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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Insights from Michael Barr

I am absolutely delighted to share today's episode -- my conversation with Michael Barr.

Most of our listeners know Michael as the former Assistant Treasury Secretary for Financial Institutions who shepherded the Obama administration's efforts on the Dodd-Frank financial reform law. Fewer people may know of his role in developing the proposal for, and negotiating the enactment of, the Consumer Financial Protection Bureau, which is when I got to know him.  He is now back at the University of Michigan (my own alma mater) as a law professor, and continues to be very active across a wide spectrum of consumer finance and financial regulation activities, and also on lending to small businesses.

Michael has thought hard about the toughest challenges in consumer finance, drawing on both his government experience and his academic activities (among other things, he's a Rhodes Scholar). He also works extensively with innovators and nonprofits.

In our conversation he offers insights on some of the most critical topics facing consumer finance.

Perhaps the most central principle driving his ideas is behavioral economics - coming to grips with the reality that consumers are not perfectly rational, and don't have perfect information, in making financial decisions. "We ought to design both products and policy around the way human beings actually make decisions and behave," Michael tells me. See below for links to his research on this, including his paper "Behaviorally-Informed Regulation."

One result of his behavioral focus is a refreshing readiness to rethink consumer financial education. At one point he says, "just as we couldn't explain how our smartphones operate," financial consumers don't necessarily need to know how financial products are designed, in order to use them effectively. He thinks, as I do, that today's technology can create simple new tools that nearly anyone can use, whether they have a sophisticated financial education, or not.

Another issue he raises is his involvement in developing the "small business borrowers' bill of rights" (see our earlier podcast discussing this with Brian Graham of BancAlliance). There is growing concern that online small business lending is creating borrower risks as well as opportunities, especially as America shifts toward the so-called 1099 economy and more people run small businesses in ways that closely parallel consumer finance.

Michael also explores the challenge of crafting regulation that enables innovation while still blocking harm. He says regulators sometimes allow harmful practices to emerge and grow until they hit a "tipping point," at which point they drive industry standards so low that good companies can't survive without adopting activities they would rather avoid.  I agree with him that this is a key challenge, especially as innovation accelerates.  If regulators intervene too early and aggressively, we'll have the government designing our financial products, instead of the market doing so.  On the other hand, if they are too passive or too late in addressing really harmful practices - especially if they wait until after that tipping point has actually tipped - they will fail to protect large numbers of people from harm, and they may also find it difficult to act.  Once products are widespread, there are strong political forces ready to defend them, as well as practical problems with potential regulatory impacts on businesses and sometimes even the financial system itself.

I asked Michael for his advice about these kinds of challenges, for all the players in this ecosystem. I think you'll find his answers really interesting, including some thoughts he shares about the logic behind the design of the CFPB.

I also asked him whether we might be moving toward a fundamentally new market model, in which technology-driven transparency will require financial companies to compete mostly on winning and keeping people's trust. His answer to that is thought-provoking, too.

Michael was Assistant Secretary of the Treasury for Financial Institutions from 2009-2010. He previously served as Treasury Secretary Robert Rubin's Special Assistant, as Deputy Assistant Secretary of the Treasury for Community Development Policy, as Special Advisor to President Bill Clinton, as Special Advisor and Counselor on the Policy Planning Staff at the State Department, and as a law clerk to U.S. Supreme Court Justice David H. Souter.  He received his J.D. from Yale Law School, an M. Phil in International Relations from Magdalen College, Oxford University as a Rhodes Scholar, and his B.A., summa cum laude, with Honors in History, from Yale University.

His activities today include serving on the boards of Lending Club (in Episode 5 we interviewed CEO Renaud LaPlanche) and Ripple, as well as ideas42, a behavioral economics research and development lab. He's on the FDIC Advisory Committee on Economic Inclusion and the Washington Center for Equitable Growth. He's on the advisory board of CFSI and has advised its U.S. Financial Diaries Project (see our interview with Jennifer Tescher of CFSI for more). He is also a fellow at the Filene Research Institute.

In his current role as Roy F. and Jean Humphrey Proffitt Professor of Law at the University of Michigan Law School, Michael teaches courses in domestic and international financial regulation. He's also been instrumental in forming the University of Michigan's Center on Finance, Law and Policy, which integrates finance, law, business, and computer science to work on difficult problems facing the world, including how to make the financial system fairer and safer. I highly encourage you to peruse his faculty website to find more resources.

Below you can find links to works referenced in the episode:

• Small Business Borrowers' Bill of Rights
• Michael's latest book "No Slack: The Financial Lives of Low-Income Americans"
• Hamilton Project paper on increasing access to capital for minority and women entrepreneurs
• Michael's paper on Behaviorally Informed Regulation co-authored with Sendhil Mullainathan, Harvard University and Eldar Shafir, Princeton University
• And here is the site of the FDIC's Advisory Committee on Economic Inclusion
                  
  Enjoy my conversation with Michael Barr!

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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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Regulation Innovation: A conversation with Comptroller of the Currency Thomas J. Curry

I’m delighted to be able to share with you this very special episode of Barefoot Innovation, because my guest is the 30th Comptroller of the Currency, Thomas J. Curry.

Our conversation is a particular treat for me, because I myself am a proud alum of the OCC. Many years ago I was the first women Deputy Comptroller of the Currency and also the youngest to serve in that role. My worldview has always been shaped by that experience – by the agency’s tradition of excellence, the weight of its mission, and the talent of its people, including, now, its far-flung diaspora.

At the Comptroller’s office in southwest Washington, I think everyone probably notices the interesting juxtaposition of its modern architecture and bright, open work space on the one hand, with its prominent display of the historical portraits of former comptrollers on the other. Those portraits embody a legacy that dates back to the Civil War. Congress passed the National Currency Act of 1863 to replace the existing, unstable system of bank notes – hence the agency’s non-descriptive, rather archaic name. For listeners who are not steeped in bank regulation, this is the primary regulator of all national banks. It’s an independent bureau of the Treasury Department, and is called, for short, the “OCC,” for Office of the Comptroller of the Currency. It is our oldest bank supervisory agency.

The OCC has 4,000 employees, in 91 locations (including London). It oversees more than 1,600 national banks and federal savings associations and 50 federal branches and agencies of foreign banks. It charters federal financial institutions, supervises them for safety and soundness, and retains some consumer protection responsibilities even after most of that role transferred to the Consumer Financial Protection Bureau. It also retains regulatory power under the Community Reinvestment Act.

The blending of old and new reflected in the oil paintings is a metaphor for the thing that prompted me reach out to Tom Curry. Last summer, he established an OCC task force on Responsible Innovation, asking a team of his senior leaders to undertake a focused examination of how technology is reshaping financial services, and how best to regulate the huge changes ahead – the kinds of issues we talk about in this series.  The team is exploring this inflection point in finance. How is technology likely to disrupt the traditional banking industry? Will banks – especially community banks – lose market share  to innovators, including those with simple, mono-line strategies and relatively low regulation? How should regulation protect consumers? And remember, this is a prudential regulator, and so they are especially grappling with the question of how best to protect the financial system itself.

As you will hear, Tom Curry has many preliminary thoughts on those questions. He cautions against getting swept up in innovation fads, some of which end badly, as recent history has shown. He also talks candidly about the fact that regulators are not wired to look at the upside opportunity of change – they are culturally primed to see the risk in things, to say “no.” Shifting that mindset will be a challenge.

He believes the future lies in collaboration – that traditional institutions and innovators together can lead the industry toward a future of responsible innovation, one that works for customers and communities and for providers. He said, “We’re still early in the process, so I can’t tell you exactly where we’ll end up,” but he has made a priority of understanding these new trends, including positioning the OCC to “quickly evaluate those products that require regulatory approval and identify any risks associated with them.”

Before joining the OCC in 2012, Mr. Curry served as a director of the FDIC beginning in January 2004 and as Chairman of the NeighborWorks® America Board of Directors. He previously served five Massachusetts Governors as the Commonwealth's Commissioner of Banks and as First Deputy Commissioner and Assistant General Counsel within the Massachusetts Division of Banks. He entered state government in 1982 as an attorney with the Massachusetts’ Secretary of State’s Office. A veteran of the dual-banking system, Mr. Curry also chaired the Conference of State Bank Supervisors and served on the State Liaison Committee of the Federal Financial Institutions Examination Council (FFIEC), including as chairman.

Even back in my days at the OCC, we saw ourselves as innovating in a time of rapid change in technology and industry structure. My own unit was an innovation – I led the establishment of the initial OCC consumer protection function. The OCC itself was old then, and is older now. It was and is a learning organization, about the evolving financial system and about how to regulate it. I’ve been able to talk with most of the members of the new innovation task force, and I’m extremely impressed with what they’re doing. Even the bitcoin blogosphere is excited to see what they have in store.

So please enjoy this unique opportunity to hear from one of our preeminent financial regulators, Thomas Curry.

And, as mentioned in the episode, click below to find:

• Remarks by Thomas Curry before the Federal Home Loan Bank of Chicago on Responsible Innovation
• 2013 amendments to third party vendor management guidelines

• The OCC’s white paper on community banks

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

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The Secrets of FinTech: Jesse McWaters and Rob Galaski, World Economic Forum

If I had to choose just one episode of Barefoot Innovation to introduce listeners to the series, this is it.

My guests are Jesse McWaters of the World Economic Forum and Rob Galasky of Monitor Deloitte, who co-led the WEF's landmark research project on financial technology (executive summary here).  Switzerland-based WEF focuses on public/private collaboration and is best known for hosting the annual global forum in Davos.

When I first read news accounts of this report, I reached out immediately to Jesse and (new father) Rob to ask them to join our dialogue. It took some time to get together, but we finally met at the WEF offices in New York. It was more than worth the wait.

They launched their study of the global evolution of fintech at the Davos meeting in 2014. By the summer of 2015, they had crystallized the keys to understanding it. Their work is built on extensive interviews and on the technique I increasingly see as the key to progress -- convening disparate participants. They held six meetings with traditional financial institutions, disruptive innovators, and regulators in the same room, grappling with the coming change.

In their early meetings, the financial industry executives were interested in fintech and wanted to monitor it, but were not worried - Jesse and Rob call them "tepid" about its urgency. By the end, this view had reversed. My guests use words like "bewilderment," "paranoia," "enemies" and "invading the fortress" as they describe the financial industry's rising concern. They also see these concerns starting to give way to hopefulness about the opportunities.

The 193-page study has a global scope, emphasizes the developed world, and looks at eleven areas where innovation is driving transformation.

What's working?

Here are some of the insights Jesse and Rob share in our conversation:

• While today's banks feel besieged by disruptors on all fronts, the study shows that innovators are actually mainly targeting specific spots where two key factors intersect - that is, where high friction and customer frustration exist in products that are highly profitable. One participant said they are, "skimming the cream." Recognizing these points of vulnerability can guide traditional companies in what to defend and where to allocate capital.
• The emerging models have certain key attributes -- they are platform-based, modular, data-intensive, and "capital-lite."
• The disruptors focus on "shadow" or "fringe" areas, avoiding the heavily regulated core world of deposit-taking financial institutions. They are serious about complying with regulations, but strategically choose the rules to which they will subject their businesses.
• They are using established assets to scale up, a la Uber, rather than investing in a long, expensive process of creating their own products and infrastructures.
• They are actively partnering with established institutions for this leveraging of both existing assets and infrastructure and also "regulatory permissions." (Interestingly, this is drawing some major investment companies into retail markets for the first time.)
• They are focused on controlling the customer experience, using their superior platforms and data analytics.
• A key subset are "mission-oriented" entities creating inclusive and affordable services to consumers and small businesses. Jesse and Rob mentioned Active Hours and LendUp as U.S. examples, in addition to the huge global potential in emerging markets.

Advice to industry:

Jesse and Rob discuss how all this is impacting the traditional industry, including this advice:

• Don't count out banks as an "old world industry."
• Address the twin pressures of having aging legacy operating systems and processes, clashing with the high demands of today's consumers, especially millennials. People increasingly want personalized, bespoke, low-cost services and are ready to trust online providers.
• Review and clean out the accumulation of old policies and procedures that prevent banks from creating a great customer experience.
• Don't make the mistake of viewing fintech as a one-year budget issue. Create a new enterprise-wide, multi-year investment model that is not controlled by the current owners of the business line P&L's.
• Explore merging models for learning, partnering, and "coexistence."
• Evaluate the wisdom, or folly, of essentially "outsourcing R&D" to the venture capital world until it figures out the winners and losers.
• Consider that financial institutions may be major players in shaping what will win and what will lose, especially since they have capital.
• Use their suggestions on how do innovation inside a traditional company.
• Expect upward age migration of fintech adoption - don't expect to retain even older customers to the end of their lives in old-style products.
• Watch for big changes in insurance offering options for bespoke, advisory, concierge models and radically new value propositions (they mention Oscar in the U.S. and Vitality in the UK).

Understand the likely sequence in which products will be forced to change, and why - they explain this in our discussion

Impacts on consumers:

Rob and Jesse predict big changes for consumers, including vastly more choice, hugely better customer experience, better pricing, and much better insight into and control over their own financial lives. They also see rising risks and regulatory needs, including that consumers will be harmed by unsuitable, high risk products.

Advice for regulators:

Jesse and Rob also have insights for and about regulators. Some of the regulators who joined their meetings were among the most thoughtful people they encountered, but they also warn of a very wide delta between the "leaders and laggers" in the regulatory world. They predict likely regulatory arbitrage if that gap does not close quickly. They also emphasize the need for "regulatory sandboxes" (on that point, watch for our upcoming Barefoot Innovation episode on sandbox innovation with Nitish Pandey of BMO Harris).

What next?

The project plans to leverage its convening power to tackle further priorities. One is exploring the revolutionary potential of block chain technology and distributed ledgers, including and beyond bitcoin.

Another is seeking innovation in managing digital identity, including expanded roles for banks.

Might our bank someday help us buy a bottle of wine by sending not only the money, but by verifying our age!

Enjoy the episode!

References:

Here are some of the resources and companies we discussed in this episode:

• World Economic Forum
• Full WEF report on The Future of Financial Services
• ActiveHours (accessing pay that's already earned)
• LendUp (online lending)                                                                                
• Transferwise (payments innovation)                                      
• Oscar (health insurance in U.S.)                                                 
• Vitality (health and life insurance in U.K.)   

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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 

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Jennifer Tescher, President & CEO of the Center for Financial Services Innovation

Regular listeners of Barefoot Innovation will have noticed that we often mention the Center for Financial Services Innovation (CFSI) and serve on its board.

This year, CFSI celebrated its 11th anniversary.

A decade ago there was nothing called Fintech. And yet Jennifer Tescher – who when she first entered the financial services industry couldn’t balance her checkbook – joined with former OTS Director Ellen Seidman and others who had a remarkable insight: that technology trends would create innovative ways to improve the lives of financial consumers. A former journalist, Jennifer became interested in financial services via reporting on urban poverty and inequality issues. That led to her to join ShoreBank, America’s first community development bank, where she explored ways to serve consumers who are deemed risky, in new ways that can be both sustainable and profitable.

Fast forward to 2015 and CFSI has become the nation’s authority on consumer financial health, and Jennifer, as President and CEO, leads a network of financial services innovators committed to expanding access to high-quality financial services in ways that are sound and profitable.

As you will hear in this episode, a majority of Americans are not financially healthy. Research by CFSI and others paints a “frankly disturbing” picture of the economic lives of millions of Americans. Studies also draw strong links between physical and financial health, including how stress affects decision making.  Jennifer says it best our podcast: “Wow, wow, wow, huge swaths of people are incredibly challenged!”

CFSI is aiming to change this, using a lot of tools.  One is seeding new ventures. It founded Core Innovation Capital, which is now an independent VC fund (see Episode 3, where we talked with Core’s Arjan Schutte). And 2015 kicked off a five-year innovation contest funded by JPMorgan Chase, in the CFSI Financial Solutions Labs competition. (See our podcast with one of the contest winners, Steve Carlson of Ascend).

Second, CFSI convenes people, including through its new membership model and by hosting the annual EMERGE conference, which presents cutting-edge thought leadership and features innovators, executives, and emerging companies in the financial services industries, including guests of this very podcast!

Third, CFSI helps identify standards and practices that can help both providers and consumer thrives, as with the Compass Principles for prepaid cards.

And fourth, CFSI is doing unique research in deeply understanding the financial lives of American consumers, including through the U.S. Financial Diaries project conducted with New York University.

Jennifer is a nationally known expert on all these themes, with a monthly column in American Banker, frequent interviews and articles in the financial press, and major speaking engagements at industry and policy convenings. I am so happy to bring to you my lively interview with Jennifer, showcasing both her prodigious knowledge and her passion for these goals, which, as she says, has so far has kept her from abandoning it all in favor of a Mexican beach!

To bolster your own optimism, here are links to the new data and trends spurring CFSI’s mission, and links their initiatives and research:

• Find out how CFSI is powering solutions for a financially health America (and for more on the 9 winners of their first Financial Solutions Lab’s challenge).
• Access to CFSI’s research on the state of consumer financial health, including the U.S. Financial Diaries and their Consumer Financial Health Study.
• For more on illiquid vs. insolvent consumers: My piece in Banking Exchange called Illiquid? Insolvent? Solutions can differ drastically and Aaron Klein’s article in American Banker on Shifting the Debate on Small Dollar Credit.
• For my take on the US Financial Diaries work, see my blog post, “Diary of a Mad Financial System”.
• On new ways of assessing financial well-being: Ron Shevlin’s Financial Health is the New Marketing.
• And mark your calendar for Emerge 2016, June 14-17 in New Orleans!

Please come to CFSI’s website for a wealth of further information. And now, enjoy my talk with Jennifer Tescher!

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The Power of Community Banks - Brian Graham, CEO of AlliancePartners & BancAlliance

This episode takes us fully into grappling with how innovation is impacting community banks and how to respond, through a conversation with one of the most thoughtful and thought-provoking people in the field.

The community bank is a unique feature of the U.S. financial system, and Brian Graham, CEO of Alliance Partners, is both one of its most eloquent advocates and an innovator with new ideas on how small banks can compete in the digital age.  In 2011, he and his colleagues founded BancAlliance as a collaborative solution that enables community banks to access attractive lending markets typically dominated by larger banks, through use of a shared lending platform. The mission is to empower member banks to diversify prudently into high-quality loans that meet all commercial and regulatory standards – without changing the nature of the community bank.

Brian’s team initially focused on large commercial loans. Then, in February of this year, they expanded to consumer credit with the announcements that BancAlliance would partner with Lending Club to enable member banks to offer co-branded personal loans to their customers through Lending Club’s online platform. The program gives community banks and their customers access to the benefits of the Lending Club’s low cost of operations, paired with the banks’ low cost of capital, to help drive down the cost of credit for consumers., The Wall Street Journal noted that, even after Lending Club’s partnerships with Alibaba and Google, the arrangement with BancAlliance might be its “biggest one yet.” CEO of Lending Club, Renaud Laplanche (whom I interviewed in Episode 5), said, “Community banks are the lifeblood of American communities. This program will help them level the playing field with national banks by offering affordable, consumer-friendly loans to their customers. We’re excited to make Lending Club’s low cost of operations available to community banks, for the greater benefit of their customers.”

BancAlliance’s network includes over 200 banks in 39 states, with assets ranging from $200 million to $10 billion. In aggregate, BancAlliance would rank fourth in branch count among all U.S. banks and 14th in assets.

I have been a longtime optimist about the future of community banks, until the last few years. Small banks today face the twin challenges of innovative technology and regulatory burden squeezing the industry’s business model from two directions at once. Brian’s vision offers a potential model for addressing both.

In our conversation, Brian makes the case for the value of community banks; offers advice to them for thriving through technological disruption; and makes suggestions for regulators (including on “suitability). He also describes a proposed new “bill of rights” for small business borrowers – he’s been involved with a coalition working on this with the Aspen Institute.

Brian also offers insights into how technology, after decades of favoring consolidation and large players, is suddenly creating advantages for small ones, through the unbundling of tech solutions and through unexpected developments like Square, transforming the small business lending market.

Brian was previously a partner at Blue Ridge Capital Management, held various leadership positions at CapitalSource and Fannie Mae, and served in the government and investment-banking sectors. He holds a graduate degree from Harvard College and an MBA from Stanford University.

It was a pleasure to host him at my former abode in Washington, DC -- the day before I began packing up to move to Boston for my new fellowship on Regulation Innovation at Harvard! It was a very fitting finale for my Washington days and a launch into my “year at the frontier” of fintech innovation.

Enjoy the conversation, and as a bonus, click the following for The Small Borrowers’ Bill of Rights and an argument from the Aspen Institute on why we need one.

Also, remember to watch my website for the Regulation Innovation video briefings on these same topics, coming soon!

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

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".

Increasing Economic Opportunity for the Underserved - Luz Urrutia, Global Head of Retail at Oportun

Luz Urrutia, the global head of retail at Oportun, has been carrying the same credit card in her wallet for 30 years. Having moved from her native Venezuela to the U.S. to study finance at Georgia State University, Luz was thrilled when she landed her first job in the banking industry – only to have her credit card application rejected by the same bank where she worked! Having little or no credit can make adjusting to life in a new country extremely onerous. In our conversation, Luz points out that anything from getting a job to renting an apartment and hooking up utilities is often impossible without a FICO score.

Currently, almost half of the Hispanic community in the U.S. is underserved. Luz decided years ago to help the 25 million individuals who represent the un- and under-banked in her community by offering responsible credit-building and affordable loans. Before moving to California to broaden her mission, Luz co-founded and served as President and Chief Operating Office for El Banco de Nuestra Comunidad in Atlanta. Since then, her career has been characterized by a relentless drive to use technology and creative techniques to “score the unscorable” and serve those overlooked by traditional financial institutions.

Oportun, formerly Progreso Financiero, was founded in 2005 with the same goal of empowering underserved Hispanic consumers. Its proprietary technology platform scores applicants, even those who do not have credit, and enables Oportun to provide a highly personal experience with back-office efficiency. Headquartered in Redwood City, CA, the customer experience at Oportun is designed with the Hispanic customer in mind. This experience is disseminated through a network of more than 160 stores in five states, often conveniently co-located with or near Hispanic grocery stores, are open 7 days a week into the evening, and staffed by team members who speak Spanish.

In recognition of Oportun’s goals of increasing economic opportunity for its clients, promoting community development, and serving low-income or underserved communities, Oportun was certified by the United States Department of Treasury as a Community Development Financial Institution in November 2009 and re-certified in October 2013.

I spoke with Luz at the Center for Financial Services Innovation’s (CFSI) EMERGE conference in Austin, on whose board she has served since 2004 (full disclosure, I am also on the board). Luz has often been recognized for her commitment to improving the lives of underserved financial consumers, including being named as 2009’s Latina Business Woman of the Year and American Banker’s “Community Banker of the Year” in 2006. Perhaps the greatest reward for Luz, however, is the joy she feels pursuing her mission every day. In our interview you can gladden in her words imbued of passion and excitement (you’ll just have to trust that they were accompanied by a brilliant smile!).

I am happy to offer this episode of Barefoot Innovation as a pick-me-up for anyone who needs a reminder of the unique work being done throughout the industry to use innovation to enhance the lives of financial consumers, and what revolutionary breakthroughs a strong drive to help one’s community can render.

To learn more about Oportun Financial, click here.

You can subscribe to the podcast at iTunes HERE or open your favorite podcast app and search for Jo Ann Barefoot.

Striving for Worry-Free Finance - Stoyan Kenderov of Intuit

Stoyan Kenderov and I had a truly rich and candid conversation about the evolution of banking innovation and regulation, and though he appears ten episodes into Barefoot Innovation, it was Stoyan who first suggested I record our thought-provoking discussions and offer them as a series of podcasts. Thank you, Stoyan, for your encouragement! In this interview, we travel everywhere from communist Bulgaria to the emerging coding culture of mid-1990s Germany to today’s nucleus of innovation, Silicon Valley. In his current capacity, Stoyan leads Business Development and inorganic growth partnerships at Intuit’s Consumer Ecosystem Group and its product brands Mint, Mint Bills, and Quicken.

As a child who literally disintegrated every toy he and his brother were ever given, Stoyan was born a natural disruptor. His vast curiosity has already taken him half way across the world, and he is ready to pass on his vision and wisdom to the new generation of financial consumers. (It was a real treat to hear how an innovator is teaching his young daughters about financial responsibility!) Stoyan and Intuit incorporate cutting edge behavioral research to create products that are simple, easy-to-use, and shorten the learning curve of traditional financial instruments.

Year after year, Intuit is recognized as one of Fortune’s “100 Best Companies To Work For” and Fortune World’s “Most Admired Software Companies.” With the acquisition of Check, and the creation of Mint Bills, the company now offers users a way to search for and set up bill reminders, see what bills are due and pay them with a single click so that they never miss a payment. Wired.com agrees that getting started with Mint Bills is easy; maybe Mint Bills can even help consumers forget that “bills are the worst!”

Prior to Intuit, Stoyan held executive positions at payments, telecommunications, and mobile companies such as Amdocs, XACCT Technologies, KPN-Qwest and pioneering German, Dutch and Austrian Internet service providers. He co-founded two start-ups and participated in four successful exits. He is an advisor and mentor at Village Capital – the financial services accelerator and impact investor, and he also invests personally in early stage financial services start-ups in Europe, India and the US.

I so enjoyed this conversation with Stoyan, and I hope you are as Intuit as I am. And, finally, here’s a bit more to exercise your financial (and listening!) skills:

Pop quiz! One of the following is not a startup mentioned in this episode: Vouch, Digit, Even, Gather, Sweep, SavedPlus, Float, Simple, Karma, Acorns, Robinhood, and Coinye.   

See my previous blog post for more on serving the “underestimated” consumer and how behaviors can change under conditions caused by shortages of a key resource like money, time, or food.

Professor BJ Fogg of Stanford’s behavior model and how to motivate and trigger responsible consumption.

The CFPB’s Project Catalyst.

The Center for Financial Services Innovation’s brief on household cash flow challenges.

You can subscribe to the podcast at iTunes HERE or open your favorite podcast app and search for Jo Ann Barefoot.

Steve Carlson, Founder & CEO of Ascend, Winner of the CFSI Financial Solutions Lab Competition

Episode 9 finds us at the 2015 EMERGE conference in Austin with the winners of the first Financial Solutions Lab competition.

The contest is a $30 million, five-year initiative funded by JPMorgan Chase and run by the Center for Financial Services Innovation, or CFSI, the conference sponsor (note -- I serve on CFSI's board). It challenges entrepreneurs to create solutions for the cash flow difficulties facing millions of American middle and lower income-households.

Two hundred ninety-eight innovators applied. Nine were chosen. And  -- drum roll - one was Steve Carlson of Ascend Consumer Finance, our guest for this episode.

Ascend was recognized for its unique approach to broadening credit access and affordability for non-prime borrowers.  The company wants to drive a new generation of lending with its Adaptive Risk Pricing tool, which actively monitors and rewards customers for positive financial actions throughout the span of their loan, sharply cutting interest costs.

I've known Ascend's Co-Founder and CEO Steve Carlson since we both joined the Consumer Advisory Board of the Consumer Financial Protection Bureau (CFPB) when it first was formed in 2012. Ascend has benefited - and so does our podcast - from Steve's double background in banking and technology. He has held senior executive roles at HSBC and Washington Mutual and advised global financial services firms as a co-founder of Sung Carlson Associates. He was also the head of marketing and business development at Intuit Financial Services (Mint.com and Quicken).

(A side-note on Intuit:  in the recording, Steve  relates its history and I ask if its founder, Scott Cook, got started by making calls from a phone book. Afterwards, I looked up the story and found it in The Lean Startup, by  Eric Ries (pages 88-89). He writes that in 1982 Cook "picked up two phone books: one for Palo Alto, California, where he was living at the time, and the other for Winnetka, Illinois." He randomly called people to gauge interest in his idea, and a company was born. For any listeners who haven't read The Lean Startup, do!)

In our conversation, Steve describes the impetus behind Ascend, their current status (including their partnership with Lending Tree), and why he believes banking should be a value-driven proposition. He thinks both consumers and the industry can benefit by improving the financial health of consumers. The company's pioneering product, RateRewards, enables borrowers to earn up to 50% off their interest expense by making responsible financial choices throughout the life of their loan. With Adaptive Risk Pricing, Ascend is able to offer loans at rates that reflect real-time performance instead of past behavior. This, Steve says, is reinventing "the whole concept of underwriting and risk assessment."

Indeed, many "non-prime borrowers" - a group that actually represents about a third of the U.S. population - are better candidates than their credit scores would indicate. One-time financial shocks and "thin" files can greatly diminish a consumer's chance of getting a reasonable rate on a loan, or even a loan at all at a traditional institution. Ascend is encouraging borrowers to bet on themselves and prove -- through their actions, rather than their credit history -- that they are creditworthy. As Steve says in the episode: "Everyone today [is] going to be in a different stage in terms of their financial health ... I might be in great shape today; tomorrow could be totally different."  Ascend is trying to make the road to financial wellness smoother -- something Steve says he feels good about.

This episode of Barefoot Innovation became a brainstorming session, as Steve and I tried to think through how innovators, banks and regulators can move toward better ideas for financial consumers -- including musings on how innovators should interact with the world of bank charters and regulation.

Enjoy it!  And check out more information on Ascend, and on the Innovation Lab winners.

You can subscribe to the podcast on iTunes HERE 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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Bringing Character Lending into the 21st Century with Vouch Founder & CEO Yee Lee

Episode 7: Vouch Founder & CEO Yee Lee

Everywhere I go in the fintech world these days, people are mentioning Vouch.  It's new, it's still small, but it has a potentially huge idea, and a team that can make it happen.

Vouch is a Bay-area startup that calls itself "the first social network for credit".  Its concept is simple: a borrower asks  his or her social network friends to vouch for repayment of the loan. The friend can choose an amount to vouch for. If the borrower defaults, the friend pays the promised amount. The vouching network - or "trust network" -- can become mutually beneficial, bringing lower rates (5% to 30%) or larger loan amounts ($500 to $15,000, with one- to three-year terms.)

As I say in introducing the episode, this idea may look like something just for millennials, but I think it is tapping into something with massive potential - new ways to evaluate people's creditworthiness by understanding them in their social context - understanding how they are viewed by the people who know them best. Vouch says they want to "return lending to its roots," where your reputation carried weight, but to do it using new tools and reach.

Yee Lee is a software engineer and serial entrepreneur and investor. In our conversation  he says he grew up in the Bay Area and it was just "in the water" there to do an internet startup during the dot-com bubble - he quit his PhD program at Stanford to go after his first idea. Since then he's been involved with everything from PayPal to TaskRabbit, and in 2013, founded Vouch.

That same year, he wrote a thoughtful Wall Street Journal blog piece for Fathers In Tech. He lives in the Bay area with his wife and two young sons, and I will personally "vouch" for his dad credentials, as I recently invited him to an event that he declined because of his younger son's birthday. I know you'll enjoy hearing our discussion.

And here's is a bit more on some of the other entities mentioned in this episode:

• PayPal
• Mission Asset Fund, a much-emulated innovator using Latin American-style lending circles 
• Grameen Bank, microfinance pioneer
• Core Innovation Capital, a Vouch investor
• IDG Ventures, a Vouch investor
• The CFPB's Project Catalyst, fostering pro-consumer innovation 

Enjoy my conversation with Yee.
 

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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Episode 5 - Renaud Laplanche, Founder & CEO of Lending Club

Lending Club and its founder, Renaud Laplanche, rank high on nearly every list of fintech disruptors. They are the biggest player in “marketplace lending” – online matching of borrowers with people and institutions willing to lend to them. Marketplace lending (which has evolved from “peer-to-peer” or P2P lending as more institutions join in as funders) is one of the fastest growing innovations in consumer finance.

In December, Lending Club did the largest U.S. tech IPO of 2014, at nearly $900 million.

Their success is attracting interest from every direction. Last year they announced a partnership with Chinese tech giant Alibaba. At the same time, they are partnering with BancAlliance, to connect with its network of 200 community banks in 39 states. 

Renaud is French-American. He has an MBA from HEC and London Business School and a JD from Montpellier University. He practiced law at Cleary Gottlieb Steen & Hamilton in New York and then founded the enterprise software company TripleHop Technologies, selling it to Oracle Corporation. In 2006, he began work on his disruptive ideas, leveraging his unusual combination of software, entrepreneurial and legal skills to create something truly different.

Business Insider named Renaud the "best start-up CEO to work for,” and he won the Economist Innovation Award in the consumer products category in 2014. He lectures at Columbia Business School and is a member of the Young Presidents’ Organization.

On top of all this, Renaud holds two world speed sailing records, including crossing the English Channel in 5 hours and 15 minutes just this spring  – Alas, this is a topic we didn’t have time to explore, but clearly it’s no coincidence.

Renaud has been covered in leading publications like The Wall Street Journal, The New York Times, The Washington Post, USA Today, BusinessWeek and Barron’s and has been featured on CNBC, Bloomberg, ABC News, CBS News, and Fox Business News. We are delighted he could join us for Barefoot Innovation.

Episode 4 - Who will Win the Consumer's Trust with Susan Ehrlich

When we recorded this short episode with Susan Ehrlich, she was head of global credit for Amazon. She oversaw the Amazon Rewards Visa and Amazon Store Card in the U.S., as well as Amazon credit programs in Canada, United Kingdom, Germany, and Japan. Most of our conversation focused on this very unique perspective.

Susan has since left Amazon to take on a diverse set of roles as a financial services director and investor. One is as Vice-Chairman of the Board of Directors for the Center for Financial Services Innovation (where I too serve on the board). She is also a director of BECU, the fourth largest credit union in the United States and largest in Washington State ($12B in assets and over 850,000 members).

Susan has a long and remarkable track record as an executive scaling growth and leading turnarounds across a range of businesses in payments, retail, banking, and financial technology. She was President of Financial Services for both H&R Block Inc. and for Sears Holdings Corporation.  At H&R Block, she built the Emerald Card program into Consumer Reports' #2-rated prepaid card in the industry in 2013.  At Sears, she re-launched Kmart layaway—turning it into a $1 billion-plus business--and expanded the company’s credit partnerships, generating $9B+ in annual retail sales on the Sears Card. Her earlier career included developing and delivering payment and credit solutions for JP Morgan Chase, WaMu Card Services (Providian Financial), and Citibank. 

American Banker magazine recognized Susan as one of the 25 Most Powerful Women in Finance three years in a row (2009-2011), and the Federal Reserve appointed her to its Consumer Advisory Council in Washington, DC. She holds a B.A. with honors in organizational behavior and management from Brown University and an M.B.A. from the Harvard Business School.

Our photo of Susan duly reflects all this gravitas, but she’s also an avid golfer, traveler, and wine enthusiast -- she founded the Bruce Cass Wine Lab and Ehrlich Vineyards LLC in the San Francisco Bay area. When we sat down to talk it was Superbowl Sunday (long story on why this is posted so late), and she joined me fully bedecked in Seattle Seahawks attire, hat included. We had to cut our conversation short for the kickoff.

The episode is only about fifteen minutes, and I think you’ll find it fascinating. One tidbit that intrigues me:  Amazon’s borrowers rate its credit services, publically, on the Amazon site – just like for a pair of shoes or a flat screen TV. Amazon actively learns from that feedback. Such high transparency must be a big motivator to fix issues that cause complaints.

Enjoy my quick discussion with Susan Ehrlich!  You can find her at sehrlich23@gmail.com.

And please also watch for Episode 5 next week, when our Barefoot Innovation guest will be Renaud LaPlanche, Founder and CEO of Lending Club.

Please subscribe to my podcast by opening iTunes or your favorite podcast player and searching for "Jo Ann Barefoot". You can also subscribe to my mailing list on my front page at www.jsbarefoot.com

Episode 3 - Arjan Schutte of Core Innovation Capital on Venture Capital in FinTech

Arjan Schutte (pronounced Ar-yon Shoot-eh) is Founder and Managing Partner at Core Innovation Capital  in Los Angeles.

Core is a double-bottom line venture capital company seeding innovation that both helps consumers and wins in the marketplace, with the ability to reach huge scale.  Listeners will discover several kinds of value in his insights. 

One is an overview of the fintech innovation landscape – what are the exciting things happening?  VC firms enjoy a unique vantage point, since their funding makes nearly every innovator seek them out. They see it all.

Another insight to glean from our talk is that many of these startups are taking aim at perceived vulnerabilities of traditional financial companies – the industry’s Achilles’ heels.  Some innovators think many customers are not happy today, or at least can be lured away with a vastly better customer experience. Some believe millions of potentially high-profit customers are being neglected by the mainstream system, or are accessing it only through high-cost products that can be replaced. These startups are working on cutting delivery costs, reimagining the customer experience, using big data to invent powerful new risk analytics, using behavioral science to engage customers in new ways, empowering consumers with new tools, leveraging mobile to reach massive new markets, and much more. Many are making impressive headway. For those wanting to understand the fintech innovation realm, this is a quick primer.

Core’s companies include:

In addition, L2C has exited.

Notice the broad range of business types.  Core tries to have at least one company in each arena that’s important to consumers, from affordable lending and personal financial management to digital currency.

In our conversation, Arjan talks about the unlikely journey that brought him to this work, Core’s launch as a bold initiative of the Center for Financial Services Innovation, and the firm’s strategy.  He zeros in on the incredible opportunity around mobile services closing the “digital divide.” And he laments the minuscule impact of 40 years of well-meaning but small-scale community development lending, laying out a big vision for how to measure Core’s impact as it seeks to change the lives of millions of people. 

The key is to make it very profitable to do right by them.

Enjoy the show!

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Episode 2 - "The Cheerful Disruptors" with Josh Reich and Shamir Karkal from Simple.com

Episode 2 is my lively conversation with the irreverent co-founders of Simple – CEO, Josh Reich, and Shamir Karkal, the company’s CFO.

Simple is a Portland, Oregon start-up offering a simplified, consumer-friendly account for saving and making payments.  Last year it was acquired by the global Spanish bank, BBVA, which has been making bold moves in tech innovation.

Our discussion captures the clear voice of the disruptors who are challenging traditional banking. Josh and Shamir describe the famous email that led to their venture, including why Josh’s friends thought he’d gone crazy (hint: it has to do with regulation). They explain their own very unbankerly backgrounds, and talk with passion about what they think is wrong with mainstream banking, including why it’s so hard for banks to change. 

They made me laugh throughout -- there’s a moment where Josh is explaining the company’s funny style and says, “she had this wicked, wicked sense of humor.”

I think my favorite thing in our talk is how they tell their customers’ stories about Simple making their lives better.  The key is helping people save, including by highlighting a number labeled “Safe to Spend,” rather than the account balance.  Simple idea, isn't it? And powerful.

I feel like Simple might be on track to crack the code on the core problem that bedevils financial consumers: how to get regular people actively engaged. Most people are very interested in what they use their money for, but bored by the money itself -- a fact that leads them into mistakes. Simple is trying to change that.

After we turned off the microphone, Josh said one more thing that has stayed in my mind ever since.  I’ll share it in my postscript at the end of the podcast.

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Show Notes

The companies:

You can find full information on Simple here, and on BBVA here.

My guests:

Josh Reich, CEO & Co-Founder  — Josh’s career has spanned marketing analytics and quantitative finance, including running a data mining consulting firm, a quantitative strategy group at a $10 billion fund, and core components at the mortgage lead market, Root Exchange. Four years ago, Josh founded Simple, formerly BankSimple, a company that is working to radically redesign banking by using modern technology to help people worry less about money. Josh has a BSc. in mathematics and statistics from the University of Melbourne, most of a medical degree, and an MBA from Carnegie Mellon University.

Follow him on Twitter at @i2pi 

Shamir Karkal, CFO & Co-Founder  — Shamir is a software engineer turned finance and banking expert. Prior to Simple, Shamir was a consultant with McKinsey & Co. specializing in strategy consulting for financial institutions in Europe, the Middle East, and the US. Prior to McKinsey, Shamir was a software engineer. He has a bachelor’s in computer science, a master’s in information technology, and an MBA from Carnegie Mellon University.

Follow him on Twitter at @shamir_k

FAQ’s about Simple:  https://www.simple.com/faq

 Here are the two firm’s announcements about BBVA acquiring Simple:

Here and Here

Please note that the views expressed by guests on Barefoot Innovation are their own and do not reflect the opinions of Jo Ann Barefoot or Jo Ann Barefoot Group LLC, nor do we endorse any product, service, or company discussed.