Disruption Is Overrated: Wells Fargo's Pragmatic Approach to Innovation

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"Customers don't want disruption," Steve Ellis, the head of innovation at Wells Fargo, declared Tuesday. "They want new kinds of value that make life easier for them."

Ellis was speaking at the bank's Investor Day event in San Francisco, where he highlighted some of the new technologies that Wells Fargo is rolling out to its massive nationwide customer base. His remarks illustrated a careful balancing act that is evident in the technology strategies of the nation's megabanks.

On one hand, the big banks recognize the need to invest heavily in technology at a time when well-funded startups are rapidly reshaping customers' expectations. On the other hand, Wells Fargo has the largest network of retail branches in the country. Almost by definition, it cannot be a disruptor.

"You've got to remember, we're moving trillions of dollars through billions of transactions," Ellis said. "Stuff's got to work."

For Wells on Tuesday, the emphasis was on practical applications of technology that can hold down costs inside a $1.8 trillion-asset company. One executive spoke about efforts to reduce the use of paper in branches. Another touched on ATMs that can be accessed via the mobile phone.

Wells also timed the announcement of its new mobile wallet to coincide with Tuesday's event, which it holds once every two years.

The company said the Wells Fargo Wallet, which will launch this summer, will be folded into its existing mobile app. One advantage of that integration is that the firm's existing mobile-banking customers will not have to download a separate app in order to pay with their phones. (For additional coverage of the mobile wallet, see here.)

At the same time, Wells Fargo emphasized that it will continue to work with existing mobile wallet providers, such as Apple and Samsung, in an effort to persuade users of those firms' apps to pay with Wells Fargo cards.

Here's what else Wells' executives highlighted at Tuesday's event.

Real-time payments. Ed Kadletz, who heads Wells Fargo's deposit products group, declared that real-time person-to-person payments are a strategic priority at Wells. In his comments, he referred to competition from the likes of Venmo, the popular mobile payments app that is owned by PayPal.

"We believe that real-time P-to-P is strategically important, not only for Wells Fargo, but for the industry as a whole, in order to maintain primacy with our customers," Kadletz said.

"Some nonbanks have been targeting the P-to-P space. But none can offer the speed, security, ubiquity, scale and efficiency that a bank-supported system can provide," he added.

Wells Fargo is one of seven banks that co-own Early Warning Services, which is building a real-time P-to-P payment network.

Wells customers sent more than $10 billion in payments through the bank's person-to-person service, SurePay, last year, Kadletz said. Today, such transfers often take one or two days to complete.

Kadletz added that Wells customers will be able to send real-time payments starting in July.

User-authentication technologies. Wells Fargo outlined an all-of-the-above strategy with respect to authenticating its customers, including biometrics, one-time passcodes and old-fashioned passwords.

The bank said that it is currently piloting technology that allows call-center employees to determine whether callers are who they claim to be, based on their voices. Wells is also planning a wider rollout of eye-vein scanning technology during the third quarter of this year.

"There's no one tool that creates a great customer experience and the right level of security," Ellis said. "Customers want choice."

Longer-term technology investments. Wells executives made only brief comments about their interest in blockchain technology, which is currently one of the hottest areas of research inside big banks.

"It looks like it has some promise, particularly in what I would think of as back-office things," Ellis said.

He mentioned several other areas where Wells Fargo is conducting research, but does not expect to implement technology in the short term. That list includes speech-recognition technology, which could enable customers to make mobile banking transactions verbally.

Wells is also exploring behavioral analytics and location-based services, he said. Those technologies could be used to deliver more highly customized offers to the bank's customers.

Finally, Ellis mentioned virtual reality as an area that the company began to explore recently. Some have suggested that virtual reality could provide a new and compelling way for wealth managers to deliver content to their clients.

Financial guidance. Amid all the talk about technology, Wells also provided a not-so-rosy update on its financial outlook.

Wells Fargo revised downward its target ranges for two measures of profitability, return on assets and return on equity, from where they were at the firm's last Investor Day in 2014.

In a research note, analysts at Sandler O'Neill noted that those two metrics have both been weakening at Wells Fargo over the last two years, amid continued low interest rates, higher levels of liquidity at the bank and bigger provisions for loan losses.

"For now, our sense is that, while the downward revisions to certain financial targets [are] a negative, they seem understandable in light of the sustained challenged environment," the analysts wrote.

Shares in Wells were up by 1.2% in late-day trading, in line with a broader rise in the stock market.

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