Bank Innovation

Recap of FinTech Week in New York

September 30, 2014 by JP Nicols

Recap of FinTech Week in New York

After spending two weeks meeting with bankers all across the Southeast United States on our Bank Innovators Road Show, all of that activity reached a crescendo with FinTech Week in New York last week.

Monday September 22

Bank Innovators Lab Day

After stops in London and San Jose, the Bank Innovators Council’s third and final Bank Innovators Lab Day of 2014 came to New York on Monday September 22, right before FinovateFall. Thought leaders, executives and influencers from FinTechs and banks from four countries on three continents joined us for a deep dive of the FinTech companies about to demonstrate at Finovate through the lens of our Relevance Models.

Participants discussed the customer segments they were most interested in focusing on, and then broke up into five groups representing those segments: Corporate Customers, Millenial Consumers, Mass Affluent Consumers, Financial Institutions, and Small Businesses.

We then worked through the six major categories we created for the ideas that would be presented over the next two days at Finovate: Core Banking and Security, Personal Financial Management, Payments, Big Data and Analytics, Capital Markets and Wealth Management, and Lending.

Then, each group considered these categories of solutions for their chosen customer segment through our Relevance Model. Our relevance model looks the investment required and the amount of internal disruption necessary in order to implement any new idea, along with its expected impact.

Each group created their own Relevance Model in the context of their chosen customer segment and their own criteria for successful implementation. At the end of the day, we compiled all of the groups’ ratings into one overall Relevance Model and discussed everyone’s ratings and why they rated each idea where they did.

Each idea was rated from 1-5 for their expected impact on the market, with 5 being the highest. There were only three ideas rated 5 by the group (All company information is from publicly-available sources):

Knox Payments:

Knox is the easiest way to pay. No credit card forms to fill out or account numbers to remember, just login to the bank you use everyday. Knox combats the 3% + 30¢ of every transaction processing fees. Knox strives to create value for merchants by keeping the amount they spend on payment processing fees small. Knox wants to take part in the stories of change, those of the businesses and non-profits, where the smallest number makes the biggest difference.

No charge for micro transactions (payments under $2). Accept payments without worrying about all the fees associated. 18 ¢ plain and simple for transactions over $2
Guaranteed Funds: Knox Assured ACH payments are guaranteed and overnighted
Login Securely: Knox stores the minimum information necessary to make a transaction on your behalf and NEVER stores your online banking username or password
SOC 2 Compliant and 128 Bit Encrypted

WorkFusion:

WorkFusion is a rapidly growing enterprise software-as-a-service company dedicated to transforming knowledge work through crowd computing. WorkFusion uses machine learning to combine automation, crowdsourced workers and employees on web-based knowledge processes.

Automation tools unburden human workers of repetitive tasks, crowdsourced workers perform judgment tasks, and employees are focused on tasks that require subject matter expertise.
Self-repairing automation pairs algorithms with human workers
30 million on -demand workers for performing tasks and training algorithms
50% reduction in cost of creating financial content

Zenmonics/Diebold:

For more than 150 years, Diebold has brought together a combination of innovation, expertise and quality service to become a global leader in providing integrated self-service, security systems and services. Headquartered in the Canton, Ohio area, Diebold employs approximately 16,000 employees, with representation in more than 90 countries worldwide. In 2013 Diebold reported total revenue of US$2.8 billion. Diebold is publicly traded on the New York Stock Exchange under the symbol “DBD”.

Channel/UNITED Mobile Platform – brings core banking, branch platform, and mission critical systems to the mobile channel
Pioneering omni-channel technology to unite digital devices with your existing systems and service-oriented architecture, to speed deployment of advanced mobile applications
Results in consistently branded, reusable delivery across your customer experience

Other Monday Events

NYC Tomorrow’s Transactions Unconference

NYPAY and Consult Hyperion presented their 3rd Annual NYC Tomorrow’s Transactions Unconference, also on Monday, September 22, 2014 at Google’s New York offices. The Unconference event is a unique mix of thought-leadership talks and open-space discussions on topics chosen by the delegates on the day. FinTech and other topics covered included social and financial inclusion, new transaction technologies (e.g. HCE), mobile financial services, data security, cryptocurrencies, new institutions and much more.

Trade Canada Networking Reception

On Monday evening, Canada’s most innovative FinTech companies, including Finovate presenters Silanis, Financeit, and Ticksmith, plus Canadian technology accelerator companies Camouflage Software, Wagepoint, and Market IQ held a reception at the Times Square offices of Thomson Reuters, with a special keynote address from Greg Baxter, Global Head of Digital Strategy at Citi.

Tuesday and Wednesday, September 23-24

FinovateFall

On September 23 & 24, Finovate returned to NYC with a record 1450 registered attendees for FinovateFall, the flagship two-day showcase of the latest and greatest FinTech innovations from leading established companies and hot young startups.

Finovate’s signature demo-only format saw 72 companies from 11 countries with just 7 minutes on stage to demo their latest innovations to the huge crowd of innovators, investors, journalists, bankers and analysts. Networking sessions followed the demos each day, giving attendees the chance to make one-on-one connections with the innovators they just saw on stage, as well as the other influential fintech professionals in attendance.

Attendees voted for 7 Best of Show Award winners, and here they are in alphabetical order, courtesy of the Finovate blog:

AnchorID for its new way to log into websites and apps. One universal username logs you in with unique security.

blooom for its simple tool built to fix the millions of mis-invested 401(k) allocations for individual clients.

CrowdFlower for its leading data enrichment platform to help data scientists, analysts, and engineers collect, clean, and label data to make it useful.

Loyal3 for its use of social technologies to democratize the markets, making investing in IPOs and stocks easy and affordable for everyone.

MX/MoneyDesktop for its WideNet Technology to help FIs expand their market reach, and its Helios cross-platform digital banking app.

NICE Systems for its real-time authentication that strengthens and streamlines the authentication process in real-time, while customers converse with an agent.

Toopher for its multi-factor authentication platform that uses the location awareness of your smartphone to automate authentication for logins and critical actions.

Tuesday night – Chris Skinner: Digital Bank

Tuesday evening we were proud to help sponsor our friend, noted FinTech commentator Chis Skinner for an exclusive reception for his new book Digital Bank. The need for innovation in a world where consumers and businesses want digital and virtual access to their money is driving investment in financial technology by many players, including banks and other traditional financial services providers.

How customer demand and technology are changing the way we bank and why embracing that change is critical for banks is the subject of a new book, Digital Bank, by thought leader and author Chris Skinner.

(P.S. – Chris will also be in Boston October 2 for a similar event during Sibos)

Thursday September 25

Breaking Banks Radio Show

Each week FinTech icon Brett King hosts Breaking Banks, the only dedicated global radio show focused on disruption in financial services and the emerging FinTech sector (AM 1160 in New York, and VoiceAmerica Business Channel). Despite a struggle with my hotel Wifi, I was honored to join the show for my fourth appearance, this time with guest host by Jim Marous, publisher of the Digital Banking Report and Retail Banking Strategies for The Financial Brand.

Joining me last week was Robb Gaynor, Chief Product Officer of Malauzai Software, Ryan Caldwell, CEO of MX (formerly Money Desktop) and Derek Corcoran, Chief Experience Officer at Avoka Technologies.

Listen to the episode here.

Innovation Versus Efficiency

August 15, 2014 by JP Nicols

While banks are on a quest to improve efficiency ratios, I’ve noticed a recent increase in the use of the word “innovation” in more and more bank job descriptions and even in bank job titles. I view this as both good news and bad news.

Good news because at least it seems that banks may be recognizing the need to create new products and services, and new ways of doing things. Bad news because in too many cases I fear it represents a narrow solution to a much broader issue.

The Good News

I’m a believer in innovation teams, and I applaud any efforts to empower and support a team of divergent thinkers and risk takers. I also like that many banks are looking outside the industry, seeking people who haven’t spent their careers marinating in a culture steeped in risk avoidance.

Capital One made headlines for bringing in Dan Makoski from Google to be their first Vice President of Design, and I would argue that most of the most successful financial innovations of the last decade have come from outside of banks. A fresh perspective is welcome and much needed.

In essence, many banks are effectively setting up “skunkworks projects”, special teams charged with generating new ideas. This approach has certainly produced it’s share of successes, from the idea’s original namesake at Lockheed, to IBM’s famous break from mainframes into the PC world, to Google X, Google’s research lab and self-described “factory for moonshots”. Google’s Richard DeVaul was quoted in Businessweek as saying “Google X is very consciously looking at things that Google in its right mind wouldn’t do. They built the rocket pad far away from the widget factory so if the rocket blows up, it’s hopefully not disrupting the core business.”

This approach is appealing, and appropriate, for banks. Banks seek efficiency, predictability and consistency, not to mention that predilection for measuring, quantifying and managing risk. In this post-crisis recovery cycle, banks are now especially turning their focus to improving efficiency ratios, and those charged with breaking new ground need some amount of insulation from that stultifying environment.

The Bad News

Taken alone, the skunkworks projects are likely to be slow to generate real results, and consequently, many will be shut down within a few years.

A group of smart people in a creative environment sheltered from the daily pressures of business will probably generate a lot of good ideas. But good ideas that get executed poorly, or worse– don’t get executed at all, are worthless. Not only do the designated innovators oftentimes lack the real-life context of whether their ideas solve problems that customers (and executives) care about, there is also quite often a lack of connection to others in the broader organization who could make the difference between a neat idea and business success.

A team of researchers at MIT published a study in 2011 called Creating Employee Networks that Deliver Open Innovation, and in it they describe how two kinds of employees are needed for a successful innovation initiative. The first are “Idea Scouts”. These are the kinds of people who tend to be selected to populate innovation teams, but they also exist naturally. These are the people who are always reading, attending conferences and workshops and trying new things on their own.

But to really make Idea Scouts effective, they must be complemented by “Idea Connectors”. Idea Connectors possess the organizational context to align ideas with priorities, resources and budgets. The problem is that Idea Scouts and Idea Connectors don’t show up on organization charts, so it takes some work to find the right people and create the right linkages.

Innovation Versus Efficiency

I recently joked in a talk I gave at Next Bank Asia in Singapore that it is apparently a new regulation that anyone talking about innovation in banking has to regularly cite Clayton Christensen’s 1997 book The Innovator’s Dilemma— and that I could attest to being in full compliance. The dilemma is whether you should take resources away from the things that have made you successful to invest in new, unproven ideas.

One of the underpinnings of Christensen’s work comes from one of his predecessors at Harvard, William Abernathy. Abernathy introduced the idea of the “productivity dilemma”, the notion that a company gains efficiency by improving the things that made them successful in the past; and that a company’s focus on productivity gains inhibits its ability to learn new information and to innovate. He used it to describe the challenges in the U.S. auto industry in the 1970’s, and how their focus on short-term profits undermined their long-term competitiveness.

Banks currently seeking to improve efficiency ratios need to heed these lessons. Blind pursuit of immediate and tangible productivity gains will lead to banks learning how to do all of the wrong activities very efficiently, while more nimble competitors continue to take market share with more relevant offerings. Efficiency is very important, but it should be pursued over the long-run, not the short-run.

Toyota’s contradictions exemplify the balanced approach that is needed. Recognized as both a relentless innovator and as a relentless pursuer of quality and efficiency, Toyota is uniquely characterized as “ambidextrous”. Innovating new ways to increase revenues and reduce expenses will require some amount of short-term investment one way or the other, the challenge is investing in the things that will drive long-term value.

As Jim Collins, author of Great by Choice, would put it; to thrive in this era, banks need a blend of discipline and creativity “So the discipline amplifies it instead of destroys it.”

Bank Innovation Through Collaboration

March 31, 2014 by JP Nicols

I have been a little behind in my writing because I have been spending a lot of time on the road with some great innovators lately, at FinovateEurope and the Bank Innovators Council Lab Day in London, the FinTech Partnerships Conference and the All Payments Expo in Las Vegas, the Bank Innovation conference in Seattle, a CEB wealth management roundtable, and the Western Independent Bankers annual conference in Tucson– and that’s all just in the last six weeks!

I’m working on a new post with reflections on all of those experiences, yet I keep harkening back to something I wrote just a few weeks ago elsewhere, before that whirlwind tour began– about the need for bankers to collaborate with one another and with FinTech experts large and small to reinvent the future. It feels more important now than ever:

Bank Innovation Through Collaboration

Bankers have long sought a competitive advantage in a vast sea of largely undifferentiated competitors. For most players, and for most of the industry’s long history, the chief weapons in this war have been scale and localization. Either growing large enough to create economies of scale and/or scope, or trying to corner one or more local markets by being more, well, “local”. A few have even tried to accomplish both strategies simultaneously.

But how will those strategies play out in this new era of financial services? Regulators will not let the very biggest banks get a whole lot bigger any time soon. The top 100 banks in the U.S.— less than 1.5% of the 7,000 or so still around— already control 81% of the loans and 75% of the deposits. Similar concentration exists in most countries. Well-capitalized and well-run small and midsize banks will certainly swallow up weaker competitors as this quickening consolidation phase that we have all been predicting inevitably becomes a reality sooner or later. But will this truly create any new competitive advantages beyond survival of the (relatively) fittest?

How about the localization strategy of being “the bank of <any town>”? Let’s set aside the fact that most banks that proclaimed to bethe bank of XYZ were probably not really the bank of anything outside of their own imagination. In this hyper-connected, hyper-globalized world, being merely local is meaningful to only a steadily dwindling segment of consumers.

Sure, there are kernels of truth to each of these strategies. Having the scale to spread out increasing infrastructure costs is important, up to a point. And I chose the words “merely local” for a reason. I think the real word the localists are looking for is “relevant”. Being headquartered in my hometown is fine, I guess. More jobs for the local economy. But as a customer, what I really want is for you to be relevant to me, and many of the behaviors of the banking behemoths did little to make feel that way.

Why It’s Different Now

Those basic strategies worked well enough for the last few hundred years, but until recently, the industry was basically undefeated because it won all of its games by default. Sure, we had large banks and small banks, and credit unions, and for a time, S&Ls and Savings Banks; but these were all just slightly different flavors of the same basic model.

Banking as a product and as a service had no real threat of substitution. But during just the last 5 to 10 years, the proliferation of smartphones, tablets, broadband connectivity and connected networks of all kinds have changed the nature of the game. Forever. Just as radio and movie theaters were disrupted by television, which was disrupted by videotapes, which were disrupted by DVDs, which were disrupted by streaming video, the disruption in banking is only just beginning.

You can now live your entire financial life off the grid of traditional financial institutions— at least in your direct interactions. They still play a role behind the scenes, but the nameless, faceless utility that merely holds your insured deposits and ensures an efficient transfer of your funds from Point A to Point B is the very definition of a commodity trap.

The Commodity Trap

The concept of “The Commodity Trap” was created by Richard D’Aveni in his 2010 book Beating the Commodity Trap, and explored further in Henry Chesbrough’s 2011 book Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era. The fundamental characteristics of the Commodity Trap according to Chesbrough are that:

Business process knowledge and insights are widely distributed
Manufacturing of products is moving to producers with very low costs
The shrinking amount of time a product lasts in the market before a new and improved one takes its place

Check, check and check for the banking industry, and scale or localization alone are not sufficient weapons in this battle.

The Collaborative Advantage

Winners in this new era have to collaborate with customers, vendors, and even other banks to find new ways to be relevant to their customers and beat the Commodity trap. There is always a bias for established firms to protect existing revenue streams and manage for past results rather than future outcomes, and this is exacerbated in the banking industry.

Think about the behaviors that are sought, encouraged and rewarded in banking. They’re all about avoiding risk. You’re praised and eventually promoted if you’re the person who always thinks up new ways ideas could fail. The regulators certainly reinforce those behaviors, and they are more than appropriate for things like capital management and credit underwriting.

But bankers make hundreds of decisions every day, both large and small, that will never run the risk of putting the shareholders in harm’s way. Those decisions should include innovating new products, services, and experiences, if they are managed properly. Yes, innovation is about taking risks, but they should be small, calculated risks that lead to real learning and real improvement.

It’s Better Together

Innovation has to be expanded beyond a single product group or business line, and even more importantly, innovation has to be more than brainstorming new ideas inside the bank. Today an increasing number of bankers have “innovation” somewhere in their job description, and they get to spend time at cool events put on by the likes of Finovate, Innotribe, Bank Innovation, and NextBank, seeing new ideas from all over the globe.

I’ve attended plenty of these events myself, and I love seeing the perspective of startups with no legacy business model to protect and defend, and more research and development spending is coming from smaller firms now. According to the National Science Foundation’s Business Research and Development Survey, firms with greater than 25,000 employees accounted for only 40% of R&D spending in 2008, down from 70% in 1981.

Bank innovators are always energized to meet each other at these events, too. It gets pretty lonely being surrounded by the “business prevention department” back at the office.

We started the Bank Innovators Council based on the idea that the “FinTech” entrepreneurs had incubators, accelerators and venture capitalists to support their innovation, but bankers were on their own. Even banks that can’t afford their own dedicated innovation teams can’t afford not to innovate.

If you want to go quickly, you walk fast and you walk alone. But if you want to go far, walk with others. – African proverb

Researchers Eoin Whelan, Salvatore Parise, Jasper de Valk and Rick Aalbers published a paper in the MIT Sloan Management Review called Creating Employee Networks that Deliver Open Innovation in 2011, and they cite the importance of so-called “network brokers” in bringing new ideas to fruition in organizations. These roles have become important today because of the explosion of data dissemination from online forums, blogs, search engines and wikis, and these “in-house connectors are needed to complete the circuit.”

The paper suggested that internal “Idea Connectors” should be encouraged to have more “networking activities through involvement in cross-functional projects and job rotations”, and that their counterpart “Idea Scouts” should be given “priority to attend external networking events such as conferences or trade shows. This is not only a way to create alternative channels for ideation; it also allows management to demonstrate its commitment to the front-runner role that these employees play in sparking innovation.”

From the “I” Word to the “R” Word

Ultimately, this coalition of the willing has to expand to include people who don’t currently have the word “innovation” in their job description. For those of us at these industry events we embrace the word, thrill at the very sound of it. But it’s actually a scary word for entrenched bankers. It sounds too much like “risk”. Phil Swisher, Head of Innovation at Brown Brothers Harriman, and a charter member of the Bank Innovators Council talks about shifting the conversation with these people from the “I” word (innovation) to the “R” word (revenue).

(Since I originally wrote this a couple of months ago, I have refined that thought a little further– it’s really about the “P” word– profits. Innovation can not only drive new revenue streams, but it can also protect existing ones by improving retention, and it can create new ways to reduce costs.)

That’s why it’s important to focus on why you want to come up with new ideas—what problem are you trying to solve, and for whom?—and what happens after you come up with them. After all, if those new ideas don’t eventually lead to new revenue, how valuable are they?

Maybe innovation is a scary word for you too, but I’ll bet you’re looking for new ways to generate revenue and better ways to interact with your customers. It’s hard to innovate in banks. It’s even harder doing it alone. You’ll walk farther if we walk together.

Besides, innovators are a whole lot more fun than the business prevention department.

(I originally wrote this piece as a guest post on my friend Jim Marous’s widely-read Bank Marketing Strategy blog, and a version also appeared on my blog on the UK financial news site Finextra)

FinovateEurope Recap

February 26, 2014 by JP Nicols

Finovate Crowd

OK– so this post is less than timely. FinovateEurope ended two weeks ago (on February 12), and it was great, but I was doing double-duty in London with our Bank Innovators Council Lab Day the following day, with a whole lot of follow-ups since then, not to mention already working on our next event in San Jose, just before FinovateSpring. More on that later…

After posting two previews running up to FinovateEurope, it’s only fitting to provide a recap afterward. Attendees and hardcore fans already know most of this thanks to the diligent (and much more timely) posts of the Finovate bloggers, Julie Shicktanz and David Penn. Nonetheless, here are a few of my thoughts, and plenty more thanks to Julie and David.

The week started ominously. Record-setting rainfall and horrible flooding around the River Thames, coupled with a second week of strikes by workers of the London Underground transport system were seeming to conspire to take a significant amount of fun out of this European installment of what Brad Leimer has dubbed the “Disneyland of FinTech™”.

While the flooding was disastrous for many in the UK, we were not impacted greatly in central London, and most of the hardest rainfall during the two days of the conference came whilst we are already snugly inside. The tube strike the prior week crippled the London transport system, with shockwaves similarly impacting bus lines, ferries, taxis and motor traffic. This week’s stoppage was planned for 48 hours beginning the evening commute that began right after Day One of Finovate on Tuesday February 11, but late that afternoon rumors circulated and were later confirmed on stage that the strike had been cancelled.

Disneyland indeed.

Finovate Stage

This year’s sold-out show featured 67 presenters from at least 27 different countries in Europe and beyond. Despite the extensive coaching that the Finovate team gives to presenters, not all heed the advice, and as in other Finovate shows, some were better presenters than others, and that usually shows up in the Best of Show award voting by attendees.

Observations

Lots of different takes on fraud prevention and detection and data security. And for good reason. Nothing will destroy a financial brand like weak data security.
Lots of use of the word “omnichannel”. I like it, but we don’t seem to have a common definition for what that really means. Responsive design across multiple devices is certainly a part of it, but I think it’s more than that (like, for instance Avoka‘s feature to pause applications and complete later on another device). I look forward to discussing with other FinTechies.
Not as much discussion of Bitcoin and crypto-currencies as I expected and have heard at other recent events, but that’s OK by me. I think there is a lot more to shakeout (Mt. Gox and others) before this enters the FinTech mainstream for many of us.
That said, when presenter Switchless showed a screen shot of South Africa’s Standard Bank’s pilot allowing Bitcoin trading, it set of a storm of Tweets and blog posts.
SME (Small-Medium Enterprises, aka Small Business in the U.S.) as a customer segment an emerging theme, and one that is ripe for disruption. Most interesting to me were IT Sector, for their “Commercial GPS”, and SaaS Markets, which showed off their cloud-based “app stores” for financial institutions to provide a curated selection of 1500 business apps– everything from accounting and invoicing to event management and digital marketing.
Accessible FX in the Cloud. Currency Cloud and Currency Transfer are making cross-border payments easier and more transparent, and that makes sense in this increasingly connected global economy.
Enabling innovation within banks is another emerging theme (and we certainly need it)- Matchi.biz has created a platform for “innovation matchmaking”, and Innovation Agency demonstrated their Innovation Café virtual idea management platform. (Innovation Agency is a partner to the Bank Innovators Council, and we use their Innovation Café as a part of our social community).
PFM is Dead. Long live PFM. Count me among the growing chorus of voices lobbying to kill the term PFM (Personal Financial Management), which has come to mean basic online banking with side order of charts and graphs. But the concept of actually using data, visualization, collaboration and context to make better financial decisions is actually getting some unique twists and compelling UIs from the likes of YourWealth, Toshl, The Moneyer, Vaamo, Tink and Meniga (which is also leveraging their data to help retail merchants). It is truly an international affair– these companies hail from the UK, Slovenia, The Netherlands, Germany, Sweden and Iceland, respectively.
There continues to be a focus on stock trading and portfolio management, with demos from Excess Return and Money on Toast, plus a new way to invest in private companies from Kown, and my vote for the very best presentation of the two days by Luxsoft. Minus 5 points for hiring a professional presenter, but plus 10 points for him really nailing it, and plus 25 points for the professional presenter being about 11 years of age. (Watch the video to see who I accused of being Macaulay Culkin’s younger British cousin)

Best of Show Winners

Congratulations to the Best of Show winners, all voted by the audience. (In alphabetical order):

Backbase, with its out-of-the-box tool for mobile account origination and enrollment

BehavioSec, with its behavioral biometrics solution created specifically for a mobile environment

Dynamics, for its new Open Loop and Closed Loop card technology

Etronika, for its multi-channel partnership ecosystem within BANKTRON

MISYS, for its cross-generational digital banking experience

Luxoft, for its iStockTrack, an app that gives users a single place to connect with their investment life

Tink, for its mobile PFM that helps users stay connected with their finaces

Toshl, for its quirky PFM that makes finances fun

YourWealth, for its MoneyHub technology that gives users total control of their entire financial life.

Still Want More Finovate?

Check out these incredible graphic notes by Jonathan Hey of Nutmeg, who takes graphic communication to a whole new level.

Twitter on the Thames from the Finovate blog takes a look at a view of the show from the eyes and thumbs of the Twitterati present (including yours truly).

The Finovate blog has also published a great series of “behind the scenes” conversations with some of the presenters, and you can see the videos of all of the presenters here.

Post Finovate: Bank Innovators Lab Day at Level39

JP and Will at Finovate

The Bank Innovators Council was proud to be an event partner for FinovateEurope, and on February 13, immediately after the two day show, we held a Bank Innovators Lab Day at Level39, the largest FinTech accelerator in Europe.

LLD 021

Brett King delivered a stirring kickoff keynote, and former Innotribe co-founder Mariela Atanassova facilitated 6 teams of bank innovators and FinTech entrepreneurs through a customer-centered journey exploring different customer personas. Click here to see pictures and video from the day.

LLD 017

We’ll be in San Jose for FinovateSpring April 29-30, and back with another Bank Innovators Lab Day right before on April 28th. (Save $100 with earlybird tickets, now on sale).

FinovateAsia Best of Show Winners

November 18, 2013 by JP Nicols

The second annual FinovateAsia 2013 wrapped up last week in Singapore, with 35 FinTech companies presenting their latest offerings. The audience-selected Best of Show winners are listed below in alphabetical order. (Thank you to Julie Schicktanz from the Finovate blog.)

_________________________________________________

BehavioSec, for its behavioral biometrics-based authentication method
Live blog post

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IND Group, for its Essence mobile banking app, with detailed financial management tools
Live blog post

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Kofax, for its omni-channel solution that accelerates and enhances the underwriting process
Live blog post

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Yodlee, for the international debut of TANDEM, an app that helps groups manage and discuss shared finances
Live blog post

Check back on Finovate.com for the videos of all of the presenters.

Next up is FinovateEurope in London on February 11 & 12, 2014. I’ll be there live, plus the Bank Innovators Council also will be hosting a day-long Innovators Workshop in London immediately afterward on February 13 at Level 39, the largest FinTech accelerator in Europe.

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Notes on methodology (via Finovate):
1. Only audience members NOT associated with demoing companies were eligible to vote. Finovate employees did not vote.
2. Attendees were encouraged to note their favorites during each day. At the end of the last demo, they chose their three favorites.
3. The exact written instructions given to attendees: “Please rate (the companies) on the basis of demo quality and potential impact of the innovation demoed.”
4. The four companies appearing on the highest percentage of submitted ballots were named Best of Show.
5. Go here for a list of previous Best of Show winners.

How Banks Can Compete in The Future

October 28, 2013 by JP Nicols

Back in 1995 Michael Treacy and Fred Wiersema wrote a book called The Discipline of Market Leaders, and in it, they broke down the three critical strategic domains of any business– Customer Intimacy, Product Leadership and Operational Excellence.

They argued that companies couldn’t really dominate in more than one. None of these are exactly optional, but their research suggested that companies should focus on truly mastering just one of the domains and partnering or subcontracting with others in the areas where they couldn’t dominate.

A few years later, John Hagel and Marc Singer from McKinsey & Company came to a similar conclusion in their Harvard Business Review piece Unbundling the Corporation. They even used very similar wording (Customer Relationship Management, Product Innovation and Infrastructure Management) to describe the domains.

The chart below combines the two concepts to show just how similar they are (Treacy and Wiersema are in blue text).

They both suggest kind of a Strengths Based Leadership approach for companies– improve your weaknesses enough to prevent failure, but the focus on your strengths to achieve greatness.

Implications for Financial Services

So, what kind of business is banking?

Some banks may indeed stay in the infrastructure management business, and even double down on the strategy. The basic machinery of banking actually works pretty well. Even in the fading hangover from the global financial crisis, trillions of financial transactions are made every year with astounding speed and accuracy.

I recently retweeted my recent post “From Transactions to Relationships: Innovation’s Next Horizon”, where I argued that banks are in the relationship management business; and I received a great response from Yann Ranchere, Finance Director of Anthemis Group, and publisher of the Tekfin blog, which is on my regular reading list.

In response to my tweet, Ranchere asked why becoming a dumb pipe was such a bad outcome, and he sent me a link to a post he had written in 2011 “Banking as a platform – what retail banking can learn from investment banking”.

I replied that I didn’t disagree; I just didn’t think that a lot of banks were making that choice consciously.

Ranchere added that banks have infrastructure management in their DNA, (which is of course true), and I replied about the relative unattractiveness of utilities compared to consumer product/service companies, especially because the industry will only support so many utilities.

Ranchere is absolutely correct. Banks do have this in their DNA, and some will be very successful at this. Think about State Street or The Bancorp, or even tiny CBW Bank in Weir, Kansas, the bank behind Moven. The problem is that the necessity to drive down costs and gain economies of scale mean that there will be only a few winners with this strategy.

Product Innovation

I would argue that very few banks to date have taken a product innovation approach, and I doubt that more than a handful are truly capable of being true innovation leaders. At least not in the same vein as Mint, PayPal, Square, Moven and other poster children for financial innovation.

This is not to say that banks and other financial institutions shouldn’t innovate. I spend a significant part of my life advocating, encouraging, preaching and cajoling bank leaders to place a higher priority on innovation. It’s just that most cannot expect to create and commercialize the majority of new innovative products and services from within their own four walls. They absolutely should be innovating early and often, but with a much broader perspective that is more inclusive of outside partners.

To effectively innovate new products and solutions, banks need to partner with FinTech companies, and even with each other. There is massive duplication of efforts in the industry.

Bankers are inherently risk-avoidant. At best they’re risk managers. Bankers have to be right 99% of the time in lending decisions, but innovation is about taking risks and failing and learning from those risks until you get it right.

The key is to fail fast and fail cheaply, and fail in an environment that is firewalled from impacting customers or shareholders.

How Banks Can Compete in the Future

Customer Relationship Management

I believe that more banks can win with a Customer Relationship Management strategy, but only if they actually run the business that way.

Most bankers would probably argue that they have always been in the customer relationship management business, but if we’re honest about the activities that get the most energy and attention in the industry, it really seems that most have taken an Infrastructure Management approach (I know, I know… the regulations rather reinforce that…).

Look at some of the descriptors of the Infrastructure Management strategy:

Battle for scale… Check.
A few big players dominate… Check.
Cost focused… Check.
Stresses standardization, predictability and efficiency…Check.

A Customer Relationship Management approach is about economies of scope— expanding the share of wallet, in industry terms. Sure, we pay lip service to that, but it’s the customer-comes-first mentality where we usually drop the ball.

And that’s where the industry is most vulnerable to nimble start-ups that design everything around the customer experience.

From Transactions to Relationships: Innovation’s Next Horizon

October 1, 2013 by JP Nicols

There has never been a better time for innovation in financial services, yet most financial institutions struggle to build lasting, profitable relationships with their customer base. New ideas abound, yet actually implementing those new ideas, let alone realizing their financial promise remains elusive.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.

– Charles Dickens, A Tale of Two Cities

Why?

One of the reasons is that so many of our industry’s innovations have been about improving transactions, not relationships.

We can access our accounts 24 hours a day, 7 days a week. We can move money from point A to point B with speed and precision. We can access tax, investment and financial planning advice from software and online experts.

So what?

Sometimes we still can’t find what we’re looking for. Sometimes we don’t want to do it all ourselves. Sometimes we want a little help. Sometimes we want to just talk to a professional who will actually listen.

Customers today have many choices, and merely offering the usual menu of products and services will not create a compelling reason for them to choose your financial institution from the sea of similar offerings.

It’s not about your branch, or your ATM network or even your mobile banking platform. Those are just “dumb pipes”.

From Transactions to Relationships

But what if we spent just a little of our innovative energy on improving the relationships customers have with their financial providers?

What do we need to do to move from transactions to relationships? There are four imperatives:

We have to shift our mindset from execution to diagnosis. In healthcare terms, it’s shifting from handing out prescriptions and treating symptoms to really understanding the underlying causes.
We have to consciously build trust and loyalty with our customers. We have to think beyond the transaction, or even a successful series of transactions, and take the necessary steps to have our clients perceive– and believe— that we are worthy of their trust and loyalty.
We have to move from product development– you know, that process where you launch a product that your team has been asking for, then point fingers internally when the financial results fail to meet expectations– to customer development. Customer development is an approach that makes sure that you are solving a problem or meeting a need that your paying customers actually care about.
We have to engage the ecosystem. No product or service exists in a vacuum. Before we launch anything, we need to make sure that we are solving a problem our customers want solved, we have to understand the role our internal and external partners play in the process and we have to know what the value chain looks like and where we fit in. We also want to make sure we avoid any co-innovation risk and adoption risk along the way.

It’s not rocket science, but it is a big change from the way most financial institutions do business. If we can do those things well, we can begin to create value in our relationships and we can innovate new paths to profitable growth.

Bank Innovators Council Launch Party

September 15, 2013 by JP Nicols

Last week during Finovate Fall 2013 we launched the Bank Innovators Council. More than 75 bank innovators, entrepreneurs, CEOs, bloggers and industry analysts joined us on a Manhattan rooftop to celebrate the launch of the first organization designed by bank innovators for bank innovators.

We are proud to be creating a platform to bank innovators do together what they can’t do alone. Join us at BankInnovatorsCouncil.org