Fintech is changing the financial services industry, and simply executing yesterday's tactics a little bit better is no longer sufficient in this era of digital disruption.
In this podcast, JP Nicols, Managing Director of the FinTech Forge, will share how the most innovative organizations in the world innovate on purpose to create better outcomes for their customers and for their companies.
Dallas Wells: Hello, 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, Dallas Wells. Thank you for joining us.
The title of today's podcast is The Best Way to Predict the Future is to Create It. We're joined to have that discussion by JP Nicols. JP, like myself, is a recovering banker and is now the managing director of the FinTech Forge, the founder of the Bank Innovators Council, which is now part of Next Money. He's a trusted advisor to companies from start-ups to Fortune 500, a popular writer, and a top-rated speaker.
Today, JP is going to share with us how to innovate during this disruptive time and how to do all of that with a purpose. JP, to get us kicked off, why don't you give us a little bit of insight about your background?
JP Nicols: Sure. I spent 20 years helping to grow a $6 million asset bank into over $400 billion in assets to become a national leader, now known as US Bank. I did a lot of front roles there. Most recently, I was Chief Private Banking Officer, but the part of the job I enjoyed the most were those unofficial roles in innovation, where I really helped create some of the innovative capacity in the organization.
For the last five years, I've really been working at that intersection of financial institutions and fintech and innovation. The rise of technology has really changed the game for bankers. I enjoy working with them and helping them think through these changes of what they need to do to respond and to not only survive, but to thrive in what I call, "the era of digital disruption."
Dallas Wells: Yeah, absolutely. In this new era of digital disruption, which I think is a great way to put it, banks need to innovate their products and services. A lot of them are starting from frankly pretty far back, when you look at how the rest of the world has moved over the last decade or so. That innovation has to start from the leadership. How can the leaders of these organizations really take that first step towards innovation, towards trying some new things?
JP Nicols: We see three groups of banks we call leaders, learners, and laggards. They're roughly correlated with size, but not always. There's some very innovative smaller banks out there and some of the big banks are moving pretty slowly as they're known to do. Some of the largest and most well-resourced banks are really ahead of this. They've built innovation labs. They're investing in fintech companies. They're partnering with accelerators and incubators.
There's a long tail of laggards who don't get in and maybe never will. I tend to spend most of my time with that group in the middle who know they need to do something, even if they're not exactly sure what to do.
I think you're right. It does need to start with leadership, but one of the things I would say is mustn't end there. That's necessary, but insufficient because the most innovative organizations are not just all led from the top. Some bright engaged visionary leaders who say, "I know what we need to do. Let's go do this, this, and this, and therefore, we'll be innovative." That can certainly work in the short run.
Over the long run, we really have to foster a culture of innovation, and that's fundamentally different than the culture that we have. You mentioned you, like me, are a recovering banker.
Dallas Wells: Yeah.
JP Nicols: Think about what that means, right? The kinds of people that go into banking, stay into banking, get promoted in banking. We love to figure out what can go wrong and figure out how to put more belts and suspenders on so nothing does go wrong. What that means is, we tend to have this one-size-fits-all view of risk. Oh, that's risk. It's binary. We don't want risk or we're going to turn it off.
The reality is, testing some idea with customers before it's completely perfect is not the same thing as bet the farm enterprise level risk of, "I don't know. Why don't we invest all of this in a foreign currency hedge fund?" That's not what we're talking about.
One of the things that I do when I work with clients is, one of the first things is help them create what I call a declaration of innovation. What that is, is something that connects their corporate strategy and their corporate values and DNA to a strategy about innovation. It shouldn't be about chasing shiny objects or garnering headlines that say, "Oh! We're innovative. We just did this-or-that."
It's really about, how do you create value? How are you going to do that in a way that works for our organization?
Dallas Wells: Yeah. You mentioned a couple of interesting things in there. One of which was, culture, and a culture of innovation and it can't just be a leader making speeches and all of a sudden, now we're innovative. Really, building a culture and getting something happening across the organization. You're talking about, I assume, a pretty resource intensive process.
I think that's what also scares some banks. It's just not the risk, but also dollars of expense that we're all a little reluctant to part with. What kinds of resources will banks really need to start making that cultural shift?
JP Nicols: You know, I'd actually argue that it doesn't have to be resource intensive. In many ways, having constraints is actually a better impetus for innovation than being resource rich.
Dallas Wells: Yeah.
JP Nicols: I think there's been a fair amount of innovation theater that's gone on in the last few years where people have launched bright shiny labs and hired people with hoodies and sneakers to run around their cool glass offices.
Dallas Wells: Right.
JP Nicols: That doesn't equal innovation either. The purpose of innovation as I said right, is to create value. If you really can get close to your customers and understand, what are the pain points they're trying to avoid? What are the gains they're trying to achieve, right? What are the jobs they need to have done and embed that into your ongoing process. That doesn't necessarily have to be expensive.
In fact, I would argue that the way we've done a lot of things is actually more expensive than doing that in an innovative way because in my book, doing it in an innovative way is somewhat synonymous with test and learned or some of the principles that have come out of Lean Startup and Scrum and Agile.
We think that if we can get our smartest people all around a big brown conference table and we can put in all the best made up numbers we can and all of the Excel spreadsheet cells, we'll have an excellent plan. Then, all we need to do is flip the switch and turn into execution mode, which we're pretty good at it, as bankers. We're really good at executing.
The reality is, that's riskier than ever in this more-and-more uncertain world with more-and-more asymmetric and different kinds of competitors that come along. I like to quote Mike Tyson, who said it I think most succinctly of all, "Everybody has a plan until they get punched in the face."
Dallas Wells: Yeah, love that quote. Yeah.
JP Nicols: Think about, and I'll tell you, there's a client we worked with recently. The CFO was ready to write a $13,000,000 check. He was pretty taken aback when we said, "Actually, why don't you just write a half a million dollar check right now because we have a few key things we really think you need to prove out. If those make sense, then we'll come back and ask for more money. If they don't, we're going to have to figure out a Plan B."
Of course, he was used to trusting the process and the made-up numbers and the Excel spreadsheet and hoping that 12 or 18 or 24 months from now, he would find out whether any of those things made sense. You and I probably both have a lot of experience with project-after-project that took too long and didn't hit the goals and were over budget.
I don't think it's really a question of resources. It's less about the haves and have nots. It's more about the wills and the will nots.
Dallas Wells: Kind of avoiding the tech, for the sake of tech, and really talking about innovating, which doesn't have to be technology. It can also be innovative processes and approaches to things, but really doing that with a purpose, right? With an end goal in mind to solve a problem, to serve a customer, to do something very intentional instead of just saying, "We've got to do something because everybody's doing something."
JP Nicols: Right. The other thing I would, when I think about resources, there's a lot of talk about partnering with fintechs now. I think five, ten years ago, fintechs were going to shows like Finovate and saying, "We're going to disrupt the banking industry. We're going to put them out of business." From their perspective, they found, it's really hard to scale.
Now, it's also really hard to sell the banks, but that's how many them have pivoted. It's just a different kind of hard. Now, the rhetoric is going, "Oh, we're your partner."
I love Ron Shevlin from Cornerstone Advisors. He's written a couple of pieces about this. It's not a partnership. He says, "Your procurement department doesn't draft partnership agreements. They draft contracts and they're really good at it."
There's a whole host of things we could do down that rabbit hole, but when you think about resources, one of the things I like to say is, "Look, just because you have a procurement department and a couple of tech vendors, doesn't mean you're "partnering with fintechs." I think it's not about how many resources you have, it's about how you deploy them.
Dallas Wells: Yeah, absolutely. I think kind of what you're getting to there and what we've danced around a little bit, is something you've talked about in several of the pieces you've written, which is really that there is no silver bullet for this, right? There is no magic solution for innovation.
How does a leader really know when to stick out some of these tests that you've talked about? Some of these things that we're going to try with customers? We're going to spend a small amount of money before we write the big check. That's a new and probably uncomfortable thing for a lot of bankers.
How do they know when to stick out those kinds of things and when to throw in the towel and change course with that adjustment? Really, how do they get used to that new way of viewing the world and being a little more experimental in their approach?
JP Nicols: This is the beauty about approach. If you really are putting the customer at the center of it and you're clear about what you're trying to achieve, and then you can set yourself up with a set of hypothesis that you want to test and learn and prove. I use a poker analogy. None of us would sit down at a poker table and push all of our chips to the center and say, "Deal me some cards. I sure hope they're good."
Yet, that's pretty much the way we do our project planning process as I just described a moment ago. Instead, of course, we would be the minimum ante amount, get a couple of cards, and see how they are. If they're not so good, we'll fold them and get dealt in the next hand, but if they're good, we're going to increase our bet and play on that.
This idea of knowing when to stick around, if you follow the process, the data will tell you that. If you're making progress, you'll know when to keep going. You might also know when to pivot or turn sideways. Sometimes, you find things you weren't looking for or something that surprised you or it might be a new thing.
Famous story of how 3M developed Post-it Notes. They were trying to develop a glue and it ended up being a glue that wasn't that sticky, which turned out to have unbelievable amount of uses, particularly of anybody that puts innovation in their job title. We love sticky notes.
Dallas Wells: Right.
JP Nicols: Right. It's really about just being clear about what you're trying to discover and being open to the new discoveries that come along the way. One of the other stories I tell a lot, is I talk about Blockbuster. It's easy to use them as a punchline today, to look backwards, and to say, "Oh! Look at that once great company and they failed."
The point is, they really were a once great company. They got great by executing the same business model as the rest of the industry, better than anybody else. Netflix didn't beat them at their own game, they changed the game. I think this should be a really strong warning shot across the bow for bankers.
If you look at the consolidation that we've gone through during my time in the industry, we've gone from 13,000 banks in the U.S. alone, down to less, well, around 6,000 today, but it's heading even fewer. The winners over the past couple of decades executed the business model better than everybody else.
I don't think that's what the next decade looks like. It's really about who's finding new business models, who's finding new ways to compete, who's finding new ways to be relevant to customers. That doesn't necessarily mean they invent everything in-house.
If we go back to with all of Ron Shevlin's caveats well taken, partnership or vendor relationships, however you want to call it with fintech companies, I think really is a part of the future of back to where we started thriving in this era of digital disruption.
Dallas Wells: Yeah. The idea that banks don't have to recreate the wheel. There's a lot of great services and tools already available out there to help make this road a little easier.
Tacking onto your thoughts about Blockbuster and Netflix and, by the way, love that piece that you had. We'll link out to some of the stuff you've written about this, but you talk about there, what I think is especially applicable to the banking industry there, about success being a poor teacher.
Part of that is, is that Blockbuster, they saw some of the upside of Netflix, but they felt like they had more at stake, more to lose by chasing that, right? They would cannibalize some of their own business.
I think that's a little bit of what some banks are wrestling with now, is saying, "Look, we've got it pretty good the way we do things today. It's a comfortable, profitable business. There are these high barriers to entry."
"Why would we want to go too far to meet the fintech competitors where they are and really cannibalize some of the goodness that we have? We've got a lot at stake that we could lose by shifting to that new way of doing things." I think that's an interesting warning story in a lot of different ways of Blockbuster in general.
JP Nicols: Yeah. That's exactly the innovator's dilemma that Clayton Christensen wrote about now 20 years ago in his book of the same name. We have real live customers buying real live products today generating real live earnings and revenue. Why would we divert that towards something new and unproven? Yet, the flip side of that is, we know in the back of our minds, we know the stories of Blockbuster and Kodak and Nokia. Many, many, many others.
In fact, that's the norm. That's the rule, not the exception is that over time, the business you're in will get disrupted and disintermediated. It's not about ... A lot of people say, "Well, disrupt yourself before someone else disrupts you." Well, that's not exactly the right word. You don't want to disrupt yourself, but what you do want to do, is give yourself some strategic options.
While you're taking care of your existing customers through your existing products, it's spending a little time thinking in the future and testing some of those things out that maybe aren't going to pay off in the next four to eight quarters or even longer, but starting to test those things out in a small, test-and-learn kind of way, that will give you some options for the future.
One of the things I say a lot, is you don't necessarily have to be out on the cutting edge. Most banks don't want to be and they don't have to be, but they do have to close the gap. One of the things I worry about in our industry is that a lot of people mistakenly have, if they believe to be, a fast follower strategy. The problem with that is, they're usually not fast. They're usually half right.
Dallas Wells: Yeah.
JP Nicols: You're a follower, but you're not really fast.
Dallas Wells: Yeah.
JP Nicols: If you're going to be a follower, you have to be fast enough. That doesn't mean one quarter later, but if you put it off long enough, then that gap just becomes bigger-and-bigger-and-bigger, and you're no longer relevant and you're in this cycle. Where I think a lot of financial institutions are now, where they're just relentlessly trying to play catch-up.
The customers' expectations of experiences, are not just shaped from the financial services industry, but Uber and Netflix and Amazon and Starbucks and on-and-on-and-on have raised the bar of what customers expect. Then, to have that be a stark gap between their expectations and what you can deliver, you don't want that gap to get any bigger. You want to close it over time and then find those opportunities to be able to catch that next wave of growth.
Dallas Wells: Yeah, for sure. Just so I can beat our analogy to death here, Blockbuster did do the follow on of Netflix where they tried to do some stuff by mail and as Netflix was shifting from mailing out DVDs to doing the streaming thing that made them the giant they are, Blockbuster tried a little bit of that, but they were following, but they were way late. In fact, it was too late. They could never keep up. Really, it was a done deal by the time they decided to do that.
JP Nicols: Yes, not only was it too little, too late, but in 2001, Reed Hastings of Netflix, actually offered to sell his company to Blockbuster for $50 million. Blockbuster declined to make the purchase. Of course, they had a low fidelity business model at first, mailing DVDs back-and-forth in the mail.
With a cost advantage, they were able to get to streaming faster. That was the secular growth curve that they were able to catch and to be on top of that wave, not getting the wave crashing over you, but being able to ride it.
I often also tell the story of Apple. A lot of people forget, in 1997, when Steve Jobs returned to the company after being fired, the company was, and also ran computer company, with about 3% market share.
Dallas Wells: Yeah, and very near death themselves.
JP Nicols: Very near death and except for a lifeline of capital from their archrival, Microsoft.
Dallas Wells: Yeah.
JP Nicols: What they were able to do over the first piece, was the hunker down strategy, which I think our banker friends identify with. "Well, let's stick to our core competency. We're doing too many things and not well enough. Let's do fewer things better." That made all the sense in the world, but that wasn't the strategy he stuck with over the long run, now is it the run that made Apple the most valuable company in the world and Steve Jobs a legend.
He was able to position the company to catch not one, not two, but three massive secular growth curves and really push the wave forward through their own innovative products. First, with digital music, secondly with smartphones, and third with tablets.
If you can do that once in your lifetime, you're a legend. Steve and the Apple team were able to do it three times in a decade.
Dallas Wells: Yeah, and at huge scale. Yeah.
JP Nicols: Yes.
Dallas Wells: All right, JP, this has been good stuff. Let's shift gears slightly. You'll be attending our second annual Bank on Purpose Conference that's in Austin this May. We're thrilled to have you there. You'll be running the anchor leg, as a keynote, right at the end of the conference. Can you give folks a sneak preview of what you'll be talking about there?
JP Nicols: Sure. I'm happy to join you and I love the name of your conference, Bank on Purpose. I'm going to title my closing keynote, Innovate on Purpose. It's about all the things that we just talked about, that the world is changing and simply executing a little bit better isn't enough anymore.
We have to be able to create value for our customers and along the way, create value for ourselves. We're going to talk about some of the tactical, practical things that this means, not just chasing the shiny objects, but how do we create real value? How do we stay in the game? How do we give ourselves options for the future so we don't become next decade's conversation about Blockbuster?
Dallas Wells: Yeah, absolutely. Well, we will wrap it up there for today. We encourage you to check out JP Nicol's blog and the other resources he has online. We'll link to those things in the show notes for this episode. You can always find those at precisionlender.com. JP, thanks again for coming on. We really appreciate it.
JP Nicols: My pleasure. Thanks for having me.
Dallas Wells: Yeah. Thanks everybody else for taking the time to listen. If you like what you've been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, Google Play, or Stitcher. Of course, we'd love to get ratings and feedback on any of those platforms.
You can always find more episodes as well as our show notes in the resource center on our website. Thanks for listening. Until next time, I'm Dallas Wells and you've been listening to The Purposeful Banker.