AI

Michael Salmony 0:13

Hello, my name is Michael Salmony and I'd like to welcome you to another episode of the Trilogue. And this time the topic we want to talk about is AI something that I'm sure everybody finds equally scary and exciting. It has both of those elements. and today we thought we'd mix it up a bit. instead of having three older white men talking we thought we'd get another older white man and that is Dave Birch

Gijs Boudewijn 0:39

Ha ha ha.

Michael Salmony 0:42

We'll get better about this diversity topic one day.

Dave 0:45

Well,

some of us have got beards, some of us hasn't. know, it's as much diversity as we get.

Michael Salmony 0:49

There we go. That's as much as diversity as we make.

Okay. Okay. Dave needs, of course, no introduction. He is on a screen and stage and podcast everywhere. And he's always very eloquent about everything around payments. So Dave, why don't you just kick us off and tell us your thoughts around AI and payments.

Dave 1:12

Yes. so the the kind of area I'm focused on at the moment is strategic response. So in other words, what should the various stakeholders strategic response to AI be? And the core of my thesis about this is that most of what I see, I mean, it's gonna sound horrible when I say it, but you know, you do see an awful lot of waffle about AI.

which I don't think is terribly well thought through. And the reason I think that is because most of the commentary I see about AI is about what banks will do with AI, which is quite uninteresting. So in other words, I mean, I could show you, you know, the Banking Administration Institute's November thing about this. I could show you anything about it. But basically what it says is, if we take this incredible new technology,

which will be the most revolutionary technology in any of our lifetimes. And if we deploy that technology within the organization and we do it effectively and we get all the data that we need and blah, blah, and we train it properly and whatever, if we do all of this, this incredible revolution means that we will be able to make slightly better targeted credit card mailings. And which may well be true. I wouldn't sort of disagree, but

Michael Salmony 2:31

haha

Dave 2:37

But the idea that the technology is so revolutionary, that's the impact it will have. Can't be right. And a few years ago, when I first got involved with this, I thought I was the only genius that had thought of this. Clearly, I wasn't. Other people have thought of this. But at the time, I thought I was the only person that thought of it. Was that actually it's the customers getting AI, which is the revolution, not the banks. If the banks get AI, they do it.

You know, they use it to do what they do now. I'm possibly in a slightly more efficient way in some places. I don't doubt that, but that's not a revolution. But when customers get AI which is an inevitability because big tech is feeding it to them Customers that suddenly become a thousand times smarter overnight are a real problem not just for banks but for other industries as well industries don't have a strategy for customers suddenly getting very much smarter.

And in order to kick the discussion off, I can give you a very simple example, which actually comes from Matt Harris at Bain Capital Ventures. I did a thing with him at Money 2020 and he used a very simple example. He said, well, look, in the US, when interest rates were tall, intense and purpose is zero, only one in 20 people with a loan refinance their car loan. And so the average person with a car loan

made a charitable donation of approximately $3,500 to the US banking industry. And according to the Financial Times, the US banking industry's net interest margins during that period went over a trillion dollars. So why? So why didn't people refinance their car loan? I mean, I'm a normal person. And if I read in the newspaper that, by the way, you can get a slightly cheaper car loan. If you go, I wouldn't do it.

You know what? I've got to go searching through all these different car loans and I've got to work out which one I want. And then I've got to open some sort of account and then I've got to go and get my passport and move my face around in the passport. And then they're to send me something in the email and then I've got to remember. And then I've got to figure out how to transfer the money over from one to the other. And I've got to log into my bank and put these people on the list of pay and blah, blah, blah, blah, blah. And I'm a normal person and I wouldn't do it because

Payments are boring and I've got other things to do. But the point is banks don't have, sorry. I'm standing a bit too crazy about that. Let me just say that a little bit again. And I'll try not to sound so crazy. You know, I'm a normal person. And if I saw a thing where, I can get a better car loan, I wouldn't do it. Because, you know, to do it, I've got to set time aside. I've got to look through all of the different possibilities.

I've got to choose one or two. I've got to I've got to go and create an account. I've got to go and log in and do KYC and get my passport and wave my face around in the picture and then they'll send me something and I've got to send it back and then I'll probably get turned down anyway. My wife got turned down for a savings account because their driving license had expired. I mean, we weren't planning to drive the money to the bank. why this was anyway.

The point is, it's a gigantic hassle and I've got better things to do, but bots don't have better things to do. Bots can do that a thousand times a day. And that means net interest margin goes to zero. It's not redistributed inside the financial sector. It doesn't vanish from the economy. goes into general consumption. But the point is it vanishes from the banking sector. And I don't think have a strategy for that.

Michael Salmony 6:20

I mean, that's a strong argument there. Let's unpick just a few of those things that you've mentioned. I maybe Gijs can just quickly respond that the banks, the only thing they can do with AI is to do better emailing. Is that a fair comment from Dave?

Gijs Boudewijn 6:38

Honestly, don't know because of course, the least interesting part of course is how to optimize the back office and the legacy and whatnot. Behind the scenes, it will cost a lot of jobs. Just heard on the news today that it's the number of corporates, including banks in the Netherlands at least, that the CEOs believe it's going to cost them...

labor space and now last time it was 9 % now it's 16 so there will be a lot of employment involved but that's the less least interesting part of it and indeed I do believe the interaction between the bank and the customer and that's where Dave comes in where the the bank was always or whatever big company always was the Goliath and the customer the Ignorant David

that's going to be turned around. And also when Dave was speaking, all sorts of comparison sites, etc., etc., they will become superfluous because AI will take care of that. It already does that today. It knows everything there is to know. But if both sides know everything there is to know, what will happen then?

Michael Salmony 7:58

I mean, isn't that a scary prospect for banks? mean, if there's, if the inertia has gone, which keeps a lot of people with their old bank, mean, most people get divorced more often than they change your bank, right? It's, isn't that a scary thing that these bots will get you to change to the best bank and change your account and change, optimize your interest rate?

Gijs Boudewijn 8:14

Well, I don't know. It's a philosophical thing. If

everybody keeps changing at the same pace, then all banks will have still the same amount of customers.

Michael Salmony 8:24

Okay, but you still look

Dave 8:25

Let me

let me let me take you through it. not just about banking, Mike. It's about payments as well. So let me just take you through a live payments example. OK, so I just bought something online. Doesn't matter. Sundry not relevant to the. So I go to pay and I'm thinking, well, I could pay with my my card that gives me frequent flyer miles or I could pay with the card that gives me cash back or I could get loyalty points from the merchant.

If I pay with my debit card, I think I might want the air miles, but I need to know, can I use those air miles? Let's go and have a quick look at the website. There's no flights available to anywhere I want to go in this time period. mean, I want to go to Dusseldorf is the only place they've got flights to. I don't want to go to Dusseldorf. So actually I don't want the frequent flyer miles right now. Maybe I'll take the cat. You're bored listening to me just talk about that. Imagine how bored I was actually going through that process. That's the sort of thing that no human being should have to do. Like a bot can do this.

in nanoseconds. What happens to the industry when customers always choose the right rewards, always redeem the right points, always choose the optimum, not necessarily for the merchant, but for me, the optimum solution. Meanwhile, on the other side, the merchants got a bot, which is trying to persuade my bot, couldn't use a debit card. Why you using your credit card? Wait a second. Can we do a direct to bank account thing?

I'll give you triple points if you direct a bank. See how dull that is. That's exactly what bots will be doing instead of people. But my question to you Gijs is what's the impact on the industry? If customers always make the right choice about where to put their savings, which card to use, which points to use, you know, I don't have in my head the constant exchange rate calculations between Avios pounds, John Lewis vouchers and everything. I would need to make the

But for a bot, that's nothing. What happens to the industry when the customers always make the right choices?

Michael Salmony 10:27

Now, presumably Ralf would say the fintech industry is the one that will solve all these things. But just before we go there, mean, sounds, you sound to me a lot like what I was saying when the internet came. Everything's going to be so much easier. It's going to be transparent. At the click of a button, I can get the optimal flight. I will have search engines, you know, all the advantages. And what we've ended up is exactly the scenario you've described, Dave, where you end up going through 17 websites and still not having the answer.

Gijs Boudewijn 10:27

Yeah, but the right choices means that there is a comp-

Michael Salmony 10:57

So I hope you're right this time that the AI will actually fix it and make everything transparent and cheaper and better. But I've just been burned on that score, quite honestly.

Dave 11:07

Look, it's made everything better in the sense like if I pick up my phone now and I use my bank app to do things, it is a million miles away from where we were in those days. So there is absolutely no doubt, you know, that in terms of getting stuff done, it no comparison. My banking app is unbelievable. And I couldn't have imagined that 25 years ago, you know. But if you go into that banking app.

All of the products that I'm accessing in there are exactly the same as they were 25 years ago. It's a checking account. Like there's nothing new in there. The only sort of the only kind of new thing I can really think of is my wise multi currency account, which is fantastic. And I use it all the time. My bank could have done that 25 years ago and still hasn't done it. The internet hasn't made any difference, that sort of thing. So it's not quite the same compare. I mean, I know what you mean, but it's not quite the same comparison.

Michael Salmony 11:38

You

That's

a fair point. But let's give Ralf a chance to say how will solve all this.

Dave 12:02

Yeah, yeah, sorry.

Ralf Ohlhausen 12:07

Yeah, I think it is yet another quantum leap that we're going here. So we had that 25 years ago with the internet and now we're having another quantum leap.

Whilst for the last whatever, or the 10, 15 of those years, we had the fintechs coming up and trying to be better, providing better services, providing nicer apps, providing more functionality in those apps than the banks are doing. So we had, I guess, a sort of good time in and trying and well and providing something which is easier, more customer friendly and just generally providing more functionality.

all that. But I am also worried about AI taking much of this over. Because here, it looks like an AI can provide maybe an equally good service or even a better service than a third party provider or whatever any fintech company here.

One of my biggest concerns around all of that is actually regulation, because we are where we are service providers where we got pulled into or under regulation such as TPPs under PSD2 we are now limited to what we can do. We are basically told you can do this, you can do that, but you can't do this anymore. Can't do that anymore.

And so we have all these regulations which applies to service providers. You need firstly the license and then you're supervised and then you're told what not to do.

Dave 13:49

No, you'll still you'll still

need that sort of regulation, though. It will just be in a different context, because if I'm going to let a bot access my bank account, I mean, in order for the bot to access my bank account, it's got to be a TPP. It's got to be like to have all of this. But is there's something else because I'm not going to let a bot do that unless the bot complies with some framework. So in the UK, you've got the FCA duty of care, which is a bit, you know, because it was written by lawyers. It's all a bit, you know,

Gijs Boudewijn 14:01

has to be regulated, right?

Dave 14:18

It's about making best efforts and what and that stuff's hard to code for. But in time, you could imagine a situation where the FCA would license bots that comply with the duty of care. And then the customer can choose, you know, much in the same way as you would choose different profiles for things at the moment. You know, Michael might choose the sort of Greta Thunberg bot, I'll choose the Warren Buffett bot, Gijs will chose the Elon Musk bot. mean, but they have to be licensed in some way. You're absolutely right.

Ralf Ohlhausen 14:38

That is still

Michael Salmony 14:42

you

Ralf Ohlhausen 14:49

Well, they will have to be, hopefully, somehow, under some sort of supervision. But for the time being, that's not the case. Because what we're talking today is software. It is software on a customer's device. So if I'm using my own device, if I'm using any software, buy any software on that device, then I can use it. It is not regulated. My AI bot today, my bank GPT, is not

under PSD2. doesn't have to use a crap API. It can use the nicely working, shiny user interface and basically has everything it wants. So not only it is arguably more intelligent, it's also not restricted by all that regulation, at least not for now.

Gijs Boudewijn 15:19

but it will not have access to your account's

Dave 15:40

You can't get API access to your bank account having an API key and you can't get the API key without being a TTP.

Gijs Boudewijn 15:43

No.

Exactly. So it won't work that very well.

Ralf Ohlhausen 15:49

No,

I'm talking about the my my, my bot being a proxy for myself. So it's using my user interface. It's using me is instead of me manually browsing, is my browser.

Gijs Boudewijn 15:57

But then it's you.

Dave 16:01

I see what you mean. So you say if

if the bot does I was looking at a demo yesterday of Google's I forgot what it's called. Yeah, but they were showing it in Chrome in an experimental version of Chrome where the AI was actually clicking on things on web pages. So this is to actually to Michael's example. This is to be choosing flights. So it was the AI that was going to the different different sites and looking at the different costs. And I agree, it's not, you know,

Ralf Ohlhausen 16:10

Gemini 2.0, yeah.

Dave 16:31

But I don't think that's quite what's going to happen. saw that. I mean, I call it is a person. Other people call it proof of personhood. But there's that big thing going on with MIT and Harvard and all those other people at the moment about proof of personhood. I think what's actually going to happen is banks and other financial institutions will start requiring proof of personhood credentials because the box won't be able to supply those. so the bank's first defense will be to say,

Okay, you can't use bots, because that's no fair. So you have to be a person in order to in order to access this thing. And then in time, as the technology evolves, then they'll be under pressure, there'll be PSD4, which says, well, you can't do that anymore. Under PSD4, you have to let people delegate to agentic AI's if they want to, but the agentic AI's have to be licensed in some structure.

Michael Salmony 17:09

You don't.

you

You don't look convinced, Gijs.

Gijs Boudewijn 17:28

Well, I am, but the good thing is, and you know, I'm the oldest one, well, maybe you're older, the fundamentals won't change. It's still a regulated business and the rest is technology and the regulation will evolve too. I mean, it will change, but the fundamentals won't. I mean, it's all about liability, protecting people's wealth, et cetera, et cetera. And by the end of the day, me as a person determining who gets access to my funds, to my wealth.

And everything in between evolves with technology, but it's still me and my money. And I decide by the end of the day.

Dave 18:05

I agree with that. But I think I think you're underestimating. And I would say there are kind of three reasons why I think actually the structural changes will be will be greater. So you're right in the sense that, know, we all know I could just as easily have my financial advisor come and sit next to me every time I log into the bank. And Keith's a really nice guy, but that would be quite expensive. But in essence, there's nothing to stop me from doing that. There's nothing to stop me from having an AI running in another screen telling me what to do. But

But I think there are three reasons why it's structurally more important than that. So the first is the bank business models. Michael used the word inertia. And depending on who you listen to, you could argue that certainly for European banks, let's let's say possibly two thirds of income is net interest income at the moment. And if we're generous and say half of that is what Michael refers to as inertial income, that's a pretty significant chunk out of bank revenues. They have to change for that.

The second thing is, there's certainly in the UK, I imagine it's the same in other European countries. There's a lot of stuff going on about financial literacy at the moment and improving people's financial health. There was an article in the Financial Times at the weekend about how you could bring financial literacy into classrooms. I'm beginning to think that's just a complete waste of money. mean, basically anything that relies on educating consumers is doomed. So we may as well just give them bots instead. It might be much cheaper to give people bots to do this sort of stuff than to try to teach

Michael Salmony 19:33

Not a fear

of controversy, are you David? Never have we.

Gijs Boudewijn 19:36

I'm the to group by the way.

Dave 19:36

No, but I just I think you know, financial literacy

is, you know, I once took part in a European Commission. I won't say what the project was about. I want to put a European Commission project. I remember going to a workshop and somebody mentioned it's to do with payments, mobile payments, actually. And somebody mentioned, we need to get the customer informed consent. And I remember a guy in the workshop saying, OK, well, if you want the customers consent, that's no problem. We can do that. We'll put in a button.

If you want the customers informed consent, I reckon this will take 12 to 15 years because in some parts of the UK, he was talking about, you're to start teaching people to read, you know, so, you know, this, this idea that we can educate people to improve their financial. I'm beginning to drift away from that. I'm starting to think for the average person, e.g. me, there's absolutely, I've got no reason to imagine I could make a better choice about what I said to what savings account to choose.

than even the most rudimentary bot. there's the financial literacy. The third thing is the efficiency. You if we are moving to this system of embedded finance and blah, blah, the number of financial decisions that are made inside things goes up and people. I mean, it's a sweeping generalization. I'm reluctant to to be the person that breaks it to you. But, you sooner or later, someone was going to have to tell you. It's just not that interesting.

like to the average person, it's just not that interesting. I would much rather use up my mental bandwidth on playing Dungeons and Dragons than trying to work out, you what's the best way to pay my corporation tax bill, which I just paid using pay by bank, by the way, which worked very well. So we've got these kind of three factors, which mean a much bigger structural change. And if it turns out that the banks only response to that structural change is price. And the reason I say that is because I don't know enough about it. So

If banks are competing to provide services through APIs to bots and bots don't care about the brand bots don't care that you sponsored the rugby bots don't care what colors you have in your logo know, bots don't care where the bots don't care about any of this stuff So what do bots care about? And if it's only going to be price that's very bad news for banks

Michael Salmony 21:52

Well, that's

the optimistic scenario from the customer's point of view. But as we've seen with comparison engines, with all sorts of other things, they actually motivated by what gives the best return for their investors. And that's where I think things start getting tricky. I think hired a Greta Thunberg bot to work for me.

Gijs Boudewijn 22:04

Exactly.

Where's the bots bias?

Michael Salmony 22:12

but he's actually got some other incentives in there. I mean, there was a time when I used to believe that my bank advisor was neutral, would advise me to my best interests. I've of course been disabused of that a long time ago.

Dave 22:23

Well, you're not familiar with

the FCA duty of care, Michael, which says that this sort of thing would never happen from now on. They only have your best interests at heart. Look, I don't see anything wrong with using a Greta Thunberg. If you want to use the Greta Thunberg bot, which given, know, given its set of constraints, would prefer to invest in green things, possibly at a slightly lower return, then absolutely fine, you know.

Michael Salmony 22:48

You won't do

that. It will recommend things that are best for the people who finance that bot.

Dave 22:54

Well, that's why that's

why the bots have to operate under a duty of care. And actually, there I am slightly optimistic, because I think if something like the FCA duty of care is written in a machine readable form, and gets rid of all of the lawyer guff about making best efforts and so on, but actually says you must do x, you must do y, actually, surely it would be easier to get bots to comply with that than to get people to comply with it. You know, the

Michael Salmony 23:21

That's lovely idea,

I love that. Gijs, I think I interrupted you.

Gijs Boudewijn 23:23

computer says no.

Dave 23:25

computer says

no, computer says you probably shouldn't do that but I've got a mate down the golf club if you buy him a drink he'll let you in on this IPO you know it's like

Michael Salmony 23:28

I see one.

Thank

Gijs, you were going to say something.

Gijs Boudewijn 23:40

Yeah, but

the thing I'm picking up on what you said, I think, Michael, so I'm the least technical person here. So how making the best choices, as Dave said, between everything that I have available. but that says, why shouldn't I, as a consumer, have everything, all solutions available? If my bot wants to pick the best one, I have a, I imagine a sort of wallet behind the bot.

and my bot will decide whether to go for your miles or the examples you gave. But my wallet may not be the perfect wallet with all the solutions the bot can pick from to make the ideal solution. So I'm much more interested on how do we fill those bots? How can we train those bots? They should have all solutions. If you really want to have full transparency the bot should be able to make the decision based on all products and all offerings that are needed

Dave 24:36

I agree.

agree. You know, you're not going to, you know, you're not going to ask a Coca Cola bot to advise you on what's the nicest soft drink, are you? mean, that's, know,

Gijs Boudewijn 24:38

How do we do that?

Exactly. That's what I'm saying. So how do

we do that? And then that somewhere we have to certify, regulate, and there will be competition amongst bot providers or bots and how rich they are in functionality and bloody but, but they will have to be certified and duty of care, et cetera, et cetera.

Dave 24:55

Yeah.

Yeah, but you know, if we move into an era where we've got, you know, the customer AI talking to the bank AI monitored by a regulator AI, why wouldn't that give us better outcomes than what we have at the moment?

Gijs Boudewijn 25:20

Why would or

Dave 25:21

No, why wouldn't it? mean, surely having an AI regulator that can monitor every transaction is better than having what we have now.

Gijs Boudewijn 25:28

That's some cool,

Ralf Ohlhausen 25:32

Could I bring in some other angle to this, which is to do with user interfaces. So it's sort of related to what I said earlier, but I think we're here getting a combination of, you know, one of the things that customers care most about is the interaction with any corporate, with any customer. So the user interface is the battleground.

So whoever provides a better, nicer, more interesting, more entertaining, more whatever user interface is already has already a big advantage. And I guess Apple made a big business out of that already. But now we're coming into

into a situation where we are not just talking about standard visuals and audio, we are looking at augmented reality, virtual reality. So all these user interfaces will become very, very attractive. I just ordered one of these glasses, you know, with cameras where I, where the AI my bot, so my personal agent will see what I see, not just on a computer screen, but everywhere.

Dave 26:35

Did you order the Ray-bans?

Ralf Ohlhausen 26:38

No, I didn't. A new alternative that just went off on Kickstarter. But it's the same principle. it's someone who will tell me, okay, well, but here you know, you know, they try to make you click here on the left. But are you sure? Because there is actually maybe a better option here on the right. And, and we are, I think we are seeing a

Dave 26:45

cool.

Ralf Ohlhausen 27:05

a renaissance of the need and the use of user interfaces, especially also from a fintech perspective. For the last 5 years 10 years we've been obsessed with APIs but they are limited and the user interface a bank's user interface is for me like the more interesting battleground than their backend API is, especially when it comes to serving customers in a better way

So here.

Dave 27:36

You see, I'm not sure about that. I mean, I agree with you about the glasses that the next generation of interfaces will be interfaces that we look through, rather than look down. I completely drink that Kool-Aid. I don't know why people use that as an expression because everybody that drank the Kool-Aid died. I don't know if you remember the story, but anyway, but but I agree with you about that. the interface, I'm not so sure because I look at some of the sort of demos of, know, this is how you look in the bank and it shows you.

Michael Salmony 27:54

you

Dave 28:04

The thing is, I don't want to go to a bank at all. I don't care if it's got, you know, robotic tigers wandering the floor or something like that. Or it's in my, I just don't, want the glasses because I want the glasses to tell me, yes, this is Michael. You do know who he is. You met him two weeks ago and here's his LinkedIn profile. And like, would pay anything for glasses that could do that for me. But to visit a bank freely. No, I don't want go to the bank at all.

If I go and do something, I just want the AI to take care of it in the background. I don't want I don't want to go to the bank.

Michael Salmony 28:37

Yeah. I think we're gradually getting towards the end of our time. Well, we usually geek out on regulation. So we've actually seen you on that a bit. But I mean, there are questions like on the regulation. Is it actually a good thing that Europe is moving ahead with AI regulation or will that actually hamper? Right. Because Facebook and Apple have now said, well, you're not getting our nice AI, right? So is that a good thing or a bad thing? That's a topic we could explore. Then the whole topic of fraud.

Dave 28:42

No, what? It's just getting interesting.

okay.

Michael Salmony 29:06

You know, we get people calling us now on our phones with the bank's number saying, we are the bank and will you please move your money somewhere. If that can be automated using bots, using my bank manager's voice and maybe my face, that leads to all sorts of... So there's plenty more to explore on AI, but we only have a limited time here.

Dave 29:26

Can I

ask you one question about that? Why do you think a bot would be easier to fool than you are? Because I think, you know, if somebody rings up pretending to be my bank manager, I'm potentially foolable. But if a bot talks to my bot, my bot is going to want to see digital signatures, cryptographic proofs, that I think will be much harder to fool than I am.

Michael Salmony 29:48

I totally agree, but in this transition phase where we still have the odd human in the chain, think these bots manipulating humans to do silly things on their accounts is still a real threat.

Gijs Boudewijn 29:57

Exactly, yeah.

Ralf Ohlhausen 30:00

And,

and, and we will have all these bots, not just on the bank side and on the consumer side, but also on the fraudster side. And we touched on this in a previous episode, but I think it would be very optimistic to believe that we could use AI better to in fighting fraud than fraudsters can use them in committing fraud. So I would be not that optimistic there. So I think this

Michael Salmony 30:09

That's what I mean.

Gijs Boudewijn 30:27

That's one of the fundamentals,

Michael Salmony 30:27

for watching.

Gijs Boudewijn 30:28

Ralf. That's always true. Every new technology development has an upside and a downside. Has been the same. There's nothing new there.

Michael Salmony 30:37

Very good.

That very philosophical statement, I think, as a summary. So thanks to my co-discutants here, Gijs and Dave and Ralf. And thanks to all of you who are watching this. Hope you enjoyed that. And as always, it's been a pleasure welcoming Dave as a special guest who's always most entertaining. Thank you for watching and thank you to you three for joining this episode.

Gijs Boudewijn 30:40

the

Dave 31:03

Thanks guys, that was fun.