It's the bit that the banks got scared about. It's the bit that we're all a bit scared about because the bar is high, the risk is high, you know, the opportunities to be sued are very high.

31:04You've got to get this right because it is people's real money. But technology, AI is helping. It is not the magical answer that is, you know, not everything is at the end of an LLM, but, you know, the tools, the technology, and everything is now there to, again, going back to that kind of open up, drive out cost, make these expensive, operationally complex things much more open. That's where we're betting on now for the next two, three years, is that we've got the tools in place and now let's go help people make the most of it, basically.

31:41Ross Gallagher:Maya, I could see you sort of going back and forth between frantically nodding and then very pensive. So I'm interested in your reaction to the world as Matt sees it. I mean, I have so many thoughts on that. Matt is talking about private markets and he says they're not for everyone, which is true. I mean, the government, right? So at least in the United States, you have to be an accredited investor, which means you either have enough money or you've passed a test that says you have enough knowledge to do this incredibly risky type of investment where it's very, very easy to lose all your money.

32:15Like the whole difference between private markets and public markets is that public companies are very regulated in the information they have to provide and how they operate so that it's hard for people to be bamboozled and lose all their money without thinking that they're going to. And so I think when we talk about democratizing products like that, like private markets and private equity and investing in those things, it is pretty scary. It's not that the incumbents have chosen not to offer those to everyone. It's that the government has chosen that maybe it is too scary. So I do have a lot of concerns on that angle.

32:58And that's, you know, what Matt is saying with the advice piece being the final frontier. The other thing I was thinking through is, you know, I've been talking about fintech for a long time, right? And I go on the podcast and I go to Money 2020 and fintech dev con and blah, blah, blah. And one of the pieces where I have really deviated from the industry for the past 10 plus years is on financial advice. I've been anti-financial advice. Everybody is into financial advice and education. They're like, we just need to educate people and people don't understand what compound interest is. And they don't.

33:29And I'm like, they do not need financial education. It's not going to work. And the reason I don't think financial education works is because the 90 percent of financial education or 80 percent that applies to everyone. You can write the blog post and you can send the information, but the details that really matter is that last 20 percent. AI changes that. I am shifting my whole stance to be pro-financial education now because AI can do that last 20 % and truly personalize it based on who you are, the zip code you live in, your personal circumstances, the money you make that you've got both a W-2 job and a 1099 job, and you're trying to cobble together different sources of income, and you've got these interesting expenses things, and you want to tax optimize and you want to grow your wealth and you're worried about these risks, it can handle all of that and actually give you a pretty compelling answer.

34:27And so I'm quite bullish on AI driving the cost of financial education to zero, that personalized financial education. Same thing with personalized health. Personalized to zero and bringing it out of the big private banking. Sorry to interrupt there, but massive difference between financial education and financial advice. So like I completely agree with you that the problem with financial education is even if you make it more engaging and more compelling and more palatable, it's still education which takes time, which takes effort, which is very, very, very hard to educate a whole market on very, very, very complex things and ensure that people fully comprehend it.

35:07Financial advice is almost the opposite though, which is just like, we will help do this for you and take you along the journey. So this is why I think it is the final frontier because, you know, everything else was about let's write more blogs about how to invest. Let's, you know, like, let's, let's just kind of like build the knowledge base. But all of those things I was talking about, which is like, we have behavioral biases, we do really stupid things. We're fighting against our own kind of, um, yeah, species, As a species, we do irrational things. This is where the role of an advisor comes in, which is a real expert whose only singular job is to understand this stuff and help you navigate it and help do it for you.

35:47The problem historically has just been inaccessible and it's super, super expensive. So I think AI can play a massive role on both sides of it, but I would just hazard of bundling education and advice in because I think they are very, very different pieces ultimately. Yeah, it's fair.

36:04Ross Gallagher:I agree. I think there's levels to all of this. And I think, I mean, Matt, I couldn't agree with your point more about, you know, we all like to think of ourselves as these perfectly rational beings, and we're not. We all have, you know, what would be considered by a rational being like poor financial habits and behaviors and all of that sort of stuff that is probably undermining our financial goals and where we're trying to get to. I think when you look at things like the autopilot tool that Cleo's rolling out where, and Maya, this probably goes more to what you were kind of saying around like, look, we'll understand your financial reality.

36:42Ross Gallagher:We will understand where you're trying to get to in terms of your goals and objectives. We will set you a plan that will, you know, sort of get you there, but then we'll continue to reevaluate. So as soon as your personal circumstances change, then we'll make sure that the plan is up to date. I mean, when you compare for me something like that and, you know, versus where that sort of thing just didn't exist before, you can start to see how over time individuals can start to realize a much better financial future. and I'm really keen to bring you in and get your thoughts can you start to can you start to see a path to where maybe some of those traditional barriers or silos for private banking and wealth management start to get broken down a little bit yeah so super interesting uh point of view here right I have so many thoughts I'm trying to organize those but I think it's so cool things I think it's very different if you're deciding on, so again, taking clothes, right?

37:45It advices on small things, right? It's not advising if you should or should not get a mortgage. And I think that's where it's easier to apply AI and take financial advice from AI and be comfortable with that versus when you're making a life decision and involving a lot of risk, potentially taking a lot of debt or putting a lot of money down as a payment. On that type of situations, again, we are irrational. We are emotional creatures. So we still see humans needing a human interaction. It doesn't mean that someone needs to call me on the phone. But I'd be slightly skeptic if we are from like saying that we're 100 % ready to take advice from a model on buying or not buying a house.

38:48again is it right or wrong I'm not discussing I'm just saying we are emotionally rational creatures that would struggle to not have anyone to make accountable or responsible for part of that decision and then I would also split so that's one point the other point and sorry to hijack this bit I would differentiate things that are purely native private banking and wealth management. So I think that what's been happening is we have now better tools for deciding on, again, small-ish investments, planning, understanding our expenses. There's tons of data, and for those bits, I think AI is great. But then part of the core of private banking is that it gives you access to something that is genuinely scarce.

39:50So you have access to something there's not much of. So I'm trying to reconcile, like, okay, if you're giving access to something that is super scarce, how is that operating in a mass market? You know what I mean? and maybe match that. I'll throw that to you, maybe. Yeah, I think it's the human relationship ultimately. I think you kind of said it a little bit earlier is when it comes to money, as much as I've been in the fintech space for such a long time, I like to pretend that everything should be through an app and digital and fast and remove fiction and make onboarding faster and slicker and more digital.

40:29People, when it comes to money, trust no one more than another human at the other end of it. And, you know, that is the premium scarce resource that has always been at the other end, which is like a true real expert. And you can fast forward this even within private banks themselves because, you know, like if you've got a million pounds, sounds like you're doing quite well in life. You are doing quite well in life relative to the general population. But you're still not getting the real experts. The real experts are managing people who've got 200 million, 500 million. So there's still shades of this as well.

40:58But no, I mean, it's the human interaction piece. And, you know, we are running at this problem very, very hard at the moment. So we don't provide financial advice today. it is our ambition in the near future. But AI can do a lot of the admin side of the role that meant that human interaction was scarce. So if you think about the role of a financial advisor, they spend their life setting up meetings, replying to emails, drafting pretty boilerplate suitability reports, doing soft fact-find checks, hard fact-find checks. These are pretty generic tasks that... agents are extremely good at. But that is not what financial advice is.

41:42Financial advice is then the final mile and the human interaction and all that good stuff. So I think AI can actually just take out 80%, 90 % of the work that an advisor does to then free up that advisor to service 10 times as many clients. So I think that's where we're most bullish. I don't see a world, and there's the Mills review out recently, I don't see a world, I don't know why we would see a world either where an LLM, which by definition is guessing the next best token, is the answer to regulated financial advice. But it can be a really great tool to obtain information, to do a fact find, to do a few of these things.

42:22And then you need human accountability at the other end of it. And you need a human relationship as well. So yeah, I really do think AI is going to completely revolutionize financial advice. But I think it will revolutionize it by allowing humans to have more interactions with humans, which is ultimately, I think what I'm most excited about.

42:41Ross Gallagher:And I just, I mean, that point that you made that's so true is, you know, that if you get that blended model right between humans and AI, then the model scales and it scales way beyond where it is today, right? Yeah, completely. It's interesting in terms of like, I don't know, Maya, it'd be interesting to get your thoughts in terms of like direction of travel, you know, how ubiquitous can this become? AI financial advice, you mean? Well, I mean, in terms of like, can we move to a world whereby, you know, we all know about the advice gap today, but can we move to a point where we've almost closed that off?

43:20Oh, I really hope so. But it's also not a one size fits all problem. So, you know, if I was to take my critical hat and almost be like wise of 2014 and say, you know, the incumbents are shocking. Let's go and run at the profit pools. You know, at the bottom end of the advice market, there are a bunch of people who have essentially very low confidence, very low financial confidence, who have quite basic financial decisions to make, but want a human to do it for them because of that low level of confidence. And they're getting ripped off often for pretty basic stuff, which is like fill your ISA and put whatever's left into a pension.

43:56And they're paying an absolute fortune for that. And I think like that end of the market can be like, you don't need an LLM for that. It can be pretty deterministic in the way that those types of things are done. And I think technology can really go after a bunch of that market. And this is where probably like the money boxes and those types of businesses are going to run really hard is that they're just going to make that sort of like low-level regulated financial advice but simple financial advice much more easy accessible open and i hope a lot more people you know are able to step into that the further you go up the finalized pose of complexity where um trust structures and complex financial situations and all of those types of things start to come in i think that's where like basic models start to break and i think that's where like the real human kind of advisor relationship and um you know that deep complexity that they've built their career on.

44:52That's where like, it's less about fees really at that point. Of course, you should be paying fees for really complex decisions. But that's where they're going to earn their fees because they're actually going to do some really complex work and like really earn their fees for it. And, you know, you're not just filling your eyes at that point. You're unlocking thousands of pounds worth of either tax efficiencies or losses that you would have had in other ways. So, yeah. So what I hope is that more people take that simplified approach and that fees are driven out as much as they can be. And then more people who have more complexity at the top end can get access to more financial advisors.

45:25And I don't think necessarily fees are going to disappear at that point. But the accessibility of those services is going to open up much more broadly. I think Matt is really right. And, you know, when I look at the like popular financial advisors who have TV shows and podcasts and books and things like that, like Dave Ramsey, they often have really blunt advice. Like Dave Ramsey says, no debt, no debt ever. No mortgage, no debt to buy a car, no debt to like no college, no debt ever. and it's like there is a certain person who this is really good advice for and they really need to hear like, no, no debt.

46:04You cannot take on any debt. There's no excuse. If you have debt, you got to get out of debt and pay it off. That is really valuable for, there like is a certain type of person. And then there's a lot of different financial advisors. I don't know. I follow Rami on Twitter and I really like his stuff and I listen to his podcast and they've all sort of got an angle. And kind of what Matt is saying is for the low confidence consumer, right? It doesn't need to be that sophisticated to be really valuable. And I really wish, I mean, I think it would be really cool if all of these financial advisors had their own apps with someone's specific personalized data and you could get Dave Ramsey's personalized advice for your financial life, you know, sent to you and push notifications and you should not have spent money.

46:52It's just really cut and dry and clear. Do not spend money here. Pay down this debt. Do spend money here. Work on your income there. And it's just there's like no room for negotiation. I think that would be really helpful for most people. And I totally agree with the way that Matt's sort of segmenting the market. There's a big group of, yeah, higher confidence consumers that that doesn't apply to. But it's a really good fit for LLMs. And when you look at the numbers, it would help so many people to sort of bring them up to the next level of financial stability. Yeah. Where I think LLMs are powerful is the discovery stage.

47:31And I kind of, being a new father, so two weeks in, two weeks today, you should look at my Claude history. because basically from like a medical perspective, like there's about 500 chats open of, is it normal if baby does this? Is it normal if baby does that? Is it normal if baby does that? It's actually hilarious kind of looking through because you're like, oh my God, is this some paranoid new parent? But actually, you know, it's really powerful to surface because you could Google those things, but there'd be a blog and there'd be complexing advice and all this type of stuff. It's a really great way of building confidence, breaking down complex things, navigating things really effectively, that discovery side of things.

48:14If my baby was really not well, I'm going to pick up the phone to a doctor and get him into A &E as soon as possible and get the expert in front of them. And I think you're going to get exactly the same within the financial advice space, which is like, I think like ChatGVC, Claude, whatever, it has dangers because it's going to tip into, and it already does tip into regulated financial advice. But it can be a really great discovery tool for just building a bit of confidence, asking some simple questions, breaking down some of those barriers. It isn't this wall of terror that like, I don't know anything about money, so I'm not even going to engage with it.

48:46It's going to break down some of those early barriers and do some of that like early discovery type stuff. But it's that handoff then to when you've gone from like discovery, information, fact fine, kind of building a bit of confidence too. But now I need an expert. I need that to be auditable and repeatable and transparent. I do think, I mean, there's the regulation piece and the liability piece, But I do think AI is going to creep higher and higher up that stack of what it's able to do. Because if it's able to see all of your transactions and it knows everything, like it's just, it is going to be so much better equipped to be giving you real-time financial advice about your situations that people will build more trust.

49:28Like if you're, so you're asking ChatGPT, like, is it normal for your baby to poop 25 times a day? The answer is kind of yes. Right. It's like if ChatGPT or AI had real-time monitors on your baby and knew all of its vitals or it pulled in all of these things or you've got the outlet song. That was getting creepy. Well, like it is creepy and like I don't know that I would want that and there's a bunch of data. Like it's creepy, but like pretend it's not creepy or you're running like a local model on your computer and so the data is not going anywhere or something like that. And it was able to send you push notifications that said, hey, we noticed, actually, I think Nana does this, right?

50:06We noticed that like the oxygen level of your baby has dropped a little bit. Like go check in on. If it could send you that, that would be so valuable. It would be so amazing to see that the blood, like the blood oxygen, almost said blood alcohol, blood oxygen levels have dropped a little bit. And you need to check in on your baby that you are going to trust that system more and more. And it's actually going to be better than a doctor because a doctor is not going to be looking at all of the data every second. Does that make sense? Like the scale that it can operate at. So I think I think financial AI is going to get the same way.

50:38It's going to get more and more equipped with all of this really fine tuned data that's changing instantly. And it's going to be providing more timely, more contextual, more helpful recommendations than advisors can, like very slowly creeping up over time. just because it can, should it, and will it be allowed to? Because I'm telling you now, the UK regulator is never, they will start coming and clamping down on this stuff because they need the basis of regulation is accountability, human accountability. And technology is amazing. Technology can do amazing things, but the limits of technology are often not the limits of adoption.

51:20It is regulation. It is all of those types of things. So I think we also have to ground it in the reality that if, you know, and the regulator is all over this at the moment, and it is going to be one of the hottest topics, I think, of the next year of like, what are the model providers going to be allowed to do, not just what can it do? Because they can do amazing things and reduce hallucinations to one in a billion. Like, of course, it would be able to do that eventually.

51:45Ross Gallagher:Aileen, final word to you on this. So just like we all reacted and say, oh, that's creepy, like I wouldn't share that information. I think people can feel the same way about sharing their whole financial life. So the model is just as good as the data you input in. So if there's an emotional side and you're not sharing, I don't know, you're ashamed that you spent X amount, you know, people do those things, right? So the output you're going to get out of a model is only as good as what I read about it in. and having the trust to actually say like, oh, I'm going to be completely open and I trust that when I share all of it, my deepest financial secrets to this model, then I'm going to get a good advice and I'm going to take it.

52:45I think that's a barrier. And on top the compliance bit, right? This is super regulated. But even without the regulation, I would like for a second to compare our reaction with the baby data and I think people would behave in a similar way maybe they're more prone to sharing or getting advice on day-to-day spends and progressively we're going to get there and people are going to trust it but it will take time I think

53:17Ross Gallagher:I feel like it's progressive for sure but I think we're all aligned behind you know I think whatever the route there's definitely, you can plot a path here to a much better customer experience, much better customer outcomes. I think that is a great place to end. Thank you as ever to our guests for joining us today. Before we go, maybe we can just do a whiz around the virtual rooms and you guys can tell us a little bit more about where people can find out more about you. Maya, how about we start with you? Oh, always Twitter. I'm Maya B, M-A-I-A-B on Twitter. And I'm posting all kinds of stuff about having toddlers and fintech and working remotely and that fun stuff.

54:02So yeah, it's the best place to keep up with me.

54:04Ross Gallagher:And still refusing to call it X. Aylan, how about you? Yeah, you can find me on LinkedIn old fashioned I guess hopefully my whole name is going to be Aridem because I'm not going to spend 10 minutes spelling that excellent thanks Ailyn and Matt how about you? same LinkedIn but also Sidekick it's at sidekickmoney.com so yeah check us out perfect and you can find me also on LinkedIn and thank you for listening if you like what you've heard please do follow our podcast. As always, if you want to join the conversation, find us on social media, just search for 11FS or FinTech Insider or email podcasts at 11FS.com.

54:52Ross Gallagher:Thank you very much again and goodbye.