The Rise of Digital Banking

the CEO of BM Technologies. It's among the largest digital banking platforms in the US. I wonder how much can be done, And I was thinking about this when coin Base went public, or at least had their had their direct listing last week. It'd be great if I could have my bank accounts somewhere, trade things like you know, digital currencies, stocks and bonds, and also somehow input my employment details so that my tack UH filings would be automatic.

Can Can something like that ever happened with with an online with a digital banking platform? Yes? Absolutely, thanks so much for having me Um. I think a couple of years ago we saw a lot of exuberance and excitement about fintech. Spintech, we're really coming in and saying, hey, banking your your old school, you're not doing this in a consumer friendly way. We can come and, uh, really disrupt what's happening and provide a way better customer experience.

And many um you know players came in, did that robin Hood coin based, you know, so Fi, chime et cetera, b M Technologies, etcetera. But what a lot of them started doing was really unbundling financial services where it was one product at a time. Someone's gonna do personal loans better than what exists today. Someone's gonna do you know, investing better than what exists today. Someone's gonna do banking

better than what exists today. But it was all separate rather than you know, really creating a fulls of a digital banking platform. And what is now happening is the realization that we can create a technology platform where all of this is weep together. Maybe that institution doesn't even have to provide all of those services. They can plug in through a PI. Is the best in breeds from investing, from crypto trading, from banking for advice, um, and that

is what we're seeing and that can absolutely happen. I'd love to get your thoughts, lovely in a kind of about how your business has been impacted, how it has changed over the past fourteen months with this pandemic. You know, we're hearing the obviously lots of stories that people are doing more and more of their banking digitally. How has

it impacted your business? Absolutely? I think in general, the pandemic force and acceleration of digitization, the use of technology forcing all segments, all generations to begin using technology for all sorts of things, grocery and e commerce, uh and banking being one of them. And so as it relates to our business, we did see exponential growth last year

in our new business lines. We saw si plus growth and deposits, we saw two plus growth and spend over the year, and so overall we saw a lot of consumers logging into their app, a lot more, using a lot of the features, the functionalities, the saving and budgeting tools, and obviously increased usage spend balances across the board. Does it matter what, um what platform people use or I mean like iOS versus Android, Are you agnostic or do

you head for that? Absolutely agnostic? We have to move towards. You know, if if people want to have a truly better banking experience, you can't create barriers like that. And so not only iOS, Android, but really across different channels, whether that's your phone, whether that's you know, online mobile,

whether that's being able to access through Alexa. You know, we're coming into a world where we use and access many different devices, and we should be able to do banking and everything else that's important to us through various different channels and devices. And I think that's the direction people are heading. And so as b M Technologies, BM Technologies lovely and love to get a sense of kind of where what's the kind of environment for your company

and where do you see growth going forward? Yeah, so, as you had mentioned in the beginning, we are one of the largest digital banking platforms in the country today and we have over two million account holders and and

we're growing quite rapidly. We did go public earlier this year through his fact vehicle where our tickers b M, t x UM and you know, for for us, it's it's really about how do you continue to expand the digital banking experience in the most profitable, high growth way while still addressing customer pain points, and so a lot of players out there are taking a director consumer approach. Bank Mobile is actually taking a bat data the approach

and something called banking as a service. Our belief is that every single customer in this world, really, you know, would benefit from having access to financial services, and that banks shouldn't be the only one to have the ability to offer this service. You know, every business, every employer, every government entity should be able to offer banking. And that is where you get into the strategy of banking

as a service. And that is uh the vertical that that we are most invested in creating and helping non banks get into the banking business with fully branded banking services to be able to create more loyalty, more engagement with their customers and with their employees. Lovely and thank you so much for joining us. They really appreciate that. A really interesting story, a growth story here on the consumer banking front as digital plays a bigger and bigger

role in consumer banking. Lovely and sid Do chair CEO and founder of BM Technologies. Kind of a fascinating story there. I know, just speaking for myself, I'm doing much more of my day to day consumer banking on the digital platform that I did prior to the pandemic, and I think we're hearing from a lot of financial institutions that consumers across the border having a similar experience. So lots of opportunity for technological innovation. Matt let's switch gears talk

about the fixed income markets. No better person to do that with than r J. Gallows, senior portfolio manager for fixed income is also ahead of the missile bond group at Federated Hermes. R J. Thanks so much for joining us once again. Here I'm looking at the ten year uh one point five eight percent. It doesn't scream inflation to me. Give us your thoughts here on the fixed income market and maybe some concerns creeping in about inflation. Yeah, well,

good morning, thanks for having me back. Um. You know, if you just look at an interday charge, it wasn't all that terribly long ago, and the tenure peaked out on March thirtieth, I think it was or one around one seventy seven, so you know we've traced give a

take twenty basis points since then. Um, at the time, the market was very focused on the reflation trade, let's call it, maybe even the inflation trade um and I think we still believe that that we're going to have a massive rate of growth as we come off the you know, difficulty economic period related to COVID that we've been through. And we do feel inflation is biased upwards. We've seen it in the year of a year numbers. I just think the market might have gotten a little

ahead of itself. Maybe at the end of March. If you look on a year to day basis, you know that the ten year real yield is up about thirty basis point thirty two basis points call it, and then the break even on top of that is of about thirty six. So on the air real yields are up, they're still negatives very low. Probably we'll go up further, and inflation break evens are well north of two percent,

which the ft has to like. We think that the retraceman yields we've seen so far is some of the fear came out of the market, but the trajectory is still upwards, and nominal yields, real yields break evens maybe a little less so because inflation is starting to perk up, than these break evens are pricing in well north of two. So we don't think that this most recent trade is time to get long bonds. We still like short. And on inflation, I mean, you see huge growth coming up,

do we have huge inflation? And does it stick? I me, it's it's it's the key question. I think that everyone understands base effect. You know, the price level doesn't fall all that much in American history what it did last springs, the COVID shock set in so as we laugh that by twelve months the year of year numbers are high. But does it stick? And that's the key question. And everybody's debating. And I would say internally at our at our shop at Federated Herme's, we believe that the inflation

trajectory is upwards. Now there's some people and I would say it's almost like a demographic difference. People who were in this business in the seventies and eighties, Uh, you know, they feel like we need another Paul volcra I mean, they're they're they're much more concerned the inflation is not

only gonna stick, but accelerate. People who've been in this business, you know, called from the mid nineties on, you know, seem to be like, I'm not so worried, and then the younger people didn't worry about aation at all because they've never really seen it. Um Our view is is sort of in the middle. I think that inflation is going to have a tail wind. I don't think it's going to become unhinged. I don't think we're talking about three, four and five percent rates of inflation by any means.

But I do think the Fed will have some success, some satisfaction after decades of being disappointed by inflation exceeding two percent. Their framework opens the door for them to react as opposed to be preemptive. That's a massive difference

from Paul Bulker and the decades that followed him. All Right, So, if we're going to have inflation on any meaningful scale r J, presumably it has to come from wage inflation as opposed to some of the other commodities that we're going to see a base effect over the next couple of quarters and some of the reported numbers. So do you foresee presumably higher wage inflation in this economy of

the next twelve eighty months. Well, I think that workers are going to be incentimized to come back in into the workplace, and some of that is going to involve enticing them with higher rates of pay. You know that translates to allery and wage increases, especially in the areas that were the most severely COVID effect of like travel and hospitality, etcetera. UM. I think over time, yeah, you

will be seeing some higher rates of nominal pay increase. UM. Again, I'm not in the camp that it becomes an unhinged problem. I believe. I actually believe the FED when they say we know what to do if inflation gets too high, I think we all know what to do. They would tighten, and they would tighten in fifty to seventy five bases point increment, something that hasn't been done in like forever. And I think if they did, what do you think

financial conditions would do? They would roll over. People would be very nervous if the FED suddenly was spiking real rates to Dallas inflation, and that's the tool they know works. There has been an asymmetry in the Fed's toolkit. They can't seem to get inflation up. They know how to douase it, so they change their framework class August to becoming reactive let the inflation show up. It's called the bunker hill, you know, don't tighten city, see the whites

of inflations eyes. That's the new new approach, very different than the re emptive forward looking uh tightenings that we saw in the past. Well and even then, don't tighten right. The idea is that inflation is just gonna run right by you and be gone. Yeah, I mean I think not. So their framework is what they want inflation to rise above two. They wanted to have signs that it's going

to stay above two before they tightened. So what if it goes above two and it hits two and a half, and I think one can infer the two and a half would be fine from the FED standpoint. If it just stays there for a month or two it starts to roll back over then yeah, and then you do have a problem. Their framework doesn't produce the tightening that they want. Um. That's why I think they're in a sense pouring some men around their feet and say no, we're standing here and we want you the market to

believe inflation goes up. Because inflation is a little bit of a game theory concept. Right. If if price setters, those who charge prices for goods and services believe inflation is rising, they put it into their pricing decisions and it becomes self fulfilling. So if the Fed can allow that to happen without becoming you know, boiling over and too hot, then you get the inflation you want and

you hopefully don't have a boiling over economy. If you do have the boiling over economy on the inflation front, the FED knows what to do. So, I mean people might criticize me. I used to work there a long time ago, the New York. I think it's gonna work right. It's gonna take time, and rates are heading up in the meantime. All right, r J, thanks so much for joining us. As always, we appreciate your thoughts and input. R J. Gallows, Senior portfolio manager Fixed Income, is also

ahead of the amunicipal bond group at Federated HERM. He's giving us his thoughts on the credit markets and on inflation. Not too concerned here in the near term, Matt, let's talk about semiconductors here. If there's definitely been an issue with supply of these chips on a global scale, and that's happening ripple effects across the global economy, I'm talking about you know, just take global autos for example, a lot of the manufacturers saying that they can't meet the

production goals because there aren't enough chips. Let's get the latest on what this means and how this might play out. We do that with Rory Green, China, economists at T. S. Lombard based in Soul South Rio. Rory, thanks so much for joining us here. Give us a sense of what's going on in the semiconductor market right now. What's the state of the market. Yea, COVID nineteen has really brought

forward an acceleration in a structural demand shift. So it's not just autos, We're talking about demands for consumer products, data centers, um, whole range of different academies of demand really spiking off of COVID nineteen and likely to stay high for you know, a few years now. This is a structural shift we're looking at, which were in the very early early days on How do you expect it

to hit GDP growth? I mean mostly I think of the US and Europe, but I guess you're you're thinking about it more globally obviously, Yeah, that that's right, I think mainly, and the main hit is going to be it's a quarterly hit rather than a moment rather than

a hit to annual growth rates. So it will be a q on hit for the big auto producing nations from Germany, Mexico, slight slide drag in China, but over the course of the year, it's still expecting that these um the production lost in Guan will be made up throughout the subsequent subsequent quarters. So it's rory. You know, I'm here. I'm here in Berlin, so I mean we produce a ton of cars and motorcycles in this country obviously, and throughout Europe there big plants, and in the US,

I know where all the plants are. I don't know much about the production in China except that you know, Elon Musk is making Tesla's there and everybody wants to have everybody's got a joint venture there. How much auto manufacturing is there actually in the world's second biggest economy. Yeah, it's it's a big manufacturing, big chunk of the economy. And they say everyone's got a joint venture there, and then you've got a huge, huge chunk which is just

purely for the domestic domestic market as well. So it's it's a lot a lot of cars being made um and a big employer as well, so the intent of the labor intensity is very high. So it compared to Germany where it's all automated, in China it's still a big employer, So it's it's a very important sector in China.

Or as we think about the global you know, the chip market, it's I guess what we've learned maybe starting with President Trump and some of the teriffs and then with the pandemic, is that you know a lot of countries are thinking about reassuring some of their chip manufacturing capabilities.

Do you expect that to be a real trend? Or we go to see more semiconductor manufacturing sites, say on continental Europe, in North America, certainly in North America, and Europe's plan is still a bit lacking because what we're talking about here is it needs a lot of political and financial capsule to be invested to get it's a

reassuring process underway. Recording talking about ten twenty billion dollars to build just one fabricane one semi conductor fab So it needs a lot of investment, and Biden, I think, is putting this in place. Intel has made a very big effort, made a large bid to become the West, not just the US, the West geo politically secure manufacture, and he's decided to make investments accordingly. So I think we are going to see this trend increasing going ahead.

But Europe still seems a bit called. Whether they really are going to stump up enough money to to get some some more fabs there, Who's going to be hard to see. I don't know how to compare the announcements, but the Intel announcement you mentioned seemed big at twenty billion until I heard Taiwan Semiconductor say they want to invest a hundred billion. Is that just spin or is

that legitimate investment in that size? That's as a legitimate investment um that over the next couple of years, so probably learning about twenty five to thirty billion a year in CAPEX. So it's a large investment and very positive

signs for the industry at the whole. And this is the reason that t SMC and Samsung to a lesser extent or ahead of the intail it consistently just pumping money into both capacity and R and D, and that's what's enabled them to build leading edge that they have now ahead of the intail and the rest of the world in chip production. Alright, just real quick for thirty seconds, is Taiwana career? Are they still the leaders in global

chip manufacturing? Yes, they are still the leaders and I think likely to stay that way for the next step. All right, very interesting stuff indeed, and that um, that investment really does put the size of US and European investment to shame. And maybe Biden will turn that around. Roy Rory points out he's behind a big part of the reassuring. I don't know who would be behind it here though, Paul, because the EU can't even agree on, like,

you know, buying vaccines. Yeah, so exactly. I don't know how that works on over there on your scale there, matt Um, you know, and it kind of just makes the Brexit folks, uh, I guess feel a little bit smarter indicated. Yeah, absolutely, It's got to be done really on a national level here, I think is the lesson being learned in any case, Rory Green great to spend some time with him. China economist at TS Lombard staying up late in Seoul where it is what eleven thirty

at night. This is Bloomberg One of the key stories of today is around global soccer, and a group of the world's richest soccer clubs, including Manchester United and Real Madrid, announced plans for a European breakaway league starting in August. And that's got people all up an arms, not just in Europe but around the world, as it is a global sport. Let's get the latest. We would do that with David Hellier, Bloomberg Reporter, David, I don't have a dog in this fight here. I'm not a huge fan

of European soccer. I follow it, but I'm not passionate like so many people are. To me, this just looks like a money grab. Talk to us about what's going on here. Yeah, I mean, I'd agree with you it is a money grab. It's um. But there's lots of different layers to um. Businesses do because they wanted they want to make money. Yeah, you've got a group of owners,

three of whom are American Arsenal Liverpool and Memphister United. UM. And you could argue a sen Land is Elliott, the Hedge Fund UM and uh they for a long time, the owners in Europe have been thinking about, you know, how do they how do they play more often amongst the bigger clubs. Um. They get a bit frustrated when they have to go to play in Denmark or you know, uh in Croatia, Uh, some club that they've probably never

heard of. Um. And they think that for an international audience would be much more attractive if they could always play against the top clubs. And so they put this thing together. They've been doing it behind the scenes for for a while now. I mean we've been reporting about it since about a year ago, UM, and they finally come out of me open. And so they've got twelve teams to twelves, you know, absolutely top teams in Europe to sign up to it. But it is horrified everybody, Politicians, fans, uh,

you know, leagues, everybody. UM. You know some of the I haven't I haven't seen such an extreme reaction. Uh. You know all the years I've been reporting on soccer, shouldn't we I mean I tend to have initial reactions to things that are maybe conservative and based in my free market upbringing. Often I'm wrong when I look back at my initial opinion. But my first take, um, David, is that let the market decide. Why do we have

all these politicians jumping in. You know, if people don't want to watch a Super League, Um, then they won't write, and then the business venture will fail and the Champions League will continue. Everything that they that they want is going to be there, and the stuff they don't want they just don't tune into. Yeah, I mean, you know that's a it's a very good point, um, I think. I mean, you know, the politicians are jumping in. You've

got Boris Johnson, who's who's a conservative politician. Uh, he's jumping in because he knows that a lot of his constituency, a lot of fans up in arms, and you know, just he's doing it for his own purposes. I think he probably believes exactly what you just said. Um, so I don't think he's been truth to his his word. Really, um, why not let it just go? I suppose, um for me? Anyway, the bit I haven't really explained is that what they're doing is so alien to the competitive element in sport

in in Europe. Is trying to set up a league which has fifteen permanent members who can never get relegated and never come out of the league no matter how badly they do. Concept that Yeah, Yeah, exactly it works in the NFL because that's always been the case. I think. I think it's like, I don't know, maybe we're deluded, but we we believe quite passionately in this history of soccer and hundred years or you know, have as longer than a hundred years now, Um, you know, I don't know.

We just have an attachment in Europe, I think to the the concept of promotion and relegation, and so because we believe so firmly in that, allowing this simply to go ahead actually alters the whole pyramid. I think that's that's the problem. And if it was just the cases let them go ahead, I mean, but you know, there's a good I think you're right in a way. I mean, you know, why not let them And some people even who hate hate the concert for saying just let them go,

let them go. They'll fail and then they want to come crawling back and we'll tell them know, um, you know. So it's it's kind of um, but I mean basically, it's it's just aroused a lot of emotion, really, and it's very interesting. I think the the fact that a lot of it is becoming focused on the American investors. UM. So it's JP Morgan Bank who are financing it, um As I said, it's Liverpool, Man United, Arsenal, all owned

by Americans. There's been an incredible invasion of US money into European football or soccer um and I think that's because the franchise values in America are just so huge, so enormous, and it's very hard to get a hold of franchises. And they've seen that European soccer clubs are changing hands quite readily, so they've they've all come in here. But it's this how this might play out. Is this just a bargaining chip for other negotiations or can this happen?

Well yeah, no absolutely. I mean so that the current league organizing u A, for the current organizing of the Champions League, they've got their own plans to extend their competition, have more matches, potentially get more money um to fatisfy the clubs in in that way. But I'm not sure that maybe they've left it too late because these guys have already signed. So it depends on that. You know, we're being told they've signed finding agreements they can't come

out of it. But you know that if if there's a good enough deal being offered on the other side of the street that they you know, they might look there. I just look at, you know, Formula one as a model for how badly this could turn out, because it's similarly, all big money, it's all encased now in one big league that it's just dreadfully boring. Yesterday's're Racing the Malo was okay, but it's nobody wants to watch anymore the way they used to. And that could be where these

guys are headed. Yeah, I mean it could very well be. And you know that, I mean that would be an amazing uh you know, punt taken by JP Morgan, who's who was sort of they've got four billion at risk here? Um, but who's your team, David, who who do you support? My team? My team is owned by a Russian oligarcus Chelsea, So there. I mean, I I thought I didn't expect

them to go into it. The the you know, the signals were that they wouldn't necessarily go into it, But I think they're they're they're in it not because they need the money, obviously, but because of the fear of missing out. Absolutely the Pomo there David Hellier, Thanks so much recovering this for us. Is a Bloomberg reporter on this European soccer story or football as they call it here, and it is playing out massively across the continent. Thanks

for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three and on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.