Podcast transcript: Breaking the banks’ valuechain: the fintech revolution (Agents of Change series)

Roger Park

Welcome back to the Agents of Change podcast. I’m your host Roger Park, Americas Financial Services Innovation Leader and today we’ve got Matt Hatch, EY’s Americas FinTech and Financial Services Growth Markets Leader. 

Matt, that’s a great title and very cool — one of the cooler ones I’ve heard at the firm. Can you tell me a little bit about what that means?

Matt Hatch

You bet, Roger. Good to see you. So, I’ve been at EY for just about 20 years now. I’ve been serving clients in the technology industry and then the latter half of my career in financial services. I’ve been serving those clients personally in a capacity of risk and audit activities, and then over the last five years, I’ve been building our FinTech practice across the Americas Region. 

Park

Matt, why don’t you tell us a little bit more about yourself, personally, so the audience can get to know you better.

Hatch

You bet. So, I am a native of California. I grew up in Southern California skateboarding and surfing. I went to school in Northern California, and I’ve been working in the Bay Area with EY ever since. Now a proud father of two teenage girls and have an amazing wife and we live in the Bay Area.

I do try to spend a lot of our time in the Bay Area with a lot of the innovative companies there, but increasingly seeing a lot of and spending a lot of time with companies across the Americas Region for us, including here in New York. 

Park

Excellent. And then you lead FinTech and Growth Markets for us at EY. What does that mean?

Hatch

Good question. Our mission is pretty simple, but sometimes our titles are not. So, said briefly, we work very hard to help our clients be successful, and in this space it’s really about increasing the speed of innovation in financial services. It is absolutely something that is very relevant to high-growth companies in what are often referred to as FinTech companies, but it is also very much on the agenda of a lot of our largest, most established financial institutions around the globe around their innovation agenda or their FinTech agenda. And then, these two worlds sort of come together. 

There’s a lot of FinTech companies who are striving to produce innovations that are designed for large financial institutions to innovate and to speed up their pace of change. We are very focused on enabling that innovation, as I said, but doing it in a way that allows for safe and responsible innovation. There’s a lot of risks in this space and those can’t be taken lightly, and so we’re very focused on enabling innovation, speeding it up, but also doing it in a very smart way and managing those risks.

Park

It sounds like a lot of fun, Matt. But FinTech is a loaded term. How long has the term FinTech been in existence and when did you first start working with these types of firms?

Hatch

It is, and it’s interesting. It’s often referred to as just the FinTechs, right, the startups, but I think it’s a topic that has an idea or concept that is absolutely relevant to every one of our clients, both in financial services, but also in technology as a lot of the sector gets merged or blurred in some ways. FinTech, or financial technologies, I think, is really where the term started in the mid-90s, really evolved into a lot of the innovations around financial products for consumers in the early 2000s, largely, initially focused on payments and then eventually lending. 

Over the last five to seven years it’s been explored throughout the rest of financial services, I would say, and a lot of other innovations in terms of insurance products, investing products, and then a lot of the enabling technologies for financial institutions, which are prompting a lot of change, also often referred to in the context of FinTech. So, blockchain, chatbots, advanced analytics, machine learning, AI, all of these capabilities that are coming out that are helping financial institutions and FinTechs innovate and produce new products, new services and to bring them to consumers in a way that’s never before been contemplated. So that’s largely how the industry and how I look at FinTech for us. 

Our mission is simple. We want to help companies succeed. We want to help drive faster innovation and safer innovation in financial services. So, we’re focused on both ends of that spectrum that I mentioned, both the startups and high-growth companies, as well as the innovation agenda at a lot of the large, established companies that we work with. 

Park

I like that message, Matt, that we’re helping clients and companies drive faster innovation, but also doing it safely and making it relevant and useful for customers and other businesses. 

I know a focus of yours has been recently not just the new and emerging technologies and how that could transform the industry, but really how those technologies are being used, what’s the adoption of those technologies. Do you have any thoughts on how that’s changed over the years?

Hatch

We’ve done two global surveys over the last four years now and 2015 was the first global FinTech Adoption Index and then we did it again in 2017. It’s really interesting when you look at some of the trends that came out and were highlighted in that. 

In 2017, when we did the survey, we saw about 17% adoption on an average basis across the globe of a FinTech product, and that doubled when we did that survey again in 2017 to 32%, 33%. The US, interestingly, is consistent with the global average. The UK, India and, certainly, China being the most widely adopted in terms of FinTech products on a global basis, with India and China being over 50% adoption of FinTech products for consumers in those regions. So, it is interesting. 

I think that the use of FinTech products is certainly on the rise as our survey shows. The number one reason why folks aren’t using FinTech products for those that we looked at in the survey is just awareness, followed by trust. And, so, those are things that we’re certainly very focused on with a lot of our clients. 

I think the good news for us is that there is, here in the US especially, there is 60% to 70% that aren’t using FinTech products. Is an opportunity for us as we work with clients that want to explore that market and bring their capabilities to new customers. 

Park

That’s surprising that 60% of the market in the US is not using FinTech products. It does seem like a huge opportunity for our clients, or anybody who’s trying to get into that space. 

Hatch

Yeah, I agree. I think some of that is related to how mature a lot of the established financial institutions are in our branch network and the traditional financial services, how grounded they are in this business environment here.

Park

Matt, it sounds like there’s a lot of good information in this survey that you keep referring to. What’s the easiest way for our listeners to access that report?

Hatch

It’s out there on the web. It’s at ey.com/fintech, and you’ll find a variety of articles there, including the 2017 FinTech Adoption Index. 

Park

Alright. Great. And a picture of you too, right, in case our listeners want to see what you look like?

Hatch

Just in case. 

Park

Just in case. Alright, thanks. And when we talk about the traditional financial services companies or incumbents, the more established players in the space, I know for a while, at least early on, probably going about six or seven years ago, someone famously said that the FinTechs were going to eat our lunch in the big banking industry. 

The relationship to FinTechs and the large traditional financial services institutions seems to be evolving and changing. Can you talk a little bit about that, Matt?

Hatch

Certainly. So, yes, I mean I think the term disruption, right, has been one that I’d say increasingly over the last few years people have objected to, right, because it’s less about disrupting and taking out some of the legacy players in the industry, but more about enabling that changing or collaborating with the traditional or the incumbent financial institutions. And we’re certainly seeing that much more, right? 

Certainly, there are a lot of FinTech companies who have taken a new product directly to consumers and are scaling a very big business in that, and there are many more that are focused on enabling the innovation agenda at financial services institutions. That poses a whole set of challenges for traditional financial services companies to be able to work with a small, high-growth company that is innovating. That’s something that we’re absolutely focused on helping and there’s a lot of capabilities there that are important to being successful in that area.

Park

Like you said, driving innovation faster and more efficiently in financial services. So, let’s talk a little bit about open banking. 

I continue to hear a lot about the promise of open banking and there seems to be a lot of expectations around how that’s going to change competitive dynamics, maybe encourage more collaboration with existing financial institutions, but also potentially opening up the market to new competitors. How does open banking fit into the evolution of the FinTech space?

Hatch

Yeah, open banking is an interesting topic when you look at it globally. There are some areas of the world where it’s being driven by a regulatory mandate. We’re not seeing that here, but I think there is a consistent view globally that open banking is important to the innovation agenda. So, quickly, maybe, just defining open banking, because I think it is thrown around perhaps in an inconsistent basis. But when I step back and think about what we’re seeing globally, it’s about the use of APIs for financial services companies to interact with other financial services companies, as well as with the FinTechs or the startups. It’s the ability for third parties to develop technologies that then interact with a traditional financial institution, so that is the idea behind it. 

Certainly, there is a need for regulating or controlling or protecting the consumer when you start moving this data around between financial institutions. So, there’s a lot of risks, cybersecurity and privacy risks, and that’s an area where I do think that a lot of the global regulation is currently focused. I think we might continue to see a little bit of that in the United States; however, I do think that here in the US, it’ll largely be driven by standards that are agreed to amongst the financial institutions and not necessarily from a regulatory-driven agenda, with the exception, perhaps, being on the topic of cybersecurity and privacy, ensuring that the financial data is appropriately controlled throughout its movement between financial institutions is something that we’ve got to stay very much focused on. 

And I think it’s critical to the trust in the system, as well as the ability for us to have new FinTech products, have new financial services products come up and be able to interact with the traditional banking and financial services network. 

Park

I think, optimistically, the opportunity to share data to create new financial products that are tailored to specific situations and individuals, I think, is really part of the promise of FinTech. 

And I know you mentioned trust a few times and privacy, but the idea that, ultimately, the customer may own their own data and can use that data in ways that are going to help them financially, I think is an important concept too.

Hatch

Yeah, I absolutely agree. It think it’s a scenario where there is perhaps some inconsistent views on that currently as to who is responsible for financial data, and that’s something that needs to be solved for. 

Park

You spoke a little bit about the different regulatory environments globally. I know part of the survey that you spoke about earlier on UK-based FinTechs, it seems like customer adoption and education are going to be the biggest challenges to realizing the full benefits of open banking. 

How does that jive with what you’re hearing from US-based companies?

Hatch

Yeah. That’s a good question. In the US, financial institutions that are opening themselves through APIs or application programming interfaces that are used to allow for the data transfer between financial institutions and with other FinTech companies is something that I see here in the US financial institutions will agree on those standards amongst each other, but not necessarily from a government-regulated standard approach, as we’re seeing in other jurisdictions, such as in the UK. 

Park

As a whole, FinTech broadly defined and open banking, generally, with this API and the ability to share data between organizations and FinTech companies are both perceived maybe in some ways as threatening or at least challenging the traditional banking models. Is part of this disruption? Is there a promise of increased transparency or more financial inclusion? What do you think the implications of that are going to be?

Hatch

I do think that increased transparency is an outcome of this, a fortunate outcome of this, if you will. It’s clear that consumers have an increased expectation for their ability to work with a variety of FinTech companies or financial institutions that they want to be able to leverage their financial data in the way that will give them the best service from whoever they want to get that service from. 

And transparency of fees, of the level of service, of how they choose to interact with their financial institution — whether that be via person, internet, phone, chat — is something that consumers want more ability to decide upon how they do that and what products they are choosing to leverage to accomplish that. 

Park

It’s a fast-moving space and very exciting things going on, like you talked about, Matt. But when you think about the future of where FinTech is going, what’s the area of growth that you find most exciting? And why?

Hatch

When I look at FinTech, you know, and I think out at the impact this is making, certainly, financial services become more scalable when they’re being provided over digital and mobile channels. And when they become more scalable, more cost-efficient, financial institutions can then also take those products to people today who don’t have access to financial services. There’s 2.5 billion people globally, and that’s not just a global problem. There’s over 100 million in the US that don’t have access to financial services. It starts with a financial identity and then for a financial institution’s ability to understand that consumer and what their creditworthiness is and their ability to be banked. 

There’s a great opportunity for both financial companies and FinTechs, as well as the consumer, to access the financial system that we have today and today those products aren’t provided to them or they aren’t provided in a cost-effective way. So, that’s something I’m certainly very excited about, the impact that financial services is making. I’ve seen more and more over the last two to three years companies that are truly making this a very significant part of their mission. 

A lot of these innovations that have come out over the last 10, 15 years, as we were talking about earlier, have been focused on the mass consumer, where there is a reasonable profit for serving a product to those consumers. But as it’s proven out now as that technology is scaled more, it’s becoming, as I said, more cost-effective for those products to be taken to consumers today who don’t have access to financial services. So, when you think about the implication that that could have over the next 10 years on this massive amount of people globally who don’t have access to financial services, it’s really exciting. 

And, interestingly, I think it’s a great opportunity for companies as they get their cost economics, their unit economics down to a way where it’s actually going to be financially viable to service a product to those today who don’t have access to financial systems. That’s something that we should all feel really good about, and I think a lot of the companies we’re working with are doing great things to innovate in that space.

Park

I agree, Matt. I think there is definitely a market here and there’s economics that are FinTech. But one of the great opportunities for companies and for us as well, in general, is providing access to the financial products, which is not just checking accounts and banking accounts. It’s education. It’s the ability to get capital to start a small business. It’s about financial security and the ability to pay for health care. 

So, those are all very important issues, I think, to our audience.

Hatch

Yeah, you know, Roger, it’s interesting when you think about the way things have evolved over the last 15 years, right? And you and I are probably the same or similar in that when we were maybe our kids, I’m raising two girls, 11 and 13, when I was that age I got my first checkbook and, at some point, I bounced a check and I learned the hard way, right, and you never forgot that. 

It’s different now, and I don’t think that the tools are entirely there today to help educate people in the right way, to help them manage their financial lives in the best way possible. But they’re getting there, and the consumers today that we’re raising as parents, right, and that we’re trying to teach to be responsible financial citizens, it’s a different challenge and one that financial institutions have a responsibility to help enable. There’s a lot of exciting changes that our kids, I’m sure, are going to teach us about in the years ahead.

Park

Yeah, absolutely. It’s funny that you say that because I remember the first conversation I had about financial responsibility with my parents was in a bank branch opening a checking account or savings account. And the first time I talked to my 11-year-old daughter about financial responsibility was telling her not to buy so many games on the app store. 

So that conversation is definitely changing. So, some personal perspective for our audience, Matt, if you wouldn’t mind. Would you tell us, what is the one thing you do to challenge yourself every day?

Hatch

I fear status quo, and it’s both my biggest fear and perhaps one of my greatest strengths is constantly looking for things that there is an opportunity to make better. I try to encourage my kids to do that. I try to encourage my teams to do that. I don’t think that anyone should believe that change or innovation is someone else’s job. 

I think it’s all of our jobs, and I think we’ve got to look at all aspects of our lives so that the products that we use and teams that we work with, and find ways to make them better. That’s something that, every day, I absolutely try to bring to my interactions with my clients, with my teams, my family. 

Park

That’s a wonderful philosophy, Matt. This is the part of the podcast where we do the quick-fire Q&A. Which headline might we read on this date in 10 years?

Hatch

Yeah, so, I think over the next 10 years, there’s going to be a lot of great innovations. There’s going to be new financial products, new FinTech companies that are going to come and do great things, and they’ll all be very interesting individually, hopefully very successful individually. If I look out 10 years, the number one thing I would love to see in the headline is that we now have everyone in the United States with access to financial services, period. That would be a significant accomplishment. 

I think our economy would be healthier if we could achieve that. People’s financial lives would be healthier, they would be able to spend more time with their families, more time building a business because they now have credit or access to financial services. I think it’s an ambitious goal in 10 years, but I do think it’s achievable, and there’s a number of great companies that we’ve been interacting with that have become increasingly focused on the underserved market.

Park

That’s definitely a headline I’d like to read. Another quick-fire Q&A. Which skills should our listeners teach their kids?

Hatch

Challenge status quo, as I said earlier. You know, I think that we should teach our kids that it is their responsibility to make things better. They’re not signing up for a job that will exist in perpetuity, right? 

I have kids, 11 and 13, and I want them to understand how quickly things today are changing and how adaptable they’re going to need to be, and like I said earlier, not embrace the change but enable it, drive it, be responsible for it. It is their responsibility.

Park

That’s great advice for everyone. And which medium should our listeners reach out to get to you directly?

Hatch

Yes. I’m very active on LinkedIn and you can find me at Matthew Hatch on LinkedIn at EY. Or, my Twitter handle is @mbhatch.

Park

OK. Thanks Matt. Very interesting conversation. Learned quite a bit about FinTech. Listeners can make suggestions on topics, guests and questions on Twitter using #agentsofchange. Thanks for your time, and the next podcast will be in three to four weeks.

Join us for the next episode for more conversations around innovation. This has been Agents of Change from EY. Let us know what you think about the show by leaving us a review on Apple podcasts, or by reaching out to Roger at roger.park@ey.com or find him on Twitter @rogerparkey. Thank you.