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Dallas Wells and Jim Young discuss a recent PrecisionLender blog post on why simple is sometimes better when it comes to bank technology.
They chat about why there is a need to simplify technology interfaces in order to make it more user-friendly for its end users.
Space Pen - Seinfeld
Should You Price Loans with a Pencil or a Space Pen?
Jim Young: Hi, and welcome to The Purposeful Banker, the podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, director of communications at Precision Lender, and joining me again today is Dallas Wells, EVP of Banking Strategies at Precision Lender.
Today we're going to talk about a common misconception in business and heck, in life really, and that's if something is simple, it must not be powerful. Or spun differently, in order to do something important, you must have a tool that's really complicated. We're going to connect this to commercial banking obviously, but first we'll start off with how to write in zero gravity. All right, Dallas, we've got a bit of a trip to go to get from astronauts and writing to banks and pricing. Can you get us there?
Dallas Wells: I'll get us started on that journey. Let me start with where this whole post that we're going to be talking about, a blog post, came from. It came from some competitors of ours who tell some of the banks that we're working with, they say, "Look, Precision Lender will tell you that they have to start at the user of the system and work backwards from there," so they will make it usable for that end user, and if they do that, if they simplify it that much, there's no way that it really works. To us, that seems like a completely ridiculous statement, given where software in general is going, and as you point out, the ways things work in life.
So we wanted to start with one of those classic stories. It is just that, a story, but I think it makes a really good point. The story is, is that at the height of the Cold War, where it was the US versus the Soviet Union in an arms race, an economic race, and then all things even tangentially related to that, including a race to space, so to be the first ones to reach orbit, reach the moon, etc., etc.
With that space race comes a whole long list of engineering problems to solve, big and small. One of the small ones was you have to be able to write things down in space, for checklists and experiments and logs and all that kind of stuff. But with no gravity, the ink won't come out of an ink pen; you can't write things down. So in classic US government fashion, NASA commissions millions of dollars worth of studies and experiments and competitions among vendors, and somebody finally solves it and they create a pen that will write upside down, no gravity, will work in space for the astronauts.
So US astronauts go to space with this very expensive, very high tech pen to solve the problem. The Soviets are trying to solve the exact same problem in their race to space. They also solved it, but in a much faster, much simpler fashion. They used a pencil. Now, that's not exactly how it went, but that story has persisted on the internet because it does resonate so much. It take this really complex solution to a problem and points out that we went so far down this wrong path when there was this easy solution right in front of us, and sometimes simple really is better, so I think that's what, when you think about life and solutions to business problems, sometimes the simplest answer really is the best answer, and just because it's easy doesn't mean that it's not going to work.
Jim Young: The article, blog post, that Dallas references is on our site, and we got a link to it on this podcast page, but it's called Should You Price Loans With a Pencil or a Space Pen? Frankly, I thought that impetus for that was the Seinfeld episode with Jack Klompus and the astronaut pen. I was a little disappointed to find out that it had a slightly more important source.
Dallas Wells: Well, for you, Jim, we'll include both links in the show notes so that you do get your Seinfeld reference in there.
Jim Young: Absolutely should. All right, but let's bring things back down to planet earth where our friends in commercial banking have no problems writing that we're aware of, but they do sometimes run into issues with their lending process. What is the common question, Dallas, that banks have when they're discussing that possibility of adding a third party software? You mentioned what our competitors will say, but is that the same sort of ... do we get that kind of pushback as well from banks?
Dallas Wells: Yeah, so we talk about this of course in our context, which is banking and commercial banking and pricing specifically, but this is really a part of a much larger trend in the software world, which is large enterprises, you know, the very biggest companies in the world, and of course the large banks definitely qualify there. They're big, they're complex. Everything that they do is complicated and hard. It's NASA designing a pen. There's lots of moving parts for everything that happens.
So for years and years, the only way to solve that was you build your own. Either your in-house engineers build your own thing, your own solutions to every problem so that it can cover all those unique use cases that are specific to you, or you hire a vendor to come in and do a custom build for you. You know, time and materials, they have an hourly rate, and they build exactly what you want to exactly your specifications. There are billions of dollars that have been spent on software and solutions being made this way.
Only recently in the grand scheme of things have some of these large enterprises started to look outside their own walls to some third party solutions, and that comes about somewhat because looking for some of that simplicity. There's got to be an easier way to do some of these things. If you're listening to this as a banker, you've certainly seen some of these, but if you've seen enterprise level software, it is impossibly complex and difficult to use. That's putting it lightly.
So things that should be simple and should be quick and easy are hard and time-consuming and very susceptible to errors. So these enterprises have started looking outside the walls for can somebody bring us a more modern solution, a cleaner interface to these difficult problems? There's enough dollars at stake that people have figured it out. I mentioned in the post, some of the early pioneers of this were Salesforce and VIVA and Workday, and now there's a whole bunch of them, but they finally cracked it to where they could provide a solution that was simple to use but solved the complex problems.
So that's really now what we face this every day with banks, is they're having that internal debate of we have all these legacy homegrown tools, but we're starting to look, are there things outside that could do this? So you have this internal conflict where you have some of the incumbents who built some of those things or it was their budget who got those things made, and they said, "Look, these work, they're custom to us. There's no way that you can find a third party solution that will do all these little one-off things that we needed to do."
The innovators inside these institutions and these banks are saying, "I think they can. I think they can solve this," so it's a new debate, but it's one that's really important for these organizations to get right.
Jim Young: What do you think shifted the pendulum in this debate? You mentioned Salesforce. It's not like Salesforce hasn't been around for awhile. What is it that maybe has, if you call it incumbents versus innovators, maybe has innovators gaining a little bit of the upper hand on incumbents now?
Dallas Wells: The same story has happened that Precision Lender has lived. When Precision Lender was founded back in 2009, first brought on clients in 2010, we worked with smaller community banks. They're solving the same fundamental problem, but it was for a lending group of like 10. You know, 10 people and limited product sets, so we could start smaller and simpler and get out the core issues, and then over time we slowly started working with larger and larger banks, and we would run into new problems, new complexities. We could solve those one at a time, and eventually over time you build up enough track record to where even the largest, most complex institutions you have answers for.
Salesforce kind of went along the same path. It was a small business solution. Their very famous slogan was the "no software" thing, and they were appealing to those small and mid-size businesses that just didn't want to deal with all the complications of software. It was this thing you could just turn on and use. It worked because it was simple, and then over time they learned how to solve those bigger business problems.
Between the technology just maturing and evolving, all of the Cloud computing trends that we've talked about a lot with machine learning and artificial intelligence, those things have gotten good enough now where those technologies that have been concepts for a long time now have actually worked. They logistically work in the real world. All those things have come together at the same time to where now these new solutions are really viable alternatives, whereas maybe five years ago or definitely 10 years ago, they really weren't viable. They couldn't handle those one-off customization, unique things that the enterprises need to tackle.
Jim Young: I had a theory on this. I put it down here and as soon as I wrote it in our list of questions for this, I thought this is probably completely wrong, but I'm going to throw it out here, and if it's completely wrong we'll just erase it from this podcast recording and no one will know, we'll cut that out.
Dallas Wells: Okay, deal. Yeah.
Jim Young: When you were writing about it, you were talking about that a lot of this complexity was built upon getting to actually a pretty simple end result, which is essentially coming up with a rate that a customer could take or leave. In other words, you had a complex tool, and that got the job done when the actual negotiation was simple. Here's a rate. Does it work for you, yes or no?
But as we've talked about and written about and read about, customer needs are growing more and more complex, so could you then make an argument that as the needs grow more complex and therefore the need for flexibility in that negotiation becomes greater, that means you actually need a tool that is, with its interface, simpler to use?
Dallas Wells: The good news is that I think we get to keep your question because I think you're exactly right. Really, I don't know if it's as much about customer needs as it is about customer expectations. I'll use an analogy that we've used before, but if you think about cell phones, 10 years ago, or I guess we're 10 years into the iPhone now, so think about 15 years ago where it was flip phones, or at best, kind of the early days of the Blackberry with the little plastic keys. They did things very simply, and people's expectations of them were very low, right? It should make a phone call, and if I'm willing to tap the 7 button nine times, I can get it to put a letter on there as part of a text message.
Now, the latest smart phones are incredibly powerful computers, and they do a ton of things. They're really, really complicated to use, and if you think about trying to do those same things on the cell phones of 15 years ago, it would have been impossible. And the way that they made it work for your average, every day consumer is the interfaces are really simple.
That's people's reality now, is the ability to get to really powerful, complex tools through a simple, intuitive interface, so now they come at commercial lending the same way, right? I have a financial need, and I don't just want to take what comes out of the box. I don't want to take your five year balloon on a 20 year end that you give to everybody, and the rate is take it or leave it.
I can customize this thing, I can easily shop it around town. I can get to the moving parts of this and have people customize this for me. That expectation of how life should work, how transactions should work, that bar has been raised, so banks need to solve that the same way that the iPhone solved it. You have to simplify all that complexity and make it accessible to people.
Jim Young: Really what we're talking about here is that front end simplicity does not mean back end simplicity.
Dallas Wells: Exactly.
Jim Young: Got you, that you got that power that you had before, but now with a much easier interface on it. I guess in a way I'm glad that that story, the pen/pencil story is not actually a true story. At least I hope it's not, that we didn't do that. It had some very valid reasons for doing the astronaut pen, not the least of which was to provide episode fodder for Seinfeld.
Dallas Wells: Exactly.
Jim Young: All right, but Seinfeld is a discussion for another day. That will do it for this podcast. Thanks for listening. If you'd like to learn more, visit our resource page at explore.precisionlender.com. If you like what you've been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, Google Player, Stitcher. We love to get ratings and feedback on any of those platforms. Until next time, this has been Jim Young with Dallas Wells, and you've been listening to The Purposeful Banker.
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