Innovation checklist for banks stuck in a rut

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Worried that you work for (or run) a stodgy bank, burdened by legacy technology, bureaucracy and an uninvolved board?

It's easy to feel stuck, but innovators who have been there in one way or another shared tips at the Digital Banking 2018 conference last week about how to get off the dime. Chief among them were: being more willing to experiment, seeking out partners and rethinking cost-cutting. Moreover, small banks should see their size as an asset and not use it as an excuse, they said.

Here is an overview of their insights.

Give users what they want. Iqram Magdon Ismail, a founder of Venmo, said that early on his company would let people send $3,000 to $5,000 to each other for rent and such. Venmo sometimes got burned when users lacked enough money in their accounts, but they were very appreciative.

"Give users what they want — never sacrifice that, even if you're in a situation where you may have to spend a little more," he said. "In the long run, it's really worth it. That and making social payments a thing are the reasons Venmo became popular."

Don't seek perfection. "It's unlikely you'll get perfect product out the first time," Ismail said. "People take years to launch something because they're so scared of it not being perfect. But here's the thing: The only way to make something perfect is to put it in someone's hands, watch them use it, get their feedback, then go back, iterate and put it in that same person's hands. Eventually, you're going to arrive at something that satisfies lots of people."

Forget the competition. Asked how he looked at potential competitors when he and Andrew Kortina were building Venmo, Ismail said it was not a concern. Instead, they chose to concentrate on the task at hand and put aside worries about what others were doing or past stumbles.

"We were so in the zone, we weren't paying attention to any competition," he said. "Someone would mention it, but I would forget about it immediately and go back to what we were working on. In the course of my life, I've found that harder and harder to do as I've gained more experience. Sometimes I think, how can I forget all the experience I've gained and just get back to that point where you're just in the zone, nothing will stop you."

Care about innovation. "Startups get innovation," said Dan Kimerling, a founder of the venture capital firm Deciens Capital and before that Standard Treasury, a fintech startup that provided application programming interfaces for banks. "They struggle to get distribution. Incumbents are the opposite. They're all about distribution advantage, and they're never about innovation. So the race, if there is one, is about how quickly startups can get distribution versus how quickly incumbents can innovate."

Startups are more driven, according to Kimerling.

"To run a startup is to chew glass and learn to like the taste of your own blood," he said.

Think about what can go right, rather than only about mitigating risk. "The mental model of risk managers in banks is they are all about protecting their downside [risk of] what can go wrong," Kimerling said. "They're not generally motivated by what can go right or what's the opportunity cost of doing nothing."

This is also a problem with regulators who are inclined to focus on the downside.

"In the U.S., bank regulators don't hold bank stock," Kimerling pointed out. "All regulators should be required to hold bank stocks and have skin in the game."

Sam Maule, a consultant at 11:FS, gave a parallel example. When he was in the Navy, after a submarine went down, a quality control requirement was put in place: Contractors had to put their names in a hat, and 10 of them had to go out to sea to the disaster scene.

"Amazingly, they never lost a boat after that," he said.

If your bank is small, find a partner. "Quicken spent $100 million building Rocket Mortgage," Kimerling said. "If any community bank wants to compete with Quicken Mortgage, they shouldn't build their own homegrown mortgage originations platform. They should partner with a startup that has built this; there are several."

Learn to make decisions. Maule described meeting with the CEO of a large bank and asking how his firm could help the bank. The CEO kept staring out the window and sighing.

"He finally looked at us and said, 'Help us overcome inertia,' " Maule said. " 'We're very good at creating presentations and doing studies and talking about what we're going to do. We cannot make a decision to save our lives.' A week later, he left."

Kimerling pointed out that large banks have diffuse decision-making authority.

"Small banks have an advantage they don't fully realize," he said. "The CEO of a large bank has three years before he retires. Middle managers are incentivized by what's happening this quarter, this year. The shareholders of the corporation who should care about the long-term valuation of the company have different incentives than the people actually meeting them."

Focus on building relationships, not cutting costs, through technology.

After the recession, banks took a cost-cutting approach to technology, said Rilla Delorier, the chief strategy officer at Umpqua Bank.

"Because we were so focused on expense, survival, hunkering down, reducing [full-time-equivalent jobs], and taking labor out of the process, I think we saw digital as much more of an efficiency play, versus seeing it as an opportunity to build real relationships in a different way," she said.

Umpqua has been going through what the bank calls Transformation 2.0 — using technology to bring the bank closer to customers.

It created an innovation hub in Palo Alto, Calif., and formed a technology subsidiary called Pivotus.

Pivotus developed technology that was originally called BFF that lets customers choose a banker, "kind of like Tinder," Delorier said.

That banker takes all the customer's questions and solves their problems, mostly through chat. This has led to conversations and relationships, Delorier said.

"Compliance people love this because [conversations are] all retained," she said. "Our data people love it because you can crawl through the conversations and pick out great information. Agents love it because they build relationships with customers and they're not sitting in a store waiting for someone to walk in. They have a book of business, and they are incented to grow that book of business. And customers feel like they have a personal concierge, like a private banker."

The name BFF is being chucked, however.

"That was a bad decision," Delorier said. "We are not targeting millennials, we're targeting people like me who have crazy, complicated lives, enough money but not enough to make bad decisions. We'll be renaming it to something people my age don't mind saying."

In a similar vein but very different execution, Chris Cox, chief digital officer at USAA, discussed the bank's efforts to "humanize digital."

"We know we need to be exceptional at managing conversations with members in an intelligent way," he said. "We also know we need to be embedded, which means to us, showing up in a contextually appropriate way in digital experiences we don't manage."

Showing up in a real estate site like Zillow would be an example.

USAA also works on making digital interactions as helpful as the bank's contact center reps, by understanding context, detecting the member's emotion and delivering empathy.

"That is not a destination, it is a perpetual journey that never ends, that we'll never be done with," Cox said. "It's predicated on our ability to leverage what we know about our members to serve them better, to be a good broker of information we have on them and render an experience that's unique to that member. That requires us to be really good at machine learning and artificial intelligence."

USAA has a virtual agent called EVA that can answer 4,000 questions.

"We're working now to increase the intelligence of that to manage a conversation beyond a call and response, and take a first question a member asked and correlate it to the fifth and sixth question," Cox said. Member usage has grown 30% over the last 12 months.

Editor at Large Penny Crosman welcomes feedback at

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Digital banking Community banking Rilla Delorier Umpqua Bank USAA Venmo