Imagining Innovation – What Banks Can Expect Beyond 2014


(Re-Post From My Two Part Interview With BankNxt – Part 2)

 

Stories from the Vault: Real Insight from Real Bankers

In this year’s final installment of the BANKNXT exclusive series on innovation in banking, acclaimed financial technologist Bradley Leimer shares his thoughts on what the next wave of technology holds in store for banks in and beyond 2014.

This is the second installment of this interview.

Bradley Leimer

Bradley Leimer, financial services industry technologist, consultant, and commentator, leads digital strategy for Northern California-based Mechanics Bank. His focus is on developing and integrating technology applications and partnerships geared toward improving the client experience and profitability of digital channels. He brings additional perspective from leading marketing and technology efforts within the bank and credit union industry and from a decade driving database marketing and analytic programs for more than 6,500 national, regional, and community bank clients. Bradley is a sought after adviser for startups entering the financial and payments space

“How you view the current environment likely correlates to your sense of urgency and overall disruption in the banking industry. While we may not all agree on the impact, the shift to digital will certainly have consequences. We’re moving toward an era of engagement banking – a marketing, sales and service model that deploys technology to achieve customer intimacy at scale.”

You’re recognized as a leading financial technologist – what are some of your over-arching goals in leveraging technology within financial services?

While people may associate me with fintech, I certainly tweet enough about it, I think I might be more of a social scientist or macro-economist at heart. I’ve always been very curious about consumer behavior and why people act the way they do. Especially why they buy what they buy, how they pay for goods and services, how the movement of goods reflect societal value, and what society gets in return for those exchanges. While there are certainly differences in delivery and scale across social and economic spectrums and geography, there are basic human needs that financial applications help fulfill. Whether that need is fulfilled by an existing bank today, or will be in the future is another story.

We shouldn’t be selling products and services; we’re facilitating daily human needs and enabling people’s dreams. My ultimate goal is to be part of making these functions more inclusive, to really improve the banking system as whole. I think the way we leverage technology in the future will have a lot to do with helping our industry move forward. I also think it’s critical that technologists, and everyone in banking really, strive to be perpetually curious and always working to understand how we can improve the lives of the people and businesses in our communities, to see the bigger picture of where dots are connecting a ways off into the distance. It’s a critical time for banks to review their place in society and in their communities, not just here in the U.S., but worldwide. The traditional banking model certainly has some cracks in it.

Is the difficulty banks have in embracing change one of their biggest obstacles in terms of innovating?

I think it’s about more than just embracing change. Our industry is overly fixated on regulation and risk. We’re too afraid to experiment. And at this point of history in financial services, FIs under twenty to fifty billion in assets don’t have the scale to screw around and not take additional risks to stand out. We start with ‘no’ as our default answer far too often. This mindset leads to a legacy of friction that disruptors are starting to exploit. Our model simply must adapt to changes more quickly. We must keep up with the simplicity, usability and transparency customers now demand. The disruptors see that the future of financial services will be won by removing traditional barriers and rapidly embracing the shift in consumer and business behavior. Things are moving incredibly fast.

Do you think that the digital channels could help community banks recreate that traditional ‘one-to-one relationship’ feeling that was previously the domain of small town bricks-and-mortar banks?

I think it’s incredibly valuable to have smaller, community based financial institutions as a natural economic hedge to promote financial inclusion and drive more equitable financial relationships with local businesses and consumers. I wrote a piece about this question earlier this year as part of American Banker’s Future Model of Banking series called “There Will Be Blood: The Era of Engagement Banking”. In this piece, I tried to make it perfectly clear: The rise of personalized digital financial and payment experiences are the likely death knell for community banking institutions. The next five to ten years is absolutely critical if you are a financial institution with under twenty to fifty billion in assets.

Decades ago financial relationships were much simpler. You put money in a local bank or credit union and you accessed your accounts in person or wrote checks. When credit and debit came along, you had cards linked to these accounts at that local bank and accessed cash through ATMs. We pushed people out of the branch and ‘Oops’, now they aren’t coming back (and branches aren’t convenient anyway, so why should they?). Now your financial life is much broader, your financial relationships have wider scope and are likely at seven or more institutions. With the rise of the app ecosystem, your financials decisions are becoming much more integrated with other decisions you make throughout the day. Decisions that are more likely driven by a national bank, credit card, or third party financial experience than anything else. While every industry is impacted by the rise of highly personalized digital experiences, it’s very hard for smaller banks to keep up without scale and agile development. Ask Blockbuster how they fared as Netflix and digital flipped the equation. The same will go for banking.

While there are an increasing number of digital opportunities to leverage financial decisions before, during, and after payment, which is becoming the crux of what many disruptors in financial services are targeting (the form and frequency of payment and the associated revenue of those decisions), there’s thankfully more to banking revenue than choosing a particular payment rail. In an industry where the top 150 banks control 81% of deposit relationships and 75% of lending relationships, scale is obviously critical. But there’s great revenue opportunity in niches if your technology can deliver, so even though I come across as pessimistic, I’m actually hopeful.

What should fintech companies be doing or focusing on to help banks achieve a more personalized banking model?

I’d love to blame legacy technology partners for every problem we’re facing, but I can’t. Consumers have changed, technology has changed, and financial experiences have changed. We’re the ones that haven’t changed enough in response. The conservative nature of financial institutions’ is stopping them from embracing real innovation. But still, technology is a critical factor, and the smaller the FI, the more reliant they are on external technology partners bringing new innovations to the table. From core banking to digital service delivery, especially as API driven strategies multiply, we’re seeing entirely new business models emerge for building financial applications and legacy fintech players, just like their banking clients, are having a hard time keeping up. What used to take a year of development can now take months; what took months now can take weeks. Application development is becoming cheaper and faster. The fintech partners we choose to do business with need to be more agile and able to differentiate solutions from big bank services. They need to help the FIs drive more digital revenue to create opportunities to better compete.

How do you compete with Chase, or Wells Fargo, or Bank of America? We need to stop the process of just copying their technology and offer differentiation of value through innovative products and services. This sometimes starts with some navel gazing; clearly defining the type of financial services firm you are trying to be and who you are trying to serve. That done, you can begin to focus on serving customer needs by choosing the right technology and service partners, or continue to build out your own teams, in order to be more responsive to the market and your customer. It’s not rocket science, but we often get this step wrong.

You’re an advocate for incorporating social media and networks into banking, would you say that ‘social’ or ‘mobile’ has been the biggest disruptor to date?

It’s the proverbial chicken and the egg question in a digital context. Both social and mobile have fundamentally changed how we communicate and interact with our customers forever. Social and mobile financial applications have combined to form this perfect storm that is fundamentally shifting the financial relationship back to the consumer and in many ways away from banks themselves.

Banks really missed the initial opportunity in social, which was to drive more personal service relationships with their customers across the channel of their choice, along with the transparency and intimacy that goes along with that. Remember, social isn’t just about networks, it’s about something much bigger than that; the change of expectation that has arisen because of social activity. The industry is coming around to
these larger changes and embracing more socialized, personalized services and customer interactions. There are many great examples, from USAA to Fidor to Simple, where social is a primary component of a scalable business model… unless you’re HSBC and don’t know who Brett King is, and you missed the post about closing his account in the Huffington Post. The key is using social to help people understand their own financial picture, let their data tell a personal story. Help them in context when they need you, and work toward developing a deeper customer relationship through both digital and personal means. It can be done and it is being done today.

Mobile is a bit different, I think we’re a bit more evolved there, but I shudder to think that most bank customers think mobile deposit is our most innovative service. We need to get much better at designing more engaging financial experiences through our mobile applications before someone else does, namely payment providers with deep retail partnerships. As it is, less than half of financial institutions have a mobile banking app. Long term, I see the continued rise of financial applications dominated by non-bank providers – maybe permanently. You can see what type of social and mobile technology inspires me a bit here.

The other question around these two topics that I’m interested in is if the rising expectation of immediacy and intimacy will ever really butt heads with demands for security and privacy. Consumers seem destined to share more and more personal information, but is that starting to shift with the rise of temporary messaging and images like SnapChat? With all the NSA news around data snooping, and a perpetual stream of compromised financial data, are consumers going to put the genie that is social and mobile back in the bottle and choose privacy and transparency? I’m not sure they will, and I think there are many opportunities for banks to lead in these areas.

What is your vision for the future of banking, taking into account the rapid advancements we’ve seen in just the last few years?

Technology is simply accelerating an existing shift in traditional relationships with our customers and this is having an impact on the banking industry’s historical sources of revenue. While we may not all agree on the impact, the shift to digital will certainly have consequences. The banking model is moving towards a truly contextual, customer-centric view. Shifts in consumer behavior demand less intrusive authentication, social connectivity and crowd sourcing, hyper-personalization of everything from offers to usability, as well as tailored assistance and support at critical moments. We are now face-to-face with an engaged customer base that expects a completely frictionless experience. As we move further into the realm of digital experiences, the next decade will be even more incredibly disruptive than what we saw in the recent economic downturn. As I’ve said before: There will be blood.

Delivering contextually aware financial services in beautifully crafted experiences is becoming a necessity to maintain relevance with digital natives. Over the next decade we’ll see: an incredible focus on customizing financial data and personalizing interfaces for varied consumer segments; a focus on simplified authentication using multiple forms of bio-metrics and contextual assessments, from proximity to login patterns; attention shifting to real-time money movement at low or no-cost; further integration of social media into both marketing and banking applications; leveraging and connecting offline and online behavior to disrupt the payment and procurement paradigm to serve up personalized insights – just think of how we could use SKU level data; offering service alternatives through proximity awareness such as actionable notifications that prompt users through their mobile device to move money or pay bills to avoid fees or to better manage their current account spending, continuous assessments of financial wellness that prompt the consumer to take a specific action after a transaction, as well as delivering daily or on-demand personalized information around the customer’s financial health and aggregated account status. I could go on, the possibilities are practically endless.

The reality is that banking is no longer something customers just do. It’s becoming an experience they will completely control. We are moving away from a banking relationship defined by the goal of being a customer’s primary financial institution to one where we focus on becoming their primary financial application. It’s no longer about wallet share. It’s about app-driven mindshare – being ready for the moment our customers reach into their pockets for their mobile device, or their glasses, or other form of wearable technology, and start thinking about their financial relationship choices – before, during and after a financial moment of truth.

The question really is, how is your bank or credit union going to survive the next decade?

Prue Duggan is a writer for BANKNXT, a contributor to several other FinTech and innovation related websites, and community manager at leading Bank 2.0 software company, Backbase. With a background in advertising, branding and content strategy, Prue is a passionate observer of how the web is changing the way consumers and brands interact online and the evolving science of UX design. She has worked as a copywriter for large retail brands, from Nike to Tommy Hilfiger and first became interested in the nexus between communication and technology while working at Booking.com

Legacy Fintech Providers Must ‘Open Up’ for Banks to Innovate


Legacy FinTech Providers Must ‘Open Up’ for Banks to Innovate

(Re-Post From My Two Part Interview With BankNxt)

Stories from the Vault: Real Insight from Real Bankers

In the first of a 2-part installment signaling the end of this BANKNXT exclusive series, we talk to financial technologist Bradley Leimer about his experiences working in the financial services industry. Next week we hear what the new year, and next wave of technology holds for banks, and what they can do to adapt.

Bradley Leimer

Bradley Leimer, financial services industry technologist, consultant, and commentator, leads digital strategy for Northern California-based Mechanics Bank. His focus is on developing and integrating technology applications and partnerships geared toward improving the client experience and profitability of digital channels. He brings additional perspective from leading marketing and technology efforts within the bank and credit union industry and from a decade driving database marketing and analytic programs for more than 6,500 national, regional, and community bank clients. Bradley is a sought after adviser for startups entering the financial and payments space.

“In this new era of applications and partnerships driven by APIs, you can practically build a complete banking experience on the rails of a few technology partners. It really points to the need for banks to take control over their entire client experience.”

What has been the road that’s led you to fulfill such a unique and innovative role?

My background really isn’t in banking, but I was always interested in the role of money in society – how it moved, and what deeper meaning it had. Growing up in Silicon Valley, I was also fascinated by computers and the way they let the programmer manipulate the data you put inside them. I was programming basic applications (likely on a TRS-80) before nine. I got my first personal loan, to buy an Apple computer, at age thirteen. I rode my bike down to my local branch to obtain a secured loan against the paper route money I’d saved in my passbook savings account. The community bank I did that with, American Savings, is no longer around. After several waves of consolidation, it became part of Washington Mutual and is now part of Chase. That’s something I think about that every time I discuss the industry’s ongoing contraction.

After the personal paper route business was disrupted by big delivery truck technology, I helped generate leads with direct marketing data while working in my mother’s real estate office. I then spent seven formative years working within public and university library systems at California University and Stanford. During my time at Berkeley, I was also a Haas Business School research assistant – primarily working on projects around incentives and (at the time) innovative, auto-response phone based marketing research. These types of experiences fed nicely into my love of primary research. Learning how to tackle interesting questions – and more importantly, helping find to the answers to the most critical ones.

I’ve always enjoyed big picture challenges that require categorizing and analyzing large amounts of disparate information. It’s like solving a mystery. My first role out of Cal involved manipulating large sets of financial customer data by developing response models for the industry’s largest banks and credit card firms. You might say I was working with big data before they called it ‘big data’. Back in the days of reels and tapes, when mainframes were truly ‘big iron’ and not racks of servers or cloud based computing. Things have changed so much since then,  it is simply a great time to be working at the intersection of technology and marketing. And I’m lucky to be right at the tip of the spear.

Why is the type of role you hold such a necessary one in banking today?

Every financial institution needs a catalyst, a person or a group of people ready to kick the beehive, ready to challenge the status quo. Especially so right now because it’s simultaneously the most interesting and terrifying time to be working within financial services.  Our industry has to start thinking differently. There is a perfect storm of evolving technology and increased customer expectation that is rapidly changing not only banking, but every industry. We need to focus on inherent areas of friction and start modeling successful, innovative solutions within (and more importantly) outside of our industry. It’s also important for industry leaders to expand their own reference points. I look to social networks like Twitter to be a kickstarter for that, to meet and interact with disruptors that are changing our industry’s thinking. That’s also why I advise fintech startups. It challenges my own assumptions and allows me to contribute to the larger changes within the financial ecosystem.  It’s critical that we get our teams more engaged with the impact of technology and changing behavior before we end up with an industry with fewer than a couple thousand – or worse, a couple hundred banks.

Mechanics Bank is certainly a traditional community bank, how hard is it for a small bank to overcome challenges the challenges posed by adopting new technological innovations?

I like to joke that we work at a 108 year old startup. We’re always open to new things yet retain the critical central idea that propels us forward; the needs of our customers. In the past few years, we’ve been open to newer partnerships, especially around technology. We’ve been exploring little experiments around the way that we interact with our customers, from using social channels like LinkedIn to set up meet-ups and foster relationships with business clients, to embracing outside partnerships beyond those we have with core fintech partners. We launched services such as purchase-driven rewards and have added Mobile Deposit, PFM, P2P, A2A, integrated tax services, and more within our online and mobile platforms. The roadmap only grows from there to include payments and more robust treasury services.

Although we’re a conservative, traditional community bank…we’ve really embraced this idea of how we should best position ourselves to last for the next 108 years. That’s what’s great about this brand – it’s always been very well run, willing to move forward with services to assist our customers, and because of this it has always had a reputation as being a leader in the San Francisco Bay Area market. Our bank was the first to do drive up ATMs in Northern California, we added popular services like ATM rebates years ago, and we’ve made big investments in digital the past several years. One of the challenges we face, however, is that as technology rapidly changes our industry, we will need to embrace quicker, more agile responses in the real world as well as the technological, to meet our customers changing needs and expectations. This is what we are doing with new partnerships as we look at acquiring, communicating to, and best delivering services to our clients. With a new CEO and a new CIO, our bank’s leadership is evolving at just the right time to ensure our long term viability.

Do you think that the future of banking will involve banks having multiple technological partners to help them meet their customers’ needs and differentiate their offerings?

It’s a challenge banks are already facing today.  The industry already has a complicated web of legacy technology partnerships and the shift towards interesting digital experiences only compounds the challenge of making agile decisions around vendor management and technology sourcing. I’d like to think our allegiance to legacy fintech is slowly shifting but I think that’s an issue for the industry as whole. When you look at the idea of engagement banking in particular, based on the idea of intimacy and personalization at scale, if we can’t deliver that next-generation financial application, then how do we expect to drive experiences that matter? How are we going to reach that next generation of customers at Mechanics Bank? We’ve got clients today who’ve been with our bank for four or five generations, so we need to connect to that next generation using SnapChat, WhatsApp, and Instagram on a daily basis? We do this by delivering the type of value-added personal one-to-one interaction and service, whether it’s in person or through digital, and likely a combination of both. This may mean a shift in our technology partnerships to enable us to deliver these experiences.

In your experience of looking for fintech partners and experimenting with other providers, have you been frustrated at the level input or control you get to have over the functionality that you’re bringing into your own bank?

Absolutely. Show me a financial technologist who isn’t frustrated and I’d say they weren’t really doing their job. Working in social, mobile and digital is like nothing else. As soon as there is something innovative in one industry it quickly jumps to another, raising expectations all along the spectrum. You should never be satisfied with the status quo – things move far too fast.

When we looked at updating our client facing banking services several years ago, we looked at eleven different traditional providers. We had some ideas of developing and defining the user experience with a collection of several data and design partners but back then a lot of these fintech companies weren’t interested in working with community institutions. So we went down a more traditional route. Now so much has changed that if we had the choice today we might have made a different decision. In this new era of applications and partnerships driven by APIs, you can practically build a complete banking experience on the rails of a few technology partners.

It really points to the need for banks to take control over their entire client experience. I’ve been one of the loudest advocates about opening up platforms. But it’s difficult to get legacy fintech partners to open up a SDK, crack open access to the interfaces, or create meaningful APIs to allow for new development opportunities. As far as I’m concerned, they’re a platform and they should look at it as a service we develop to. Open it up so that our development teams or a shared development resource with other institutions can work towards developing a better solution. We’re the sort of bank that will tinker with a solution to get the right fit. A good example of this is how we’ve re-skinned our treasury platform with the limited development tools our partner provides – very few banks take the time to do that. In fact, very few banks take the time to re-name the application that the provider delivers. Come on, you at least have to position things with a better name than what was on the box.

I think our bank understands the importance of a unified experience and we’re doing everything we can to build more agile development and project management processes to deliver better user experiences – it’s an exciting time in the bank’s history.

Mechanics' Mobile App
[Mechanics Bank app featuring mobile deposit, payment, and contextual offers]

Creating a unified experience requires a lot of collaboration between business and IT teams, how do you manage that at Mechanics?

You have to keep the customer at the heart of every conversation. When I started at the bank, I initially was within our marketing and product group, so I sort of brought that customer focused mindset when I joined the team in IT to lead digital strategy. But what I found is that throughout the bank, we’re doing the right thing for the customer every single time. Often to the detriment of our systems and processes. I think that’s honestly why our customers love this bank; we do the right thing. While we’ve improved collaboration between business units, technology, and product teams, I would say that we could do a better, or at least quicker, job of addressing critical gaps. Of course it’s the same case with every bank I talk to, regardless of size. I think generally what’s needed are roles that cross over marketing and technology, specialists who can add deeper understanding around client experiences, find ways to reduce friction and better ways to leverage data. To better collaborate, you need to centralize skill sets with deeper understanding of the technology and service trends that impacts and shapes client behavior.

How are you applying innovation to your marketing at Mechanics Bank?

Our external marketing is broader, more overarching in terms of showcasing our brand and our services as a whole. It’s becoming more segmented, targeting consumer versus business or wealth versus consumer personas. We’re moving, over time, to become more granular within these personas toward more individually focused, more contextual targeting. Our marketing efforts have to become more like one to one conversations, not just A/B tests of different messages. It has to be “π (pi) based marketing” with an infinite long tail of personalized messaging because that’s what consumers expect – relevancy. The challenge is leveraging data to help our potential customers make a choice to build more of a relationship with us within the proper context. While retailers seem far ahead of financial institutions as it relates to personalized marketing, that seems to be changing pretty rapidly too. Capital One, American Express, Discover, and others on the payment like PayPal are getting it, as are some national banks like USAA, Wells, Citi, Chase, and Bank of America but much of it is still a very standardized approach triggered by financial events. In the end, while our industry seemingly has better data, so much of it is being left on the table. If someone has just purchased a house, they may get approached with additional product offers right away, but they still don’t personalize it to leverage the additional contextual information they (should) know about their consumer’s purchase decision. There’s so much more to making offers meaningful.

Banks are notorious for having very siloed internal structures, which makes it difficult to communicate and implement new ideas, how much of that is true for Mechanics Bank?

You didn’t know that bank silos are actually built in a factory in upstate New York? Or that freshly built credit unions roll off assembly lines in Tallahassee? At least these silos are still American made. Kidding aside, you have to blow up silos and legacy processes. Even do a little dance every time you do it. We’re getting better, but I think many banks of all sizes have this silo issue; creaky infrastructures, inherent risk aversion strategies that slow things to a crawl. I think there’s a difference in opinion about how fast things are changing in the industry, throughout our bank and throughout the industry. You need protagonists to point out the sometimes obvious problems, to ask those ‘why’ questions every single day. Sometimes they seem naïve, but often-times they’re right on target. While I’m fortunate to be around a group of seasoned financial professionals, it’s important not to always think like a banker. Think about the needs of your customer. Then decide which beehive to kick first.

Prue Duggan is a writer for BANKNXT, a contributor to several other FinTech and innovation related websites, and community manager at leading Bank 2.0 software company, Backbase. With a background in advertising, branding and content strategy, Prue is a passionate observer of how the web is changing the way consumers and brands interact online and the evolving science of UX design. She has worked as a copywriter for large retail brands, from Nike to Tommy Hilfiger and first became interested in the nexus between communication and technology while working at Booking.com