Large, Risk-Averse Financial Companies Can Still Innovate
Following the resignation of CEO Lazaro Campos, SWIFT quickly sought to provide assurance that its broad plan to expand into new markets, tap new technology and create collaborative venues for members to better understand standards would not be interrupted.
The industry is like a 1920s Hollywood actor who does not understand the new technology, has not seen it coming and doesn't understand why the change is happening.
Some industries are all about innovation. Others, like banking, need to be, and desperately want to be, but have inbred obstacles to overcome.
So it was no surprise that 50-odd bankers applauded thunderously when Luis Solis said: "I'm not going to mention Apple, Google or Facebook as an example of what you should do in financial services."
It's ok to be uncool — you can still be innovative.
Solis, who runs the consulting firm imaginatik, sports a hipster's soul patch, but no question, he feels bankers' pain. Lecturing to them this month at the 45th-floor Times Square office of the Society for Worldwide Interbank Financial Telecommunication, Solis was encouraging, more than anything, while also cognizant of the difficulties bankers face when contemplating the development of new products.
And those difficulties are legion: management is focused on quarterly earnings; marketing departments are focus-group myopic, relying on untimely snapshots of customer preferences in a Twitter-fast world; employees are rewarded for avoiding risk (except, perhaps, on certain trading floors), just to name some.
But Solis, whose firm provides "innovation management" services to large companies including Capital One (COF), says there are ways for such mature businesses to become disruptors without disrupting their own vital operations.
The most important thing, he says, is that financial institutions should check their risk tolerance — managers should ask "to what extent can I fail and it's okay?" (He quickly clarified that he was not referring to activities that can bust a firm, like rogue trading.)
"If you don't fail, you'll become the best typewriter company in the world."
An innovation-minded company should create "a measurable, sustainable, intentional process" for incubating new ideas, and start a portfolio of different projects, Solis said. It must dedicate resources to these endeavors — not just money but people and their time.
This does not mean funding ideas willy-nilly. Innovation goes well beyond doing "cool stuff," Solis said. It is about "more than being clever." There must be a business purpose, a valid reason to bring something to market. Innovation, he said, is best defined as "putting ideas into valuable action."
The subtext of Solis' presentation was that Swift, the organization that hired him to speak, is doing all the right things, through an initiative called Innotribe. Solis in fact was followed by Kosta Peric, a 22-year veteran of Swift who founded that effort.
Peric, an affable man with salt-and-pepper hair and a cherubic smile, had worked in every part of Swift except human resources when, five years ago, he was appointed the organization's first head of innovation, a title that would appear to carry terrifyingly high expectations.
He told the audience members that there are probably potential "intrapreneurs" working in their companies. "Contrary to what you may think, they're not extroverts. They tend to be a little shy." Companies need to "fetch them, push them to come forward with their ideas."
Peric likened a longstanding business to a castle — the people working inside are interested in preserving and optimizing what they have, and the more disruptive an idea is, the less likely they are to welcome it. This hesitancy is understandable and appropriate, he said — at Swift, which transmits 18 million messages around the world a day on average, "failure is not an option" is the mantra.
So an innovation-minded company should build a figurative "sandbox" outside the castle. The sandbox gets physical space, phones, coaching and resources from the company. Failure in the sandbox can be tolerated, because the amount of money at risk is limited and the corporate reputation can be preserved.
"There is a way to innovate, even in risk-averse companies," Peric said. (The sandbox approach has been used elsewhere in banking; the Australian unit of ING Direct, for example, creates virtual replicas of its core system to allow teams of developers to simultaneously develop new software without involving the infrastructure of the business.)
Swift is trying to lead by example. Although Innotribe's main activity is organizing innovation-themed events ("for people to collaborate, they have to meet," Peric said) and startup competitions, the team does a bit of sandbox-style incubation within Swift.
The first fruit of those labors is MyStandards, a collaborative web platform for bankers who use the international consortium's system to send payment instructions. Marc Delbaere, Swift's lanky, bespectacled head of research and development for standards (a poster boy for Peric's "intrapreneurs"), conceived the service and shepherded it to realization, with input from Swift customers including JPMorgan Chase (JPM), Citigroup (NYSE: C) and Bank of New York Mellon (BK). Representatives from JPMorgan and Citi were in the audience, along with those from other financial giants, such as BlackRock (BLK) and Credit Suisse (CS).
The "My" in the name suggests social media, and when I met Peric in March, when the project was still under development, he described it as a sort of Facebook for Swift users. But a more appropriate analogy might be Wikipedia (which one of those users compared it to at the launch event where Solis and Peric spoke).
The free version of MyStandards catalogues the myriad standards for sending messages on the Swift system. Standards are the language of code words and protocols that Swift has been developing since its inception in the 1970s. They are designed to remove any ambiguity that would delay processing of payment instructions.
To use a simple illustration, dates in Swift are expressed in the "YYMMDD" format. In a stop check order, for instance, there is no doubt that "081211" means "the check was written on December 11, 2008." No need to call your counterpart at the other bank to make sure it wasn't actually written on August 12, 2011.
There are thousands of standards, though, and they are frequently adapted to suit the market practices or regulations of different countries and regions. Instead of fumbling through various handbooks, emails, pdfs, and spreadsheets to look up these arcane rules — "I can't find anything at work," a banker at the Swift event said; another confessed to lugging around an annual release guide in his briefcase — anyone can now easily browse them on the public site.
Of course, even a nonprofit cooperative like Swift has to pay the bills. The organization is looking to generate some revenue by selling a premium version of MyStandards. For an annual fee, the service helps users analyze how changes to the protocols will affect their businesses, and manage the process of adaptation (which is a bigger deal than it may sound like; Swift updates its standards every year, and it's an expensive undertaking for back offices, which need to reprogram their computer systems each time).
The paid version also lets banks and other Swift members upload their own adapted versions of the standards, and to post comments. Beyond subscription fees, Swift says these collaborative features hold the most promise, since they give users the opportunity to share and compare practices around standards, potentially giving rise to further innovation.
While not quite the iPad, the service meets Luis Solis' test of usefulness. It won't change the face of banking, but MyStandards could unclog a few arteries.