10 Big, Hairy Innovation Ideas from Bank Innovation 2014
Dozens of ideas came out of Bank Innovation 2014, which spanned two days earlier this month and contained 12 sessions about cutting-edge financial innovation, as evidenced by the discussion around the event on Twitter at the hashtag #BI14.
So which of the ideas should not be ignored? We’ve highlighted the 10 “big and hairy” banking innovation ideas that will propel the industry into the future. Ignore them at your own risk.
1. API Banking
APIs — application programming interfaces — are the future of banking because they extend banking services across the entire digital landscape. There are services only banks can provide — holding funds on deposit, for example. Many different payments services exist, but almost without exception they require a link to a deposit account or more commonly, a debit or credit card.
Companies like Standard Treasury and Social Money, both of which took to the stage at Bank Innovation 2014, connect banks to wider customer bases via APIs. Standard Treasury helps banks build developer platforms around the bank’s core software, which allows developers to plug in to any number of a bank’s services. Social Money, known for its SmartyPig product, is soon to launch CorePro, which provides API access to a bank’s saving account features. A possible use for this would be that a prepaid card issuer, or any other company, can offer a savings account among its products.
Holding and moving money is still a bank’s business. As Fiserv’s Matt Wilcox tweeted during the conference, “Is it just me or do all non-bank startups still need banks to move money?” Yes — and with APIs surrounding this core functionality, banks can do a great deal more.
2. 20 Year-Old Virgin
How old is too old for a bank core? Donna Iverson of ATB FInancial and Kris Hansen of Axxiome took to the stage to describe the lessons learned from the core renewal process at ATB. The Edmonton-based bank was working with a 20-year-old core that was showing its age — in a bad way. And many banks are operating with cores that are older than that.
As the team at Open Solutions — now part of Fiserv — used to lament, “There are bank cores running PL/I.” PL/I was introduced 50 years ago. Bank cores are bolted together with parts from different vendors running different operating systems and employing dozens of different programming languages. A bank core cannot simply be “closed for maintenance” like an airport restroom.
To say that updating the beating heart of a bank is daunting is to wildly undersell it. Iverson’s tale of ATB’s project did not make core renewal seem easy, but with the proper partners and preparation, neither was it harrowing. Like avoiding the dentist, the longer the core is allowed to creak on, the more addressing the problem will hurt. But her overriding lesson was this: 20 years seems like a good age to consider overhauling the bank’s core. Good advice.
3. Innovation Agenda
Bankers had better work up an innovation agenda.
Miranda Hill of Wells Fargo Labs, the bank’s internal innovation center, described her mandate as not limited in scope or vision, but guided by the bank’s innovation agenda. Citibank’s JP Jolly similarly cited his bank’s innovation agenda as a guiding principle of the bank’s recent mobile app updates. “We don’t innovate just for the fun of it,” Jolly said. Tom Wells of US Bank also referred to his bank’s innovation agenda guiding developments in US Bank’s photo-banking features. The message is that at least the large banks have innovation agendas that powerfully influence work done in digital channels.
Innovation is not only about technology, said Francisco Mere, CEO of Agrofinzas in Mexico, and he’s right — but it mostly is, and an innovation agenda is a good first step toward banking innovation.
4. Partnering Outside the Industry
Brent Blum, Accenture’s wearable technology leader, presented the use cases for smartwatches and smartglasses, and, as an aside, commented on the way banks build experiences. “Why don’t more banks partner with design firms?” he mused.
Why not indeed?
We often hear that financial services firms need to look for inspiration outside the industry, particularly to the retail sector, to help re-engineer the branch experience. Considering the growing number of mobile-only banking customers, described in detail by US Bank’s Tom Webb, however, it is time for FIs to dedicate the attention to this experience it deserves.
Banks must realize they are mobile app companies that need to put in the design work required to satisfy the mobile-only generation. Partnering with a design firm is one way to do that.
5. A World Away
Here’s a little fact you might have missed: the volume of global remittances is expected to increase more than 6% in 2014.
That a fact, however, is not missed on some fintech investors. Global remittances is becoming one of the hotter sectors for investment within financial service VC.
At Bank Innovation 2014, Matteo Rizzi of SBT Capital, specifically mentioned global remittances as an area of focus for the fintech investment arm of Sberbank, the Russian bank. This is not the first time we have heard or even seen this focus. At least one bank based on the West Coast is putting a major emphasis on global remittances, even looking for alternative payments channels outside the usual SWIFT-based channels.
The target here are companies like Western Union that have built “tolls” within the global remittance system for their financial benefit. The costs are not inconsequential, and that’s got VCs circling. We expect this to be an area of fintech VC for the foreseeable future.
