Where Innovation Is, and Isn't, in Retail Banking
Great minds feed off each other. With this in mind, BTN asked Nos. 2, 3 and 4 Innovators to discuss what they're up to, and what they see as the most innovative areas of financial services these days. On the line were Aaron Patzer, founder of Mint.com; William Azaroff, director of Web Engagement & Banking at Vancity, Canada's largest credit union; and Jeff Carter, CEO of Azigo, a former Bank of America exec who helped found the Center for Future Banking at MIT's Media Lab. Excerpts are below - read the full interview at www.banktechnews.co
BTN: What's the coolest or most innovative thing you're working on right now?
William Azaroff: For me, its bringing enterprise 2.0, and all the learnings we've had externally, into the organization. It's really the opportunity to change the culture.
BTN: What about you Jeff, what's cool in your world?
Jeff Carter: Since I left the bank I've been focused primarily on the identity space, and the most exciting thing that I'm working on is the work with Azigo. We're trying to create a capsule for what makes up a person's virtual identity-whether its online or mobile experience. Certainly that's very exciting, and all the underpinnings of commerce are going to connect through the underpinning of identity as we go forward. I think the second thing I'm doing that's of a lot of interest is working with [Global Rainmakers International] and they have some iris scan technology that can view an iris from many feet away, and read 100 irises a minute through a doorway, very much like Minority Report (the futuristic Tom Cruise film).
BTN: We've been talking about these for a long time, why now?
JC: Certainly we've been talking about it but we really haven't seen any evidence of it other than papers and keynotes and that type of stuff. Right now the technology prices have come down so far, the ability to mass produce is at such a level that a lot of this stuff can really become a reality.
Aaron Patzer: I want to make a comment. Both of you, from the banking side of things, it sounds like a lot of hype and [nonsense] to me and it doesn't sound like you guys are particularly consumer centric, so that's what really bothers me about the banking industry.
AP: One of the coolest things we're working on that is consumer facing, and is not inherently social because I don't think that banking, or personal finance, are particularly social....The one thing we are working on that is not so much social networking but uses the power of a lot of people using the system is around aggregate data. We have at Mint and at Quicken millions of customers with credit card and debit card transactions coming in on a nightly basis, and we have some really accurate categorization technologies. Now those technologies use cross correlate transactions with the US Yellow Pages. And they also use some social learning, so if one people or 10 people categorize a transaction as something, it'll use that learning going forward with that categorization.
What that means is we can infer for just about any major merchant, and for most merchants in cities, what people spend at any gym, or barbershop, or restaurant are empirically, we can tell what the prices people are paying. So that's one thing we'll be doing in the future, working with Google on that, incorporating that into Google maps.
BTN: Who is the customer for that data?
AP: Every end consumer who wants to look up a merchant and see what people actually pay there. The other thing you can do with that kind of aggregate data is you can hold the banks accountable. So I intend to publish a list based on empirical Mint data on which banks charge the most fees, the most ATM fees, most account fees, based not on what they self publish but based on what people are actually paying at those banks.
BTN: Is that a conflict given your new ties to Digital Insight?
AP: Yeah, I get where you're coming from on that. Not particularly because Digital Insight services small banks and credit unions who I think do a good job with their customers. Who I am typically against, if you want to call it that, would be larger banks who I think don't pay good interest rates to their consumers, charge a lot of fees. ...[Many of these are heavily into] branch banking, banks with a lot of branches. I think branch banking is dead and will go away within 20-30 years. You really only need that with considered purchases like mortgages where you need to talk to a specialist, or if you're a small business. You don't need them as a consumer, so I think that goes away over time.
BTN: William, Jeff, do you agree branch banking's dead?
WA: Yeah, well, 20-30 years is a long time horizon, so I think anybody's ability to predict that far into the future [is debatable]. Branch banking for us as a community based organization can play a different role. Clearly the need that people have when they go into a branch is a different now than it was five years ago, maybe not dramatically, but certainly [different than 10 years ago]. I think [needs] will change, but that puts the onus on us to really stay with where our consumers are, where our members are, and giving them branching they want.
Jeff Carter: I think that there's a lot of different issues here we could go into [regarding legacy system inertia and the future of branch banking]. The first is the banks, and I'm talking about the big five, have such a fragile infrastructure, so that legacy systems within banking have reached such a point of unmaintabability. Many of the systems are too large, not integrated, and they create continuous information flows around them, and the infrastructure which probably needs to be replaced. But there's just no straightforward solution that exists today for doing this without disruption and risk, especially given the scale of the mega banking systems.
There's just a general information overload as the banking industry consolidates and simultaneously expands its reach into the lives of its customers and merchant businesses. It's simply beyond the reach and capacity of most traditional banking systems to extract any kind of value from that. And so this lack of reliable analytics and value indicators on the financial health of the company, the customers, and the market that they're transacting in, is just evidence of an inability of any of them or us to deal with this volume of data collected.
On the branch banking question, we had different opinions on what would the timing be. What we're dealing with is simply an archaic business model, the branch model of banking is a remnant of traditional banking and it could be and will likely be impacted by competitive threats. A lack of change in the basic branch format speaks volumes on the inability to create innovation from within the industry and an inability to drive that innovation into this model. The typical branch provides a lot of paper based services, check cashing, cash handling, in a face-to-face venue but the fact of the matter is that 70 percent of the activities [in a branch] are transactional based and not selling based. Continuing existence of paper forms, signature cards, and other traditional forms that banks have to deal with gives a considerable edge to a lot of the cutting edge, paperless industries that are becoming more and more a part of people's lives every day.
BTN: Any pockets of innovation within the industry?
JC: There's lot of different pockets of interesting things going on. I think the most interesting innovations are the ones we haven't seen yet. Within pockets of the large banks, and certainly the disruptors that are out there like the Mints or Retirehub.com, Micronotes, others have a lot to bring to the game. I think that folks in the banking industry aren't quite sure what to make of it or how to respond, whether its to acquire them outright or to try to make a competing product. ...I think what we're going to see in the very near future will be partnerships between companies that "don't get it" and those that "do get it" that will create a lot of disruptions. So if you could imagine one of the top 5 major banks doing a partnership with Paypal, or doing a partnership with Facebook for instance....I think its going to be not so much innovation coming from within the banks but a combination of the large platforms that exist and that brand combined with these new technologies that can be very pervasive.
AP: I think in general banks need to recognize that they're not going to be the best at every type of account, they should pick one, and say pay great interest rates on their deposits or have really low interest rates on their loans and differentiate themselves that way rather than trying to do everything for everyone.
BTN: You wouldn't be the only one of late to argue that the financial supermarket model doesn't work!
WA: You asked what's hype and what's working. I think everyone is looking for this magical bullet....I think that a lot of this goes back to the fundamentals of which the industry is built. I don't think there's a real desire to want to listen to customers or to understand what they need. ...As we go forward, I think the people that truly want to hear from the people that they serve every day, that want to listen to them, that want to take the good with the bad and try to make it better from there, will have a much better chance in the long run of achieving success.