Practice Management

Big Data, Alt Payments Top Fintech Predictions

November 12, 2015 by JP Nicols

Capital One has released a survey of 151 fintech and payments innovators which they conduced at Money 20/20 a couple of weeks ago.

Given this non-random sample of participants, it is probably not surprising that Big Data Analytics and Alternative Payments Platforms were the top two answers (at 27% and 26%, respectively) to the question “Which technology innovation will most impact financial services in the next 3-5 years?”.

The only surprising to me about the number three answer was how “blockchain”, only came in with 19% of the vote. It’s been at the top of the hype curve over the last few months, as I reported from Sibos.

The survey also asked for some predictions about finance in the year 2030.

At the top of this list was the prediction that the majority of payments in 2030 will be cashless, non-paper based (56% of respondents), and that Social media shopping will account for nearly half of holiday sales transactions by 2020 (22%).

If these predictions are accurate the customer experience gap that banks have with their customers today is only going to get wider. Sounds like a good time to get to work on innovating some new products and new customer experiences.

The survey also has questions on the future of data security and fraud prevention.

Here’s a short video with highlights from the survey results from Capital One, which partnered with me to provide data for this post:

Join the discussion on Twitter with @CapitalOneLabs and with the hashtag #BankOnTech. More information is available at press.capitalone.com.

In Search of Competitive Advantage

October 23, 2015 by JP Nicols

Next week I’ll be in Las Vegas for Money 20/20 the huge payments and financial services innovation conference, and as always I’ll be on the lookout not only for cool ideas and technology, but in particular those that can bring a competitive advantage for financial institutions.

There will be a ton of content on EMV, mobile and contactless payment developments, POS and transaction data, authentication and security, and of course, there will be lots of blockchain. Blockchain is the new “E-Business”, it will make you better, faster, stronger, smarter and better looking. I’m sure someone will try to tell me how much better my dining experience could be if the menu was on the blockchain.

Don’t get me wrong, I think blockchain technology holds incredible promise for many areas in financial services, and some truly brilliant people are doing amazing work. We’re going to see some real breakthroughs for the groups that solving problems that people (and banks) care about solving.

At the same time, what are we now— 15 years into talking about “omnichannel” experience? And probably going on 5 years into the backlash that we shouldn’t be thinking about channels at all (or at least not digital versus face to face). Many— if not most— financial institutions are still struggling to close the widening gap between what their customers expect and what they are able to deliver, as I wrote about recently (Bridging the Customer Experience Gap).

No Shortage of Ideas

It’s not the lack of technology that holds them back. Nor is it lack of great ideas.

But which ideas have been on the hype curve too long and which ones are ready for prime time? Why are some ideas viral with certain groups of people and unheard of in others? My colleagues and I have been spending a lot of time working on how ideas and people come together and how the most innovative organizations in the world embrace multiple approaches in discovering and implementing new ideas. (Read more: Innovation is More than the Next Big Idea)

I continue to believe that very few banks will be product innovation leaders, so the battle for most will be trying to become truly customer intimate after spending so many years investing in scale and scope and standardization and efficiency— the marks of infrastructure management. (Another topic I’ve been writing about for some time now: How Banks Can Compete in the Future)

So I’ll be looking for examples of innovative product ideas that can partner well with banks’ infrastructures to create that elusive customer intimacy, and bridge that customer experience gap.

Investing for Impact

Next week I will also be working in partnership with Capital One to take a deeper dive into how they approach innovation. The bank runs three innovation labs, and they work on both the day-to-day incremental improvements into more transformative innovation, some of which come from acquisitions they have made along the way. I’ve shared this cool video on YouTube about their labs with my students at the Pacific Coast Banking School.

One of the key acquisitions was that of the big data analytics company Bundle in 2012, which ultimately resulted in Bundle founder and CEO Jaidev Shergill becoming Managing Partner for Capital One Growth Ventures.

On Tuesday October 27 from 3:30 to 4:30 I am moderating a discussion with Jaidev and his colleague Lauren Connelley at the Capital One Booth at the Venetian during Money 20/20. I encourage you to join us if you’re at the event, but I’ll report highlights here.

I’ll be talking with Jaidev and Lauren about their approach to investing and technology companies and how their strategic approach differs from a pure financial investor. A lot of the early stage companies I’ve worked with have struggled to gain insights directly from the banks they’re tying to sell to and partner with, and not all of their funding sources have been able to provide much help either.

I encourage you to join in the conversation.

Learn more about Capital One Growth Ventures here: growthventures.capitalone.com

Bridging the Customer Experience Gap

October 21, 2015 by JP Nicols

The prevailing view of most financial industry leaders over the past decade has been that internal innovation was optional at best, and probably harmful to the way they’ve been used to doing things for so long. Meanwhile innovation bloomed on the edges and outside of the industry, bringing a surge in customer adoption in fintech, which has brought a flood of investor equity in turn. Financial leaders are finally starting to pay attention.

Sort of.

It’s certainly not a moment too soon, as today’s consumers who live their life in a world defined by the customized and engaging customer experiences of Apple, Uber, Google, Netflix, Starbucks, Amazon and others sense a major disconnect when interacting with their financial institution. Back to the future, indeed.

I spent last week in Singapore at the massive global banking conference Sibos, and while I was surprised at the number of bankers who insisted on wearing suits and ties at a luxury resort in the tropical heat and humidity, I was encouraged by the throngs of suits who overwhelmed the Innotribe sessions.

Innotribe has been the embedded rebel camp at Sibos since 2009, but this year a large swarm of new faces joined the familiar bunch of casually-clad denizens, which included a veritable who’s who of fintech entrepreneurs, innovators and influencers far too numerous to mention here (check Twitter).

From Big Data to Value Data

One of the Innotribe sessions showed how artificial intelligence, crowd-intelligence, graph intelligence and human intelligence are all converging, and how that convergence can be harnessed to create truly personalized and relevant customer experiences.

Looking into the U.S. Consumer Financial Protection Bureau consumer complaint database on banking services, there are some interesting geographic differences in the data that could be used to paint a vivid picture of evolving customer wants and needs.

There is a treasure trove of information available there and it is amazing that we continue to talk to senior banking leaders who have never spent time with the data. It seems that many consider it the domain of the compliance department, or maybe customer service, but not enough are using it to help tailor their products and services to improve the customer experience.

There is an overwhelming amount of data out there— big data, little data, structured data, unstructured data, transactional data, social data— but the key is making sense of it in the context of your business plans and in the markets in which you are operating. That’s what we call Value Data.

Fintech Becoming Mainstream?

Besides all the new faces at the Innotribe sessions, I’ve experienced similar new interest in my own talks on the rise of fintech and the need for more innovation in banking. I attended a banking industry conference a couple years where I experienced mostly ignorance and indifference to the topic, so I stopped attending. This year the group’s new CEO invited me to keynote in a featured slot on their main stage.

Earlier this year I was also invited to teach the first class ever on innovation and fintech at the Pacific Coast Banking School at the University of Washington. The class was fully booked in short order, so a second section was offered and it too was fully booked. The students were largely unaware of many fintech developments over the past few years, but they were deeply engaged in learning more and figuring out how to apply the lessons in their own banks.

This widening interest is not just in my imagination. Look at the trend line of Google searches on the topic “Fintech”:

Next week I’ll join 10,000 of my closest friends in Las Vegas for Money 20/20, where fintech and innovation in financial services are certainly not new words. I will also be working in partnership with Capital One and Capital One Growth Ventures, to take an inside look at how they’re investing in fintech and innovation in banking. Stay tuned for more details on that.

The good news for now is that more and more banking leaders are recognizing that the world is changing around them, the bad news is that most are not prepared to move quickly enough to close the ever-widening gap.

As General Eric Shinsecki, former Chief of Staff of the U.S. Army said, “If you don’t like change, you’re going to like irrelevance even less.”

Defeating Robo-Advisers Will Take More than a Pulse

November 8, 2013 by JP Nicols

A “robo-adviser” joined MoneyGuidePro founder and chief executive Bob Curtis on stage at this week’s T3 Enterprise conference and proceeded to melt down when Mr. Curtis asked it qualitative questions like “I’m worried I won’t be able to retire when I planned, can you help me with that?”

During his opening keynote, Mr. Curtis was speaking about the future of advice delivery and digital disruption, when a colleague in a silver robot costume shuffled to the stage as rock band Styx’s “Mr. Roboto” provided the appropriate theme music. The robo-adviser recited its advantages such as “You can call me at 3 a.m., I never sleep.” In a robotic voice, naturally.

I suspect that many advisers were initially chuckling in comfort as Mr. Curtis overloaded the droid’s circuits by asking follow-up questions, but that comfort didn’t last long. He then warned of the constantly improving capabilities of the more tech-centric firms, which will increasingly be able to provide answers to more and more complex questions. More importantly, he correctly described how they’re raising the bar for clients’ expectations about investment firms’ client-facing technology.

Competing with the Robo-Advisers

More than one presentation at T3 mentioned competing with robo-advisers. I did not coin that moniker, which some have taken to be derisive, and I am not anti-robo. I am a fan of any approach that uses technology to make advice delivery more widely available and comprehensive at the same time. Though catchy, the term is not even very accurate for most firms it’s been used to describe — most are RIAs with real, live strategists and sometimes even real, live advisers and financial planners.

Yes, they have web portals and mobile apps and model portfolios and interactive planning tools, but so does nearly every other firm. The big difference is that they designed their client experience around the latest innovations and built their internal processes around that, rather than bolting new technology onto 1970s architecture and processes.

Their technology also allows them to start a relationship with an aggregated view of their clients’ total holdings, as Mr. Curtis pointed out. That’s a claim that only 10% of advisers can make today, according to CEB TowerGroup.

More Than Just a Pulse

I am certainly not anti-adviser either. As technology-oriented as I am, I cannot envision a future that doesn’t have live financial advisers, but many will have to change to compete in the future. Especially in a world in which 68% of advisers rate their own technology as “fair” or worse, and 63% rate the integration of their tools the same way, according to Patrick Yip from Pershing and David McClellan from Albridge Solutions Inc.

The real challenge goes deeper than just technology, though. I have heard advisers dismiss their cyber challengers with arguments that are flimsy and often just plain wrong.

“My clients aren’t that tech-savvy”, they say, or “My clients want to talk to a real person.” Those points may be true in certain instances, but advisers will need more than just a pulse to compete with and beat the robos.

In other words, the mere fact that you’re human being isn’t a sustainable competitive advantage. Yes, some clients are technophobic, but most learn to appreciate the efficiency and 24/7 availability that technology can provide, not to mention the very real cost efficiencies. Advisers still have the edge in emotional intelligence and the ability to help protect clients from their own worst instincts, but they will need to make the best use of those advantages to create real value on the clients’ terms. As InStream chief executive Alex Murguía put it, “My clients don’t need a friend, they need an adviser.”

Remember, as science fiction author (and coiner of the term cyberspace) William Gibson famously said, “The future is already here — it’s just not very evenly distributed.”

(This post originally appeared on my TechTalk blog at InvestmentNews.com)

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.

Can FinTech Improve Investor Behavior?

October 21, 2013 by JP Nicols

In my last post Personalized Service in the Digital World, I discussed the so-called “Robo-advisors”—the new breed of technology-driven online investment advisors—and how they are changing the competitive landscape, whether or not traditional advisors like it or even realize it.

I recently attended Money2020 in Las Vegas to hear directly from some of the “Robo-advisors” themselves. Most of the conference was focused on new technologies in payments and e-commerce, but one session “Emerging Wealth Management Solutions” featured Personal Capital CEO Bill Harris, SigFig CEO Mike Sha, LearnVest CEO Alexa von Tobel and Asset Vantage CEO Sunil Dalal.

One of the most surprising things from the session was that Harris, Sha and von Tobel all felt strongly that by 2020 the majority of wealth management will still involve real live wealth managers. Harris agreed to that statement as a ‘5’ on a scale of 1 to 5, and von Tobel ranked it as a ‘6’. SigFig’s Sha answered ‘5’ for high net worth investors, but ‘2’ for the mass market (meaning lower advisor involvement in the future).

Also notable was the fact that despite all of the firms’ heavy investment in technology, that was not what the panelists focused on in their discussion. At least not in the context of better trading algorithms or more sophisticated asset allocation models. Instead, they focused on how they deploy technology to reduce investor expenses and overcome the common failures of human behavior.

In other words, some of the same things that any good advisor should be focused on in their own practice.

Weight Watchers for the Financial Space

LearnVest’s von Tobel said that “Money is 10% math, 90% emotion”, and described her firm as “Weight Watchers for the finance space”. I like that analogy because the basic formula to lose weight is deceptively simple—eat less and move more.

Yet, people spend billions a year on gym memberships, workout gear and diet books. And yes, on trading advice, financial plans and investment seminars, too. All of the gadgets and bells and whistles are alluring, but the basic formula for growing wealth is simple too—spend less and save more.

Setting aside Asset Vantage’s Dalal, whose firm has a different hardware and subscription driven model (and who was less optimistic about the future role of advisors), the rest of these disruptive asset managers are all RIAs. They are in the exact same business as many readers of this site. They just have a dramatically different service delivery model, and they have collectively raised over $100 million in capital that is betting that their model wins over the long run.

I believe they will win if they can convince people to actually change their behaviors. They have the advantage of leveraging their technology to give regular feedback at a scale not possible for most individual advisers. The Nike Fuel Band and competitors like fitbit have helped thousands of people tune into their caloric intake and level of activity needed to burn off the excess. Maybe the next generation of financial advisors will be able to help investors avoid costly mistakes in their financial behavior too.

As Personal Capital’s Bill Harris put it,

“The biggest problem is inertia, and technology alone won’t help that.”

(A version of this post first appeared in my blog on InvestmentNews.com)

Personalized Service in the Digital World

October 16, 2013 by JP Nicols

Since my Sept. 18 post in the Investment News techconnect blog, “Financial technology trends advisers can’t afford to ignore”, I have been in a number of conversations about how a new crop of web-based investment management/financial planning services are affecting the industry.

Opinions have run the gamut from, “Advisers are toast, everything is moving online,” to “No way, X type of clients will always want personalized service.” As you can well imagine, the tenor of those comments were colored greatly by where the commenters are in the industry or what their business models look like.

Although investor sentiment varies somewhat during different economic cycles, somewhere around 25% to 30% of investors are do-it-yourselfers, and another 20% to 25% want regular help from advisers. The largest chunk is somewhere in between. They make some of their own decisions, but sometimes they want help.

The Consumerization of Technology

I suspect that those numbers increasingly will tip toward more self-service as the consumerization of technology continues to spread. Many of today’s consumers carry better technology around in their pockets than their advisers have on their desktop. Affluent consumers in particular are utilizing a wide variety of software-as-a-service with increasing regularity, and there have been lots of investing and financial planning offerings in the past five years.

This trend will be exacerbated as a $41 trillion bubble of wealth works its way down to Generations X and Y. Members of those younger generations have grown up with technology, they are comfortable with (and often prefer) online services, and many do not have relationships with traditional advisers.

Does that mean that the days of the one-on-one client/adviser relationship are coming to an end? I don’t think so, but I do think they are already changing.

As younger investors grow older (the oldest Gen Xers are already in their 40s) and take on more responsibilities in all areas of life, and as their financial lives become more complex, they may want more adviser help. But the form and method of that help will likely take shape in the form of more video conferencing, online collaboration and other forms of electronic communication.

Enter the “Robo-Advisers”

Raef Lee, managing director of the SEI Advisor Network, recently blogged about “5 Ways Robo-advisers Will Change the Way Advisors Work”, which he enumerated as increased peer pressure, a call for transparency, pressure to accommodate a younger generation, more technology and access to comparative data.

I think all of those are valid points, but what concerns me the most is that the pace of change exhibited by most advisers and firms is much slower than the pace of external change. A device known as the iPad reached 50 million users in just 18 months, and that’s just about the time it takes for a new idea to work its way into the budget approval process at many firms.

And of course, it’s not just about buying and deploying new technology. I often ask, “Remember when laptops revolutionized financial services?” Yeah, me neither. Today’s technological advancements definitely have the potential to make seismic changes, but advisers will have to adopt and utilize these new tools in ways that the clients actually value.

Merely providing “personalized service” is not really a differentiator today, and it will be less so in the future. Hordes of travel agents, book and music stores, and electronics retailers all bet that their customers would value their personalized service over online solutions, but only well-focused niche specialists have survived in the face of these sea changes.

(This article originally ran in my regular blog on InvestmentNews.com. Subscribe for free and keep up with all of my latest content there.)

Scaling Financial Advice and Collaboration in a GPS World

July 17, 2013 by JP Nicols

We live in a real-time traffic, turn-by-turn directions, GPS world. Why do financial institutions still hand out the equivalent of gas station maps?

I hear from many financial institutions that creating financial plans for their clients is an important goal, in fact some have goals to provide financial plans to all or a significant percentage of their clients. Part of this is a noble goal– firms will be able to do their best work when it’s relevant to a clients’ unique situation and goals. But it also makes good business sense. Research links financial planning to deeper wallet share and a higher likelihood achieving that elusive “primary financial advisor” status.

Unfortunately, the client’s experience at most firms goes something like this:

Bring your financial advisor a briefcase full of personal papers (tax returns, bank and brokerage statements, insurance policies, will, trust documents, etc.)
Your financial advisor, their financial planner colleague, or one of their assistants will manually input data from your personal papers into financial planning software.
Meet with your advisor again and receive a spiffy multi-page document with color pie charts and bar charts a bunch of text (that usually says you will not be able to meet all of your financial goals unless you immediately and significantly increase your savings and reduce your spending).
File your financial plan away with the rest of your personal papers.
You may get a call in about a year to repeat the process (or maybe not, if they were just conducting a box-checking exercise).

That’s the paper gas station map, folded up inside out at the bottom of your financial glove box.

Firms should be integrating a broader view of client data onto their desktops and into their financial planning process. According to research from CEB Tower Group, 90% of advisors cannot see a consolidated view of their clients’ holdings that are held away from their firm, and 76% cannot even see a consolidated view of their clients’ holdings within their own organization!

It’s not just financial planning. The client onboarding process is often a similarly manual process that also often squanders significant opportunity to improve client engagement.

It’s time to bring the industry into the GPS world.