FutureBanker: Can Wells Fargo drive the smart card revolution?
Nigg: Visionaries call this a brave new world; we believe the brave new world will work best when more people adopt it. We alone cannot drive the revolution; we can certainly influence it, and I know we are. So if the revolution is going to happen-and it's in our interest as a company for it to happen-then it's going to happen because a group of influential banks adopted (it) to move forward.
FB: How are a growing number of alliances changing the rules of the financial services game?
Nigg: It's called coopetition, and it's a great name because coopetition is the nature of the future game. Historically, banks were able to act as islands in their own worlds; other banks were their competition and while consortia did exist-witness Visa and Mastercard-it was less the order of the day and more focused on how we compete with each other. The realities are that, as we move down a rapid technological path, a lot of the initiatives that need to take place require a lot more cooperation.
I'll give you two perfect examples, right now at the very top of the heap: One is bill presentment, which I believe can only be executed by a cohesive industry approach, and the other is smart cards, where if we try and create 37 different versions of smart cards, we simply won't get the business off the ground and we'll lose a wonderful opportunity. And the risk we run is that some other industry will capture the market. Banks have all the advantages on their side: We have consumers as customers, businesses as customers-so we have both ends of the transaction, we just need to create the infrastructure. And, in the case of smart cards, we are massive deployers of cards today. So we already have a vested interest in cards; it's a logical extension to make to the smart card.
Let's say that we all agree that smart cards are the logical way for customers to initiate and identify themselves for on-line interfaces. So your Internet access in the future will be initiated out of a smart card because of security reasons. And let's say that Hewlett-Packard, Microsoft and others all believe that-and I believe they do. Now, somewhere along the line, they're going to build the infrastructure to do all of this, but they need a card out there that's going to do that. Now, I believe today that they are perfectly willing for the banks to take a lead in that process, to initiate the issue of cards and the process of verification. But if the banks do not do that within a reasonable period of time, they will have to do it themselves because they really need that capability for the next generation of electronic commerce. And they have a vested interest in that as great as anyone else's.
FB: How can you make a business case for smart cards to senior management when none exists?
Nigg: The banking industry has traditionally been an industry where there (are) trendsetters and then people follow. They tend to look at what's hot and look in that direction. If you look at what we've tried to do by creating Mondex USA, having Chase, First Chicago NBD, Discover NOVUS and those kind of people join, these are the kind of people that other banks are going to look at and say, 'I can't really afford not to play. I may not want to play Mondex, but I can't afford not to play in this area at some point.' And so, that's how you do it. You build a series of people who are willing to join with you in getting things going. And you have to take leadership role, but once you've done that, there's enough early adopters who are equally committed that pretty soon you're building critical mass in this process.
The other thing that is a challenge is convincing management in large institutions that indeed investing in and focusing on technology is a valuable shareholder option. Now, there again, the world is changing. Analysts believe that technology is going to be a very important element to the future of banking. So it would be natural-and is natural-for bank management to increasingly feel that way too if you pay attention to your analysts-which is clearly what you do.
FB: But aren't there very few players who can execute such strategy?
Nigg: The banking industry is going to bifurcate; there are going to be a few large players who are successful at deploying technology and being major players in this environment that we're talking about. And there is going to be a group of niche players-some of whom will be large, many of whom will be small-who cater to niche markets. We are going to see this bifurcation of the industry. The reality is that, in the brave new world, you don't need a massive number of banks for the technology strategy because the very nature of the technology strategy means that (the institutions have) at least regional and probably national-maybe even global-(reach). So the tendency would be for only a few players to make it through this process; from Wells Fargo's point of view, that's nothing but good news because what ends up is that there is a limited number of banks. We expect to be one of them because we are right there, and we're players- and if there (are) not many others, that's great because while competition still survives, it is at least a more rational, clearly focused competition.
FB: Can other banks join Wells Fargo, Chase, First Chicago NBD and Michigan National as investors in Mondex USA?
Nigg: We are open to and are encouraging other large institutions to think about whether they want to participate. So we have not closed off the list or anything like that. By the way, we have always said that this is an open system anyway. There are two different groups of people; one is investors, and we are still willing to consider other investors. And then there are licensees, and that's totally open. We expect to be an absolutely open system. Any financial institution who wants to be a licensee we will look on very, very positively.
FB: Some people argue that Visa and MasterCard could bring greater value to this industry than they are currently. Do you agree?
Nigg: That's probably true and they probably are interested in doing that. We should not underestimate their ability to help out here. This is right up their (alley). Can they play a broader role? Yes, they could, but does the industry need them to? That's an interesting question. The industry certainly needs them to play an important role, but the industry also has to look to itself for some things that it needs to do.
FB: What are you looking for in potential Mondex USA licensees?
Nigg: I would like banks to really be interested in and thinking about how they can get involved in smart cards, particularly Mondex. The first priority is that banks embrace the concept of smart cards and see its potential. Then, once they've done that, we think they will naturally gravitate to Mondex as being the superior technology. But really the first thing is that banks start understanding and believing that the smart card revolution is almost here.
FB: How far is the industry from embracing that concept?
Nigg: A long way; that would be my take. The risk is that they're five years away, which is too long. So my view is that, within the next 24 months, the industry needs to get this and understand it.
FB: So how do they get it?
Nigg: By seeing their competitors potentially getting an advantage and needing to respond to that.
FB: Does it come back to making the business case for smart cards?
Nigg: It is a difficult business case. At the same time though- Wells is very committed to business cases as you know, very sharp-penciled in the way we look at things-at some point you have to think strategically. The environment we call electronic commerce is a tremendously attractive one for the banking industry and, if you do the business case for electronic commerce, it actually, over time, looks very attractive. So the question is, are you going to do a smart card business case or an electronic commerce business case. I would argue that you have to look at smart cards in the context of electronic commerce.
FB: What you're really talking about is developing market potential, isn't it?
Nigg: Absolutely. (I)f you look at any industry that has gone through a profound changes that have been initiated by technology or changing behavior patterns, then what happens is there's a disconnect. And there are some companies that make that transition to disconnect- Microsoft or whatever-and there are some companies that will not make that transition. That's the beauty of this whole process from my perspective. We are in the middle of a period of some profound changes in the nature of our business. (A)nd there are surely people out there who simply do not believe that there's a profound change going on here. But there is a profound change; it's driven by two very important things. One is change in technology but I think that the more important one is the customers' reaction to that change in technology. That's much more profound. So here's what I think: Traditionally, the majority of customers would have regarded the preferred performance of banks to be what they would term personal service, which historically meant face-to-face. Today, the majority of our customers regard convenience as far more important than that.
I don't see how you can begin to invest in and commit your company to these things unless you truly believe (these profound changes). We're all agreed that it's profound change then why continue to run the big steel mill?