From Transactions to Relationships: Innovation's Next Horizon

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Innovation in financial services has never been greater, yet so many financial institutions have such poor relationships with their customers. Why? So much of the innovation in financial services has …

Innovation in financial services has never been greater, yet so many financial institutions have such poor relationships with their customers. Why? So much of the innovation in financial services has been about improving transactions, but financial services are inherently collaborative. How can we shift our innovation focus from transactions to relationships?

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  • 1. From Transactions to Relationships: Innovation’s Next Horizon JP Nicols, CFP® 1© JP Nicols, 2012-13
  • 2. He is the CEO of Clientific, a partner at Bank Solutions Group, and the co-founder of the Bank Innovators Council. He has served in senior roles at top financial institutions, including as the first Chief Private Banking Officer for U.S. Bank. He writes about leadership and innovation at jpnicols.com. A leading voice for leadership and innovation for the future of financial services, JP combines 20+ years of experience with a fresh perspective on combining high-tech with high-touch. His work has been featured in some of the industry’s top publications, including American Banker, Investment News, BAI Banking Strategies and Bank Innovation. JP Nicols, CFP®
  • 3. 3© JP Nicols, 2012-13 The tailwinds that helped the financial services industry during most of our careers have mostly turned to headwinds…
  • 4. S&P 500 1980-2007 4© JP Nicols, 2012-13
  • 5. 10 Year Treasury 1980-2007 5© JP Nicols, 2012-13
  • 6. Era of Deregulation 1980 •Depository Deregulation and Monetary Control Act •Authorizes new thrifts and phase out deposit rate limits 1982 •Garn-St. Germain Depository Institutions Act •Deregulates S&Ls and allows ARMs 1994 •Riegle-Neal Interstate Banking and Branching Efficiency Act •Eliminates interstate banking and branching 1999 •Gramm-Leach-Bliley •Repeals part of Glass-Steagall 2000 •Commodity Futures Modernization Act •Prevents CFTC from regulating most OTC derivatives and swaps 2004 •SEC proposes Voluntary Regulation •Allowing investment banks to hold less capital Source: Center for Economic and Policy Research 6© JP Nicols, 2012-13
  • 7. 7© JP Nicols, 2012-13 And then…
  • 8. 8© JP Nicols, 2012-13 2008
  • 9. 9© JP Nicols, 2012-13 Most importantly, 2008 was not just a bad year, or the start of a rough patch…
  • 10. 10© JP Nicols, 2012-13 … It’s an important milestone at the start of whole new era. Let’s look at the industry through a familiar lens:
  • 11. Threat of New Entry Supplier Power Buyer Power Threat of Substitution Competitive Rivalry Porter’s Five Forces 11 © JP Nicols, 2012-13
  • 12. Supplier Power 12 © JP Nicols, 2012-13 This Era of Reregulation is a useful proxy for supplier power Dodd Frank
  • 13. 13© JP Nicols, 2012-13 The number of banks is shrinking, but that’s not a positive force. Those that remain have greater market power.
  • 14. Threat of New Entry 14© JP Nicols, 2012-13
  • 15. 15© JP Nicols, 2012-13 Financial services companies used to be gatekeepers of closed platforms and asymmetrical information, but customer power is growing and their expectations are changing.
  • 16. Buyer Power 16© JP Nicols, 2012-13
  • 17. Changing of the Guard Baby Boomers Gen X Gen Y $41 Trillion* Wealth of Gen X + Gen Y expected to exceed Boomers by 2018 *90% of heirs switch advisors 17© JP Nicols, 2012-13
  • 18. 18© JP Nicols, 2012-13 Perhaps most profound, financial services companies used to have no real substitutes…
  • 19. Threat of Substitution 19 © JP Nicols, 2012-13
  • 20. 20© JP Nicols, 2012-13 …and the pace of change is ever quickening…
  • 21. Time to 50MM Users 21© JP Nicols, 2012-13
  • 22. 22© JP Nicols, 2012-13 …But we don’t seem to be taking this very seriously as an industry.
  • 23. 23© JP Nicols, 2012-13
  • 24. 24© JP Nicols, 2012-13 No wonder we’re not perceived as being a very innovative industry.
  • 25. Most Innovative Global Companies Banks, 4% BusinessWeek Top 50 25© JP Nicols, 2012-13
  • 26. Can’t Happen To Us… Right? 26© JP Nicols, 2012-13
  • 27. 27© JP Nicols, 2012-13 So, how do we avoid the Fate of the “Dumb Pipes”?
  • 28. 28© JP Nicols, 2012-13
  • 29. 29© JP Nicols, 2012-13 Think about how telephone companies have changed their marketing…
  • 30. From Pin Drops… 30© JP Nicols, 2012-13
  • 31. …to Screen Shots 31© JP Nicols, 2012-13
  • 32. 32© JP Nicols, 2012-13 It’s not about your branch network, or your ATMs or even your mobile banking platform. Those are just your “dumb pipes”
  • 33. 33© JP Nicols, 2012-13 It’s about the quality of the content you can deliver through those pipes.
  • 34. 34© JP Nicols, 2012-13 And it’s about the quality of the relationships you have with your customers.
  • 35. 35© JP Nicols, 2012-13
  • 36. 36© JP Nicols, 2012-13 OK. So, how do we refocus our innovation from transactions to relationships?
  • 37. Four Imperatives Shift From Execution to Diagnosis Customer Centric Process Build Trust and Loyalty Engage the Ecosystem 37© JP Nicols, 2012-13 1 2 3 4
  • 38. 38© JP Nicols, 2012-13 First, we have to shift our focus from execution to diagnosis. In healthcare terms…
  • 39. 39© JP Nicols, 2012-13 … we have to focus our people’s time on more psychotherapy, and less on handing out prescriptions.
  • 40. Standardized Process Specialized LowTouchIntimacy/EQHighTouch Execution Diagnosis Adapted from True Professionalism by David H. Maister © 1997 David H. Maister, used by permission 40© JP Nicols, 2012-13
  • 41. 41© JP Nicols, 2012-13 Technology can increasingly help us run our business. But there is no replacement for actually understanding the problem.
  • 42. Standardized Process Specialized LowTouchIntimacy/EQHighTouch Execution Diagnosis • Standard Credit • Product Advice •Onboarding • Estates • Complex Issues • Retail • Small Business • Goal Setting • Financial Planning •Nonfinancial Issues • Moral Support • Custom Credit • Asset Mgmt • Trust Admin • Corp Banking • ABL • Basic Service • Statements • Std. products • Transactions • Item processing • Payments Technology Artificial Intelligence Machine Learning Data Analytics Business Intelligence 42© JP Nicols, 2012-13 Adapted from True Professionalism by David H. Maister © 1997 David H. Maister, used by permission
  • 43. 43© JP Nicols, 2012-13 And we have to understand the whole picture.
  • 44. A Need for Aggregated Data 44© JP Nicols, 2012-13
  • 45. 45© JP Nicols, 2012-13 Second, we have to build trust and loyalty with our customers.
  • 46. 46© JP Nicols, 2012-13 How?
  • 47. Competence Consistency Customer Intimacy Customer Advocacy Trust 47© JP Nicols, 2012-13 Building Trust and Loyalty
  • 48. 48© JP Nicols, 2012-13 In other words, uur customer have to perceive (and believe) that we: • Know what we’re talking about, • Will do what we say we will do, •Understand them deeply (more on that later), and most importantly… • Will look out for their best interest
  • 49. 49© JP Nicols, 2012-13 First build trust. Loyalty come from consistently providing value.
  • 50. Third, we have to move from product development… 50© JP Nicols, 2012-13
  • 51. 51© JP Nicols, 2012-13 You know, that process where you launch a product your team has been asking for, then point fingers internally when results fail to meet plan.
  • 52. …Tocustomer development 52© JP Nicols, 2012-13
  • 53. 53© JP Nicols, 2012-13 A customer-centric process that makes sure you are solving a problem or meeting a need that paying customers actually care about.
  • 54. 54© JP Nicols, 2012-13 How do we do that? That’s our fourth imperative… We have to engage the ecosystem.
  • 55. Engaging the Ecosystem 55© JP Nicols, 2012-13 Capability Target Customers Vendors Partners Competitors Marketing & PR Compliance Technology
  • 56. 56© JP Nicols, 2012-13 Before we launch anything, we need to understand what problems our customers want solved, what the value chain looks like and what help we’re going to need from our partners, vendors, etc., and…
  • 57. We have to avoid co-innovation risk and adoption chain risk along the way 57© JP Nicols, 2012-13
  • 58. 58© JP Nicols, 2012-13 It’s not easy, but it’s not rocket science.
  • 59. 59© JP Nicols, 2012-13 If we can shift from execution to diagnosis, build trust and loyalty, move from product development to customer development and engage the ecosystem…
  • 60. 60© JP Nicols, 2012-13 Financial services firms can move from transactions to relationships, and innovate new paths to profitable growth.
  • 61. jp@jpnicols.com @JPNicols www.jpnicols.com