7 tips for innovators

June 20, 2022 9:00 PM

The mood was joyful at the Digital Banking Conference in Austin, Texas, last week. For many of the 1,000 attendees, this was one of the first events they had traveled to in more than two years. People were ready to network, share best practices and look at technologies that could improve the customer experience at their banks. Some were even contemplating whether or not to undergo a core conversion.

Speakers at the show, which was hosted by American Banker, offered sage advice on all these fronts. Read on for some of the nuggets of wisdom they shared.

Befriend other business units

Digital leaders can get themselves pigeonholed as the people with bright, shiny objects, warned Stacy Armijo, chief experience officer at Amplify Credit Union (at right, above).

“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, just the digital experience,” she said.

Sometimes digital leaders feed that perception by failing to take an interest in other parts of the business. Sometimes they use too many buzzwords.

“I don't remember the last time I decided to do something because someone made me feel stupid,” Armijo said. “Digital people like to talk really fast and we like to say a lot of jargon words. I think that diminishes our credibility.”

Fight the fear of change

A recent McKinsey report found that 85% of executives agree that fear holds back innovation efforts often or always in their organizations and that 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.

At least one banker challenged this notion.

“I bristle at this characteristic of leaders as fearful,” said Bob Petrie, director of innovation at Citi Ventures. A better term might be risk averse, he said.

“But to me that's also unfair in the sense that puts the onus of innovation on the individual and not on the enterprise,” Petrie said. “Corporations aren't great at giving permission to employees to take risks with corporate assets or to take risks with existing customer relationships. They look down on experimentation as something that is going to be less important than running the business. But risk taking and experimentation and failure at some level are necessary for innovation.”

On a related note, Erik Qualman, digital leadership expert and author of the book "Socialnomics," said pioneers always get pushback.

“If you’re not getting pushback, you’re not pioneering,” said Qualman (above).

Choose new ideas carefully

Wells Fargo does “ruthless prioritization” of new ideas, said Ash Tengshe, head of digital delivery for consumer and innovation at the bank (at center). “We have to say no to probably 180 of 200 ideas every month or two.”

The bank has a framework for vetting new ideas that includes figuring out the serviceable market for a new product.

“We don't want to go after 200 pilots,” he said. “We want to go after maybe 20, but these bets need to be strategically more important, more scalable and with a bigger addressable market.”

Think about compliance early

Petrie gave an example of an innovation lesson he learned when he first joined Citi after 18 years working at startups. His team had a hypothesis that if they helped consumers with bank-adjacent problems, they would be more likely to turn to Citi for their banking needs. They wanted to build technology that would pair consumers with financial experts in a digital way to answer their questions.

“We designed a matching engine to put the consumer in front of an expert,” Petrie said. “We were probably one month away from launching when control partners stepped in and said, ‘You can't launch. Despite the fact that you weren't selling securities or even advising on purchase of securities, it just looks too much like financial advice.’ So all of a sudden we were tagged as financial advice and inherited a number of FINRA-related regulation requirements."

Even though Petrie and his team viewed it as a simple matching engine, the match could be interpreted as a referral to a fiduciary, so they would need to disclose certain things and be liable for the advice that was offered.

"It really hobbled the project," he said. "We ultimately got something out, but it was a shadow of what we really wanted.”

At the time, it appeared that compliance officers had stopped the project.

“But honestly in hindsight, shame on us for not having given them a seat at the table at the very beginning,” Petrie said.

Don't get pegged as an expense

Armijo observed that companies sometimes back off innovation projects during economic turmoil.

“It is so tempting when there's uncertainty in the markets to say, ‘That thing we planned, maybe we're going to back off on that,’” Armijo said. “I was at a meeting yesterday in my organization where somebody said, ‘So should we still do that thing?’ I said, ‘Yes, we should still do that thing. Our situation is strong. We're in a good spot. We understand our positioning.’ There is no reason to let general fear and anxiety change our direction.”

Digital leaders can “choose not to get pegged as an expense,” she said. “We have to position ourselves as part of a growth strategy, not as a laboratory or incubator.”

Get in front of a central bank digital currency with a stablecoin

Mike Cagney, the original founder and CEO of SoFi who now runs Figure Technologies, believes as many others do that the concept of a central bank digital currency is an existential threat to banks.

He pointed out that the government could use a central bank digital currency instead of the prepaid debit cards it typically uses to distribute disaster relief.

“Prepaid debit is a horrible medium to do distribution because it's rampant with fraud,” he said. “There's no identity associated with that prepaid debit card.” During Hurricane Katrina, there were massive amounts of prepaid debit fraud, he said.

“Why wouldn’t the Fed say, well, we're going to use our central bank digital currency to just push that to your wallet?” Cagney said. “Once they do that, they're in the business of banking. And then the question is, if I'm providing a bank account for a certain portion of the population, why not provide a bank account for all the population and why not have economies of scale where this becomes a medium in which we all transact?”

That displacement of prepaid debit cards for purposes like disaster relief and unemployment assistance starts to become a bank account structure, Cagney argued.

“Why wouldn't it scale into the broader application set?” he said. “The banking industry should be getting in front of that with their own digital stablecoin. That digital stablecoin should allow them to extend product and service into a demographic they have traditionally served to address that need of displacing prepaid debit as a primary medium for disaster relief.”