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Bank Innovation

TechSpeak to English Dictionary

Word cloud for Web StartupI am excited to spend the next two days peering into the future of FinTech as I watch and hear 60 companies demo their wares at Finovate. This TechSpeak to English Dictionary from Francisco Dao may be helpful for some attendees (and some presenters). Enjoy…

PandoDaily: The TechSpeak to English Dictionary

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Why More Experienced CEOs Will Stay At the Forefront of Tech Innovation

This is as encouraging to me personally (“the average age of founders of technology companies is a surprisingly high 39 – with twice as many over-50 executives as those under 29 years old.)”, as it is generally (“The United States might be on the cusp of an entrepreneurship boom—not in spite of an aging population but because of it.”).

But I especially like the described “four character traits of a successful CEO – Sensemaking, Relating, Visioning, Inventing.” I couldn’t agree more, and I have seen an abundance of these traits in the CEOs I admire the most (and a dearth in those who leaving me scratching my head).

The Convergence of High Tech and High Touch in Wealth Management

I wrote a piece for the popular fintech blog netbanker yesterday on how high tech and high touch are converging in wealth management, and what I will be watching for in that convergence zone next week at Finovate Fall 2012 in New York.

In the article, I mentioned that most of the notable traction to date has been in the payments space. One might not think that this “dumb pipe” portion of banks’ business models– moving dollars and data from Point A to Point B– would provide such fertile ground for disruptive innovation, but consider the impact and potential of players such as Finovate alums Dwolla and Simple, as well as Square, PayPal, and others.

I also noted in the article that innovative specialty lenders and crowdsourcing platforms are breaching what had long been banks’ deepest moat–  the ability to monetize their balance sheets. Most simply defined, banks’ primary function is to be a financial intermediary. Besides moving money from one place to the other, they hold excess capital when it is not needed for investment, and lend it out when it is; providing liquidity to all sorts of macro and micro markets along the way.

Oligopolists acting like oligopolists

Even though there are over 7,000 banks (plus a similar number of credit unions) in the U.S. alone, the industry has long operated as an oligopoly. For the most part, it continues to act that way despite disruptive threats from all around. After all, their primary product is the ultimate undifferentiated commodity, money. Bank A’s money isn’t better designed, sturdier or more portable than Bank B’s.

Parenthetically, oligopolists acting like oligopolists has a lot to do with the reason most consumers hold banks in just slightly higher esteem than they do the U.S. Congress. Banks integrated vertically and horizontally, they bought weaker competitors, they raised prices, they made up new fees, they cut costs and maximized profits for shareholders with scant regard to other stakeholders, like, you know, their customers.

Predictably, smart players from outside the industry have visions for better ways of doing business.

As frightening as any of these threats should be to any entrenched bankers who are paying attention, the ongoing march of innovation should be scaring them right out of their moire suspenders. Innovators are moving beyond solving the algorithmic problems of the industry and beginning to tackle more dynamic and heuristic areas, such as wealth management.

I continue to reference a recent American Banker article cited a KPMG survey that said 9 out of 10 banks were considering a major overhaul of their strategy, and that 40% said that wealth management was essential to growing revenue in the future.

Wealth management is an attractive business, and if done right, the business can also be a key differentiator, but it requires the ability to develop, manage and leverage intellectual capital beyond the commodity that is the bulk of many banks’ current business models.

Not all will be able to make the leap.

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More Than Any Other Industry, FinTech Needs Accelerators | PandoDaily

Great post today by Erin Griffith on PandoDaily about the nature of innovation at financial institutions:

Startups in the finance industry face a set of challenges so unique that, without help from accelerator, they have no real chance of survival. Finance startups need accelerators because of their mentors -they need someone to teach them to sell to the legacy industry they’re disrupting.

The six startups that FinTech Innovation Lab graduated today seemed successful enough. But the world of finance is so backwards, slow-moving, and risk-averse that even if they managed to get any major institutions to agree to use their products, it’d take them years to actually implement it, facing mountains of red tape and miles of hoops to jump through.

In startup time, a few years is long enough to run out of money.

It’s not even the banks’ fault, necessarily. There is compliance, regulatory oversight, security, and risk to consider. Consumers don’t necessarily want their banks to be terribly innovative. It is the bank’s first responsibility to safely store your money, after all. The elaborate systems of checks and balances are there for a reason.

Still, they’re stifling innovation. “Banks won’t give you a quick yes or no. They’ll give you long maybes until you die,” Yaron Samid, the founder BillGuard told me. “Even if they say yes, it takes 36 months to deploy.”

Read the entire article:  More Than Any Other Industry, FinTech Needs Accelerators | PandoDaily.

5 Tips to Find True Innovators | Inc.com

The Keys to Hiring Effective Innovators 

1. Intellectually Restless:

Great innovators get a thrill out of defining a bold vision and then wrestling with the data, insights, barriers, and opportunities to unlock what needs to be true to get there.

2. Inspiring Rather Than Convincing:

Applicants who come from traditional consulting are often proficient at framing opportunities, yet unaccustomed to creating outcomes. We want people who can do both. Those who recognize that innovation, by its very nature, is at odds with certainty. Breakthroughs can’t be proven. They need to be envisioned and driven.

3. Proven Ability to Drive Innovation:

There’s a big difference between recognizing a great innovation and understanding how to create a great innovation. Unlike financial markets, past performance in innovation is, more often than not, an indicator of future performance.

4. Have Scaled a Peak:

We look for greatness in some aspect of an applicant’s life: successful entrepreneur, published writer, Ivy League graduate, Division I athlete, etc. The metric of success is less important than the success itself. We want people who are comfortable defining a high-order goal and then doing what it takes to accomplish it.

5. Willing to Commit to Something Bigger Than Themselves:

This is important on two levels. At a firm level, we want people who are excited by the belief that we’re on a mission to create a fundamentally new type of business. On a personal level, we want talent who believes in something that doesn’t exist today. This type of belief is the core of innovation. Therefore, we look for candidates who’ve already demonstrated their commitment to a higher-order ambition. It can be sports, religion, a philosophy, or a charity. The object of devotion is much less important than the proven willingness to invest passionately with a group of people to realize a dream.

Read the entire article here:

Hiring: 5 Tips to Find True Innovators | Inc.com.

They Can Always Spend More…

Whitney Houston may have been broke before she died, and now her estate may have problems.

NBA star Allen Iverson may be broke, too.

And as this story in today’s Huffington Post relates, he has lots of familiar company in Mike Tyson, Lenny Dykstra, Dorothy Hamill, Terrell Owens and many, many others.

In 2009, Sports Illustrated ran a story called How (and Why) Athletes Go Broke, which tells the tales of woe of several athletes, and details some of the common causes of high profile bankruptcies.

My personal favorite is the story of MC Hammer’s bankruptcy. One of many causes was the construction of a $30 million mansion. I remember reading at the time that Mrs. Hammer had the architect tear down and rebuild their marble and gold-fixtured master bath, not once, but twice, because it simply wasn’t fabulous enough. The architect knew something was wrong when she got an unexpected call from Mrs. Hammer asking how much money they could save by cutting back to ceramic tile and stainless steel fixtures…

What’s the lesson here for financial advisors?

No matter how much your clients make–

and you can add as many zeroes as you like–

they can always spend more.

I learned that lesson first hand as a young private banker. Wealthy clients never have a shortage of hangers-on and would-be beneficiaries, and they multiply exponentially if your client is famous.

I remember several years ago, sitting at the kitchen table with a 17 year old high school student and her mom because the student’s boyfriend, my 23 year old major league baseball player client,  wanted to buy a new house. It’s probably more accurate to say that the girl’s mother wanted him to buy a new house. “Joint tenants with rights of survivorship” she instructed me to title the property.

I was disgusted with the entitled way the girl’s mother treated the player. They had ordered pizza before I arrived, and when the doorbell rang she slapped the player on the chest with the back of her hand and held out her open palm. He dutifully reached into his wallet and gave her money to pay for everyone’s pizza.

I was not surprised when the player called me the next day and said “put the house in my name as sole owner”.

I was also not surprised that he left the girl and her mother behind when he was traded to a new team later in the season.

Famous or not, your clients are likely to have a lot of open palms held in front of their faces. While they may need a good financial plan, a comprehensive estate plan and appropriate asset allocation to help make sure money lasts, the one thing they may need most is a rational voice in their ear.

That should be you.

No matter how much they make, they can always spend more…

See also: …and They Don’t Hire Advisors Very Well, Either.