How a crisis made innovation easier at Wells Fargo

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How does the innovation group inside a bank relieve the natural tension with the business lines it has been appointed to disrupt?

A scandal can help. In the case of Wells Fargo, it has.

“The resistance may have been more before our event in October,” said Sherrie Littlejohn, executive vice president of the innovation group at Wells Fargo, during a panel discussion Wednesday at CB Insights’ Future of Fintech conference in New York. The “event,” of course, was the bank’s fake-accounts scandal, and Littlejohn’s diplomatic choice of words was met with laughter.

Out of the ashes of the crisis, she explained, heads of business lines became more open to change and more willing to take a broad view of client relationships, versus seeing only mortgage customers or deposit customers.

“Let’s talk about our customer as a whole,” Littlejohn said. “Let’s look across the enterprise.”

Littlejohn was joined by Carey Kolaja, global chief product officer at Citi FinTech. Kolaja also talked about the challenges of working with business lines at Citigroup and candidly said it has gotten harder in some ways since her unit launched in 2015.

“The second year is harder than the first because now you have senior executives running in and saying, ‘We can do that, too, we want to be part of' " the innovation, Kolaja said.

Littlejohn and Kolaja also talked about the difficulty of changing culture and pushing back against “we can’t do that” attitudes, to determine if they are opinions or actual regulations. Still, they stressed that it is mission-critical to partner with the business lines because of their expertise.

By working with the businesses, the goal is to be prepared to defend the bank’s turf from both fintech startups and unexpected entrants, namely Amazon.

The moderator asked the women about diversity in fintech and how it shapes their work. Littlejohn talked about the importance of having a variety of types of diversity as the bank looks at how to serve various types of people.

“We need to have them at the table,” she said, referring to people of diverse backgrounds.

Meanwhile, Kolaja cited the words of an unnamed female financial services executive.

The executive found that “if you develop a product for men, women won’t adopt it, but if you develop a product for women, men will adopt it,” Kolaja said.

A few other takeaways from the conference …
There has been a lot of hand-wringing about when the major tech companies will make their play to offer financial services in the U.S. Amazon’s deal to acquire Whole Foods has heightened that speculation.

The success of WeChat and Alibaba in financial services in China is often held up as a model of what’s to come in the U.S.

However, Mike Armstrong of ZestFinance, Anju Patwardhan of CreditEase and Tom Stafford of DST, disputed the analogy. Essentially, the conditions in China that allowed for such growth are much different than in the U.S., said the three panelists, who are plugged into both countries.

China’s banks traditionally haven’t served average consumers. Tech companies there serve as de facto credit bureaus since such institutions haven’t historically existed there. The Chinese are much more willing than Americans to share their data.

To be clear, the panelists didn’t say the major U.S. tech players won’t succeed in financial services — merely that they won’t encounter the same type of wide open space that their Chinese counterparts encountered.

Fintech expansion
It seems like everyone is wondering when fintechs focused on one specific customer business will start to diversify and build customer relationships.

SoFi, an online lender that bought the neobank Zenbanx earlier this year and is now pursuing a bank charter, is the poster child for the rebundling of banking, but at the conference several others talked about how they are expanding their reach.

Kenneth Lin, CEO of Credit Karma, an aggregator that helps consumers find the right financial products, talked about his company’s expansion into tax preparation. In the most recent tax season — the company’s first — nearly 1 million people filed their taxes through the site.

Harit Talwar, head of digital finance at Goldman Sachs, discussed the investment bank’s digital-only consumer play, Marcus, which has originated $1 billion in loans since its inception and has taken in $5 billion of deposits since acquiring the online deposit platform of GE Capital Bank last year. The company is eyeing additional products that will ultimately provide better value for the customer, he said. He declined, however, to say exactly where the company is looking.

“It’s early days and we want to be deliberate,” Talwar said. “We are maniacally focused on customer experience and are looking at other areas where there are customer pain points.”

Acorns, the micro-investing and savings platform, is also looking at additional products. CEO Noah Kerner mentioned in a panel conversation on Tuesday that PayPal is an investor in the firm and hinted at a potential partnership with the payments firm.

Do you have $400?
A 2016 study by the Federal Reserve based on 2015 data was surprisingly prevalent at the conference, specifically one stat: that 46% of adults say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.

At least three panelists during the two-day conference mentioned this stat.

It speaks to a pervasive trend in fintech: trying to help people save. Or rather, since this is a fintech conference filled with venture capitalists, how to make money by helping people save money. Fintechs and banks have increasingly been looking at this space, but its revenue model is decidedly less sexy than, say, marketplace lending. Credit Karma, which reported $500 million of revenue in 2016, is one of the few companies to have figured it out, by charging lenders for referrals.

No standards, please, we’re blockchain
Blockchain is maturing, but perhaps not as quickly as others would want, and the last thing the nascent technology needs right now is standards.

That was the consensus (no pun intended) of Marley Gray of Microsoft, Joe Lubin of ConsenSys and Rumi Morales of CME Ventures.

“I hope [standards] don’t come together in the next two or three years. This is a vast solution space and it needs time to explore,” Lubin said. There “are certain pieces where it is great to standardize,” he said.

Gray said: “It is way too early to agree on standards, because this is going to change the DNA of how everyone does business. It is going to change business models.”

Morales touted the merits of what CME Ventures, the VC arm of the CME Group, has done: be everywhere. She ran through a laundry list of all the places where her group is invested or involved, from the Enterprise Ethereum Alliance to Digital Asset Holdings.

The urge to standardize is tied to the overall impatience to see if blockchain can live up to its hype.

“People have moved to pulling out their eyelashes because they’re done pulling out their hair,” Morales said.

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