Antony Jenkins knows a lot about the big banks that run global finance. During more than 30 years in the industry, he was a credit card executive at Citigroup before becoming CEO of Barclays in 2012. He was ousted in 2015.
Now, after a long career in mainstream finance Jenkins is an entrepreneur: Last year he self-funded 10x Future Technologies, which sells cloud-based computing platforms to banks. He thinks big banks are in denial about the threat posed by fintech upstarts—his pitch is that they can only save themselves by starting over with better technology. In September, 10x raised £34 million ($45 million), led by consulting company Oliver Wyman and Chinese insurance group Ping An.
Quartz spoke with Jenkins about the fintech scene, bitcoin, and other hot topics in the world of finance. The conversation has been edited and condensed for clarity.
Quartz: Many financial firms now want to be known as technology companies. Are they?
Jenkins: There are providers of technology and users of technology, and it’s hard to do both. Is Facebook a provider of technology or a user of technology? The distinction is much more blurred in a business like that. Whereas if you think about a bank, they’re basically users of technology.
Now, perhaps over time the distinction becomes more blurred in financial services, but basically banks today are users, and not very efficient users, of technology.
How do the big banks push back? The CEO of Monzo, a high-profile fintech startup in London, says he gets a buyout offer every month. Do they fight back with acquisitions or with fintech accelerators?
No. I would say setting up an incubator is not a sign of fighting back. It’s just a more sophisticated form of denial. I would say that buying a fintech is not enough of a response either, because what will happen is, they’ll buy this fintech, and they’ll impose all of their governance requirement on top of it and budgeting and so on, and suddenly the thing just dies. It gets overwhelmed by the parent. The only way to do this is to create a completely separate set of activities outside of the main organization and protected by the CEO from interference.
The big organization will reject anything that’s unfamiliar. It is programmed to do that. It is designed to do that to protect the organization. It’s not that the people doing that are people with bad intent. It’s simply that they’re doing their jobs. All large organizations are orchestrated to protect the way business gets done.
If you want to do business in a different way, you’ve got to set that outside the existing organization.
And what’s the endgame for fintech companies? Are they really looking to displace major banks, or are they looking to be acquired or get a bank to buy their services?
For the incumbent banks, they’ve gone through first phase where we see denial—this isn’t going to make any difference, we’ve got a massive brand, we’ve been here for hundreds of years, we’ve got loads of money. Then, what I would describe as window dressing. They would set up incubators, they would take the board to Silicon Valley or Tel Aviv or something. Now, they’re really starting to think hard about what this means for them. That’s why I think we’re in a different phase now.
In my mind, what’s going to happen is, some of these organizations that start up in the fintech space will gain critical mass, but equally there will be new companies that emerge that build on top of the learning of those first-gen fintech companies, which is what we see in many areas of technology. Google wasn’t the first search engine. Facebook wasn’t the first social media company. But they found a better way to solve the problem than the first-gen companies.
Is it easier for a company to get started in financial services now?
Absolutely. If I go back to the late 90s, when I was working in New York and we were going through the first dot-com boom, I was talking to a lot of startups then, and they were raising millions of dollars just to buy servers. So the cloud just massively lowers the barrier to entry. In many ways you’ve got a much better technology capability than the incumbents because they have a legacy architecture. If you look inside a bank, it’s like a museum of technology. The mainframes, the midframes, servers of every type and size inside.
Whereas on the cloud, you’ve got modern low-cost, highly scalable architecture. Along with the cloud comes lots of tools that you don’t have to buy or build. So it massively lowers the barrier to entry, and this is actually why startups have been able to get a long way down the road with very sophisticated offerings.
So, what will finance look like in five years?
I wouldn’t have said this a year ago, and making predictions is a mug’s game. I think the biggest trend that we’re going to see if the next five years is the fight back of the incumbents. The incumbents are going to wake up, and are waking up, and saying, we’ve got to get in this game. We’ve got to figure out how to radically modernize our technology, and you can see it. What Goldman is doing with Marcus is interesting.
A number of banks I’m talking to around the world are going straight there, and they have to do that to protect themselves against this wave of technology change. And in other markets, in Asia for example, where the banking market is less developed, or Africa, people are going straight to these digital solutions.
What do you think about blockchain?
When you have a banking system, which is basically a set of intermediaries, what those intermediaries do at any point in time is they cluster risk. Now, it’s not that the risk is created or destroyed. It’s simply clustered in one place. When it’s clustered in one place, you then have to hold a lot of capital against the fact that this risk may crystalize one day. Classically in banking, we leave our money in our banking account, and the bank lends that money out to somebody. If the bank doesn’t get repaid, that risk crystalizes, but we still want to get our money out, so the bank has to hold capital to buffer against that risk.
If you imagine a world in which we’re all connected by some distributed ledger technology, there’s no need for those central counterparties. There’s no need for the capital that sits in the middle, and all the friction that goes with moving in between those counterparties. You can imagine a world where you have essentially frictionless banking. You don’t eliminate risk, because risk is always there. But you eliminate the clustering of risk and that capital behind the cluster and the things that go with it.
Speaking of distributed ledgers, what do you think of bitcoin?
I am long bitcoin. I think there’s clearly a bubble going through the market, but like all of these technologies, it’s the learning that comes with it.
Over time I think those currencies are going to be important. It wouldn’t surprise me at all if we see some kind of boom and bust behavior, but that is to be expected in something as new as this.