A new era of financial services

In the wake of 2020, global economies are navigating an era of uncharted digitization amidst challenges from climate change to social injustice to distrust in public institutions. There’s no question that we are living through transformative times and as the world moves forward, it’s critical to understand the various shifts taking place—in culture, public health, individual psychology and the global economy. To succeed, businesses can’t continue with their prepandemic ways of thinking. Vanessa Colella, Citigroup’s chief innovation officer, shares the key trends she’s watching and how they will inform the ways financial institutions should be rethinking their approach to innovation if they’re going to lead long-term.

Transcription:
00:00:10:14 - 00:00:26:13
Vanessa Collela

Good morning. Thank you so much for having me. It's always great to do things with American Banker. I know it's such a great resource for all of us. And I'm excited to be here this morning to talk with all of you about what I think we're going to look back on and realize this is a new era in financial services.

00:00:26:13 - 00:00:53:10
Vanessa Collela

So by way of introduction, I'm Vanessa Colella. I'm the chief innovation officer at Citi. And and I'm really excited about not only what we're facing in the banking industry, but how the banking industry is likely to shift over time across all industries. So if you flip to the next slide, just very briefly. When I think about what's our responsibility in banking, in particular as chief innovation officer, what do I think about?

00:00:53:27 - 00:01:18:23
Vanessa Collela

I really focus on, What can we do to accelerate innovation and growth? And I think we've all realized that that's not only about looking inward, but also about looking outward and understanding what's happening and not just in the fintech space — that's clearly important — but in other industries and what changes are going on and how we can bring some of those things into our industry in order to effect positive change.

00:01:19:11 - 00:01:41:16
Vanessa Collela

And if you flip the next slide, just a couple of principles that I think are important. One, through all of this, taking a very outside-in perspective, making sure that we're all thinking about ways that we can bring signals from outside of our industry, outside of our companies in to affect what we're doing.

00:01:41:17 - 00:02:02:02
Vanessa Collela

We'll talk quite a bit about that this morning. The second, I think it's critical. In banking, we often focus quite a bit on what products and services we're providing to our clients. But in a world that's changing so quickly, we're taking a product- or business-agnostic view and pulling things together across different areas.

00:02:02:02 - 00:02:27:13
Vanessa Collela

The bank can be really fruitful in terms of this new era of finance. Third, we tend to focus quite a lot on an experimental view. I sometimes think about this as, there's theoretical physics and there's applied physics. And I think in a world that moves so quickly, being able to apply things and then see and sense how they work in the world is a really good way to stay ahead of what's happening in the world.

00:02:28:07 - 00:02:55:13
Vanessa Collela

And then lastly, we'll get to this and hopefully at the end will be able to take a couple of your questions as well. The challenges and the opportunities that we face globally are really no longer challenges that are going to be faced by a single corporation or a single government or a single academic institution. They're going to require partnerships and collaboration across players that have not necessarily historically been able to pull that together.

00:02:55:13 - 00:03:18:22
Vanessa Collela

And so I think that's something that's important as we think about the complexity of what we're all facing. But you flip to the next slide. So what are we facing? Before COVID, when I give talks and we focus a lot on the fact that it wasn't just about technological change, I mean, obviously technological change is super important and it underpins a lot of what's going on in the world.

00:03:19:11 - 00:03:49:04
Vanessa Collela

But as a society, we tend to focus a lot on the tech itself. What we've all learned over the last 21-22 months is it's not just about when the tech changes, right? Zoom, by the way, was here pre-COVID. And those of us who were privileged enough to be able to continue to work from our home offices and work virtually certainly changed our behavior very quickly.

00:03:49:18 - 00:04:15:01
Vanessa Collela

And then finally, we look at structural change: what's happening in society, what's happening in industries. And a lot of what we'll talk about this morning is really at the intersection of these three — where there's a change in technology, a subsequent change in behavior, and then some structural change that goes along with it, because the reality is if the technology is around, but people, our clients, our employees, aren't using it.

00:04:15:08 - 00:04:42:02
Vanessa Collela

It's not really driving change in the business world. It might be very interesting, but it's really when these three come together that I think is important. If you look at the next slide, there's there's been nothing like it, obviously, in any of our lifetimes. But, you know, last year was the time that it became obvious to all of us that these three things go together, that that all and clearly at a pace that none of us were ever expecting.

00:04:42:20 - 00:05:11:17
Vanessa Collela

But if you flip to the next slide, I think what was also interesting about that is it's not just that things are changing. It's that we've had this realization that everything is much more interconnected than what we thought — or maybe I should say how we behaved. Obviously, our lives were all interconnected pre-COVID, but pre-COVID, we would have all been in an auditorium and you wouldn't have been seen by house behind me.

00:05:12:20 - 00:05:40:02
Vanessa Collela

And so we've all gotten a sense of one another and how our personal lives are layered and how those layers came together. But also, I think we've gotten a much clearer sense of how change in the world is interconnected, how, social change and social justice is is inextricably linked with with health and finance, etc. And I think this presents both amazing opportunities for our industry.

00:05:40:16 - 00:06:03:26
Vanessa Collela

And also I would posit some challenges for an industry that has thought of itself in a particular swim lane where there's certain things that we do and certain things we don't do. And as the world becomes ever more interconnected, I think it will give us an opportunity to widen our own aperture and to think differently about how we might serve clients and in a post-COVID world.

00:06:05:13 - 00:06:30:20
Vanessa Collela

So if you flip to the next slide, where I want to talk about this morning is not just trends, but what's going on, that that has changed finance and and things have changed quite a bit. If you just sort of step back and think in the past year, $5 trillion of new wealth created, we've now got crypto assets worth well over $3 trillion, up from nothing 10 years ago.

00:06:31:19 - 00:06:57:16
Vanessa Collela

And even more specific things like a creator economy that was worth $143 billion last year. That's sort of brand-new wealth creation. In our industry we sometimes talk a lot about things like wealth transfer, but ... people are creating things from out of the blue — from scratch if you will.

00:06:58:02 - 00:07:24:10
Vanessa Collela

This century really began in 2020, because the pace of change and the pace of change for our industry has been so dramatic. So if you go to the next slide. When people ask me, "Things are changing so quickly, how do you stay on top of all of it?"

00:07:24:11 - 00:07:49:11
Vanessa Collela

First of all, I think it's fair to say that none of us are able to stay on top of absolutely every trend. It would be a full-time job and you have to have a massive ability to take in information. But I do think that there is a way to pull signals out of the noise, and I'll tell you how we do it at Citi.

00:07:50:06 - 00:08:19:22
Vanessa Collela

We try and pay attention to the things that you're hearing about from lots of different corners of your life. I mentioned before how our lives have all sort of those layers of collapsed. Think about what are the topics that not only we talk about at work, but your teenagers come home and tell you about or your parents are asking about or an old friend is talking to you about or you hear on a podcast. And so every year we spend quite a bit of time.

00:08:19:28 - 00:08:42:05
Vanessa Collela

In fact, we're going through it right now for next year, thinking about what are those trends that we think are going to be both accelerating and irreversible. And for me, at least, it's when I start to hear about this, not just from my investors, but also from people in academia, from our clients, our government clients.

00:08:42:28 - 00:09:00:23
Vanessa Collela

That's when I think these signals really start to emerge. So I'm going to do this morning is take us through a really quick span of some of the things that we've been watching that we think will usher in a new era of financial services. And then, as I mentioned, if we do have a few moments at the end, happy to take questions from the audience.

00:09:01:14 - 00:09:30:27
Vanessa Collela

So first and the next slide. No, no, no discussion about a new era in financial services would be complete without talking about crypto on day five. But I want us all to just step back and think about how quickly this change has happened. And I was put that in perspective by realizing if I had been smart enough in 2010 to invest $100 in cryptocurrency at that point in Bitcoin this spring, it would have been worth $50 million.

00:09:31:23 - 00:10:05:23
Vanessa Collela

Think about that like that. That is an astonishing rate of change. This year Etherium is moving $700 billion a month. $700 billion a month. To put that in context, that's more than TransferWise, Revolut, Venmo, PayPal combined. So you start to sort of see that again. It's not just the technology of the blockchain. It's how people's behaviors change and how we think about the structure of money movement.

00:10:06:09 - 00:10:28:10
Vanessa Collela

And obviously, there are many, many things in the crypto world that are yet to be determined. We know that regulators are carefully looking at what's going to be allowed, what's not going to be allowed. We know many of your institutions are no doubt exploring where are the places that this can be a benefit to the industry.

00:10:28:15 - 00:10:50:18
Vanessa Collela

How is it going to potentially change the structure of the industry? But either way, I think we can all agree, whilst we'rea decade in, we're still in very early days. And as we think about financial services moving forward, there's no doubt that decentralized finance and cryptocurrencies will be a part of this in some way, shape or form.

00:10:51:04 - 00:11:15:00
Vanessa Collela

And I think probably just like the internet, those of us who are old enough to remember the very beginning when when emails were only within your own institution and you could only get to a site if you already knew the address, probably none of us could have imagined or very few of us could have imagined how we're able to use that technology today.

00:11:15:06 - 00:11:34:26
Vanessa Collela

I think the same will be true around decentralized finance. And so something that I think is important for all of us, not just to look at and study, but really, as we talked before about that kind of practical application, how do you get in and roll up your sleeves and really really start to explore what might be possible?

00:11:36:06 - 00:12:16:28
Vanessa Collela

Second is maybe a little more down to earth. And the next page, that's what we've been calling at Citi for a while, embedded trade. And so better trade is this notion that we've all gotten used to in our regular lives where doing something and paying for something comes together. So a super-simple example: I want to take an Uber from point A to point B. I no longer have to think about getting myself in the car, going to where I'm going, and then taking out my wallet, paying the driver and getting out of the car, because the act of ordering the car moving and paying for the car have sort of seamlessly been

00:12:16:28 - 00:12:40:12
Vanessa Collela

put together. Well, embedded trade is the notion of what if we could do that for trade around the world? Many of you already know there's a $1.5 trillion gap between the goods that are being shipped, albeit slowly, right now, but shipped around the world and the financing. And why does that matter? Things have been going on like this for four decades.

00:12:41:01 - 00:13:03:26
Vanessa Collela

It matters because we've all understood now that it's not just about the speed of the supply chain. It's about the resiliency of the supply chain. How do we ensure that the supply chain is resilient all the way through? And then when you go back to that $1.5 trillion gap, it's not the large suppliers that are having trouble getting liquidity.

00:13:04:07 - 00:13:30:03
Vanessa Collela

It's the long tail. It's the small suppliers in all of the markets around the world that make up that gap. And if we could start pulling together the logistics of trade and the financing of trade and close that gap, what we do is we breathe oxygen into all of those small suppliers, which are the bedrock of the economies in which they operate.

00:13:30:18 - 00:13:59:22
Vanessa Collela

And so when we think about embedded trade, all the different ways we can help inject liquidity deep into the supply chain, I think will change not only opportunities for how to embed the financial services themselves in the supply chain, but frankly, how financial services institutions can help economies grow by giving more liquidity, giving more opportunity to that long tail of suppliers around the world.

00:14:00:19 - 00:14:23:14
Vanessa Collela

And if we go on very related to trade, it would be incomplete on the next slide to talk about the next era of financial services without reference in payments. We started looking at payments like all of you many, many years ago and had the realization that banks think about payments as big, chunky things.

00:14:23:27 - 00:14:44:06
Vanessa Collela

When you need to move a big amount of money, you come to a trusted source like a bank, and the bank helps you get, you know, $12 million from here to there. Well, over the years we used to call this rocks to water, from big to small, where it's no longer the large payment that has to be made.

00:14:44:18 - 00:15:14:02
Vanessa Collela

We think about payments much more as an instantaneous flow rate; payments have become so seamless, they've become so easy, that people don't wait to make a big payment. I always think about this like sort of the last era of banking, when we all used to have to go to the bank to deposit our checks. You would never go to the bank to deposit a check that was worth a dollar, because it wouldn't have been worth all the time and hassle for you to walk over.

00:15:14:02 - 00:15:37:29
Vanessa Collela

You'd wait until you had four or five checks and then you would go off payments. But the change in payments that we've seen so far, again, I think is going to look like the very beginning. Right over the next two years, we're projected to see $7 trillion more move from cash to digital payments or credit cards.

00:15:38:22 - 00:16:08:00
Vanessa Collela

I was speaking with a colleague recently from China who reminded me that it wasn't that long ago that the Chinese government had to remind and merchants that cash was still legal tender in China. This is a radically different world, and certainly the pandemic, as it accelerated so many trends, has really accelerated the digital payment space. And you don't have to do anything other than listen to your favorite podcast or hop online in the morning to see how that change continues to evolve.

00:16:08:00 - 00:16:35:18
Vanessa Collela

With Amazon's new partnership with with Venmo, you're talking about not accepting Visa cards. There's a lot of movement in the space and we don't think it will stop anytime soon. And ... part of the reason it won't stop is actually that the landscape of who pays whom and how payments happen is really changing. And we think one of the reasons for that is what we call "the internet

00:16:35:18 - 00:17:01:22
Vanessa Collela

of things." Why is that changing the world of payments? Well, someone told me a while back that 127 devices get added to the internet every second. That number is probably no longer correct, but it's a massive number of devices. In fact, in a couple of years it's projected that there'll be 41.5 billion connected devices. And these devices are very different.

00:17:01:23 - 00:17:28:17
Vanessa Collela

They're very heterogeneous. You've got connected cars which we all think about a lot. You've got gas turbines. You've got insulin pumps. Just a completely heterogeneous set of devices. And what's interesting is that more and more these devices are starting to be able to not just communicate with one another, but transact with one another.

00:17:28:17 - 00:17:49:15
Vanessa Collela

One of our portfolio companies is one that authenticates vehicles for transactions. It sounds easy. I'm just going to drive my car. Well, I drive an electric car. But if you drive a gas car, you drive my car to the gas station and the car is going to pay for the gas by itself. But it turns out that you obviously then have to authenticate that car.

00:17:49:15 - 00:18:26:01
Vanessa Collela

So just like we all think about KYC, or know your customer, that we think in the thing-economy time, or your machine is going to be just as, if not more, important. Why more important? Because humans generally behave in a predictable way, but not always. And that's why as bankers, we can do a good job of finding outlier events, finding people who are trying to commit fraud, etc. But in general, humans behave in a predictable way, but machines don't.

00:18:26:01 - 00:18:47:20
Vanessa Collela

And if you go back several years now, you can get a great example of this. Some of you will remember the Amazon Dash button. Amazon made that button that you could hook up and say, I'm going to put this someplace so that I'll remember when I need something instead of having to go to my phone or go to my computer to order it. I can just order by pushing the button.

00:18:47:20 - 00:19:08:28
Vanessa Collela

And of course, you had to authenticate that Dash button. That was already clear that it was attached to your account. So where do these buttons go? You know, a lot of them went in the laundry room, because those of us are doing laundry all the time realize the only time you ever remember that you need laundry detergent is when you're standing in front of the washing machine and you realize, like, there isn't any left.

00:19:10:00 - 00:19:42:20
Vanessa Collela

So there were lots of dash buttons installed in laundry rooms. And soon parents of young children started coming home to mountains of laundry detergent, because if you're 3, what's more fun than going in the room and finding a new button to push? The Dash button was an example of the "thing" economy, where a human had already individually authenticated that button, said they were willing to pay that it was authorized and still the behavior of the button.

00:19:42:25 - 00:20:12:06
Vanessa Collela

Or in that case, the 3-year-old was unpredictable. As we get to truly connected economy, where you've got those 41.5 billion things transacting with one another, we're going to have to have radically new ways of thinking about authenticating those transactions. So another space as we look to this coming decade that will feel brand new.

00:20:12:06 - 00:20:40:19
Vanessa Collela

And then as I said, I'll be happy to take a few questions if we have time. And the next is, is the metaverse right by now? Since Facebook has renamed itself, we're all familiar with the metaverse. But I think this is really critical for for us in financial services to not just observe, but to be a part of it, because this is not just about another video game or another environment that people can exist in.

00:20:41:09 - 00:21:11:12
Vanessa Collela

This is a place where there have already been $54 billion spent on virtual things. So this is things like people spending $6,000 on a designer purse that only exists in the metaverse. That they're only carrying around with their avatar. And and you might if you're one of the sort of less-young versions of the audience today, I think well that seems wild and crazy.

00:21:11:12 - 00:21:34:07
Vanessa Collela

Why are people spending all of this money in in a world that is virtual? I would encourage all of us to step back and just say, we are moving into an era where we will will have many different layers and many different aspects of our lives. And and those aspects will be will be physical and in person.

00:21:34:19 - 00:22:03:24
Vanessa Collela

They will be person to person like we are this morning. But in a virtual setting. And they'll be virtual to virtual like in the metaverse. And I think the faster that, you know, financial services companies start inhabiting and being a part of this place that will not only have commerce, but will in many ways function as being as places where value gets exchanged, where people create value.

00:22:04:04 - 00:22:29:19
Vanessa Collela

We talked about the creator economy earlier this is a new opportunity when we talk about inclusion. But this is a whole incremental opportunity to bring people into a financially inclusive world. Much more to come here. Some of us started working on virtual or augmented reality as it used to be called 30 years ago.

00:22:29:19 - 00:22:54:20
Vanessa Collela

A lot of this technology has been around for a long time. But again, the last two years, we've seen that behavior change and that structural change in a way that I think is going to drive opportunity for us to think differently, maybe more expansively about how we serve our clients. The last two, I think, are quite important. The second to last one is ESG.

00:22:57:01 - 00:23:27:14
Vanessa Collela

I think before probably before a year and a half ago, most of us, unless you were involved with sort of the UN sustainability goals, most of us really thought about ESG as green. Yes, there were three letters to the acronym, but it was mostly about green and I think one of the silver linings of a absolutely horrific two years for the planet has been that everyone understands now that two things.

00:23:27:14 - 00:24:11:13
Vanessa Collela

One, that there's an S in ESG, the S is really important. What's happening from a social perspective? How do we we just spoke about inclusion. How do we make sure that what we're doing in the world is actually not only good for the environment and good for governance, but good for society as well? And then second, we used to think of this as purpose goes mainstream, but you've seen is that company is now and certainly coming out of COP26 where companies now are taking the lead in saying ESG can't be a nice-to-have, it has to be a must- have and therefore it has to be embedded in the way

00:24:11:13 - 00:24:36:00
Vanessa Collela

that we do business. And we're starting to see this already in the financial services sector. A third of, in the next two years, assets under management will be invested in ESG-related portfolios That's pretty astonishing: 33% of assets under management. And when you start to think about that, you can think about hundreds of new funds being created.

00:24:36:10 - 00:25:05:04
Vanessa Collela

High-90 percentages of people in younger generations are saying: "That's how I want to invest my money. I'm going to vote with my assets, with my dollars, not just with my heart, about where I think the world should go."

00:25:05:29 - 00:25:35:05
Vanessa Collela

We have an amazing opportunity. Many of you probably read as I do every year the Edelman Trust Barometer. This past year, corporations are trusted more than any other institution in the world. So 61% of people surveyed trust businesses. That's far more than the 53% of people surveyed who trust governments and more than the 51% of people who trust media.

00:25:35:09 - 00:26:11:00
Vanessa Collela

Well, one could look at that and be pessimistic. I look at that optimistically because I think it's an opportunity for all of us to take that trust and to really use it for good in the world. But to figure out how in this era of unprecedented change, we can get ahead of that change. We can pay attention to these trends and we can use that trust in order to build better stronger, safer institutions that can help our clients achieve whatever their dreams are in the world.

00:26:12:10 - 00:26:44:02
Vanessa Collela

If you flip to the next slide, I some of the that I've spoken to for now, I come from a background in biology, and so I can't help but think of the moment that we're in in financial services and in the world as a sort of like the Cambrian explosion 540 million years ago. All of a sudden there's just so much opportunity, whether you think about the massive amounts of money going into people who are passionate about changing the industry and the world.

00:26:44:19 - 00:27:16:20
Vanessa Collela

It's a moment when there's this tremendous opportunity for innovation, there's tremendous opportunity for inventing how we'd like the world to be for changing our role as banks in the world. And I think part of what's exciting for all of us is the opportunity to to participate in this explosion of new and ingenious ways to serve our clients. I'll just close on the next page and then take a question or two from the chat, if there are.

00:27:17:05 - 00:27:43:23
Vanessa Collela

I think I mentioned it before, but I just want to underscore that in all of this opportunity, I think the most important thing will be all of us widening our own aperture, right? Thinking broadly about who do we partner with, who do we want to collaborate, how do with how do we bring in academicians? How do we bring in governments, how do we bring in community groups?

00:27:44:03 - 00:28:15:14
Vanessa Collela

How do we bring in other banks and fintechs and think about, not this bit of market share, that bit of market share, but think more expansively about as we solve some of the challenges facing the world; we will be able to create new markets just like those creators built s $143 billion market out of code. We will be able to create new markets, create new opportunities for our industry and for our clients.

00:28:16:04 - 00:28:40:26
Vanessa Collela

And for that, I think we all ought to enjoy what will be a new era in our industry. So now we have a couple of minutes. I know there's a there's a way to add questions to the chat. So, I mean, if you have them, please do. I'll try and hit one or two. First question says, Can you put a timeline to aspects of the future you describe, etc., once more machine-to-machine payments happen?

00:28:41:26 - 00:29:09:27
Vanessa Collela

Great question. So timelines are often really hard. It's sort of Hemingway's famous phrase of "How did you go bankrupt?" Slowly, and then very quickly out here in Silicon Valley, we certainly see that all the time. Startups that people think are overnight successes take years to build before that overnight success. But I think it is fair to say that for almost everyone on this call, the changes that I spoke about will happen faster than any of us think.

00:29:11:05 - 00:29:40:13
Vanessa Collela

That might not mean by next Tuesday, but, you know, machine to machine payments are already happening and they will they'll crop up in unexpected places first. That's why keeping your ears to the ground and looking for data from lots of disparate places can be really helpful. But I think they will happen quickly. And unfortunately, just as those changes are happening quickly, we have quickly run out of the 30 minutes that I was privileged enough to spend with you.

00:29:40:13 - 00:29:51:12
Vanessa Collela

So thank you for joining this morning. I hope you enjoy the rest of the conference and I hope we'll be able to continue this dialog either virtually or perhaps at one point where we can all get together. Thank you.