- 15 hours ago
Category
🗞
NewsTranscript
00:00So on the question of AI and its impact on the banking sector, how do you see AI reshaping the banking landscape?
00:09Well, I think it comes back to the vision that we had at Klonat 10 years ago, which was very basic.
00:13It said, in the future, there will be a digital financial assistant.
00:17It will analyze your spending, let's say your mortgage, and it will say, like, that's too much.
00:22I found a better offer for you. The only thing you need to do is say yes,
00:25and I'll do all the paperwork and get it all done for you and save you the cost, right?
00:29So to us, this was basically where we believe retail banking was heading.
00:33And a little bit like self-driving cars, don't know when, but know that it will happen.
00:37And that's the future. And it has profound impact and consequences for the banking industry
00:42because to a large degree, banks today don't need to be competitive because people don't want to switch.
00:48And it's difficult to switch and they need to bring all the data and all that stuff.
00:52So they don't need to be that competitive. They don't need to be that great.
00:54And this would mean that in the future, customer mobility would be ultra high.
00:59People would switch to whoever gives them the most value for the least money.
01:03And it's going to drive down the excess profits in the retail banking industry.
01:08Where do you think legacy banks are most vulnerable then, Sebastian, when it comes to AI disruption?
01:13Well, I think that most legacy banks will probably become pure balance sheets where basically, you know,
01:21you have a big balance sheet and you optimize for return on equity. And that's pretty much it.
01:25I think the challenge is, and this was already part when we were, you know, we bought a company back in 2011
01:30that was building a front and kind of a digital first generation of a digital assistant.
01:34And as a consequence of it, you could do payments without logging into your bank.
01:38And banks hated it because they realized at some point in time, if that assistant becomes so good,
01:43you're never going to use your bank. And then you're going to be fairly, you know,
01:46you're not really going to care if it's Barclays or if it's this or if it's ING Bank or whatever.
01:50The assistant is what matters. The person who provides you the value is what matters.
01:54The rest is just, you know, zero excess profit.
01:57And so I think that what you have to decide is either you want to be a balance sheet, then that's fine.
02:01You can make money being a balance sheet, but you would expect profits to be close to perfect market.
02:07Or you can be the digital financial assistant and you can try to provide that value,
02:10which is a difficult thing to be. And fewer probably can succeed,
02:14but obviously could be where the future of value of banking is.
02:19What would you say to those, though, who would say, look, the legacy banks, they have the data sets,
02:24they have the resources. And then, in fact, rather than leveling the playing field with fintech,
02:28AI is actually going to give a greater advantage to legacy banks because of those factors.
02:34Well, look, I've always said that, in my opinion, there are three players of companies that can play in this space, right?
02:40It's the big tech companies, Google, Amazon, etc. It's fintech or it's banks.
02:44There will obviously be incumbents that try to, you know, re-innovate themselves,
02:49be forward-leaning, apply the technology and so forth.
02:52And some of them may be successful, but there will also be fintechs.
02:55And in general, if I look at it today, I would argue that companies like ourselves,
02:59Klana, Revolut, and others, because we already are banks and we've kind of gotten across that,
03:05you know, being a small startup, we're not small startups anymore.
03:07We're fully regulated entities with BUD. We have modern tech stacks.
03:11We don't have, you know, the cobalt code running in the back mainframe and all of that stuff.
03:16We don't have, you know, all of those challenges that big legacy incumbents have.
03:21So I would argue that our odds are pretty good at winning a big market share.
03:25But, of course, some incumbents will manage to reinvent themselves, right?
03:29I think Jamie is on to something really exciting. He's trying to do it now.
03:32You know, Solomon was trying with Goldman Sachs, but then kind of Marcus, you know,
03:37was thrown out when the fintech valuations dropped down.
03:39A lot of banks stopped their aspirations in fintech.
03:42And now they're waking up to that fintech never died.
03:45It was just a valuation issue.
03:47In 2021, 2022, the valuations dropped.
03:50But fintech was growing. The revenue was growing.
03:51The customer adoption was growing.
03:53It was just the investor sentiment that changed for a few years.
03:55And now it's going to come back because now you see Nubank.
03:57You see Revolut. You see all this stuff happening.
03:59You see Klarna, Affirm, et cetera.
04:01And you're going to be like, wow, you know what?
04:02Actually, the disruption is happening.
04:04And as you know, because you have that license, of course, in Sweden, that banking license,
04:09banking and trust, they go hand in hand.
04:11And there are still questions about trust when it comes to AI in terms of sometimes bias around decision making on lending,
04:17for example, decision making biases that can be baked into some AI components.
04:23How do you think about addressing trust and AI when it comes to banking?
04:27I think in the end, like you're obviously right.
04:30And we actually don't use much of LLM AI on, for example, underwriting.
04:35We still only use machine learning.
04:36We don't use AI in that particular regards due to some of the risks and issues that you highlighted.
04:41But there are other areas where AI is in LLMs are also extremely efficient and helpful.
04:46But you're totally right.
04:47But in my opinion, it's very clear to us that as this technology progresses, you'll find ways to avoid the hallucinations or the issues of trust.
04:56And in the end, what we've seen, for example, with our customer service is that initially we take dispute management as an example.
05:03We've had huge success with AI.
05:05The consistency in which an LLM takes the evidence of how to resolve a dispute, information from merchant, information from consumers,
05:13and then decide what is the right thing to do, give the money back or let the merchant keep the money and so forth, things like that.
05:22The consistency of such decision making is actually of higher quality and more consistent when performed by an AI.
05:27Humans still review these decisions and they look at them.
05:30But if you ask the same job to be performed by a human over time, they get a bit bored.
05:35It's not that interesting or they may not be as consistent in the performance.
05:38So you can build a lot of trust by having AI perform a specific type of task because of the consistency and quality.
05:44But it requires some engineering and some thoughtfulness in how you set it up to make it work.
05:49With some of these changes then, Sebastian, I know you think deeply about this as well.
05:53How do you see financial services, the workforce, when it comes to financial services changing in the next, say, five to ten years?
06:00Well, I, for one, have been trying to be a little bit more honest about this because I feel a lot of my tech bros are being slightly, you know, not to the point on this topic.
06:09I think there is a massive shift coming to knowledge work.
06:12And it's not just in banking.
06:13It's in society at large.
06:15There are 8,000 people in Brussels that work as translators.
06:19And I would argue that most of that can be done by AI today already, even though obviously some quality assurance and so forth would still be valuable to have humans to review.
06:27But the point is that you don't need as many as we did.
06:30So there is a massive shift coming.
06:32I think society will have to figure out what are we going to do because, yes, new jobs will be created.
06:38But in the shorter term, that doesn't help the Brussels translator.
06:42He's not going to become a YouTube influencer tomorrow.
06:44So you may find other ways in how we support people from a society perspective.
06:48For us as a company, we see we have increased our revenue per employee from 400K to over a million dollar per employee in the last two years.
06:58We haven't hired.
07:00I mean, we've a little bit hired a small recruitment, but generally we've shrunk in the company from 7,400 people to 3,000 now.
07:07And that's at the same point in time where the revenue and number of customers has grown significantly.
07:10So we're simply not recruiting, which means that we can avoid doing layoffs, and we have taken a lot of the savings in payroll costs and reinvested that into an acceleration of the compensation of our employees, which means that they are seeing a huge benefit from us applying AI internally.
07:27So I think that there's paths in how you can make this work, both from a society perspective and a company perspective.
07:33But in the end, our job is here to drive as much value at the best possible price to our customers.
07:40And so we need to use these technologies to accomplish that.
07:43And then in general, I think there will be implications for a lot of knowledge-based work.
07:50Do you worry?
07:51And clearly regulators are thinking about the impact on jobs as well.
07:53Maybe they should be thinking about it a bit more.
07:55Do you worry about regulations?
07:57Do you worry about the regulators stifling some of this innovation, Sebastian?
08:01Or do the rules being laid down provide clearer guardrails?
08:06In Europe, there's a huge risk, right?
08:09Because at least for a while, there was like going in the total opposite and wrong direction.
08:14Now it's shifted a little bit, which is good.
08:17But that is a risk.
08:18I think that like, you know, we have to, in my opinion, it's not like I don't see risks or challenges with AI and concerns for society.
08:26But we also have to remember there are non-democratic countries that are pushing the envelope on these technologies.
08:32And I rather see that democratic countries are ahead of non-democratic countries in regards to these technologies.
08:38So I just want to be mindful that we don't stifle innovation from that perspective.
08:41With that said, currently, I think it looks more favorable.
08:45And I would still argue that there are other, there's going to be other consequences.
08:47If you, for example, create true customer mobility, which hasn't existed in banking for a long period of time, because we're all stuck with the banks that we have.
08:55But if you create that, you're going to, for example, have more customer mobility means funds and deposits can flow more freely between financial institutions.
09:02It's going to be a different world for banks to figure out how do you, what does that mean?
09:07For example, you know, potentially, if people move all your balances away, that potentially has implications for your liquidity risks and stuff like that.
09:15So there's going to be new challenges.
09:16But overall, it's good for society.
09:18It means less excess profits in what has been not as well-functioning markets as they could have been.
09:24Do you think AI leads to consolidation in the fintech and banking space, or does it open it up to more entrants?
09:34No, I do think it leads to consolidation, because basically what happens is that the cost of producing software is going towards zero, right?
09:41We used to have tons of people, very smart, very well-paid people, sitting in rooms and typing out character by character every line of code.
09:48And an institution like Klana will have millions and millions of lines of code.
09:51Nowadays, that code can be generated by a machine, and that machine is getting better every six months at generating that code.
09:57So the cost of manufacturing code is coming down very, very quickly, which has to lead to the fact that excess profits in software technology will be less than it is today.
10:09And so I think it has, you know, material consequences.
10:11And what do you do as a company?
10:13Well, what Klana has been thinking we should do is let's become larger.
10:17Let's become a global financial technology company.
10:20As you see Revolut also aspiring for being a global retail bank, it's the same thing, because you realize that you have to be at scale.
10:26You have to be super large.
10:27Klana actually, by number of customers today, with 111 million customers, I would argue we already are one of the largest banks.
10:33Now, obviously, those customers doesn't necessarily bank fully with us just yet, but that has to be the aspiration,
10:38because you just have to have more scale when, you know, there will be less money per customer.
10:45That's pretty much it.
10:46Yeah, 100 million customers.
10:49Yeah, exactly.
10:50But then what we tell our investors is, look, there's going to be a smaller pie, but hopefully Klana will have a bigger piece of a smaller pie,
10:55and it will still be a great, great return for our investors.
11:00Yeah, well, and so far, investors are taking your word on that by the move in the share price.
11:05Sebastian, before we let you go, I need to ask, you know, a personal question.
11:08How much and to what extent are you using personally AI in your own life outside, maybe outside of work?
11:14Well, I use it all the time, and actually, since May, what I did pick up was Vibe Coding.
11:20So I've been Vibe Coding and exploring our code base, because I'm not an engineer by training, and I must say it's been mind-blowing to me.
11:26It's been fantastic, and I spend now, you know, my wife is complaining, because when the kids go to sleep, I'm like, hey, can I just go and Vibe Coding?
11:35So she's not too happy with me currently, but it's just, like, it's so intriguing.
11:40It's so fantastic to learn these technologies.
11:41I think people should not be afraid of technology, which, if you're worried about a technology, embrace it, learn it, educate yourself, find out how to utilize it, and, you know, and then you'll be more, less worried, because you know what you're actually facing, right?
11:55Otherwise, it's the things that you don't know that people get nervous about.
Recommended
17:08
|
Up next
1:52
6:48
5:48
5:39
5:19
7:58
4:28
4:30
7:24
8:44
6:24
3:32
2:38
6:00
4:25
Be the first to comment