What lies ahead for fintech and bank innovation

Jeremy K. Balkin, Managing Director, Global Head of Innovation & Corporate Development, JPMorgan, Wholesale Payments

Transcription:
00;00;09;15 - 00;00;34;16
Jeremy Balkin

Hi everybody. And it's always awesome to be back here at Digital Banking by American Banker. And I hope that next year we'll be doing this in person. Right on cue back in Austin or somewhere else for that matter, in June of 2022. I hope you're all doing well. My name is Jeremy Balkin and I am the global head of innovation and corporate development for JPMorgan.

00;00;34;26 - 00;01;02;13
Jeremy Balkin

In the payments business. We are the largest payments business in the world. And of course who would have thought that payments would be the sexiest part of banking and financial services today? It was only just ten years ago. And beyond that, payments was considered by many to be a sleepy part of the industry. And now it's of course the sexiest and that's why I'm so excited and that's why we believe payments are eating the world. Our JPMorgan payments business,

00;01;02;22 - 00;01;33;28
Jeremy Balkin

We clear about $8 trillion operations, about $8 trillion every single day, about one in four of every U.S. dollar that moves around the world. We do something like 3,000 transactions per second $5 billion per hour and get something like one out of 100 million errors per day, which is an incredible level of accuracy. And security for our clients. And in many ways, the way I think about payments is that every business today is a payments business.

00;01;34;09 - 00;02;00;04
Jeremy Balkin

And if you think about what a bank does and here we are at a banking conference, Digital Banking, if you think about what a bank does, it's actually sort of two core things. It's the balance sheet piece. It's the the borrowing, the lending, and then it's the distribution, it's the payments. And that's why very much I believe that payments is the sexiest part of banking and financial services today, which was only just ten or 20 years ago,

00;02;00;09 - 00;02;18;26
Jeremy Balkin

Payments would be that considered the sleepies part of banking financial services. And today it's the sexiest. Now, payments have become very much part of our lives have BAU. We've gone from sort of shuffling bits of paper to moving data at lightning speed payments are embedded. They are ubiquitous and seamless and almost invisible.

00;02;22;13 - 00;02;55;20
Video Voiceover

Back in 2010 the fastest way to get money on the same day from New York to London was to fly there yourself. Now, we can make secure payments in seconds to anywhere in the world at virtually no cost. Innovation in payments happens fast. J.P. Morgan's Power + framework captures five mega themes that are driving the payment revolution platforms online wallets, embedded real time plus value added services, with payments becoming the new connective tissue of the world.

00;02;55;28 - 00;03;16;05
Video Voiceover

The next decade for payments promises to be even more transformational than the last. It promises to connect the physical and digital economies and move payments from being the last stop at checkout. The being an enjoyable, invisible, contactless and instantaneous experience, which is why we believe payments are eating the world.

00;03;19;01 - 00;03;47;06
Jeremy Balkin

And that's why this does a future for both bank in financial services. More important payments is so interesting and so exciting, and that was that's also why my wonderful colleague Neha [Wattas] and I co-authored Payments are Eating the World. The innovative, provocative, forward thinking white paper into the future payments that we co-authored over the summer this year and released in October just a bit barely a month or so ago

00;03;47;21 - 00;04;16;15
Jeremy Balkin

From today. I was so excited to talk to you and with you and all our friends and peers and folks across the industry because today every business is a payments business. Every business today is a payments business. And that's very much why we provocatively titled the report that payments are eating the world. Let me just give you a little bit of a story as to what that means for all of us in the industry, more importantly our clients who are dealing with these issues right now.

00;04;16;21 - 00;04;45;24
Jeremy Balkin

If you think about how far the world has gone in the last decade, just take a moment to pause. If you think through, for example, the iPhone only it came out in September of 2007, so 14, 15 years ago, do you think about this sort of the smartphone revolution? The last sort of decade was around the Internet, was around mobile Internet and mobile connectivity.

00;04;46;10 - 00;05;12;27
Jeremy Balkin

Essentially connecting people. And then people created platforms as ecosystems. The rise of the Airbnbs, the Ubers, the Spotify, the Shopify, the Yelps, the Amazon, etc. these sort of vertical marketplaces, these platforms, if you will. But now when Internet connectivity and mobile is essentially ubiquitous, it has leveled the playing field. It's no longer about connecting people and creating platforms.

00;05;13;17 - 00;05;37;27
Jeremy Balkin

It's actually about connecting the platforms and when you connect the platforms, you exchange data, its interoperability between these platforms. And when you exchange data and value in 360 degree way, that's what a payment is. It's connecting the platforms, it's exchanging the data, and hence the aost decade was about connecting people and creating platforms.

00;05;38;01 - 00;06;12;05
Jeremy Balkin

This decade is about connecting platforms. It's about payments, it's about data transfer, it's about value exchange and very much why we believe payments are eating the world. And if you think through just three very vivid examples of why this is true, let's think about the topic that's on many people in this room's minds is the rise of the s, something that for those of us, and I'm from Australia, I've spent most of my career living and working in the Asia-Pacific where I'm from.

00;06;13;05 - 00;06;54;01
Jeremy Balkin

The super app is is not a new concept in Asia, but it's fast coming to the West with this sort of arms race started out among major providers to build the first part of US super app, if you like. But the super app only exists because it starts first as a payment. And then the value added services that allow it above that payment to create this ecosystem and super app in China alone that was 32 trillion with a T, 32 trillion of payment flows last year alone and overall that was 36 trillion in total payment flows through super apps around the world.

00;06;54;23 - 00;07;25;15
Jeremy Balkin

And as you think about your own life, I for one want a simplified digital life and research shows and you can sort of test this yourself the average adult has something like 84 apps on their phone but only uses like nine of them a day. Now I personally did the test this morning. I think my son had about 137 apps and if I use nine on a daily basis, that would be, that would be amazing.

00;07;26;01 - 00;07;55;01
Jeremy Balkin

Point being is I want a simplified digital life and that's what the super app does. It creates simplified digital lives, but it starts first with a payment to exchange and store value with layered value added services on top and that's why payments are fundamentally powering the super app or the platform revolution that the world is is seeing and why it's so exciting consider further evidence of marketplaces.

00;07;55;04 - 00;08;30;25
Jeremy Balkin

The platforms, as I mentioned, it was only in 2016 that about a quarter of all e-commerce was done through proprietary marketplaces. Now it's about three quarters are done through proprietary marketplaces for e-commerce. Consider the value of these these mass vertical and horizontal marketplaces and platforms for e-commerce and commerce. More broadly, the value of scales. This is further evidence of the rise of the super app, the rise of the platform, and these are issues that our clients are all facing.

00;08;31;24 - 00;08;54;19
Jeremy Balkin

And this is why digital banking is so important, because it gets us all together without thinking about these issues. But first and foremost, the rise in platform and the super app starts with payment and then all the context around the payment, all those value added services layer on top of the payment platform experience. And that is very much why we have seen the rise of the super apps.

00;08;54;19 - 00;09;37;21
Jeremy Balkin

Why here in the US you're hearing about all these different rivals we're trying to raise the first legitimate super app. I think it's very exciting. What does it mean for our clients, what it mean for our industry? What's the role of a bank in a super app world? I think it's very important to consider because if you think about customers going outside of the bank's ecosystem and into a consumer goods player or a fast moving consumer goods player or technology companies ecosystem and then embedding the payment and then the wallet into that ecosystem, that's a very real and existential issue to consider and very much leading to rethink the customer experience for the

00;09;37;21 - 00;09;57;17
Jeremy Balkin

banking customer any more than to deal with the rise of the super app as a competitor. So it's a very interesting phenomenon that's becoming more real and present here in the US. It's something that we're paying particular attention to. But again, it starts with payment at the core and then layering on the value added services, why we're so excited about it.

00;09;57;17 - 00;10;25;09
Jeremy Balkin

But, but, as I said before, it's about a simplified digital life, less apps, less complexity, one place, one platform, one marketplace, the rise of the super apps. Very exciting. The second really interesting area of where and why and how payments are eating the world that is particularly interesting to all of us here at Digital Banking is what I call the wallet on wheels.

00;10;26;01 - 00;11;04;00
Jeremy Balkin

Now, wherever you are in the country watching this chances are you got in a vehicle today or a car. But we think about a car as a wallet on wheels. When you think that by 2030 something like 95% of cars will be connected, we'll have thousands of sensors embedded in the car Internet of Things enabled to talk to the other vehicles on the road to talk to insurance companies and commerce providers.

00;11;05;01 - 00;11;35;20
Jeremy Balkin

This is a fascinating area of growth today it's about 50% of cars in the US are connected and by 2030 it's estimated there'll be 95% of cars will be connected. B 2030 we think that's a $450 billion value pool. If you think about the wallet on wheels concept you think about a car today the average car today has something like 25 the power of 25 computers there is on average five kilometers or about three miles of wiring in each car.

00;11;36;12 - 00;12;12;11
Jeremy Balkin

It is very much no longer about getting from point A to point B, it is about an experience, it is about a wallet on wheels. Imagine being in that wallet on wheels and just pause to think about what that means. Think about the idle time that one spends in the vehicle. Think about how you could monetize or value that excess capacity of idle time of sitting in the vehicle that's to work, to consume, to be entertained, to buy now, imagine if you had Alexa hooked up to your car and you could be buying things.

00;12;13;04 - 00;12;52;12
Jeremy Balkin

You know all you're on the road. Imagine paying for your gas without ever having to get out of the car. Imagine if your insurance company gave you a discount on your premiums based on the way you drive. The world is endless when you start thinking less about cars and more about wallets on wheels. And that is very much the payment enabled business is something that justifies the investment we made earlier this year in Europe, in the Volkswagen payments business, because we very much believe the wallets on wheels will be the next frontier for payments and mobility in the 21st century.

00;12;52;23 - 00;13;17;06
Jeremy Balkin

But again, the car has been around for decades, the payment enabling the car to do much more than just go from point A to point B and become a vehicle for commerce. It's becoming a marketplace, it's all because of payment. It's all because of that data and value transfer to the payment creates and goes from being a vehicle to a wallet on wheels.

00;13;17;25 - 00;13;44;14
Jeremy Balkin

And the opportunity for all of us is immense because then you start thinking about what other wallets could there be? Lots, whether that's the wallet on the wearable device or which there are like 1.1 billion wearable devices in the world today. I certainly love my Fitbit, which, by the way, is my latest Fitbit is now enabled, I've linked a credit card to it so I can stop tapping and paying with simply a flick of my wrist.

00;13;45;03 - 00;14;07;14
Jeremy Balkin

With wearable tech. That's another example of of the payment unlocking the layering of value-added services and wearable technology so it's no longer about just tracking my steps and sleep. It's about the steps and hours of sleep. It's about helping me become more efficient in my consumption activity. By going along, I have to take the credit card out of my wallet, for example.

00;14;07;14 - 00;14;31;04
Jeremy Balkin

I can simply use my wrist. Think about the home, think about the smart home, internet of things enabled devices in the smart home like your fridge and other appliances. This is a brave new world we're about to enter. But again, it all starts with the payment at the core, enabling all these experiences to rapidly transform our lives.

00;14;31;24 - 00;14;52;22
Jeremy Balkin

And this is the second example of how we believe payments are fundamentally eating the world and why we are so excited. And the third really exciting area where we see payments eating the world is what we call the rise of the creator economy. It is those who are selling their content and monetizing their self and creativity and their content on their smartphone.

00;14;53;05 - 00;15;34;23
Jeremy Balkin

Through platforms like TikTok, YouTube and others, which is so exciting. Consider that in 2020 there was a 60% increase in the number of YouTube channels with a million or more subscribers. Let me say that again, it was a 60% increase in the number of YouTube channels with subscribers of more than a million people. Now, this may either excite or scare many of you to know that many of the cable news that you watch of an evening don't even get more than a million viewers on average, you know, Monday, Tuesday, Wednesday, Thursday, on Friday night.

00;15;36;04 - 00;16;08;23
Jeremy Balkin

So there are people with a smartphone streaming to their subscribers with more than a million followers on YouTube and subscribers who are engaged who are active who will be influenced to buy products and services based on what their trusted trader either tells them or recommends them to do. This is a fascinating area of the new economy. There were 2 million creators last year who reported a six figure income based off their creativity.

00;16;09;17 - 00;16;35;16
Jeremy Balkin

The creator economy today is about 100 billion value pool, $100 million value pool. To put it into context the gig economy the Uber drivers of which the Department of Labor estimates that about 58 million Americans who are in the gig economy is about $300 billion value pool today estimated to be about 450-odd billion in the years ahead.

00;16;35;25 - 00;17;07;16
Jeremy Balkin

But the creator economy is growing rapidly with the amount of folks who are monetizing their content they are monetizing their creativity which is fundamentally different from the gig economy where people are monetizing their actions tied Consider that the highest grossing Tik Tok star is a 15 year old girl from Connecticut who made something like four or $5 million last year from monetizing her creativity, or the nine year old on YouTube that made $29 million last year from monetizing their creativity.

00;17;07;16 - 00;17;25;27
Jeremy Balkin

Now I know for digital banking and people should be excited, but don't anyone be depressed by those those statistics. There's still time for you to become a creator and a YouTube or Tik Tok star you just have to go and do it and take the risk and and be prepared that people may laugh, but it might also very lucrative.

00;17;26;06 - 00;17;46;03
Jeremy Balkin

Unsurprisingly, there are studies that have been done in the UK and US. They came out a few months ago that said the average child wants to grow up to be a YouTuber as opposed to being an astronaut. Now that is both staggering and fascinating at the same time, it tells you all about the culture and the economy and the society in which we live today.

00;17;46;27 - 00;18;06;24
Jeremy Balkin

Now it's all very well to be a creator and to hold your spot, sign there and try to become a star of your own making. But you still have to get paid. And if it weren't for real time payment for the rise of debit as a payment method that is low cost, that is efficient, it gives the creator more of their hard earned cash.

00;18;07;02 - 00;18;52;07
Jeremy Balkin

With the rise of fintechs and these value added services, enabling faster payments, enabling for, you know, real time subscription based business models, because the average creator has uncertainty over their income stream. So to be able to spread payments out or expenses out, that's why we've seen the rise of today. Buy now, pay later as an example, as evidence of preferences for splitting payments and stabilizing the certainty, although subscription business models helps with the rise of the creator economy with, instability of income and other needs like specialized financial planning and accounting needs for those who are regular, you know, nine to five employees of big corporation.

00;18;52;09 - 00;19;29;15
Jeremy Balkin

Now, these are structural shifts in the new economy but without payments enabling them, we wouldn't have seen the rise of the creator economy. And in the rapid way that we've seen in the last few years, and that curve is going like that again, all enabled by the payment. It's a net that allowed the creator to monetize their content and their creativity through a smartphone via a platform in the marketplace and be able to be paid and be paid instantly and fast and cheaply where they keep more of their hard-earned creativity.

00;19;30;02 - 00;20;14;13
Jeremy Balkin

This is how payments are eating the world. This is another example of how payments are made in the world and why every business in the new economy is at its core, the payments business and why we in banking as I said at the beginning of of these remarks, banks either are lending using the balance sheet, which is sort of priority sort of pillar one, number one for banks, then distributing the capital, its payments into the economy, which is the other call function back and of course, in this platform driven world, connecting these platforms to each other, the exchange of data and value 360 degrees is what a payment is all about.

00;20;15;09 - 00;20;43;17
Jeremy Balkin

And this is why we fundamentally believe not only are payments eating the world, but this is the era for payments. This is the era for this industry. And this is why payments is the sexiest and most exciting part of banking and financial services today. And that's not something we would have said ten or 20 years ago. And this is why I'm so excited and this is why I think Digital Banking is at the heart of all the important issues, and this is why this is such an important event to be at.

00;20;43;28 - 00;21;04;12
Jeremy Balkin

And I hope that you'll all enjoy the other wonderful speakers and the content over the next hours and days here. And we should continue this in real life next year, in June altogether, I hope. Thank you for the opportunity to be here. Thank you for your time. And let's all continue this dialogue because we all share the same customers.

00;21;04;23 - 00;21;14;06
Jeremy Balkin

We're all dealing with the same opportunities and threats together as an industry. That's why it's important we gather, that's why important we work together and that's why we embrace the future. Thank you so much.