Best of Both Worlds: Goldman Sachs’ Stephanie Cohen

My guest today is one of the most high-ranking women in the world of banking. Stephanie Cohen is Global Co-Head of Consumer and Wealth Management, Goldman Sachs. In that role, she co-leads Goldman’s digital bank, Marcus.

We have talked on the show before -- and we do so again today -- about the uniqueness of Marcus. It’s a rare hybrid:  a wholly new financial company, created by an old one -- in this case, by one that is 152 years old. That combination opens the possibility of being the best of both. Unlike most old financial companies, Marcus has a brand new, from-scatch, digital first -- I call it digitally native -- technology stack. Unlike most young companies, it can offer a full set of services, and also knows how to be a regulated financial entity. Having both halves of this equation is a massive advantage over having just one half, which is what nearly all its competitors have -- either one or the other, but not both. Both the incumbents and the startups in the financial world are struggling to get the half that’s missing. As we talk about on this show all the time, that’s not easy.

In our conversation, Stephanie explains the Marcus strategy. They are moving rapidly to offer a full spectrum of services in hopes of being people’s primary bank, one that is digital first, informed by data, and designed to make life easy.

She also talks about Goldman’s second consumer strategy, which is to embed the same capabilities, plus credit card, in the offerings of partner organizations -- think of the Apple Card. Stephanie says people today expect the bank to come to them, to join them in the digital ecosystems they already use or, as she puts it, that they already know and love.

Central to both of these Goldman businesses is digitization. Stephanie takes us beyond the buzzwords to describe what digitizing financial services can mean to the customer. She points to the ability to extend wealth management services to people whose wealth wouldn’t qualify them for traditional programs. She describes Goldman’s use of behavioral science to help people make choices that will build financial health. She talks about reimagining product design, and shifting card users from revolvers to transactors, and helping people pay several times a month, and ways to overcome declined credit, and ways for whole families to build credit histories together. She says that the ONLY way to expand credit access is to learn to underwrite the PERSON, instead of the credit score, and she says doing this requires having more data.

Stephanie believes these kinds of upside opportunities from digitization will outweigh the downside risks -- as do I, assuming the industry and regulators attend to related risks on privacy and potential bias. Our conversation did cover these unintended consequences that can arise, especially as new concepts are first introduced. Stephanie emphasizes that they are just at the start of building this new kind of bank and that innovation is hard. She talks about the keys to doing it right, including the need for experimentation and for getting all the right people in the room. That sounds simple, but as she says, it’s difficult. 

Related to that, Stephanie says diverse teams clearly outperform monolithic ones, but that businesses just don’t build them, and VCs don’t fund them. She cites the “strange circumstance” that 90% of venture capital dollars go to all-male teams and 99% to all-white teams, neither of which reflects the world around them. She talks about what Goldman is doing about it -- and note her invitation to like-minded investors and institutions who want to partner.

I asked Stephanie for advice for women who aspire to follow a career arc like hers. She has some really interesting insights for them, and also for male leaders trying to get this right.

Stephanie was once a competitive figure skater with Olympic ambitions. With the Tokyo games fresh in mind, it’s thought-provoking to hear her talk about the lessons you learn from sports like skating. You will fall down. Then you will get back up and try again. It’s a wonderful metaphor for innovation.

Links

• Goldman Sachs

• Marcus

More on Stephanie

Stephanie Cohen is Global Co-Head of Consumer and Wealth Management and a member of the Management Committee. She is also a member of the Global Inclusion and Diversity Committee, serving as a Global Executive Sponsor of the Women’s Network.

Prior to assuming her current role, Ms. Cohen was the firm’s Chief Strategy Officer, where she drove strategy, Mergers & Acquisitions (M&A), strategic investing and partnerships for the firm. She also led Launch With GS, Goldman Sachs’ $500 million commitment to invest in companies and investment managers with diverse leadership, as well as GS Accelerate, the firm’s in-house innovation engine. Before that, Ms. Cohen was Global Head of Financial Sponsor M&A in the Investment Banking Division (IBD). Ms. Cohen was Sector Captain for General Industrials in the Global Industrials Group and a member of the M&A Group in IBD. In 2008, she managed Conflicts and Business Selection for IBD in the Americas. Prior to that, Ms. Cohen was a Vice President in the Industrials and Merger Leadership Groups in San Francisco. Earlier in her career, she worked in New York in the M&A department. Ms. Cohen joined Goldman Sachs as an Analyst in 1999, was named Managing Director in 2008 and Partner in 2014.

Ms. Cohen serves on the National Board of Directors of CollegeSpring and as a member of the Board of Quill.org. She also serves as trustee for the Board of The Economic Club of New York.

More for our Listeners

Please follow AIR on LinkedIn and Twitter, and also please follow me personally on Twitter @JoAnnBarefoot. And be sure to leave us a five-star rating on your favorite podcast platform.

AIR is hiring! We need a project manager for our TechSprints and a global head of marketing and communications. We promise an exciting, creative experience with our young, fast-growing nonprofit. The postings are at www.regulationinnovation.org/join-air.

Coming soon on Barefoot Innovation, we will be making my 2021 SXSW session with Cleve Mesidor, on Diversifying Tech, into a podcast. We are very excited about a podcast this fall with the Netherlands’ Queen Maxima, who is the Global Advocate for Financial Inclusion for the United Nations. We’re also going to do a fascinating show on AI and fairness with Lisa Rice of the National Fair Housing Alliance and Kareem Saleh, CEO of FairPlay.

By popular demand, I’m also recording our whitepaper, the Regtech Manifesto, as a podcast. The Manifesto has been out now for over a year but continues gaining traction and generating great feedback. Recording it takes time, but coming soon!

Make sure to listen to our recent podcast with Energy Web CEO Jesse Morris on Crypto and Climate and, for those interested in climate and green finance, please join David at the IPPNY Fall Conference — that’s the Independent Power Producers of New York. David will also speak at AITE Group’s Financial Crime Forum and at Aire Talks (no relation to our AIR).

Meanwhile I’ll speak September 21 at NFCC Connect for the National Foundation for Credit Counseling (I’m on their board). And don’t forget to register for my presentation at the FDIC’s great fall conference -- I’ll speak about ‘Banking on Data: Great Possibilities, Great Responsibilities!’ I’ll also be speaking at SCxSC 21, hosted by the securities regulatory commission in Malaysia. 

And of course I’ll be at Money 2020 -- which is scheduled to be back in person again this year -- for a discussion with Hummingbird CEO Matt Van Buskirk and with Brian Brooks. Brian, of course, is the former acting Comptroller of the Currency and was, briefly this year, CEO of Binance US, and we’re going to talk about regulation and cryptocurrency. We’ve started brainstorming our talk and are planning to shake things up, so don’t miss it!

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Innovating in Payments: Wells Fargo Head of Partnerships and Industry Relations - Braden More

I could tell I was walking into an innovation lab even before I saw the space, because I could hear the ping pong game underway as I stepped off the elevator. It was great fun to be in San Francisco, on a sunny day in early fall, to talk with Braden More, Wells Fargo’s head of partnerships and industry relations -- and to see their fascinating innovation facility, which includes what they call their R&D Garage.

As Braden explains in our talk, Wells Fargo has reorganized to establish an integrated digital strategy for payments, under the leadership of their famous innovation head, Steve Ellis -- whom Braden described as the Steve Jobs of banking. They know that today’s customers expect a great digital experience, which means they won’t put up with processes that break down as they hit the old silo walls between traditional bank product groups, nor processes that merely automate old paper based, linear designs. Banking has to become fully digitized -- with all the gains in speed, cost, accuracy, and innovation that comes with digitizing anything.

Not surprisingly, a lot of this episode focuses on the challenge of how you change a large organization. Big banks are anything but nimble. It’s not their fault, it’s just their nature -- their size, their complexity, and their reliance on legacy IT systems that have accumulated, in most cases, over years and decades of mergers and acquisitions, and never been fully integrated with each other. On top of that, every move that big banks make faces regulatory requirements and close regulatory scrutiny, and regulators, for good reason, tend to frown on fast change -- especially the kind championed by small fintech innovators who love concepts like “minimum viable product” and (God forbid), “fail fast.”

However, all the big banks know they do have to change, and also that they have to speed up -- dramatically. That’s because the technology change is speeding up. Its curve is exponential, which means that both the opportunities and risks are outstripping organizational models and cultures that were hard-wired many years ago -- even decades or centuries ago -- for linear change.

A big bank innovation model is now emerging. It usually has a few elements. There’s an innovation team, which is usually small, is charged with rapid learning. Some of it is typically walled off, so that the big organization won’t accidentally smother it. There’s a lab-type effort, with a mandate to reach beyond short term, practical applications and do some dreaming. These sometimes have an actual playful edge to them -- hence the popularity of ping pong tables and bean bag chairs. Meanwhile, other parts of big banks today are busy with projects trying to smash down some silo walls and push people into the same rooms, to work knee-to-knee on shared challenges. And there’s usually an accelerator or incubator that brings in startups and tries to learn from them, sometimes making venture investments.

Wells Fargo has all this underway, and Braden explains their philosophy on how to get the best of both worlds -- both isolating ninja-style disruptors while also making innovation central to everyone’s job. If you’re a fintech, he describes their accelerator and some of its successes, including Eye-verify, which verifies customers’ identity by scanning the whites of their eyes with a phone camera, and which has been acquired by China’s huge payments innovator, Ant Financial -- Alibaba. He also tells the story of Wells Fargo incorporating Zelle’s instant payment service into the bank, and its importance to customers who need quick cash. Our conversation ranges widely, from the future of fast payments and crypto-currency to the evolution of skills needed at banks.

Braden also previews coming attractions for 2018. One key:  he says active online and mobile users connect with the bank every 42 hours on average -- vastly more often than traditional branch customers. Converting this rich relationship into more value for both customer and bank is a key to the future.

Big banks have unique challenges in embracing innovation, but they also unique resources for solving them.

A highlight of my visit was seeing the toy room. Pepper is there -- the charming talking robot. So are 3-D printers, biometric safes, and drones -- Braden gives an example of how bank can use a drone. He even talked, intriguingly, of occasionally seeing the folks in The Garage busy making things with soldering irons. You hardly ever used to see that, in a bank office.

More Information

• Wells Fargo’s accelerator: https://accelerator.wellsfargo.com/
• Podcast with Citigroup’s innovation lab
• Podcast with US Bank’s innovation lab
• Sanjay Jain Podcast
• Pepper the robot

More on Braden More

Braden More is the head of payment strategy at Wells Fargo. He and his team work across Wells Fargo to coordinate payment strategy, incubate new initiatives, and represent Wells Fargo in the payments industry. Braden also serves as the portfolio manager for the Wells Fargo Startup Accelerator, a program that mentors and invests in innovative companies.

Before assuming his current role, Braden was the head of strategy and planning for Wells Fargo Treasury Management. Previously he was with Wells Fargo’s Internet Services Group, and before that held positions in public accounting, management consulting, venture capital, and competitive strategy with Deloitte, Wit Capital, and Intel.

Braden graduated magna cum laude from Bowdoin College with a degree in government and legal studies. Subsequently, he earned an M.B.A. with distinction from NYU’s Stern School of Business, and a CPA license from the state of New York.

Braden lives in San Francisco, where he is active as an advocate for experiential science education. He has served on the board of directors for the Exploratorium Lab and Marin Academy. His Twitter handle is @BradenMore.

More for our listeners

I’m about to finish what I’ve called my World Tour -- travels all over the world this fall making speeches, meeting fascinating people and, happily, collecting podcasts. I’ve learned so much, so fast, about fintech and regtech, it’s hard to absorb it all. I’ll be sharing lots of thinking in the new year.

The upcoming podcasts are amazing. We’ll have one with Nick Cook, who leads the FCA’s innovation work on regtech, recorded at Regtech Enable in Washington. We’ll have Nerd Wallet CEO Tim Chen, and Cross River Bank CEO Gilles Gade. We’ll have one in London with the charismatic CEO of Starling Bank, Anne Boden and one with Innovate Finance CEO Charlotte Crosswell. We’ll also have a lively discussion with a group of amazing innovators working in Europe and Africa. We’ll have one with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor. And back in the U.S., we’ll have a show with Financial Services Roundtable CEO Tim Pawlenty...to name a few!

The 2018 schedule is filling up fast. I’ll share those events next time.

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going. And keep innovating!

Support our Podcast

I want to thank you for all your wonderful support this year, and I wish you a peaceful and joyous holiday season to you and yours!

Jo Ann

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Big Banks and Big Ideas: Citi FinTech's Andres Wolberg-Stok

My guest today is Andres Wolberg Stok, Global Head of Policy at Citi Fin Tech. We got to know each other this year on a panel at FinXTech in New York, and something I immediately noticed is that he has a special way of talking about innovation -- a very fresh way with words. It might be because he’s lived all over the world, or because he was once a journalist -- see his biography below for a sampling of his journalism adventures, which sound like plots of action/adventure movies.

All large banks have innovation initiatives -- labs, accelerators, incubators and the like. They’re all looking at issues like blockchains, big data, artificial intelligence and human-centered design -- such as, creating a user experience that customers will actually love. Banks have plenty of innovative people, of course -- in our talk, Andres quotes CEO Michael Corbat saying that Citi is actually a technology company with a banking license. However, very few banks of any size have really innovative cultures. This is partly because most are mature organizations, and also because banking has been heavily regulated for so long, which tends to foster conservative, risk-averse cultures and decisionmaking. In today’s world of rapid technological change, banks need innovation (and many innovators need banks as well). It’s important that the big banks are investing in learning how to do this well.

Citi Fin Tech was formed in late 2015 to pursue what Andres calls “fintegration.” The impetus was a critical insight: they realized that their customers’ standards had fundamentally changed. Instead of comparing Citi to other banks, there was a new yardstick -- comparison to technology firms. That set a new, high bar.

Andres explains how they’re tackling this challenge. He describes the new kinds of skills they hire. He explains their focus on agile methodology and co-creation of products and learning to experiment. He talks about building multidisciplinary teams that work concurrently on initiatives, instead of sequentially in the old waterfall-style process that could divert an innovation from what had originally made it exciting. He talks about obsessing on the consumer experience and doing thousands of focus groups to understand what customers really think.

He also talks about how the bank should “feel in the palm of the customer’s hand.” He calls mobile an “exoskeleton” for the human mind, connecting us to all the world’s information, all the time. He talks about the issues ahead in AI, privacy, and data aggregation, including the challenges for regulators. He says the key, for regulators, is to understand the upside benefits of technology, not just the risks.

Andres explains how Citi Fin Tech works with innovators, including startups -- note that he invites people to come and work with them using their API’s and data. That site is at https://developer.citi.com.

I think my favorite insight is that banks need a new model that’s open, not closed. He says the customer relationship used to be one-to-one between a bank and its customers -- and of course, the regulations are still mostly built for that. Now, though, there are multiple parties -- consumers use apps and “modular” financial relationships. If the bank wants to continue to be at the core of that customer relationship, they will have to build an open model -- and regulators will have to change with it.

As you listen, think about how regulators and also community banks could get access to this kind of hands-on experience with financial innovation. The sooner they do, the faster the system and its customers will benefit from, as Andres puts it, “breaking a few windows and letting in fresh air and sunshine.”

More on Andres

Andres Wolberg-Stok interfaces with regulators and policymakers around the world as the Global Head of Policy for Citi FinTech, a new unit spearheading the transformation of Citi’s Global Consumer Banking business into a mobile-centric “Bank of Tomorrow”. He joined Citi from an international personal finance startup and has served in a variety of digital roles, first for Citi Latin America, then for Citi's U.S. consumer businesses, and now globally.

Andres was one of the founders of Citi FinTech from his previous role as Global Head of Emerging Platforms and Services for Citi’s Consumer businesses. In 2015, Andres turned Citi into the world's first bank with an Apple Watch app. Earlier, as Citi Consumer's first global head of mobile banking, he invented Citi Mobile Snapshot, a patented 2014 breakout feature that made Citi the first major U.S. bank to offer no-login account access.

Prior to becoming a banker, Andres was an international correspondent and senior news executive. He had tea with mass-murderer military dictators; was driven, blindfolded and at gunpoint, around the capital of Paraguay after midnight; was arrested in Tierra del Fuego on suspicion of being a British spy; and raced in a car at 120 mph along the edge of a minefield in Croatia. He finds most days in banking very manageable.

More for our listeners

Please remember to review Barefoot Innovation on ITunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Be sure to follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going.

Support our Podcast

It was great seeing lots of you at the Online Lending Policy Summit this week in Washington. I’ll hope to see many more of you at upcoming events:

• Source Media’s RegTech: Compliance Transformed, October 3-4th, Brooklyn, NY

• BAI Beacon/Fintech Stage, October 4-5, Atlanta, GA

• CFSI Network Summit, Fireside Chat with Thomas Curry, October 5, Chicago, IL

• FISCA, October 5-8th, Las Vegas, NV

• Money 20/20, October 25th, Las Vegas, NV

• Central Bank Summit on blockchain and digital currency, October 30 in New York

• Regtech Rising, November 2, London

• Monetary Authority of Singapore Fintech Festival, November 13-17, Singapore

• University of Michigan, November 17, Ann Arbor, MI

• RegTech Enable, November 27-29th, Washington, DC

• UN/ITU conference on financial inclusion in Bangalore (invitation only)

• Fintech Connect Live, December 6th, London

• S&P’s Fintech Intel, December 13, New York

• Dutch Central Bank, December 20, Amsterdam

We have wonderful shows coming up. One is with Braden More, who leads an innovation payments initiative at Wells Fargo. Another is with Giles Gade, CEO of Cross River Bank. And we’ll have several from Money 2020, including Nerd Wallet CEO Tim Chen and the FCA’s Chris Woolard, whom I’ll also be talking with there in a fireside chat.

Speaking of Money 2020, I’m excited that the AML regtech firm I’ve cofounded, Hummingbird, has been selected to do a startup pitch there. Be sure to come and watch!

See you there!

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Colleen Briggs : Financial Inclusion Innovation Powered by JP Morgan Chase

Today’s guest is Colleen Briggs, Executive Director for Community Innovation and Corporate Responsibility at JPMorgan Chase. Colleen leads a visionary effort that is part of JPM’s commitment to building “more inclusive growth,” globally, by finding innovative models that build financial access and economic expansion.

Our timing is great because just last week, the Center for Financial Services Innovation announced its new class of winners for the Financial Solutions Lab competition. The Finlab is funded by a $30 million, five-year commitment from JPMorgan that Colleen oversees, aimed at finding, supporting, and scaling innovative ways to promote consumer financial health. This is part of a $1 billion program that the bank has undertaken globally.  

Here is a link to the JPMorgan press release on this year’s competition, which includes an overview of the winners, and here is a further article by the American Banker.

Colleen comes to this work from a diverse background at nonprofits, on Capitol Hill, and now in the private sector, searching for better solutions for lower-income financial consumers. In listening to her, I was struck by the degree to which she has her finger on the pulse of the trends underway, both globally and in the U.S.  She shares insights on how to make it profitable to serve low income customers; how to win the trust of consumers who are wary of digital products; on the failures of traditional financial education; on the primacy of behaviorally-based product design; on the need for new business models; on how to build partnerships between banks, fintechs and community organizations; on how innovative cultures can take root in big banks; on platforms that can get new solutions to scale; on the business opportunity for banks -- and their corporate customers -- from building global inclusion; on mixing high tech and high touch and the limits of automation; and on how to shift the whole marketplace. She has wise advice for all the players.

Since we recorded this episode, I’ve become the board chair at CFSI. Last week we held the Emerge Forum in Orlando, where a record audience talked about exciting new ideas for financial health. There was huge enthusiasm there about the new Finlab winners. In a sign of the maturing of the fintech startup world, three companies in this year’s class are reaching beyond the typical millennial customer base and instead building new tools for seniors. Watch for their progress.

Here are my other podcasts with the Finlab and past winners Digit, Ascend, and Bee.  

More on Colleen Briggs

Colleen Briggs is Executive Director of Community Innovation within the Office of Corporate Responsibility and Global Philanthropy at JPMorgan Chase & Co, a global leader in corporate philanthropy with $200 million invested in communities annually. She is responsible for helping establish and execute the firm’s global philanthropic and corporate responsibility financial capability, including the Financial Solutions Lab, and community development strategies, including PRO Neighborhoods. The Lab is a $30 million, five-year initiative that convenes leading experts in technology, behavioral economics, and design to improve consumer financial health. PRO Neighborhoods is a five-year, $125 million program that works to increase the availability and accessibility of vital economic opportunities in vulnerable neighborhoods across the country. Colleen also manages the Foundation’s portfolio of global financial inclusion grants, impact framework and grant guidelines and works with the lines of business to share best practices to improve the firm’s products and services.    

Prior to joining, Colleen was the Economic Policy Advisor to Senator Debbie Stabenow. In this role, Colleen managed the Senator’s economic portfolio, including policy related to financial services, tax, small business, job creation, community development, manufacturing, and housing. Colleen managed the Dodd-Frank market reforms for the Senate Agriculture Committee, and helped draft the Recovery Act, TARP, the Dodd-Frank Act, and healthcare reform.

Colleen is a member of the Asset Funders Network Steering Committee and the Innovations for Poverty Action Policy Advisory Group. She earned an MBA from the Yale School of Management and a B.A. from the University of North Carolina at Chapel Hill.

More links

Some organizations Colleen mentioned:

Neighborhood Trust / FlexWage / Lending Club / LendStreet / Propel

And more for our listeners

Please remember to review Barefoot Innovation on ITunes, and please sign up to get emails on new podcasts and my newsletter and blog posts at  jsbarefoot.com.  

Also go to jsbarefoot.com to send in your “buck a show” to keep Barefoot Innovation going. Please also join my facebook fan page, and follow me on twitter.

Support our Podcast - Send "A buck a show"

And watch for upcoming podcasts. My guests include Christopher Giancarlo, Acting Chairman of the CFTC; Brett King, founder of Moven; John Ryan of Conference of State Bank Supervisors; and a special series we recorded at the American Bankers Association Regulatory Compliance Conference this month. The ABA show includes a conversation with Promontory CEO (and former Comptroller of the Currency) Gene Ludwig and Alistair Renee of IBM Watson, who have teamed up to bring artificial intelligence to compliance through regtech.

See you soon!

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Innovating in Compliance, Citi CCO Kathryn Reimann and Wells Fargo CCO Yvette Hollingsworth Clark

My guests today are two of the most thoughtful people in the United States on the topic of regulatory compliance. They are the chief compliance officers of Citigroup and Wells Fargo – Kathryn Reimann and Yvette Hollingsworth Clark.

Our listeners include a lot of people who are not fascinated by the topic of regulatory compliance, to put it mildly. The fact is, though, that compliance has shifted, rather suddenly, from being boring to most people, to being fascinating. And whether it fascinates you or not, it has become absolutely critical to whether financial companies can thrive. Becoming great at compliance – both effective and efficient -- has become mission-critical competencies for every financial company, large and small.

Let’s step back and think about what’s happening.  Technology is disrupting finance, which means that it’s also disrupting financial regulation, which therefore means that it’s also disrupting compliance, inevitably. It will completely change how financial companies implement the massive set of regulatory requirements that pervade every aspect of what they do.

This is going to be – already is – a wrenching process. For better or worse, consumer financial protection regulation has always been hypertechnical. built mainly around highly prescriptive rules. Congress passes laws, the regulatory agencies issue regulations to implement them, and the industry implements the regulations. I’ve spent much of my career in this field and have watched it mature into a major function – major cost center – in every bank, into a profession of experts, and into an industry of technology vendors and consultants and lawyers who help financial companies follow these rules. With a few exceptions, the system is about getting the details right.

That’s still true, of course. We still have voluminous, detailed rules aimed at consumer protection. But the financial crisis shifted the ground under this whole system, by supplementing the traditional “rules-based” system with a new “principles-based” overlay that aggressively requires that financial products be not only “compliant,” but also “fair” – able to meet heightened prohibitions on practices that are unfair, deception or abusive (which we in the compliance world, with our habit of using acornyms, call, “UDAAP.”

And then, as if that weren’t a big enough change, the financial world has now also been hit with a second huge wave of change, in technology innovation. And it’s even more challenging than the shift from rules to principles, because it’s coming faster, and it’s even more unknowable than regulatory change.

All this means we’ve entered into a state of permanent uncertainty. The products and market and technology are changing too fast for the legislative and regulatory process to keep pace. The regulatory process can’t, and won’t, provide clarity on exactly what the industry has to do. Instead, it will review what has been done and will, after the fact, penalize actions that are judged to have been illegal because they’re subjectively determined to have been unfair, deceptive, abusive, or discriminatory in effect.

The result is that financial companies are going to have to build a whole new kind of compliance model. They won’t have the luxury of waiting for clear-cut rules. They’ll have to figure out for themselves how regulators may react to rapid change, and make their own decisions, in the absence of clear guidance, about what is risky.

This requires a full overhaul of the traditional compliance model. For one thing, it means deeply, actively engaging the CEO, the board, and the business-side leadership of every company in proactively managing regulatory risk. They can’t delegate it and assume that their experts and technology will take care of it. They have to make their own decisions, and they have to do it not reactively, but proactively. Again, they’ll have to think for themselves.

And they’ll also have to adopt a new generation of regtech solutions, which are starting to emerge to improve outcomes and cut costs.

There’s a lot to say about what’s ahead on all this, but for today, we’re going to pick the brains of two of the most impressive leaders anywhere in the compliance world.  Yvette Hollingsworth Clark is the chief compliance officer of Wells Fargo, and Kathryn Reimann leads this work for Citigroup. I’ve known them both for years, and I was lucky enough to catch them together while we were all at the same event, and carve out some time to talk.

Listen to their views on how compliance is changing, the impact of technology, and the need to bring a “fairness” lens to absolutely every regulatory question. They talk about how to do that, including how to integrate teams that can bake it into daily decision-making. They talk about the challenges arising because of the accelerating the speed of change. And they discuss the challenges of working with old legacy IT systems that were created long before today’s regulations and technology. They talk about the need for a level regulatory playing field for banks and nonbanks, how to work with regulators, and advice for regulators. They also talk about their own journeys – Kathryn notes that when she started working as a lawyer, the compliance profession didn’t even exist.

We’ve come a long way.

These are people who are pioneering new ways of tackling compliance. They’re doing it in some of the world’s biggest, most complex, and most highly-regulated companies, but their insights apply to every financial company – large and small, and old or brand new.

Also….

Vote for my panel on the SXSW PanelPicker!

I need your help getting my panel selected for inclusion in South By Southwest – SXSW – the huge technology conference that runs in Austin TX each year in conjunction with the famous music and film festival. I attended SXSW (“South by,” as people call it) for the first time last year, and it was absolutely fascinating. It’s unique among the conferences I attend, in that it’s broader than finance. It’s about technology overall. I believe fintech is more tech than fin, in the sense that it’s being driven by enormous and converging technology trends. We in the financial realm tend to underestimate how big these are and how fast they’re moving, because we think of them in terms of the financial products they’re reshaping – but they’re much bigger than those. SX is a great place to go to learn and think about these wider trends, while also seeing the most interesting new things emerging in fintech, as well.

So I have proposed a panel discussion there on RegTech – the shift toward using new generation technology to get to win/wins on regulation, by reducing regulatory costs and burdens while improving outcomes for customers at the same time. I’m calling the panel REGULATION INNOVATION and my amazing guests will be Josh Reich, the CEO of Simple; Jennifer Tescher, CEO of CFSI; and Adrienne Harris of the White House.

Last year, SX received 4,600 proposals, so, I need you to vote for the session on the SX Panel Picker. Voting opens up on Monday, August 8 and closes September 2. Please Google the SXSW PanelPicker during that time period, and vote for session called Regulation Innovation. And then plan to come to SX, which is 3/6-10 in Austin. I’ve been thinking maybe we should take a group of financial folks. What do you think?

You can vote for it HERE
 

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Please support the show!

Last but not least, thanks so very much to those who have sent in your “buck a show," as we call it, to support Barefoot Innovation. Donations are essential to keep the show going, since it’s taken on a life of its own and requires a massive effort to produce.

And also, please be sure to like the show on whatever ITunes or wherever you listen to it.

We’ll see you soon with some incredibly interesting new guests – startups, banks, and even someone from Harvard. Til next time!

As Kathryn rightly states, such an overhaul of the system requires updating perspectives of themselves and of their hires. It also requires a great degree of inter-departmental collaboration and communication. This is something that I have seen to be true all across the map of regulation - open dialogue is essential. In a previous podcast, Thomas Curry, the Comptroller of Currency and head of the taskforce on responsible innovation agrees.

Kathryn and Yvette explain that compliance officers have a very tough job ahead, and I couldn't agree more. They have to balance a fine line between assessing and preventing massive risk from such huge amounts of data sharing while not becoming an obstacle to innovation. As Yvette states, we want to use innovation to regulate innovation.

Important links:

• Citi
• Wells Fargo

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Innovating at a Bank : Dominic Venturo of US Bancorp

Dominic Venturo, CIO of US Bank

Visiting Dominic Venturo is a little like walking onto a James Bond movie set during the Q gadget briefing scene. There is a wonderful "wow" factor in encountering the most fascinating new technologies in banking.

The title "CIO" used to mean Chief Information Officer. It still does, of course, but today that "I" increasingly stands for another word too:  innovation. Dominic Venturo, the Chief Innovation Officer of U.S. Bank, reflects a growing trend of banks assigning specialized leaders to spearhead their work in innovative technology.

U.S. Bank actually took this step long ago. As we learned in Episode 12 with CEO Richard Davis, this is the country's fifth largest bank, and its focus on innovation caused them to name Dominic for this role eight years ago. In fact, he was such an early user of Twitter that he got the extremely cool handle @innov8tr (be sure to follow him on Twitter - he's one of my favorites).

I always love hearing the backgrounds of our podcast guests, and especially noticing how they break down between people with financial backgrounds, and people with anything but.  Dominic is a career banker with 16 years at U.S. Bank and 26 years overall in financial services product development and management, commercial risk management, commercial lending and sales management. He talked with me about how he's complemented that background with a wide mix of the other skills. He has 25 people, including many who, as he says, probably "spent a lot of time in the principal's office."

In our conversation, he talks about how to make these trouble-makers highly productive and more broadly about the "art" of making great innovation happen inside a big company.  There's a lot of conventional advice about that challenge, including the need to wall-off the innovators. Dominic agrees with that, and also emphasizes that innovation must be a full-time job - he thinks it's delusional to imagine that part-time people will somehow stay on top of today's tech trends by catching up on their reading backlog after hours. At the same time, he talks a lot about how to keep innovation focused on the practical. One key, he says, is that "innovation loves constraints." Another is not to start with an abstract white board session, dreaming up brilliant solutions in search of problems, but rather to focus on finding the real problems that need to be solved - especially problems impacting the customer. When you do that, your bank will usually want them, even if implementation is going to take some work.

At the same time, though, the practical focus has to be balanced with imagination and vision. Dominic's group tries to look 3-5 years ahead in thinking about the bank's operations, and at how people are behaving differently and doing jobs differently. They brainstorm trends and find the insights that will reshape markets and technologies.

One key to getting this balance right is to set up new kinds of success metrics. Dominic discusses the dissonance between bank cultures built to keep risks and failures extremely low, versus innovation that requires trying a lot of things that will fail.  Financial companies need new ways to keep score.

Our conversation also covered the downside risks that innovation creates for consumers; his thoughts on how regulation impacts innovation; and his advice on how to keep up with technology change. As I mentioned in my year-end wrap up, I always advise bankers to attend some fintech conferences. Dominic shares his list of favorites, including Finovate, Bank Innovation, and SXSW (I'll see you there this year, and also check out my end-of-year interview with Chuck Harris of Netspend for my own list of suggestions, including Emerge).

We also got Dominic's recommendations for fintech trend-watching: Wall Street Journal Personal Tech, TechCrunch, and qz.com.

And last but not least, again, I recommend following him on Twitter for cutting edge insight on tech trends, mixed with humor, such as on much needed respites from the content overload.

Dominic's background:

A few highlights on Dominic's background. He is frequently featured as a keynote speaker at industry conferences and has been recognized by Bank Innovation as a Top Innovator in Financial Services (#3, 2013), Bank Systems & Technology as one of "Elite 8" CIOs (2012), Twin Cities Business Magazine as one of "200 Minnesotans You Should Know" (2011), "Bank Technology News as "Mobile Banker of the Year" (2011) and as "Top 10 Innovator" (2009) and by Paybefore Magazine as a "Top 5 Innovator" (2011). He also serves on the board of directors of the Minnesota Community and Technical College Foundation. He earned a bachelor's degree in finance from Oregon State University and is a graduate of the Pacific Coast Banking School at the University of Washington Graduate School of Banking.

The Q Factor:

In our discussion, Dominic shares examples of innovation successes at U.S. Bank, including "advances in mobile payments, voice bio-metrics, tokenization and integrated mobile and web commerce solutions." As often happens, though, I found that our discussion got even more interesting after we turned off the microphone. He showed me an amazing product demo that's still embargoed but that really wowed me. And we talked about the Internet of Things. And then, he admired my iPhone 6s - we met just after they came out, and I'd gotten one before he did. He started talking about the Live Photo tool, which he described as "Harry Potter feature."  As often happens with me, I had a cool feature on my phone without even realizing it. So we recorded a little bonus feature as he showed me how to make a photo animation that looks a bit like the living portraits in Harry Potter's world. These are fun, as is my Google Photo tool dreaming up little animations for me using the photos I've taken. If you have Live Photo and don't know how to use it, here it is. 

Enjoy my conversation with Dominic Venturo.

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The Regulatory Sandbox : BMO's Nitish Pandey

Welcome to Barefoot innovation as we start into a fresh new year.

Being appreciated!

We are kicking off 2016 with a wonderful guest, Nitish Pandey of BMO, and also with exciting momentum for Barefoot Innovation. In December, we were named one of the top 9 fintech podcasts by FintechNews Switzerland. We are delighted to be counted among the best in the world, including the Breaking Banks show of my friend Brett King.  (If you’re enjoying Barefoot Innovation, please do consider donating to our efforts to produce it using the button below!) 

Innovation Nation – fintech in the UK

That recognition of our series was especially timely, because I was in London at the time to participate in a roundtable of the U.K.’s Financial Conduct Authority on the topic of today’s podcast. The FCA has taken the lead globally in proposing creation of a “regulatory sandbox” – a safe space in which financial innovators can experiment with ideas that might benefit consumers, but that could hit trip wires or raise concerns under today’s rules.

Americans should focus on this: the U.K. has adopted a national strategy, from its top leaders on down, of becoming the fintech capital of the world.  One facet of that strategy is the FCA’s launch ofProject Innovate, which has  goals like this one:  “We promote competition through disruptive innovation − innovation that offers new services to customers and challenges existing business models.”  Consider that language – the regulator is explicitly “promoting…disruptive innovation.”

The FCA’s efforts include creating an Innovation HUB that provides support for promising innovation, and a methodical review of how regulation impacts innovation. Last year they formally requested public input on two crucial questions: what regulations are impeding beneficial innovation, and is there a need for new regulations to foster innovation? While digesting the resulting comments, they put out their proposal on the sandbox concept. They’ve been sharing these ideas globally and exploring very creative approaches, like whether it would make sense to create a “virtual sandbox” in which innovators could test certain ideas through shared data, without exposing real consumers to any risk at all.

Lawrence Wintermeyer of Innovate Finance, speaking at the FCA’s December sandbox roundtable, cited growing excitement around both “fintech” and “regtech.” He argued that London has the “tech” of the U.S. west coast, the “fin” of New York, and the “reg” of Washington – all clustered in one city where everyone can get together by public transport in fifteen minutes. The U.K. has other innovation advantages over the U.S., including a more concentrated banking system and a much simpler regulatory structure.  Startups are also attracted by the ability to “passport” UK activities throughout the European Union, offering easy access to large markets. All this contrasts sharply with the U.S. model in which innovators seeking national scale must undertake the complex process of securing either a bank charter or 50 state licenses, or both. Still, part of London’s innovation success clearly stems from deciding to value the upside promise of innovation, in addition to policing the very real downside risk. The FCA’s efforts include a conscious effort to be nimble – something that does not come easily to any regulatory system. The resulting vibrancy is palpable.

On this side of the Atlantic

In the U.S., the same thinking is gaining traction. Comptroller of the Currency Tom Curry has appointed anew task force for Responsible Innovation, as we discussed in our recent episode with him. The CFPB has its Project Catalyst innovation lab, and the Federal Reserve Bank of San Francisco held a conference last fall on the “(R)evolution Underway” in financial services, addressing “how technological changes are presenting opportunities and challenges for financial institutions while compelling regulatory agencies to think about how innovation impacts the supervisory process.”

These U.S. discussions increasingly include exploration of creating a regulatory sandbox – which brings me to our guest for this episode.

Nitish Pandey is Senior Vice-President & Chief Legal Officer, U.S. Personal & Commercial Banking, for BMO Financial Group of BMO Harris. He believes our financial ecosystem needs a safe sandbox in which to innovate (as did Jesse McWaters and Rob Galaski in our episode on the “Secrets of Fintech”).

Nitish and I started discussing the sandbox concept last summer (before the U.K.’s proposal). I’d convened a roundtable on disruption of consumer finance and how to (and not to) regulate it. Nitish, whom I’ve known for years, came to the meeting armed with the most specific blueprint I had seen on these ideas. In the months since then, he’s refined it and shared it publically several times.

The goal of a sandbox approach is to allow testing of pro-consumer innovation, while assuring that customers are still well-protected.  The issue has endless subtopics. For instance, is a sandbox really needed? How do current rules impede innovation -- if they do – and which ones are most problematic? Is it appropriate to use the concept of “risk tolerance” in consumer protection?  If so, can risks be defined? Can they be quantified and measured?

And, if a sandbox would help, how should it be designed? Do regulators have the legal power to waive or suspend rules to allow experimentation and if not, should they? What standards should innovators have to meet? How would experiments be time-limited? What standards should be used to permit them, and to judge their success? If new ideas prove out, should they be publicized? Should the whole market be allowed to adopt them? If so, would this require extensive rewriting of current rules? Will innovators have sufficient incentive to enter the sandbox, if competitors can simply adopt the ideas they pilot (in contrast to, say, government approval of new drugs after testing that ultimately produce patents)?  How can innovators protect their confidential intellectual property?  Would agency pre-review of sandbox proposals bog innovation down in bureaucracy, defeating the purpose of the whole exercise?

And perhaps most importantly, how should consumers in a sandbox be protected? What limits should be placed on potential harm to them? Should they be compensated for any harm and if so, how? What disclosures should they receive? Should they have to give consent? How would harm be quantified?

While Nitish doesn’t try to answer all of these questions, he tackles many of the hardest ones. And he pinpoints a core issue that’s widely underestimated. The problem is not just rigid and potentially counterproductive regulatory requirements. It’s also the sheer cost and effort of implementing full-scope compliance for virtually any change.  If businesses can’t inexpensively test how customers would respond to an innovation, they won’t offer it. And they can’t test real-life response to new ideas today, without also building out massive compliance machinery – Nitish calls it the “pipes” – affecting nearly every function of the company. We’re in a “Lean Startup” world today where innovators grow by designing and refining a minimum viable product (MVP) through quick, intensive consumer interaction. Traditional companies can’t do this well, partly because their compliance systems weigh them down.

Nitish has ideas how to design and execute a practical solution for this – without going bureaucrazy!

Compliance as innovator?

While I had Nitish with me, I also took the chance to have him share his advice on the revolution underway in the compliance function. He is the first bank compliance manager we’ve had as a guest, and a visionary in the field.

He believes, as I do, that consumer financial protection is migrating from a rules-based system to an increasingly principles-based one. That shift is bringing permanent uncertainty which, in turn, requires deeply remaking the compliance management model. “It used to be, if you knew your regulations, you were fine,” he says in our discussion, whereas today’s compliance manager is a “true risk management professional who can be creative in the process and demonstrate excellent judgment as we rapidly move into an increasingly gray world.” He lays out the new role of compliance in today’s bank, why it’s needed, the key changes required, and how to make it happen.

Nitish’s insight derives partly from his broad background. He has undergraduate and postgraduate qualifications in Law, Economics and Management in his native Australia and has held positions ranging from marketing to nearly every facet of risk management. He spent a decade at American Express in Compliance, Risk Management and Operations, focusing on consumer, small business and commercial portfolios. He was Deputy Chief Compliance Officer for American Express Centurion Bank, responsible for the oversight and implementation of the bank’s Compliance Program. In November 2014 he joined BMO as Chief Compliance Officer (CCO) for U.S. Personal and Commercial Banking.

I hope you enjoy my talk with him as much as I did!

More Links:

• BMO Bank
• Nitish’s slides from his presentation 
• The FCA's Project Innovate
• The FCA’s Paper on the “Regulatory Sandbox” 
• The CFPB’s Project Catalyst
• CFSI’s research on consumer financial wellness

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Chuck Harris, President of NetSpend

My conversation with Chuck Harris, President of NetSpend, is our final episode for 2015. Thinking back on the brief eight months since we launched Barefoot Innovation, I’m struck by the enormous terrain we’ve covered. As we start into the new year, I’ll be sharing my own thoughts on what I’ve been learning from these discussions.  

For now, though, enjoy listening to Chuck Harris, who touched on many of the major themes we have explored so far: the rise of fintech, prepaid cards, mobile platforms, mission-oriented companies, non-bank providers, partnerships, financial inclusion the underserved and underestimated consumers, regulatory challenges, uncertainty, and most of all excitement. Like some of our other guests, Chuck Harris leads a young company in a field, prepaid cards, that didn’t even exist until well into his career.  He says he feels lucky to have “stumbled” into a role that combines good business with doing good, a mix that is both challenging and rewarding (a sentiment expressed by many previous guests).

It’s interesting that this episode follows on the heels of my discussion with the Comptroller of the Currency, Tom Curry, as it shares a common emphasis on the need for a new kind of collaboration as the financial sector undergoes disruption, including between industry and regulators. I think this kind of new dialogue is starting to emerge – a topic we’ll spend time on in 2016.

NetSpend was established in 1999 as a way for “college kids to spend money,” and has since grown into a leading provider of reloadable prepaid cards and related financial services. It focuses on consumers that Chuck calls “self-banked” – the people often referred to as un- or under-banked. NetSpend seeks to empower the self-banked with FDIC-insured offerings through its network of over 70,000 distribution locations and 130,000 reload points. They have helped more than 10 million consumers make purchases, pay bills and manage their money without needing a checking account or credit history. In addition to prepaid cards, NetSpend offers a range of services including P2P and standard bank transfers, online and mobile apps, and budgeting tools. You can learn more about them at www.netSpend.com.

Chuck joined the company 2010 after serving as general manager of the payment solutions division of Intuit. He previously held multiple positions for Electronic Clearing House, including President and CEO, President and COO, and as a director. He has also held leadership roles with Chase Paymentech, including as President and CEO of Merchant Link, a wholly owned subsidiary of Chase Paymentech.  He holds a B.B.A. in finance from the University of Texas at Austin.

We recorded this conversation at the Money 20/20 Conference in Las Vegas, where Chuck and I both were speakers. That fact prompts me to suggest a new year’s resolution for our listeners, especially those in traditional financial fields: attend a fintech conference in 2016. Money 20/20 is the biggest, absolutely packed with energy and ideas and about 10,000 people. And I always recommend CFSI’s Emerge conference, which uniquely explores how new technology can benefit both providers and consumers.   (remember that I serve on CFSI’s board of directors). People often ask me how to learn quickly about innovation. For most, the best first step is to immerse in in the excitement of a tech conference.

2016 preview….and please consider donating:

Barefoot Innovation will return in the New Year with a widening dialogue and extremely interesting guests. The early lineup will include one of the architects of Dodd-Frank; a primary author of America’s consumer financial protection regulations; a credit counseling leader; a top bank’s chief innovation officer; our first talk with a company built around Bitcoin, the founder of one of my very favorite startups; and a large bank’s compliance officer with detailed suggestions on how to design a “regulatory sandbox.” The sandbox concept -- the idea that fostering financial innovation will sometimes require a regulatory safe space for experimentation – is generating increasing dialogue among both industry and regulators (in fact, I’m heading today for London for a round table with the UK’s Financial Conduct Authority on a sandbox proposal they issued this fall.) We’ll explore it in the coming months.

The above list of early 2016 guests includes only the episodes we’ve already recorded! They are full of insights and surprises (I’m even rating one of them PG-13). We have many more people set to talk with us, including leading regulators, bankers, non-bank executives, tech experts, compliance experts, policymakers, and many, many startups and other innovators.

The robustness of the schedule reflects the fact that Barefoot Innovation has been growing far faster than I expected, and has in fact evolved into a major undertaking for me and the two young people who help me produce it.  If you’re enjoying the series and want to keep more episodes coming, let me encourage you to provide support for it, in any amount you like. 

Meanwhile, I wish you all a holiday season filled with peace and joy, and will look forward to connecting in the New Year.

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Courtney Kelso - Innovation & Inclusion at American Express

This episode adds a new dimension to our discussions with innovators, by taking us inside a huge company - American Express.

My guest is Courtney Kelso, who leads the Amex product and marketing team in Enterprise Growth.

I talked with Courtney about two things. First, their strategic move into creating an inclusive set of services, through Bluebird and Serve.

And second, what it takes to innovate inside a big company.

Interestingly, the two are linked.  Their work on building an inclusive strategy is the engine of innovation at American Express.

Think about trying to drive disruptive innovation in an organization that's not only enormous and global, but is also 165 years old - one of the oldest financial brands anywhere. As Courtney says, American Express was a freight company, moving Americans west in the 1800's. Innovation and adaptation are in its corporate DNA, but change at big companies is hard.

And then also think about taking a company like American Express, which has always epitomized elite, high-prestige financial services, and shifting it from being an exclusive brand to an inclusive brand.

It's a fascinating saga, full of lessons for everyone.

Inclusion within a famously "exclusive" brand

The story starts about five years ago, when American Express looked hard at the changes underway in how people think about both money and technology, and especially mobile -- the ability to run most of your financial life from your phone.

They also pondered the fact that Amex was missing an enormous market in the so-called underserved, estimated to be between 65 and 140 million people in the United States - in other words, not a niche. They realized that the economic problems created and worsened in the Great Recession had converged with an emerging set of technology solutions.

American Express responded by launching the Enterprise Growth Group, which Courtney joined immediately. The goal was to go after totally different customers with different product sets. They unveiled an alpha version of Serve in March of 2011 , and then built the Bluebird card, aiming to be part digital wallet, part bank alternative, and part prepaid card . The goal was to reach Americans who struggle to manage and move their money or, as Courtney puts it, the people who are either excluded from the mainstream economy or "unhappily banked." An early move was to create a partnership with Wal-Mart to focus on these needs.

Along the way, American Express financed the movie, Spent, which brings these customers' needs to life and demonstrates that "it's expensive to be poor."  If you haven't seen Spent and shared it in your organization, I recommend doing so.

In our conversation, Courtney tells us why they made these changes, how they did it, their efforts to "be respectful" to a customer group they didn't know, what they expected, what they learned about them, and what has surprised them.  They undertook a "walk talk chalk," encouraging their leaders to step into the shoes of the kinds of customers who appear in Spent by, for instance, learning what it's like to stand in line on a Friday night to cash to check.  They also connected with the Center for Financial Services Innovation (note that I serve on CFSI's board), to bring its recommended Compass Principles into designing these products. They focused human-centered design thinking on challenges like smoothing out financial "lumpiness" for people who earn enough money to pay their bills, but don't have the right amount at the right time.

Courtney describes the fascinating and varied ways customers immediately began using the new tools - including as a bank account alternative and to find ways to save.  She talks about what people want most. She talks about revelations about the preferences of young customers today, and how savvy they are in using mobile services. Today, her group bases every product design decision on the preferences of mobile users (unlike, say, a bank that views mobile as just a new channel for old products). She explains how, with critical mass established on the platform, they can push the envelope with new features, including the first-ever rewards program on a prepaid debit card.

And she shares a progress report -- over $7 billion loaded on the platform as of March 2015, with merchant spend up 300% from 2012 to 2013, and 90% of these customers being new to American Express.

Innovation

In September 2014, these efforts evolved into creation of FILABs - the financial innovation labs - through which American Express brings together researchers and academics with real live products. After inviting proposals, they selected three partners -- a nonprofit in behavioral science called Ideas 42, along with UC Berkeley and a team of researchers from UCLA. The goal is to use design thinking and agile development methodology to make financial products drive financial health. They are testing new ideas for both processes and products, from nudges and alerts to auto savings and debiting, to see what works. Some of this is proceeding under the aegis of the Consumer Financial Protection Bureau's Project Catalyst, which seeks to foster and evaluate fintech innovation. They'll be releasing significant findings in the near future.

In our conversation, I asked Courtney how to innovate in a great big company - after all, her Enterprise Growth group, itself, has over 1,000 people. Her answers may surprise you - including her comment that their most exciting recent innovation idea came from (of all places) the general counsel's office. It's fun to hear the excitement in her voice as she talks about what doesn't work, and what does.

Two more observations before we listen to Courtney.

In our talk she said, "I'll be honest," and explains that launching an "inclusion" strategy raised some worries about potential harm to the invaluable American Express brand, which had been painstakingly built over 165 years to be synonymous with prestige. So, they surveyed their top-tier customer base, asking whether Bluebird and Serve made them think worse, or better, of American Express. The results were resoundingly positive.

Second, think about the picture she paints.  She says the company could see, five years ago, that the financial landscape was changing and American Express would have to disrupt, before they were disrupted. She says CEO Ken Chenault launched the enterprise growth initiative to "cannibalize" American Express from inside, through innovation.

I'm at Harvard this year writing a book on innovation and regulation, which recently prompted me to read Harvard Professor Clayton Christensen's classic, The Innovators Dilemma and newer related work. One of his insights is that disruptive innovation usually must begin in markets that are lower-margin and less attractive than the ones served by industry leaders. The disruptions gestate and develop in these side-markets, and then eventually burst into the mainstream with a better, cheaper product - often too late for the industry's leading firms to adjust. American Express seems to be following something like this logic, putting its innovation engine in the hands of people trying to reach a separate market that's traditionally been "underserved." The results to date are fascinating.

Perhaps it's not a coincidence that Courtney says the whole company now routinely recruits from her team.

Here is more on some of the topics we discussed:

• CFSI's Compass Principles
• CFPB's Project Catalyst project with American Express
• Ideas 42
• The Lean Startup, by Eric Ries 
• The Innovator's Dilemma, by Clayton M. Christensen 

Please subscribe to the podcast by opening your favorite podcast app and searching for "Jo Ann Barefoot", or in iTunes.

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Richard Davis, President and CEO of U.S. Bancorp

Richard Davis grew up in Hollywood and entered the banking world on his 18th birthday as a teller. Today, at age 57, he leads America’s 5th largest bank as Chairman and CEO of U.S. Bancorp – parent company of U.S. Bank. Headquartered in Minneapolis, U.S. Bancorp has over $410 billion in assets and businesses across the United States, Canada and Europe, including over 3,000 full-service banking offices and 5,000 ATMs in 25 states.

This traditional bank model is now also the foundation for active innovation. U.S. Bank appointed its Chief Innovation Officer, Dominic Venturo, a decade ago (I highly recommend following Dominic on Twitter @innov8tr). They are active in payments technologies, and the holding company owns Elavon, which recently opened a mobile innovation center in Atlanta called “The Grove” focused on “new technologies that enable merchants to accept payments via mobile devices while also ensuring the ease of use and safety of the transaction from the customer’s perspective.”

Richard’s leadership earned praise through the financial crisis and its aftermath, including being named “2010 Banker of the Year” by American Banker. The father of three adult children and with three grandkids, he is highly active in civic efforts and philanthropy, including serving on the boards of the Twin Cities YMCA, Minneapolis Art Institute, University of Minnesota Foundation, and National American Red Cross, among many others. He has been the recipient of the President’s Lifetime Volunteer Service Award, while U.S. Bancorp and its employees earned the 2011 Spirit of America Award, the highest honor bestowed on a company by United Way. The company also received the 2013 Freedom award, the U.S. Department of Defense’s highest award for employers for supporting employees who serve in the National Guard and Reserve.

In 2011 Richard received the Henrickson’s Award for Ethical Leadership. In 2015, U.S. Bank was named as a World’s Most Ethical Company by the Ethisphere Institute, the global leader in defining and advancing the standards of ethical business practices.

In my conversation with Richard, he wove together all these themes of business, innovation, and ethics. More than any of our guests thus far, he voices a full-throated faith in the future of retail bank banking -- including branches in lower-income communities. At the same time, he speaks thoughtfully about the need for innovation in the branch and beyond (while warning against falling in love with every new idea).  

He also offers concrete advice for regulators on how to assure that innovation can flourish. And he talks inspiringly about the need for banks to rebuild the public’s trust in them, one customer at a time. He says customers are “the banks’ to lose,” and that, “If it’s good for the industry, it is probably worth doing.”

Richard’s perspective is an invaluable contribution to our search for better consumer financial solutions. Speaking from the vantage point of a lifelong banker at the helm of one of America’s largest and most successful banking companies, he shares his thinking about what to keep and what to change, as the industry and its customers face continuous change.

For more on U.S. Bank, click here.

Enjoy Episode 12

You can subscribe to the podcast on iTunes or by opening your favorite podcast app and searching for "Jo Ann Barefoot".

Green Dot CEO Steve Streit and Professor Dog on no-bite Banking

Professor Dog provides inspiration for Greendot Bank's effort to create financial products that serve and safeguard consumers' financial lives.

Once known as Streiter the Heater, Steve Streit is now often called the Prepaid Card King. He is the founder and CEO of Pasadena-based Green Dot Corporation and its wholly owned subsidiary bank, Green Dot Bank, described as a “pro-consumer financial technology innovator with a mission to reinvent personal banking for the masses.”

In this episode of Barefoot Innovation, I spoke with Steve about the former disc jockey’s pioneering foray into the re-loadable prepaid debit card industry and how his “highly curious mind” keeps him at the forefront of financial services innovation. As someone who created radio stations with names like Easy 105 and Country 103 (many of which still thrive in today’s fragmented broadcast market), Steve is known for bringing simplicity to his platforms, which now include the Green Dot prepaid card and its award-winning GoBank mobile checking account. Speaking of financial products, Steve believes: “If you have to have an owner’s manual, you messed up.” It is easy to see how he translated his connection with radio listeners into serving bank customers with an affordable product and cutting-edge technology that did not require opening a bank account.

Conceived in 1999 as iGEN, a company offering teenagers a pre-loaded debit card so that they could make purchases online, the company was re-branded as Green Dot when Steve realized that his product was primarily used by under-banked adults. Effectively tapping into a 73 million person “niche” market, Green Dot has since built a large-scale "branch-less bank" distribution network of more than 100,000 U.S. locations at retailers, neighborhood financial service center locations, and tax preparation offices,as well as an online presence in leading app stores and through providers of online tax preparation. Its MoneyCard partnership with Walmart was recently renewed for five years.

In 2011, under Steve’s leadership, Green Dot became a bank-holding company with the purchase of Bonneville Bank in Provo, Utah.  The subsequent acquisition of mobile geo-location start-up Loopt led to the development of GoBank, the first bank account designed from scratch to be opened and used on a mobile device. This past Tuesday, Green Dot announced the official opening of Green Dot Shanghai a high-tech facility that will bolster its “follow the sun” strategy to deliver high-scale, high-quality, and efficient technology services around the clock.

Steve has won numerous awards, including the Ernst & Young Entrepreneur of the Year 2005 award for Southern California, as well as its National award winner in the Financial Services category in 2011.  He has been honored with the Prepaid Industry Leadership Award in 2008 and recognized as the 2011 recipient of the Technology Leadership Award from Los Angeles County Technology Week. 

The father of seven grown children, Steve also works to improve the lives of children in need. In 2009 he founded Patti’s Way, a charitable foundation providing grants to single mothers and their children. Steve also volunteers in mentoring LA County Foster children and supports the LAPD’s Hollenbeck Police Athletic League (PAL).

Not one to be left out, Steve’s schnauzer, Professor Dog, was on hand as I interviewed him by phone at his California home. Listen to this week’s episode to find out how Professor Dog became an inspiration for Green Dot Bank in our lively discussion on how innovators and banks can best create products that serve and safeguard financial consumers’ lives.

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The Innovative Bank – BBVA Compass CEO Manolo Sanchez

Episode 6: The Innovative Bank - Manolo Sanchez, CEO of BBVA Compass

Can banks be innovators? If so, how?

In Episode 6, we tackle that topic with one of the most innovative bank executives in the world – Manolo Sanchez, the chairman and CEO of BBVA Compass. 

BBVA is the Spanish bank that bought the U.S. startup Simple, whose founders we featured in our podcast Episode 2 (“The Cheerful Disruptors”). Today’s discussion picks up the bank side of that equation.

It’s our first conversation with the leader of a large bank.  BBVA has over $700 billion in assets and a global reach. And what an interesting bank it is. When I first met Manolo several years ago, I had no idea they were heading into one of the most notable innovation strategies in the industry. Since then, they’ve made huge investments to modernize and integrate their IT, and have stood out for their active experimentation with innovative startups – working with them in various ways, and always, especially, learning from them.

A native of Spain, Manolo has worked for BBVA for nearly 25 years, holding positions in the corporate, investment and correspondent banking divisions of the bank. He is a graduate of Yale University and earned his master’s degrees in international relations from the London School of Economics and in advanced European studies from the College of Europe. His career has taken him to Paris, Madrid, New York, Mexico City and Texas.

As Chairman and CEO of the U.S. bank BBVA Compass, Manolo today lives with his wife and three children in Houston, where he’s a leader in a wide range of community-strengthening institutions. The bank also has major facilities in Birmingham, where it has anchored economic development including a newly-opened LEED-certified technology development center.

Manolo sets the tone for this “innovative, principled and customer-centric company” — and earned recognition as American Banker’s 2014 reputation survey leader — with the principle, “We work for a better future for people.”

In Episode 6, he explores the fertile landscape of financial innovation from the viewpoint of a major bank with a multi-year strategic vision to make BBVA the “next great bank in the U.S.”

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