How do you build an innovation practice and be an effective digital leader in your organization and get buy-in for your digital investments. Learn from our expert panelists how to design for the target, how to equip digital bankers leaders to be able to talk at a strategic level and the need to invest digitally with the closing physical branches; how to get senior management to think long term.
- Actionable steps banks can take to create better engagement strategies
- Avenues banks can take to differentiate themselves from their competitors
- Common pitfalls and advice from working with entrepreneurs
Penny Crosman: (
So everyone is seated in the order that they're listed. So if you wanna know, who's talking, just look at the screen. We have Stacy Armijo.
Penny Crosman: (
Stacy Armijo at Amplify Credit Union, which is right here in Austin, right ?
Stacy Armijo: (
Here in town.
Penny Crosman: (
And we have Luis at Temenos and we have Ash at Wells Fargo who does a lot of work on innovation, does a lot of work with tech startups. We're gonna talk a little bit about that. And Bob Petrie at City Ventures, who also does a lot of work with startups and funding startups as well as innovation within City internally. So, thank you all. It is super interesting. Full disclosure, this panel was Stacy's idea. I hope you don't mind me saying that because Stacy, has become very aware over the years of all of the challenges of trying to do new stuff. And I know everyone here experiences a lot of the same challenges. So, just because we have leader in the title of this session, let's just start with what are some of the qualities of an effective digital leader, like the personal characteristics and habits and attributes. Let's start with you Stacy.
Stacy Armijo: (
Sure. So I think my opinion on, yeah, we asked a good question early on was, is there something different about being an effective digital leader versus just being an effective leader? And I really spent some time thinking about that and I think what's different is when you're a digital leader, you're expected to be an expert in certain aspects of work in the institution that others don't have expertise in. And so it's easy to get pigeonholed into bright, shiny object. Yeah. So you're the person who knows the bright, shiny object and oh, when we need some of that digital magic, we'll just call this person over here and they can bring the digital magic and you aren't really asked or expected to be part of the bigger conversation of the strategy of the institution, of the broader customer experience, not just the digital experience.
Stacy Armijo: (
And I think sometimes we actually feed that as digital leaders, we can like play that character instead of reaching and stretching and saying, let me have a conversation about what is our strategy with respect to liquidity, the same way I can have a conversation about what is our digital roadmap. Can I have both of those conversations with just as much credibility and can I have conversations about digital technology in a way that doesn't make my audience feel like I'm talking at them that helps them feel like I'm talking with them? I don't remember the last time I decided to do something because someone made me feel stupid. And I think we have a bad habit as digital people, we like to talk really fast. And we like to say a lot of words. And if we had a drinking game, disintermediation would be like the drinking game of digital transformation. And we think that that feeds our credibility and I think it actually diminishes it. And so I think there are ways that we can communicate within our organizations and with our partners that can be more effective.
Penny Crosman: (
So being more integrated and not being an isolated unit, which I've heard that too, that, you can have the silo of the innovative people in the innovation lab or whatever you're calling it and then everybody else is somewhere else. And it's like not a lot, so how do you build that integration? How do you build those sort of relationships and so forth?
Stacy Armijo: (
The way I do it is I try to be as interested in what other people are doing is I want them to be interested in what I'm doing. So I tend to ask a lot of questions about - Hey, over here in retail, what's happening, Hey, over here in mortgage lending, what's happening. Hey, over here in small business lending, what's happening and can I understand what's working about your business before I try to have a conversation with you about how I think we can do it differently. If I can't communicate what works today, you shouldn't trust me to tell you what I think will work tomorrow. And so I tend to focus on their business and ask them a lot of questions and that seems to work well, that invites them then to start asking me questions. So as opposed to seeing me as sort of a somebody who's in the way of whatever it is that they're trying to accomplish, or someone who is vying for the same resources that they might be vying for whatever it is they wanna accomplish, they see me as more of a partner.
Penny Crosman: (
That's a really good point. How about you, Luis ? What do you think are the characteristics of a strong digital leader?
Luis Landivar: (
Well, definitely understanding at this day and age understanding technology, but more importantly, understanding the business need and the business requirements and trying to bring everything together. Everything that you, from a leadership perspective that you would read in a Simon Sinek book or see through your LinkedIn feed applies obviously, but you also have to consider the fact that being open to change, being open to, let's call it failure or to fail in a step and see that as a step towards achieving success and being trusting of your team. If you're building an innovation team and you're telling them they have permission to fail, they need to know that you'll feel like they did not fail because of lack of skill or because of lack of motivation or understanding of the problem but rather because that is a step in order to get somewhere where you have a vision, which is another important aspect as an innovative leader, you have to have a vision of where you're going and what you want out of that innovation team. Otherwise, you're going to end up with a lot of busy work in half paid science projects that will not deliver value at the end of the day.
Stacy Armijo: (
Those are good points, a trust and vision would that would apply to any leader. I would would argue, but especially in this case and when you talk about failure, so do you mean like not punishing people, if something doesn't work out?
Luis Landivar: (
That's the art of innovating, right? It's being creative, it's really stepping outside of the comfort zone. It's stepping outside of all the preconceived notions of how things should work, how processes should come about and challenging all that.
Penny Crosman: (
How about you Ash? What leadership qualities are you most? What do you most admire in this ?
Ash Tengshe: (
I wanna start with saying deep empathy and not saying it lightly at all. It's really understanding the lives that the customers are living and their aspirations and the experience that they're seeking. And sometimes it's the unmet needs. So they're not even seeking those experiences, but how can we help them live the best financial life that they can live. So that true empathy for the customer listening, deep listening. I totally agree with the second thing I would say is fail fast, learn fast, share fast, and I don't think it's very common for people, especially in the big corporates to be able to go out there and say, I tried this, I tried that this is what I learned. This is what didn't work out. There's a lot of culture of wanting to be successful, wanting to say, I always make it happen.
Ash Tengshe: (
Use the French word that you wanna insert in there but that's the swagger that you want to develop. But at the same time, I think the swagger we want develop is, we place our bets, we fail fast, we learn fast, we share fast. Then empowering the teams. I see a lot of silos within the teams and you really want to empower the teams to say, are you working with the customer data? Do you really understand what our OKRs are? What are we trying to achieve? And sometimes you see that a few of them are working in the corner with the customer data. But the rest are saying, you know, I'm a developer, I'm an engineer, I'm gonna sit back and worry about actually coding and things like that. You really want the best ideas, absolutely can come from the engineers. Right? So, and they do so you want really to involve them. And lastly I would say is this, positivity and like, we can do it. So really encouraging a positive attitude amongst the teams and making sure that everyone's focused on the goals.
Penny Crosman: (
And on the fail fast point, how do you tell regulators? Oh, we failed fast. How does that go? How does that go ?
Ash Tengshe: (
I thought there was a question on what are the challenges, so that would be, and I spent the last decade in healthcare, which was also digital healthcare, which was also heavily regulated. And there, the key word was patient safety, right? Whatever are we doing, are we gonna impact patient safety? And in financials, it's more than one word, but the one word is probably regulators, right? And so there is definitely a parameter and what I've found is really involving what we call LRCC right. Legal risk compliance, right in the beginning, through the design phase, through the design thinking processes, et cetera. And there's sometimes resistance to that, right? Once you figure out what you want to do, get us involved type of stuff, but really that agile team is not just a team of designers, engineers and product managers. It also needs to include people like LRCC.
Penny Crosman: (
Sure. And Bob, what do you think are the most important leadership qualities?
Bob Petrie: (
Yeah, so one element that we haven't touched upon is what we refer to as the zero to one problem. We see a lot of experience within corporations of people that inherited a business and are running that business or extending that business. There aren't a lot of folks that were there at the inception of the business. And I think that's an important skill set, especially within the digital space, which gives banks and financial services company, the opportunity to attack new types of value propositions but kind of creating something from scratch is kind of different than running something that exists. So I'm always looking for the, the experience of having been through that once or twice. And as a result, we do try to pull people in from the startup world and kind of get them excited about the role of corporate innovation. And that's kind of what my career path had been. I'd spent 18 years in startups before kind of attacking corporate innovation. And I try to apply as much of that zero to one problem as I can.
Penny Crosman: (
It's interesting because a lot of FinTechs are hiring bankers. A lot of banks are hiring FinTechs, a lot of cross breeding, I guess you could call if that's the right word. So I'm gonna look at my cheat sheet for a second. Bob, because I wanna ask you about a McKinsey report that came out recently. I thought was kind of interesting. They said that they found that 85% of executives across the board agree that fear holds back innovation efforts often or always in their organizations average or below average innovators are three times more likely than innovation leaders to report this yet nine out of 10 organizations are doing nothing to allay those fears. What do you think about that? And to what extent do you think fear is a blocker to innovation?
Bob Petrie: (
Yeah. So I'd love to feel that one I didn't read the study, but I saw the reference to it. And honestly Penny, I kind of bristled at the idea or the characterization of leaders being fearful. Now maybe a more fair term is risk averse. Maybe on average corporate leaders are more risk averse than their FinTech counterparts but to me that's also unfair in the sense that it puts the onus of innovation, I think on the individual and not enough onus on the enterprise, that's kind of creating that environment within which these leaders operate. I think we can all agree that corporations aren't really great at giving permission to employees to take risk with corporate assets or to take risk with existing customer relationships. They kind of look down upon experimentation as something that is maybe less important than running a core business.
Bob Petrie: (
And as we talked about, they kind of avoid failure. You know, we avoid failure at all costs, but anybody that's been in innovation or entrepreneurship or business building knows that risk taking and experimentation and failure, at least some level of failure is important or necessary if you really want to take down a new market or launch a new business and so I think it's more of an indictment of the enterprise that creates an environment where people feel more comfortable or are incentivized to be risk averse rather than, you know, the leader lacking DNA or lacking the wrong attitude. So I think it's more about the system than it is about the individual.
Penny Crosman: (
So how can the system be more amenable to innovation and what have you done at City?
Bob Petrie: (
Yeah, so I think that question is kind of attached to the evergreen question of where does innovation sit? Should innovation be inside the business or should innovation somehow be outside or separated from the business. At City Ventures, we're outside the business. We're not a P and L, we're actually a corporate function that rolls up into the finance organization. And so admittedly, it's a lot easier for us to create a permission space where people can come from the business and take risks and experiment and potentially fail along the way and learn about how to learn from that failure and apply those learnings somewhere else. So I think that's a necessary thing is this permission space. If I'm being kind of brutally honest about kind of that in our program, it's probably necessary, but not sufficient in the sense that it's important that we create that space, but at the same time being outside the business, we can't necessarily affect those innovators career paths or their incentive structures and so I think, the holy grail is to create space and allow experimentation and risk taking but also positively impact career pathing and compensation and incentives too.
Penny Crosman: (
So we're kind of back full circle to Stacy's point about silos and not having innovators be over here and everybody else be over here and working together. And yet, as you say, you need that safe space or that sandbox, maybe you call it too. So at City, how do you make that jump? So if something great is developed within, City ventures or one of your you've got several different sort of innovation groups. Yeah. So how like, D10X.
Bob Petrie: (
D10 X, D 10X
Penny Crosman: (
D10X, sorry.
Bob Petrie: (
We try to discover things that are 10 X, what the core business is doing.
Penny Crosman: (
Right. So how do you jump from things like D 10 X to the real real life products and execution?
Bob Petrie: (
Yeah, I think an important element to kind of get out is that there is no right model for innovation company, the size of City has to have many different models of innovation and each model has its own pros and cons associated with it. And so I talked about the fact that our model has the ability to be different or separate from the business, but we've got constraints that, and I actually have a really insightful example and I never call it a sandbox because it makes it sound like we're just playing around. And that's where like we are often looked upon as being, almost like hobby type projects that people do on the side. We feel that it's attached to the future growth of the company, and there's nothing more important than that.
Bob Petrie: (
So I try to avoid terms like laboratories and sandboxes and try to tie it to growth agendas but one of the things that we saw along the way, be at one point in one iteration of our incubation model, we did kind of the similar model to Google where any corporate employee could spend 10% of their time working with us on a passion project or building a new product or attacking a new customer problem. And they would come to our program, we'd give them resources, we'd give them budget, we'd give them training. We'd assign an EIR entrepreneur and residents to collaborate with, to attack it entrepreneurial and we would only do that if they got permission from their boss, that they could spend 90% of their time on their core job and 10% with us. And what we found over time was people were spending a hundred percent of their time on their core job and an extra 10% on the innovation thing.
Bob Petrie: (
And when we looked into this and so they were working nights and weekends to try to do both. And when we looked into it, what we found was these folks did not wanna lose a step within their core group. They did not wanna look like they were contributing less to their core team or to their peers. They did not want to pass up on career pathing and they certainly did not want to sacrifice their end of year bonus. And so they felt like they needed to do both but they were willing to do the 10% because they were learning new skills like we were doing customer development, they were talking to customers for the first time in their career. Yeah. We were doing product development. We do market research. So they felt like that was worth the investment, but they did not wanna lose one step within their core organization.
Penny Crosman: (
Makes sense. That makes sense. I can see, I would be the same. I don't wanna lose my day job, you know? So let's talk about some of the challenges that get in the way because everyone wants to innovate, I think in any industry, but especially in this industry, there are so many things that get in the way from an older core that it's hard to plug in, plug newer technologies into lack of lack of budget, lack of talent, available, lack of bureaucracy silos and on and on. Stacy, what do you think are some of the biggest challenges that you see out there ?
Stacy Armijo: (
The biggest challenges that I see? So I'm still relatively new to banking, so I'm, I'm not quite four years into banking. And prior to that, I was in public relations and marketing. And so I came into my role as chief experience officer and I was immediately wanting to, okay, here's all the things I wanna do, right? Like here are all the ways we wanna get better and all the things that we wanna do. And then someone said, Hey, that's cool. We are in a seven year contract for this particular technology, which doesn't integrate with that one that we're in a three year contract with that doesn't integrate with this one that we are in a seven year contract with. And I said, seven year contracts. Like I came from a world where a two year contract was like, oh my God, you were married forever.
Stacy Armijo: (
That and so seven years was just sort of confounding to me. And yet we actually went through a core conversion my first year at amplify that had been in progress prior to me. And it went well, which was fantastic and I got to watch the incredible amount of time and effort and money that it took to do that it was the right decision for our business. It's accomplished for us what we want it to accomplish and I would not want to do that more than every seven years. I mean, it just took every ounce of our resources. So while I complain about like, why can't we have more agility and flexibility in changing things and things we wanna do the, the manpower required to do that would mean all you're doing is just working on what you've got today, all the time.
Stacy Armijo: (
And you're not innovating, you're not doing something new. So I think that's one of the challenges is just how complex it is to do something very simple. We actually counted recently, I think in order to swipe an amplify debit card, I believe we counted, it takes 17 different systems for us to go from a swipe, to having somebody be able to do a thing. And so that's just a lot of complexity to be able to manage but I think for us what works for us in terms of tackling that and continuing to be innovative is we don't think of innovation as a task or an initiative. We think about it as a muscle. Like, do we have an innovative muscle in the organization? It's sort of like strategy. I used to have team members that would say, I just don't have time to do strategy and it's strategy.
Stacy Armijo: (
Isn't something you do. It is a way you do things. You do things strategically or you don't. And in my mind, innovation is very similar. Do you approach things with an innovative mindset and is that a muscle that your organization has or not, you know and as a smaller institution, I think that's actually one of our advantages, So we smaller institutions, we are constantly jealous of oh, look at this fabulous innovation over here and look at that thing over here. And if only I had, you know, a team of 60 developers, I could do it too that you have kind of that sense of jealousy, the advantage we have is as smaller organizations, creating an innovative mindset and creating an innovative approach, choosing your customer wisely, being willing to say no to a lot of things, choosing to not be in a lot of businesses.
Stacy Armijo: (
That's one of our big challenges that peanut butter approach in financial services, where we wanna do everything all the time and then we're surprised we don't do it all well. If you're willing to make some of those trade offs and you have an innovative mindset, you can do some cool things. Yeah. So that for us, that's how fee free came to life. So we recently eliminated all deposit fees on all of our products and I've learned that I have to say it a certain way because people don't actually believe us. It is now impossible for any depositor of any balance with any behavior to incur any kind of fee ever. And that's that. And we rolled that out earlier this year that took us two and a half years. And my CEO asked our entire team and me specifically many times he said, Stacy, this is a one way door.
Stacy Armijo: (
Are you ready to walk through it? Are you good with that? And like we had that conversation lots of times because you don't get to say, Hey, you'll never ever be charged a fee again and then have your financial projections not work out and then suddenly introduce a new product that has fees attached to it. It is a one way door. You're either in it or you're not in it. And so I think for us, we need to lean into the advantage of being a smaller institution that can do that in a way that is more challenging across institutions that have thousands of employees where all of that has to be organized and coordinated.
Penny Crosman: (
So yeah, just to follow up. So you have a lot less fee income now?
Stacy Armijo: (
We do. Yeah. A lot less of that particular account fee income, we do.
Penny Crosman: (
And do you make up for it some other area?
Stacy Armijo: (
We do. So if all works out as we project, which we are now almost four months in and we are hitting or exceeding most of our projections, this will actually be a net positive to our fee income. So what we took, what was considered a weakness of our business model. So as an institution, non-interest income of that type was actually much smaller portion of our income already. We already had a fee averse membership, as they say, and that was always considered like the regulators would tell us, oh, you need more of this income and whatnot. And we said, well, if it's already not a big deal for us, why don't we just give it all up? And they get a market advantage, let's turn something that was a weakness into an opportunity to earn more income.
Stacy Armijo: (
And what we have found is our goal here is to attract more core deposit accounts, cheapest money anybody can get, we already have, we have a relatively high cost of funds. And so if we can get our cost of funds down, there's a win there on our net interest margin and then increased interchange income. So between those two things, we actually think this is gonna be a net financial positive to the organization. But what's been interesting is, so it started as a marketing idea, it started with research. So I find there's a lot of conventional wisdom in this industry and then when you start asking questions and you start going into the research you find out actually, no we've been, we've been telling ourselves that for decades, that preferred financial institution, for example, we've been telling ourselves for decades that consumers prefer a financial institution.
Stacy Armijo: (
We did some research and the research said not really actually they think about their financial decisions and totally different drawers. And here are the unique motivating factors for those. So that's where this started. It started as a marketing idea about how can we create a compelling checking product. That was basically the core question, but we discovered a mission in it. So when we started looking at this if I could encourage any financial institution in the room to please do this, please go look at who pays your fees in particular, please look at who pays overdraft fees. We had not looked at that in years. We just hadn't dug into it. Spoiler alert, it's not the people with money that is not who's paying fees in your institution. It is the people for whom to overdraft fees means they don't have gas money this month.
Stacy Armijo: (
And so if you're thinking about like, what is it that you want to do with this business? Why are we in this? What are we trying to accomplish? This for us became as much about our mission as it is about a marketing idea. And I think that's really when we really looked at it and it was the one way door we ready to walk through, we didn't walk through it because we were gonna make more money. We walked through it because we discovered this was the right thing to do. And that's really what gave us the courage to do it.
Penny Crosman: (
It's really interesting beause that's been, I think, a dirty secret for decades that the poorest people subsidize the wealthy clients who don't pay fees. But so the two and a half years was all tech changes?
Stacy Armijo: (
It was some strategy, some tech. So the reason it took two and a half years was from, that was from the time we got the findings of the research. So this started with the researchers were presenting us the findings and our CEO and others were in the room and they talked about fee income and our CEO said, why don't we just get rid of him? And everybody laughed. And it was like, oh, that's so funny. Kendall must be having a tough day today. Like, oh, he'll feel better tomorrow and get his wits back about him but couldn't get the idea out of our minds. I mean, that's really where it started. So from that moment the first part of it probably the first six months was that's an interesting idea.
Stacy Armijo: (
How about we think about that? Let's look into that. So the first six months was really just kind of running the projections and understanding is this really possible? And then from about that six month point, it became a technical endeavor. So what we decided was we did not want to drive a bunch of people into our physical branches. That was not our point. Our point was to shout from the rooftops about having no fees and be able to capture and completely fulfill that interest digitally. And we were not pleased with our online account opening process. We had been so focused on lending in particular mortgage lending, we had put all of our time and attention there for the prior couple of years. And on the deposit side, we just didn't have a good digital experience. And so we decided to wait until we could improve that and we didn't roll it out until this year when we felt like we had a lot more confidence with what we could do there and being able to fund the accounts and just making sure that seamless experience set the right expectation for our digital members because that's who we're really trying to attract.
Penny Crosman: (
That makes sense. Thank you. So Ash, you mentioned regulation, going back to the obstacles, is that the top obstacle? What do you think are the biggest obstacles to innovation?
Ash Tengshe: (
No, I mean, you have to play within that. That's just the rules of the game. And like I said, once you can really partner with the right folks from the beginning, you can understand what are your kind of boundaries that you want to play within and you can still do a lot of good stuff within that. I think I would say the top challenges in my mind, in my view would be - one would be, people are in love with their products. It's products and teams and businesses that have there built lovingly. And so it's hard to think about internally disrupting and cannibalizing them. And I kind of think of it as if car manufacturer, an analogy would be a car manufacturer who has a few really good engines, a V8, a six cylinder, four cylinder, et cetera, and a few car chassis and your innovation is really trying to put different engines in different.
Ash Tengshe: (
What about a V8 SUV and what about a V8 Miniman and if you're just mixing and matching, but meanwhile Tesla comes here and eats your lunch and dinner and so really it's about that outside in thinking and really being able to let go of the things that businesses, you have built, the products you have built and really looking at what do the customers really want. And instead of incrementally trying to see from a product out of what next should I provide in my product, really looking at what do the customers want, and is it really something else entirely? Is it an experience that maybe my product doesn't fit in anymore and I'm willing to give it up? I think that to me is I would consider that as a top item. The next is the next I would say is somewhere in the list I would say is the tech talent and overall talent?
Ash Tengshe: (
I would say, overall talent for digital, it's at a premium right now, right? Whether it's cloud native skills, whether it's native mobile skills and design skills, the right brain left brain, you really want those design thinking human centered design skills, and then putting all together. I think these, and when you have that talent, you also have a backlog that is bigger than that talent. And that backlog is probably everything you need to push out this year, everything that your current products or the next versions of them or putting them on cloud or turning them into native applications, that's already filling up the capacity. So now do you take your top designers and top engineers and put them on that? Or do you say, let's go put you on experimentation here, right?
Ash Tengshe: (
Like you said, it's, it's a safe space, but do I put you there or do I put you here because there 90% of things will not work out. Here, I need you for what I need to launch in October. And so I think that the capacity, the backlog, the prioritization, that to me is another challenge. And I think the third is when you even make all the right decisions like you said, just the last example to put out a new product, it touched 48 systems. And so now, the coordination process is humongous, and you have to literally get your items on 48 different backlogs. And they're probably all agile teams, but it'll probably be three to four months before the first line of code is written and you know that coordination. And so what we are really looking for is looking to do is both on the business architecture and the technology architecture, really looking at the right structuring and layering of it, so that it's becomes more simpler. The areas are more self-contained the decision makers are more single point and you can move faster. I think those are my top.
Penny Crosman: (
So I think you said about 90% of the things that are experimental, never make it into production. What do you think like at Wells Fargo, what does it take for something to jump to go from the experiment to production?
Ash Tengshe: (
So, we revamped how we are doing innovation as of probably late last year. And late last year we turned it into a product. So it's not one product, it's a few products, for example, DLT, blockchain, et cetera. Things are a separate product line. And what we did was we involved the lines of businesses closely and the strategic leaders into that. So they kind of become the product managers and the product owners of it. And, so the prioritization, just like our digital things, there's probably too many things on the backlog. There's 200 items that are 200 good ideas, but by utilizing this line of business, SMEs and utilizing scoring models and ensuring, we understand how this matches up with what our customers want, what experiences we want to give out. What's our north star, et cetera.
Ash Tengshe: (
We do scoring, ruthless prioritization. We have to say no to probably 180 of those 200 ideas, probably every month, every two months, et cetera. And then we have a framework, we put it to that, looking at the desirability, viability, feasibility of these things and what's the serviceable market that this can go to? And so we are really looking now to place less bets. So we don't want to go after 200 pilots. We wanna go after maybe 20, but these bets need to be strategically more important, more scalable, and with a bigger addressable market. So that's the pivot.
Penny Crosman: (
Makes sense. Yeah. Bob, how about you? We're still on the obstacles? Where do you see as the biggest obstacles to innovation in a large organization?
Bob Petrie: (
Sure. So I'd love to double click on what Ash said about regulatory frameworks, not being an obstacle. Because I think I say that in the circles that I operate, oftentimes our control partners are almost vilified as being the antithesis of innovation. They're there to kind of stop us from getting stuff out or saying no to things that we want to do. And I think it's a very valid perspective, even if it's kind of incorrect. I could give an example of a project that I worked on when I just started my corporate innovation career, spent 18 years in the wild wild west of startups came to City and we had this hypothesis that if we helped consumers solve bank adjacent problems then they would be more likely to come to city for their banking needs.
Bob Petrie: (
And so we thought one very clear area that we could help is just helping answer some personal financial questions that they've got. And when we went into market, we realized that everybody's got these questions that they just can't get answered. They look online, but the answers aren't personalized to what they need, or they see conflicting stuff and they could turn to a financial advisor, but generally a lot of them don't have the net worth to be attractive where they don't wanna turn over their assets. So he said, why don't we just pair consumers with financial experts and in a digital way, make a very lightweight connection, maybe in 30 minutes have the question asked, we designed the solution. We designed the matching engine to put consumer in front of an expert. We did the acquisition strategy about how to build both sides of this two-sided network.
Bob Petrie: (
We worked on the user experience and we were probably one month away from launching, at least technically when our control partner stepped in and said you can't launch despite the fact that we weren't selling securities or even advising on the purchase of securities, it just spelled like it was financial advice, right? And so all of a sudden we were tagged as financial advice and we inherited all of the FINRA regulation. And so not only did the user need a relationship with the advisor, they needed a contract in place with the RIA that the advisor was connected to. And even though we thought it was just a simple matching engine it could be interpreted as a referral to a fiduciary. So we would need to disclose certain things and be liable for the advice that was offered. And so it just inherited all of this additional stuff, and it really hobbled the project.
Bob Petrie: (
We ultimately got something out but it was a shadow of what we really wanted. And we weren't able to prove this as a great acquisition tool and so we walked away from the project thinking that it was the control partners that really stopped us. But honestly in hindsight, shame on us for not having given them a seat at the table at the very beginning. When we look at them as a roadblock, even that analogy means that they didn't have a seat in the car and so the number one lesson I learned about unlocking more innovation or increasing the success of a potential success of getting out is to include that very strong control partner voice very early in the project.
Penny Crosman: (
That's a really good point. And Luis, I think I know what you're gonna say but what do you think, what do you see as the biggest obstacle to innovation in this industry?
Luis Landivar: (
Well, we can look at it from two perspectives. Well, one of them being what we think about innovation, how we think about it, and how do we see successful innovation? A lot of institutions feel or people within institutions feel like, if I am not creating something that is different enough, and that brings enough value, that is transformational something that's outside of the current products that we offer today, outside of our adjacent products, we offer something that's completely new and that's going to be a success in the market, then I'm not really innovating and that's not true. Like Stacy says, it's a muscle and it's a muscle that needs to be worked on every day by everybody, within their organization, everybody within whether you are a developer, an engineer, or whether you're a part of the line of business, a business analyst, you can figure it out how to do things better, how to do things more efficiently, anything that saves time, money and makes things more secure and less likely or less prone to error can be considered a significant innovation that adds value to the organization.
Luis Landivar: (
So when you add all the different innovations and creative ways of doing things, and you add them up, it does really add a lot of value to the organization. So I would say that's the, certainly one of the things that get in the way and the other one, which has already been clearly touched on was resource allocation. It's great for City and Wells Fargo with the budgets that they have, right? When we're talking about small regional banks, credit unions that are still trying to figure out how do I get the basics, right. I still need to do what I do every day better. How can I really justify having this allocation of resources on innovation when we don't have the basics right. And that is a conflicting situation because there's a McKenzie study that show that even through a downturn economic downturn, those institutions, those leaders who were encouraging innovation actually came out of it, much better off than when they went in and that included both, that included institutions that were large, that were big, that had big budgets and those that were small enough in nimble, but that really saw that innovation was a way to add more value where it was being diminished everywhere else.
Penny Crosman: (
All right. I thought you were gonna say old core systems. I was wrong.
Luis Landivar: (
That was the other context.
Stacy Armijo: (
I can add to that. So I'm cognizant of the fact that we're having this conversation the day after what happened in the markets. And I think it is so important that we remember what you just said about market share is captured in the down. It's not, it's realized in the up, but it's captured in the down. And it is so tempting to when there's uncertainty in the markets, everybody kind of does this, right? Like, oh, okay. That thing we were gonna have planned, maybe we're gonna back off on that. I was at a meeting yesterday in my organization where somebody said, oh, so should we still do that thing? I said, yes, we should still do that thing. Absolutely. Our situation is strong. We're in a good spot.
Stacy Armijo: (
We understand our positioning. There is no reason to let general fear and anxiety change our direction. And I think as we think about as digital leaders, what can we do in this moment? We can choose not to get pegged as an expense. I think the risk right now is to say, oh, okay, well, all that innovative stuff is all fine and good when I'm feeling real bullish about what's happening. But now that I have a little bit of anxiety that I'm considering that discretionary and we have to position ourselves as growth strategy, not as laboratory or incubator. And I think in particular today, and right now is an opportunity to do that.
Penny Crosman: (
That's interesting. That's good in life too. Not just hunkered out when things get difficult, but move forward. So Bob, let's go back to you. So with City, how do you go about soliciting new ideas, nurturing them, bringing them to fruition?
Bob Petrie: (
Yeah. So I could start with how not to do it. An early version of the program allowed anybody from the company to come to us with an idea, and we would incubate that and try to build it. And we would get passionate about this and see that there's a business to be made and good ROI. And then we'd bring it back to the business because we would want to graduate it, as not a P and L we need, we never owned anything long term. So the phrase we used to graduate it back to the business and what we were finding the businesses didn't care about what we were working on because it wasn't aligned well enough with their business strategy and so over time, we shifted to trying to better understand what their business strategies were, where their opportunities that they were identifying, and then figure out how to use that innovation muscle to build and incubate things that would fulfill that strategic purpose.
Bob Petrie: (
And so what I find is that the alignment with the business is super important and a company of scale of city doing that sometimes requires you to do it differently from business to business because different parts of the business are in different states. So our consumer business is in a very different state than our institutional business and so the way that we align in the way that we graduate has to be customized for that particular thing. And so I see a lot of like things on the marketplace and say, here is an innovation process that you could take and execute as it is, and what I find it often lacks all of that context as to how do you build that alignment with the business and over time, we also got a little bit smarter about what it means to graduate something.
Bob Petrie: (
We looked at it as almost a point in time that we would incubate it. We would get it to a point where we felt like it was ready to go from successful MVP to something that should be scaled by the business but what we found is that it's not really a point in time. It's almost a maturity of these initiatives that in the very early stages, they should be in a certain state along all these different axis from a sponsorship perspective, from a budget perspective and understanding of the value proposition, the relationship with our control partners. So there's about like 10 different axis that we look at and as these things progress, they've gotta make progress on all of those axis, maybe not at the same time but ultimately when we get to the point where we feel like it has successfully gotten to the point where it can be kind of taken on by the business, or even spun out as an independent company. It's had to have made progress across many different fronts and so we're a little bit smarter about how we define the maturing of an innovation project.
Penny Crosman: (
It is important. I know everyone used to talk about having an executive sponsor, is that still true that to make those connections you were talking about and get our business reality.
Bob Petrie: (
That was a learning too. We used to have what we called growth boards, and these very senior executives within business would get on a panel. And our teams would pitch almost like a shark tank. And they would say yes or no and if they got the thumbs up, they would get more funding for the next phase. And theoretically, it was great that these investments were stage gated and they were weighed in by the senior executives. But what we found in reality was the senior executives weren't necessarily the individuals that got stuff done in the business. And so the engagement of like the director levels within the business was super important. So even if person X said, yes, thumbs up, when we return to the director, they say, listen, I've got no time and no budget to do that, sorry. And so we had to kind of change the way that we thought about sponsorships.
Bob Petrie: (
And so it is still very important that we have to warm that relationship up and rather than have these projects kind of pushed into the business, they actually have to be pulled from us and so that's really the role of the sponsors to create the space where this thing can be pulled into the core business. And there's a space within the budget. There's a space within the organization that there's the emerging relationship with the control partners that are in the business. And so I think sponsorship is still really important, but our view of what role that person plays.
Penny Crosman: (
It's gotta be the right sponsor. So how about you Ash? What happens at Wells Fargo? How do you get new ideas from employees or from anywhere and bring them to fruition?
Ash Tengshe: (
So again, the size of Wells Fargo, there's no one answer, right? At the same time, like I said, our really revamp was to create that product model. So that lines of businesses, and actually the experts in the lines of businesses, the key SMEs that they could be somewhere the levels are fungible, but they need to participate and this needs to really tied with the business OKRs. And so really the ideas can come in within, but those product managers are very, they ultimately own the backlog, they decide what happens. But one of the interesting thing I want to add recently, what we did in last three months or so is we said, we want to leverage our geographic location in Silicon valley, and really work with startups and VCs in a different way.
Ash Tengshe: (
So we launched an innovation challenge and this innovation challenge had a pretty small brief. It was really about, financial experiences largely have been siloed and contained in experiences, but our world is largely becoming hyper connected and the financial universe is increasing. So worked with us on solutions that are more approachable, more connected and so with that sort of brief, we opened up an innovation challenge, we got tremendous response. In fact, yesterday I was reviewing with the team, the pitches, and tomorrow are more pitches coming in. And so we are doing that and we are really trying to see that the nimbleness and the kind of free thinking of the startups and and kind of tying them with the scale that we can provide along with a disciplined execution that we can provide and access to our customer base.
Ash Tengshe: (
So with that, we are trying to not go about it all alone and trying to work with them and along with that internally, also, we are trying to make sure that people have great ideas. They just don't know. To me, it's kind of interesting that if you have an HR issue or a compliance issue, there's hotlines. What to do, what to pick up for, who to call, but you have a great idea, you don't know what to do about it. And so really trying to also harness the ideas and the general knowledge, as well as this deep kind of, I think motivation that people have where they want to do something more than just their job. And how do we leverage that? I don't think we have the perfect answer on that yet, but that's the other discussion we are having is while we work with VCs and startups, how do we leverage the inherent knowledge base ideas that our people have?
Penny Crosman: (
And just so when you get a good pitch and you like it, a bunch of people, like it, what's the path from that pitch to you're launching something, or maybe you help them launch as a separate company.
Ash Tengshe: (
Yeah. So, different models are possible. And again, with this, especially with the startups, we are kind of trying to do this. I've been with Wells for one year only, right? So this is a new thing we are trying to do with them. So we'll figure out how the model, what models we go forward in terms of launching things together. But overall the process from a pitch and idea to it gets funded. And largely thinks that I've spoke said before here, which is, it has to have a strong time with the business strategy which OKRs it gonna impact some sort of strong line of business sponsorship at the right level. And again, trying to make smaller bets or fewer bets, sorry, not smaller, fewer but larger bets. And if you're gonna make fewer bets, then we have to be very clear that these are the bets, you know, there's disruption all around us.
Ash Tengshe: (
Apple just got into buy now pay later last with iOS 16. Right? And that's built in into the OS. So I think with all those things in mind embedded financial experiences are again, disrupting. We want to have great customer experiences and not be an API provider. Right? So at the same, I think there is a lot of disruption in the industry and what we want to do is make sure that our fewer bets are really in the right places. And again, many of them won't work out, so right places sounds like a oxymoron there, but yeah, that's what we are trying to do with our process.
Penny Crosman: (
All right. We just have a little over a minute left. Luis, when you think about 5 - 10 years from now, what kinds of innovations do you think will we be looking at in the future, or what do you think we might be seeing in the future?
Luis Landivar: (
I believe that machine learning AI personalization still has a long way to go. I think you've seen already a lot of great solutions around here that are getting there, actually making the data actionable and bring it all together to provide and see a full financial picture that really helps me achieve a goal, whether that it's paying student debt or staying outta debt or retiring. And I think that will continue to get better and they're certainly allowed to go in there beyond that and get a little bit more out there. I think really we need to start considering the metaverse and what that really means for us. I have a 10 year old and I asked him, said, Gabriel, do you hang out? Do you play in the metaverse? And he looked at me like saying, how do you know about that? And he said yes.
Luis Landivar: (
And I ask that as a measure to really understand, is this something that I'm just seeing because I'm in the industry and I hear it all the time, and we're talking about technology and how all this is enabled. But it certainly is figuring out a way how to play that in that world that when you pair that with the upcoming, which is still very early on, but things like quantum computing. But if you think about that making where we sit, where we are an augmented reality, regardless of where we are, because the processing power of the CPUs is so high, that it just makes it very easy to provide that type of experience. And when you start blending that with where does banking fit in here, right? Can I walk into a restaurant, eat a meal, walk out and just accept a push notification that says, yes, I want to pay my bill. Really. If I don't have to pull out my card, I don't even have to pull out my phone. Then that's a sign of progress, right? The more, the less we have to touch it, the less we have to actually think about it. The more progress we're making in that particular industry.
Speaker 1: (
All right. Well, unfortunately we are just outta time, you guys have been a fantastic panel, so thank you so much for coming here and sharing your thoughts.