The Case for More Innovation in Banking

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To many people working in financial services today, the word “innovation” actually sounds a lot like “risk”— at best a waste of time on things that aren’t proven, and at worst something that could put …

To many people working in financial services today, the word “innovation” actually sounds a lot like “risk”— at best a waste of time on things that aren’t proven, and at worst something that could put the company in harm's way, not to mention raise the ire of bosses and regulators alike.

It’s time to change that mindset. Innovation is really just about finding new ways to create favorable business outcomes, and that businesses that aren’t moving forward are moving backward.

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  • 1. The Case for More Innovation in Banking
  • 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 innovation, strategy and leadership 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. Today’s banking leaders came up in the industry during a time of (mostly) rising asset prices… 3© JP Nicols, 2012-14
  • 4. S&P 500 1980-2007 4© JP Nicols, 2012-14
  • 5. …and (mostly) falling interest rates… 5© JP Nicols, 2012-14
  • 6. 10 Year Treasury 1980-2007 6© JP Nicols, 2012-14
  • 7. … all in an era of deregulation… 7© JP Nicols, 2012-14
  • 8. 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 8© JP Nicols, 2012-13
  • 9. …and then… 9© JP Nicols, 2012-14
  • 10. 2008 10© JP Nicols, 2012-14
  • 11. A lot of bankers think that 2008 was just a bad year, or the start of a rough patch. Part of a normal cycle. 11© JP Nicols, 2012-14
  • 12. Inside of the industry, in terms of asset prices and liquidity, that’s pretty true. But it was also an important milestone of a new era. 12© JP Nicols, 2012-14
  • 13. Let’s look at the banking industry through a familiar lens… 13© JP Nicols, 2012-14
  • 14. Threat of New Entry Supplier Power Buyer Power Threat of Substitution Competitive Rivalry Porter’s Five Forces 14© JP Nicols, 2012-14
  • 15. 15 This era of RE-regulation is a useful proxy for supplier power 15© JP Nicols, 2012-14 Supplier Power
  • 16. The number of financial institutions is shrinking, but that’s not a positive force in this case. The largest that remain are bigger and more powerful than ever… 16© JP Nicols, 2012-14
  • 17. 5000 5500 6000 6500 7000 7500 8000 8500 2007 2008 2009 2010 2011 2012 Credit Unions Banks 17© JP Nicols, 2012-14 Threat of New Entry
  • 18. Financial services companies used to be gatekeepers of closed platforms and asymmetrical information, but customer power is growing, and their expectations are changing. 18© JP Nicols, 2012-14
  • 19. 19© JP Nicols, 2012-14 Buyer Power
  • 20. …and getting more complex… 20© JP Nicols, 2012-14
  • 21. …and expanding exponentially… 22© JP Nicols, 2012-14
  • 22. Data Explosion Source: CloudTweaks
  • 23. …and our customer’s expectations are no longer just shaped by other banking competitors 24© JP Nicols, 2012-14
  • 24. …and it’s not going to get any easier for banks… 26© JP Nicols, 2012-14
  • 25. FinTech M&A 2013 $2.97 Billion Tripled Since 2008 Accenture 27© JP Nicols, 2012-14
  • 26. 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 28© JP Nicols, 2012-14
  • 27. Worst of all, financial services used to have no real substitues… 29© JP Nicols, 2012-14
  • 28. 30© JP Nicols, 2012-14 Threat of Substitution
  • 29. The pace of change is ever quickening… 31© JP Nicols, 2012-14
  • 30. Time to 50MM Users 32© JP Nicols, 2012-14
  • 31. …yet we don’t seem to be taking this very seriously as an industry. 33© JP Nicols, 2012-14
  • 32. Where is Our R&D Spending? 34© JP Nicols, 2012-14
  • 33. No wonder we’re not perceived as being a very innovative industry. 35© JP Nicols, 2012-14
  • 34. Most Innovative Global Companies Banks, 4%Credit Unions, 0% BusinessWeek Top 50 36© JP Nicols, 2012-14
  • 35. So, how do we avoid the Fate of the “Dumb Pipes”? 37© JP Nicols, 2012-14
  • 36. 38© JP Nicols, 2012-14
  • 37. Think about how telephone companies have changed their marketing over the years… 39© JP Nicols, 2012-14
  • 38. From Pin Drops… 40© JP Nicols, 2012-14
  • 39. …to Screen Shots 41© JP Nicols, 2012-14
  • 40. It’s not about your branch network, or your ATMs or even your mobile banking platform. Those are just your “dumb pipes”. 42© JP Nicols, 2012-14
  • 41. It’s about the quality of the content you can deliver through those pipes. 43© JP Nicols, 2012-14
  • 42. In what domains can you truly be the best in the world? Treacey&Wiersemasaid probably not more than one. 44© JP Nicols, 2012-14
  • 43. Operational Excellence Customer Intimacy Product Leadership The Discipline of Market Leaders Michael Treacy and Fred Wiersema, 1995 45© JP Nicols, 2012-14
  • 44. So did Hagel& Singer. 46© JP Nicols, 2012-14
  • 45. Customer Relationship Management Infrastructure Management Product Innovation “Unbundling the Corporation” Harvard Business Review– John Hagel and Marc Singer, 1999 47© JP Nicols, 2012-14
  • 46. Do you have what it takes to truly compete in one domain, and partner for what you need in the others? 48© JP Nicols, 2012-14
  • 47. Customer Relationship Management Infrastructure Management Product Innovation 49© JP Nicols, 2012-14 R&D, Entrepreneurial mindset
  • 48. Customer Relationship Management Infrastructure Management Product Innovation 50© JP Nicols, 2012-14 Scale, Efficiencies, IT Investments
  • 49. Infrastructure Management Product Innovation 51© JP Nicols, 2012-14 Customer Relationship Management Data analytics, partnerships, focus
  • 50. It’s hard to innovate in banks. It’s even harder doing it alone. 52© JP Nicols, 2012-14
  • 51. A free membership organization that supports, promotes and facilitates innovation within and amongst its member banks. 53© JP Nicols, 2012-14
  • 52. 54© JP Nicols, 2012-14
  • 53. 55© JP Nicols, 2012-14
  • 54. 56© JP Nicols, 2012-14 Representative member job titles
  • 55. 57© JP Nicols, 2012-14 Our workshops and Lab Days are not lectures, or conferences, or demonstrations– we roll up our sleeves and work through ideation, design thinking and creative problem solving techniques together– in a safe, confidential and curated environment.
  • 56. 58© JP Nicols, 2012-14
  • 57. Then again, there’s always Plan B… 59© JP Nicols, 2012-14
  • 58. 60© JP Nicols, 2012-14
  • 59. jp@jpnicols.com @JPNicols www.jpnicols.com