Leadership

FIRE™ Up Your Innovation Team

June 25, 2017 by JP Nicols

FIRE™ Up Your Innovation Team

I’ve written before about the false promise of Innovation Theatre— getting caught up in activities that look like innovation, but don’t really add value. I wrote this for our blog at FinTech Forge (and soon we will tell you about its newer cousin The Fintech Petting Zoo).

I have said that the antithesis of and antidote to Innovation Theatre is to define innovation as implementing new ideas that create value. This does create a bit of a paradox though– if we only work on new ideas that we can implement, and we only implement ideas that are sure to create value, how innovative are we really?

As Oren Harari said “The electric light did not come from the continuous improvement of candles.”

If we are going to do more than a few minor feature tweaks or product extensions— the fintech equivalent of adding a fifth blade to our “innovative” QuadBlade razor that we launched last year— we are clearly going to have to break some new ground. Breaking new ground means trying some things that might not work, and in fact, some of those things might never even see the light of day with real customers.

How do we reconcile these seemingly opposed ideas?

What we need is an empirical approach to value creation.

One that lets us try new things and break new ground, but doesn’t let us get mired in the unproductive muck. Something that allows us to test new ideas and cut our losses quickly with those that things that are not panning out, and double down quickly on those that look promising.

Welcome to FIRE™

FIRE™ stands for Fast, Iterative, Responsive Experiments.

Fast – because we want to shorten the gap between idea and results
Iterative – because we want a process of continuous improvement
Responsive – because data, not internal opinions, should drive our iteration
Experiments – because we want the process structured to maximize learning

We think of FIRE™ as an “innovation operating system” for teams. Once you install it in your organization, you can use it to create value quickly from everything from small incremental feature improvements to more disruptive or transformative approaches to new products, new markets, and new business models.

Modern Agile Business Methods

Manufacturers have Lean production methods and Six Sigma programs to improve quality and reduce costs. Software developers have Agile and Scrum programs to reduce waste and improve client responsiveness. Startups use Lean Startup and programs like Startup Weekend to build and test ideas quickly. Google Ventures uses their own Sprint process to vet concepts quickly for the companies in which they invest. Design Thinking has revolutionized everything from app design to consumer goods to industrial products.

These are all proven processes and methodologies that offer dramatic improvements in effectiveness and efficiency within their appropriate context (and you can click through the links above to learn more about each one if you are not familiar), but none of them alone are a perfect fit for financial services companies trying to innovate in a highly regulated environment.

The FIRE™ process is an empirical approach to value creation that combines the best parts of all of those modern agile business methods into an effective and repeatable process that is custom tailored to work in the highly regulated environment of financial services. Best of all, it gets results fast.

We will dig in to the FIRE™ process a little deeper in future posts on the FinTech Forge blog with some examples, but contact us if you have any questions so far, or if you want to see how it can help you create value quickly in your own teams.

What They Don’t Teach You at Banking School

May 31, 2017 by JP Nicols

The financial services industry has a long and important tradition of executive education. Up and coming managers are sent off to graduate banking programs to learn industry best practices developed over prior decades, and in some cases, centuries. These programs are well prepared to teach the evolving art and science of asset and liability management, credit underwriting, portfolio management, and general leadership and management principles.

However, many programs have not always been so well suited to prepare their students for the revolutionary changes that have been impacting financial services in profound and dramatic ways. I created the world’s first graduate banking school class on fintech and innovation to help address this gap. I first taught the class in 2015 at the Pacific Coast Banking School, held at the University of Washington, where it has become one of the program’s most poplar classes. I have also taught portions of it at many industry seminars and workshops before and since. This year I am looking forward to also joining the esteemed faculties of the Graduate School of Banking at Colorado and the Graduate School of Banking at Wisconsin to help prepare our future leaders.

These are some of the key lessons for students who not only want to master the best practices of the past, but to also learn how to establish the next practices to shape the future of banking.

1) Think Beyond Traditional Competitors

The nature of competition in financial services has changed more in the past 10 years than in the prior 100. It is no longer sufficient to measure your performance relative to your peer group of similar sized and similarly structured financial institutions. Regional and national competitors once relegated as secondary competitors by local knowledge and community ties have bridged those gaps with the rise of broadband, mobility, and apps. The dynamics of competition have been further stretched to include fintech competitors from across the country and around the world, providing new alternatives to every traditional product and service. Leaders must have a much broader view of competition and competitiveness to achieve success in this changing environment.

2) ‘Plan Your Work and Work Your Plan’ Doesn’t Work Anymore

The logical and pragmatic credo of ‘plan your work and work your plan’ resonates with the analytical and risk-averse nature of bankers, and in more predictable times with more homogeneous competitors it generally worked. Today’s leaders can no longer afford to spend several quarters perfecting and vetting plans internally before learning how they actually perform in the market. The answers lie outside the building, and leaders must learn how to adopt and lead a more agile ‘test and learn’ approach to replace opinions with facts more quickly. Just as important, they also have to learn the skills to be able to adjust their course accordingly as the data requires.

3) The Effective Allocation of Limited Resources

Financial capital, human capital, and managerial time and attention are the primary resources leaders have at their disposal to create positive outcomes. Like all resources, these too are limited, and they most be used wisely, and not just for short-term results. Despite their precious rarity and the uncertainty of investing in the unknown, some portion of these limited resources must be allocated toward creating strategic options for the future. As tempting as it is to wait and see, to hold out for some undefined future date where the horizon must surely come into clearer focus, the reality is that the risk only increases the longer you wait to take action. The best way to predict the future is to create it.

4) Collaborating with Internal and External Partners

The financial institutions that are winning today and that are most likely to win in the future look a lot more like technology companies than ever before. Data scientists, programmers, designers, and engineers are among the fasted growing job titles, and leaders need to be know how to manage their skills and their work toward the outcomes that tomorrow’s customers demand. Increasingly, this means leading effective collaboration across internal business units, and even more challenging, with external vendors and partners. This isn’t about the mindless pursuit of cool technology and shiny objects, it’s about leveraging modern tools to find new ways to create value.

5) Leading Change

An organization’s natural state is to maintain the status quo, and human nature prefers routine and familiarity over change and uncertainty. Today’s leaders need adaptive and situational leadership skills to map a course through uncharted territory, and keep the team focused on the goal, even when it might not be so clear from the onset. To focus more on deeply understanding the needs of the customers and orienting the products and services around them rather than just selling what you have.

Like leaders, innovators are made, not born. Tools and frameworks can be taught and practiced, and everyone should have a role in improving existing products and processes beyond simply executing business as usual. This is even more important for leaders, and most organizations cannot afford a full team dedicated to nothing but innovating new solutions.

New technologies such as distributed ledger technologies, artificial intelligence, and machine learning are still in the early stages. We don’t know exactly how it will all play out just yet, but we must help our leaders embrace and lead change to explore the possibilities and manage the risks.

None of these lessons will sound new to anyone who has read or heard me before, but they are still pretty unique for the traditional banking school curriculum. Hopefully they will become less rare as leaders bring these skills back to their job and use them to help develop future leaders inside their organizations.

Our future depends on it.

Success is a Poor Teacher

March 1, 2017 by JP Nicols

Bill Gates has said “Success is a lousy teacher. It seduces smart people into thinking they can’t lose”. The sweet afterglow of success has a way of redefining as brilliant decisions all of the ways you got lucky, and glossing over a lot of little things that never were quite right along the way. It can also blind you to a shifting landscape and emerging threats and opportunities. The skills, strategies, and activities that got you to this point may not be the same ones that that can take you to the next level.

Blockbuster has become an easy punchline for those looking to describe the very public failures of a fallen giant, but the company was a giant. They were tremendously successful for nearly two decades, becoming the largest video rental store chain in the world, at one point controlling nearly a third of the home rental video market.

It’s hard to imagine from today’s digital perspective the pain points that consumers endured for a couple of hours of video entertainment, but it was a sorry state of affairs before Blockbuster came along. (Check out this time capsule of a guide for new video store entrepreneurs at the time.)

In 1985 Blockbuster founder David Cook pioneered the use of a customer database to better match supply and demand to the demographics of his stores, and the use of barcodes to manage a huge inventory of 10,000 movies per store, versus a few hundred in the average local store.

Suddenly customers had a much better chance of finding that new hit movie in stock, and the second and third choice options were now considerably better too. If you were in the mood for something different, you could browse rows and rows of movies, and now video games too, or get recommendations from a large and well trained staff. Gone were the pesky upfront membership fees.

Within a couple of years, Cook had sold the fast growing company to successful entrepreneur Wayne Huizenga, and it was soon opening a new store every 24 hours. The home video market was growing rapidly as the cost of VCRs came down, and the growth accelerated as videotapes gave way to DVDs. Over the next decade the company would continue to expand rapidly, eventually growing to 8,000 stores at its peak. The local video stores closed or were bought by regional chains, most of which were eventually acquired by Blockbuster.

Your strategy works until it doesn’t

The apocryphal story of the beginning of the end for Blockbuster takes place in 1997 when a California software engineer returned a rented copy of Apollo 13 back late and had to pay $40 in late fees. That engineer was Reed Hastings, and he started Netflix in August of that year.

Imagine what the first Blockbuster board meeting must have been like when they first heard of this new so-called “competitor”.

“They what? Mail you a DVD, then when you mail it back, they send you the next one on your list? I couldn’t imagine any of our customers wanting that. We have a store in every neighborhood, filled with thousands of movies with friendly and knowledgable staff. What’s next on the agenda?”

At the time, nobody was better at the business of renting out movies through physical stores than Blockbuster, and the company was busy leveraging its superior operating leverage to acquire just about all of its major competitors. The company was unquestionably successful at executing the industry’s dominant business model, but success was a poor teacher for helping them see the potential vulnerabilities of that business model, how the landscape was beginning to change, and how new competitors with new business models might challenge the status quo.

It was expensive to build and maintain all of those brick and mortar locations and to stock and staff them. Netflix had no physical locations to build and maintain and stock and staff, and they were able to create convenience advantages of their own. Renters no longer had to endure the weather and traffic to visit a store to find something to watch, they now could build their own queue of entertainment choices in the comfort of their own homes.

Netflix maintained one inventory that could serve the whole country. This larger market also meant they could profitably stock more rare, unique, and special interest programming, creating what Wired Magazine editor Chris Anderson would later call “the long tail”. This advantage was further expanded as Netflix was able to reinvest its profits into developing their digital streaming service that would completely change the game and eventually come to dominate home entertainment.

In other words, Netflix didn’t beat Blockbuster at their own game, they changed the game.

Your business model works until it doesn’t, and your success in the past is a poor teacher for what it will take to be successful in the future, particularly in this era of rapid and dynamic change. Delivering this quarter’s results today is important, but don’t forget to set aside a little time to work on how you’re going to deliver even better results a few quarters from now.

Postscript: In 2000, Hastings offered to sell Netflix to Blockbuster for $50 million. Blockbuster declined the offer.

No Silver Bullet

February 14, 2017 by JP Nicols

Managers have this bad habit of looking for a silver bullet. That magical holy grail that will make all of their problems go away quickly, and preferably painlessly. Those expensive consultants. That fancy new CRM system. This flashy acquisition. That confusing and demoralizing internal reorganization. Not the last one, this one.

Many have this same unrealistic expectation about innovation.

“We launched this innovation team last quarter, why haven’t we seen results yet?”

Not long ago we met with one of our clients to discuss the test and learn approach, and to encourage that they run many small experiments to maximize the learning and increase the probability and speed of success. We used an analogy that it was like planting a lot of seeds at once, since not all of them would bloom into something big and beautiful. The client, the COO of a midsize U.S. financial institution, replied that he understood, but warned that we had better make damn sure that the very first experiment was successful.

Innovation is Like Weight Loss

In some ways innovation is like weight loss. The process is simple; move more and eat less. So why are so many people overweight? Because achieving lasting results takes consistent application of the process over time.

We are now 7 weeks into 2017, and most well-intentioned new year’s resolutions have been overpowered by old habits. The gym is noticeably less crowded and Frappucino sales are booming again. Those first few pounds shed have returned, and the alarm clocks have been rolled back to less ambitious hours.

Likewise, with the innovation process. Managers get excited to chart a new course and to boost their flagging performance by implementing new ideas. The first few come out pretty easily because they were the proverbial low hanging fruit; quick wins to show success and build confidence. But they probably didn’t show up in the financial results because they were small improvements. More than likely, they really didn’t create any competitive advantage at all, they probably just helped close your lagging gap a little bit.

Throwing in the Towel

This is the time when the short-sighted silver bullet seekers want to pull the plug.

“This wasn’t the right program, we got bad advice, involved the wrong people, tackled the wrong opportunities, the timing was bad.”

Any or all of that is possible of course. But the more likely explanation is that you hit your first plateau, and you need to power through it. Consistent application of the process is what drives results.

Your competitors that are sticking to their program are starting to create their own competitive advantages. Partly through the accumulation of a lot of small wins, and partly by getting better at successive experiments because they’re learning more quickly what works and what doesn’t. Tighter iteration loops.

As you go back to the drawing board and try something else, they’re really starting to benefit because some of the bigger bets that took longer to figure out are starting to pay off. Now they are in position to make even bigger improvements and the gap between them and you is about to get a lot bigger

You’re really going to need a silver bullet to catch up now.

The Power of One Sigma

January 31, 2017 by JP Nicols

Six Sigma is a quality improvement program that gets its name from the concept of 99.9997% quality. In statistics, each sigma represents the statistical measure of 1 standard deviation from the mean in a range of outcomes in a normal distribution. Six sigma translates into no more than 3.4 defects per million opportunities.

It is often related to (and sometimes conflated with) the concept of “Lean”, which was coined to describe Toyota’s manufacturing practices during the late 1980s, when their level of consistent quality was noticeably superior to much of what was coming out of Detroit at the time. Lean focuses on improving efficiencies by reducing waste through standardization and elimination of non-value-added efforts. Six Sigma, developed by Motorola and widely popularized by GE and others, focuses on improving quality by reducing process variation and using detailed measurement and statistical analysis. The two are often used in tandem in Lean Six Sigma programs.

Striving for this kind of consistent quality can save lives in healthcare procedures and plant safety. It is what we have come to expect today from our personal electronic devices and even from lower priced automobiles, and this is the kind of uptime we expect from computer and communications networks.

In financial services, it’s what we strive for in our transaction processing, statement production, compliance programs, and reliability of our ATMs and core systems.

What’s not to like?

Quality, consistency, efficiency, defect reduction, what’s not to like?

Lean and Six Sigma programs work well when there are identical operations and repeatable processes in large volumes, particularly when those operations can generate a lot of accurately measured data. When administered properly, they also focus on creating real value by improving quality, cost and customer satisfaction.

But what happens when you perfectly execute the wrong priorities?

Kodak was arguably the best manufacturer of celluloid film in the world (although Fuji Film might argue that one). Nokia was the world’s leading maker of mobile phones, with 48.7% market share in 2007. Sony’s Walkman was the leader in portable music for a decade. The quality of their operations was admirable, and not what turned out to be the achilles heel for those companies.

New technologies and new business models regularly disrupt the status quo. Blockbuster beat all comers in the business of operating video rental stores. They executed the standard business model of their industry better than anyone else. Netflix didn’t beat them at their own game, they changed the game.

Blockbuster is an especially good example for financial services. For most of the industry’s history, success has been about executing the same business model better than largely similar competitors. The winners of the consolidation wars over the past three decades have been those who executed with the efficiency that created operating leverage.

“There is nothing so useless as doing efficiently that which should not be done at all” – Peter Drucker

Efficiency and positive operating leverage are important ways to win the standard game in financial services, but they aren’t necessarily enough to counteract the new technologies and new business models that are changing the game now and in coming years. Nor will simply blindly going all-in on the latest in fintech hype. How can we balance operational excellence and efficiency with flexibility and innovation?

The power of One Sigma

One of the drivers of the dot com boom and bust of late 1990s was the notion of ‘build it and they will come’. Billions of dollars of equity was invested in new technologies that were promising, yet unproven in the marketplace. Valuations got unreasonably optimistic, money flowed too freely, and millions of dollars of advertising was spent hawking products that not enough people wanted.

Eventually reality set in, valuations came back to earth, and the weakest value propositions died off. New wisdom prevailed from Geoffrey Moore, Steve Blank, and others, including Eric Ries who offered a better formula for testing ideas before making big bets. This process of Build, Measure, and Learn is a twist on “lean” methodologies that Ries detailed in his bestselling book The Lean Startup. But this ‘nail it then scale it’ approach is not just for startups.

In financial services we tend to think that if we can just get all of our smartest people in a conference room, perhaps supplemented with the best consulting minds we can rent from the outside, we can perfectly plan out all of our strategies and “roadmaps” down to the last detail. Then, all we need to do is execute them perfectly. Plan your work and work your plan. Simple, right?

But the marketplace has a way of making us look stupid when we make think we can plan for every contingency up front. Market conditions change, customer preferences evolve, and the competitive landscape shifts, so our plans have to be flexible and responsive to these changing conditions.

One Sigma in a normal distribution covers more than two-thirds (68.27% to be exact) of the outcomes. That’s not nearly good enough for heart surgery or network reliability, but it’s a pretty good indication that you’re on to something worth testing further.

The answers are outside the building, not inside the boardroom. The sooner we can test our ideas, the sooner we’ll know whether we should increase our bets or iterate to something better. That’s stacking the odds in your favor in the strategic planning process.

By all means keep those Lean and Six Sigma programs going where they’re working, but navigating these uncharted waters in our rapidly changing industry takes a new approach. It’s time to embrace the power of One Sigma.

Beyond Innovation Theatre

January 17, 2017 by JP Nicols

Innovation is all about value creation.

Or at least it should be.

It’s easy to get caught up in the front end of the process. Brainstorming new ideas, drawing on whiteboards, and moving different colored sticky notes around the wall is fun. But all of that should be a means to an end. That end should be about creating value; whether it’s improving the customer experience, taking the cost out of a process, or creating a new feature or a completely new product category.

Most of the work I do is centered in financial services, which is not exactly known as an industry that excitedly embraces change. I spend a lot of time trying to convince leaders that they need to innovate, and that maintaining the status quo is a slow train to irrelevancy (and that the train is heading down a steep grade and picking up speed).

Over the past ten years (most of) the industry has gotten the message, helped more than a little bit by the perceived threats and opportunities of FinTech. A recent PWC survey showed that 83% of bankers said that at least part of their current business is at risk of being lost to standalone FinTech companies.

In 2013 I said that the innovation maturity of the financial services industry is best represented by a power curve, with a very small group of Leaders, followed by a small but growing group of Learners, and a long tail of Laggards. As we enter 2017 all three groups are still represented, but there has been some fattening in the middle as more and more Laggards have entered the status of Learners.

Learners get that just doing the same old same old is a sinking proposition within a rising tide, even if they’re not sure exactly what to do or how to get started. Naturally, they are often inspired by the cool and interesting things that the Leaders are doing.

Tempering Inspiration with Reality

This inspiration should be tempered with a strong chaser of reality. Some of the flashier things are simply what I like to call “Innovation Theatre”. Sometimes that’s intentional, part branding exercise to position the company as a thought leader in the minds of its customers (and/or competitors). Other times it’s unintended, a result of losing track of the whole purpose of innovation.

Shiny new objects can be compelling, especially to those people whose job description contains the word “innovation”. Don’t get me wrong, innovation labs that look like Silicon Valley startups, hackathons, and teams of bearded hipsters in hoodies leading design workshops are a few of my favorite things. But they too are just means to an end. (The great Steve Blank has his own deep thoughts on this. Read this if you’re thinking of standing up an innovation outpost. )

Innovation Is Implementing New Ideas That Create Value

If you ask a group of people in a room their definitions (which we have done on many occasions), you often get back nearly as many definitions as there are people in the room. Some people cite examples of innovative companies or products, other mention technology, most people say something about “new ideas”.

So let’s level-set right here, our working definition for innovation at the highest level is this: Innovation is Implementing New Ideas That Create Value. We agree about the “new ideas” part, but everyone has new ideas. In order to count as innovation in our book, they have to be implemented, and they need to create value.

If you don’t implement the new ideas, or if they don’t create value, why did you waste organizational time and resources on them?

That value can be defined in a lot of different ways- new products or services, reduced costs, better customer experiences, extending the life of mature products, etc. – so organizations (and managers) will have differing views on value creation. More on that in future posts.

The Real Work of Innovation

With that as a working definition of innovation in the broadest sense, most innovation work— at least that which is truly about value creation, not just branding— is usually much more bland and quotidian than the flashy activities of Innovation Theatre. “Blue Collar innovation” is how one innovation leader of a top 10 U.S. Bank recently described it to us. With one eye firmly fixed on a few key questions:

What value are we creating for whom?
What job does our customer need us to do here?
How do we know when we get there?

Clayton Christensen’s book The Innovator’s Dilemma will turn 20 years old this year. The lessons of how new technologies disrupt mature industries are still being played out today in financial services, media, transportation, and just about any other industry you can name.

In his new book Competing Against Luck: The Story of Innovation and Customer Choice, he focuses on making innovation a reliable engine for growth, and it is centered on the Theory of Jobs to Be Done— “What exactly did you hire this product to do?”

Christensen points out that a primary reason why some new innovations don’t reach wide market adoption is because the new offering does not do a better job than the existing thing that the customer “hired” to get a specific job done (let alone overcoming the cost and pain of making a change).

Knowing that you are being disrupted and committing to doing something about it is an important first step. Focusing on the Jobs to be Done ensures that you’re solving the right problems for the right people in the right way at the right time.

That is value creation.

Anything less is just Innovation Theatre.

Building Better Bank-Fintech Partnerships

November 7, 2016 by JP Nicols

Talk of banks and fintech companies partnering together has increased dramatically in the past year. There have definitely been some interesting partnerships announced, particularly with some of the marketplace lenders, various blockchain projects and some artificial intelligence driven bots. Most are in stages that are too early for a full analysis at this point.

There has also been a lot of hype and a lot of misunderstanding from both sides. Too many fintechs have a feature or technical capability but don’t really understand what problem they’re solving for whom or what it will take to make it work within banks’ highly regulated environment. And too many banks think that they are “already partnering with fintechs” because they have a few technology vendors and a procurement department. In short, most of them might as well be on different planets.

I sat down with Naveed Anwar who runs Capital One’s developer community and partnerships and integrations, as a part of the Invested in Tech blog and podcast series with Capital One to look at how things are going at DevExchange, the developer community that the bank announced last spring at SXSW.

Anwar sees DevExchange as an opportunity for both internal and external innovators to co-create new experiences, and he sees it as a groundbreaking opportunity in what Ron Shevlin calls the “platformification” of banking. Anwar thinks that a “platform mindset” is necessary for staying relevant, and that the bank alone cannot create all of the experiences that their customers want and need.

“There’s a platform transformation taking place in the industry”, says Anwar, “and we’re in the midst of it.”

Opening up APIs to outside software developers facilitates much of that co-creation and collaboration. APIs (application programming interfaces) are pretty basic technology for developers, even if they represent new vernacular for the average banker. APIs offer a set of well-defined standards that allow different kinds of software to talk to one another and build on each other. Think about how Google Maps often show up inside of other apps as an example. Google shares its Maps API with outside developers because it creates a win-win for both sides. Other apps gain the detailed functionality of Google maps without having to build it all from scratch, and Google gets more users and data.

Currently there are three APIs shared on the DevExchange platform:

Credit Offers, which returns a personalized list of Capital One credit card offers.
Swift ID, which is a two-factor authentication that gives customers a secure way to approve access requests for confidential information.
Rewards, which offers information on miles, points or cash rewards earned.

DevExchange is still in Beta, so Anwar and his team are planning to release additional APIs in the future. He says they are learning a lot from both customers and developers in the Beta, and one of the things that came out of it was a co-creation with the ride-sharing app Uber that gives certain Capital One credit card holders a $15 credit after every time they have paid for 9 rides with the card, through March 2017.

Co-creation is about a two-way conversation, says Anwar, “It’s not about us pushing our stuff on to them, without listening to them. If you don’t listen to your community, you will be irrelevant”. It’s also about making the tools easy to use, and Anwar says that developers can be set up on the platform in less than two minutes.

Anwar’s goal is to make the process frictionless for developers, but it takes a lot of work to make things look easy: “Building and sustaining a platform mindset requires a lot of patience. It’s not a transformation that takes place overnight.”

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Thanks to Capital One for sponsoring these posts and podcasts and for providing access to their team, but all of the opinions expressed are still mine, all mine. For more information about Capital One, visit www.CapitalOne.com

Improving the Consumer Payment Experience

November 1, 2016 by JP Nicols

I’m continuing my look behind the scenes at Capital One to see how they are using technology, innovation, and design to create a better banking experience. Last week at Money20/20, I spent some time with Tom Poole, Managing Vice President for Digital at Capital One.

I heard Tom speak on a panel called “The Role of Mobile Wallets in Streamlining Online and Mobile App Payments” at the conference, and I asked him afterward about his comments in the panel. I also recorded the interview for a Breaking Banks podcast.

Poole sees three types of mobile wallets. First, are the kinds from tech giants that are focused on paying at the point of sale and leverage the capabilities of their device, such as Apple Pay and Android Pay. Second are those from merchants that focus on their loyalty programs, such as Starbucks.

Finally, there are mobile wallets from banks, and Poole thinks banks have unique advantages in information and control. The bank authorizes the transaction, so they are the first to know when a transaction was approved, what it was for, who it was with, etc. That information can be leveraged to notify the customer on duplicate charges, or if a recurring charge jumped 50% from the month before, or that a trial period expired and they are now paying a recurring monthly fee, and so on.

There is a lot of buzz in the industry about making payments “frictionless”, but that’s not always a good thing. “Everybody wants to carve out steps that feel unnecessary or not value adding to the payment,” he says, but “there are times when friction is a good thing. Sometimes I need to be told that I’m about to pay for something that would completely be off of my radar screen.”

In fact, customers like certain kinds of “friction”, like notifications that give them knowledge and insights about where their money is going. “It appalls anybody paying five dollars for a subscription to a website they’re no longer using and don’t have need for.”

Poole says that the great thing about the customer experience in payments is that none of it is about the payment, it’s all about the information and experience that surrounds that payment. So his team is focused on making sure customers get the right information at the right time to make better decisions, and they work to bring in resources to help them save money and save time.

Tom Poole, Managing Vice President for Digital at Capital One

Many of the themes around experience design and a Test and Learn culture that come up in my interview with Scott Zimmer, Capital One’s Global Head of Design, also came up with Tom Poole. He described their user labs inside their buildings, and how his team uses them to find out how customers actually interact their products, sometimes finding that some of their “great ideas” turn out not to resonate with customers.

They use low fidelity prototypes and mockups to get more honest reactions from users. Customers often don’t want to insult the feelings of the team if they are presented with something very done and polished that obviously took a lot of work. Even with that amount of preparation, it still might be the wrong experience, so they pay a lot of attention to how real customers are reacting to finished products too.

Poole described an example where customers thought a “Tap to Pay” button on their mobile wallet app was broken because it took them over to Apple Pay. It turned out that they were looking for full bill pay functionality behind that button. So the team relabeled the button to read “Apple Pay”, and now the button did exactly what customers were expecting.

This insight also caused the team to add a link to bill pay, which was in the Capital One main banking app, a feature that they originally had no idea that customers would want in the mobile wallet app. “Two sources of customer frustration gone,” Poole continued, “but it took a lot of fine tuning to realize exactly that consumer expectations about what the app would do, and what we as designers thought it should do, were totally different.”

Even with all of that effort, customer experience and service design are still more art than science. As Tom Poole put it, “There are a thousand ways to mess up a feature, and really only one or two to get it exactly right”.

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