Cost Cutting with the Blockchain - Blythe Masters, CEO of Digital Asset Holdings

Barefoot Innovation usually explores technology that touches financial consumers - new products and new ways of managing money. Today's episode pivots 180 degrees and looks internally, inside financial companies, at the equally transformative change underway in how financial products are made and delivered.

My conversation is with Blythe Masters, CEO of Digital Asset Holdings, and our topic is the blockchain -- distributed ledger technology, or DLT.

Most of our listeners know that the blockchain, created by the inventors of Bitcoin, is expanding far beyond digital currency and has revolutionary potential for changing how society operates.  Any complex system that keeps records or involves chains of transactions - payments, contracts, titles, tickets, warranties, exchanges of all kinds, government records, medical information, purchasing systems - anything -- can potentially be managed through distributed ledgers that can eliminate most of the current costs as well as errors, uncertainty, and fraud. DLT can also enable trustable transactions among parties who don't know each other, without need for a trusted intermediary. That's because safeguards are built into the technology itself, by making all the records and transactions transparent to all parties and preventing duplication or fabrication of information.

Blythe Masters says she began as a skeptic because, like many people, she equated the blockchain with Bitcoin and, given Bitcoin's colorful developments, dismissed both. However, after leaving her long career as a senior executive at JPMorgan Chase, she took a closer look and became a convert. Today she's leading one of the most exciting and best-financed firms in the field, Digital Asset Holdings in New York.

We had a chance to sit down together at the 2016 Fintech Forum of Women in Housing and Finance in Washington, where she shared her vision for the power of DLT to transform the internal operations of banks.

Note that DLT systems can be either open-access and "permissionless," moving information on the open internet as with digital currency, or can be closed and "permissioned" within a single organization or a gatekeeping group that shares a common need. (For more on open systems and digital currency, see our episode with Jeremy Allaire of Circle.) Large banks are actively exploring use of closed DLT systems to streamline their internal operations to cut out expense, mistakes, and the slowness caused by the need for reconciliation of records. These efforts will bring enormous cost savings, for three reasons. First, the DLT system is simply cheaper to operate. Second, it eliminates many kinds of errors - and preventing, detecting and correcting errors is a massive source of expense in every financial company. And third, reducing delay will also reduce the need to hold capital against the risks that attend pending transactions.

I would add that DLT will, over time, open up the opportunity to modernize and streamline regulation itself, through use of "reg-tech" relies on automated data in many areas that are now subject to expensive traditional examination.

Blythe thinks DLT is coming to banking much faster than people think - that these solutions will be in commercial deployment in just two years! One reason is that banks can modularize them, dropping DLT into functions that need it and then connecting them up with the other, older systems.

She makes another interesting argument, which is that those notoriously outdated old systems are going to have to be replaced soon anyway. Many are about thirty years old use computer languages no longer taught in college. The industry will have to invest in new technology, and DLT solutions will fortunately be ready at just the right time to permit a real leap forward in efficiency and effectiveness. Blythe also says regulators are thinking right about these challenges and have the right tools to manage them.

Her company is focused on banks' non-consumer activities, but think about the impact of these changes for everyone. Smart phones are demolishing the cost structure of delivering financial services, worldwide. Simultaneously, DLT is demolishing the cost of manufacturing and servicing them. The combination will bring vastly more efficient, affordable and accessible services.

Blythe Masters is a fascinating person. She was previously a senior executive at J.P. Morgan, where she started as an intern and spent 27 years. In 2007 she was named head of Global Commodities, and left the firm in 2014 upon the unit's successful sale. She had also been responsible for the Corporate & Investment Bank's Regulatory Affairs, and was a member of the J.P. Morgan Corporate & Investment Bank Operating Committee and previously the firm's Executive Committee.

From 2004 to 2007, she was Chief Financial Officer of the Investment Bank. Previously she headed the Global Credit Portfolio and Credit Policy and Strategy. Earlier positions included head of North American Structured Credit Products, co-head of Asset Backed Securitization and head of Global Credit Derivatives Marketing.

From 2012 to 2014, Blythe was chair of the Global Financial Markets Association (GFMA). From 2008-2010 she was chair of the Securities Industry and Financial Markets Association (SIFMA). She currently chairs the board of Santander Consumer USA Holdings and serves on the boards the Breast Cancer Research Foundation and the Global Fund for Women. She is an avid amateur equestrian.

Her efforts have long generated interest and buzz, including this feature story in Bloomberg, others in Fortune and CNBC, and a Financial Times story on her company's blockchain test with Chase.

In our discussion I quoted from an invaluable report on DLT by the Bank of England. Here is the quote I cited in our conversation - the report's opening lines:

              "The progress of mankind is marked by the rise of new technologies and the human ingenuity they unlock. In distributed ledger technology, we may be witnessing one of those potential explosions of creative potential that catalyse exceptional levels of innovation....that could prove to have the capacity to deliver a new kind of trust to a wide range of services."

Please enjoy this thought-provoking conversation with Blythe Masters.
 

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Support the podcasts - A buck a show!

I've decided to distill a lesson from the popular podcast series Hardcore History, by emulating their habit of asking everyone to send them "a buck a show." Some years ago, the show's host Dan Carlin realized the podcast was taking over his life - much as Barefoot Innovation has been doing with mine! He hit on the idea of asking listeners for "a buck a show," and eventually reached the point where he can devote himself to producing the series. Barefoot Innovation is produced part-time by me and two young, very talented helpers. One of them has a day job and the other is a full-time graduate student. If all our listeners will chip in a buck a show, we'll be able to expand our interviews, accelerate our pace (believe it or not, we currently run at a four- to five-month backlog from recording date to posting!), and be able to do some fun new things we have in mind for you. We'll appreciate any and all help to keep the show going, and growing!

And remember to post a review on iTunes.

Support the Podcast

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The Last Helicopter Pioneer – Innovation Insights from my Father, Glidden S. Doman

Barefoot Innovation has been in hiatus in recent weeks because my father passed away. I was in San Francisco and got a call saying he was suddenly ill and might not live through the day. I rushed for a redeye and flew all night home to Boston, where my son Matt met me and we drove to Harford in the wee hours. My brother and sister had rushed to our Dad too, and he had held on. In fact he began to do better, regaling us with stories in the ICU, bringing his sharp engineering mind to analyzing his medical situation, and enjoying us singing to him (we’re a singing family). We had hopes he would recover, but a few days later, he worsened and ultimately did not pull through.

He was 95 years old. His name was Glidden Sweet Doman. And he was a remarkable innovator. He’s being widely remembered as the last of the great helicopter pioneers, and he was also an important inventor in wind energy. Those two industries share the same technology – the wickedly complex science of rotor dynamics.

This very special episode of Barefoot Innovation is a conversation I recorded with him last Thanksgiving but had not yet posted. I got the idea of doing this podcast after watching a video of a talk he’d recently given at the New England Air Museum, which has two of his Doman Helicopters on permanent display. Listening to his lecture, I kept noticing parallels with the themes we discuss on Barefoot Innovation. It occurred to me that it would be fun to do a show inviting insights from someone who, nearly a century ago, began innovating in a field that’s very different from finance, but that was being similarly transformed by new, fast-changing technology.

Glid Doman was born in the village of Elbridge, New York, in 1921. His father, Albert Doman, brought electricity to that part of the state in 1890 (you can still see historic sites related to it), and was an inventor of the electric starter and electric windshield wiper. My Dad’s uncle, Lewis Doman, invented the player piano. His half-brother Carl Doman pioneered both aircraft and automobile engines and became a senior executive at Ford. His half-sister Ruth Chamberlain was the first woman architect in the region. My family is loaded with the genes for invention and entrepreneurship.

For my Dad as a boy, the most exciting field of invention was aviation. Airplanes were barnstorming farm fields. Airlines did not yet exist. And my Dad, who avidly read Popular Mechanics, built an airplane in his back yard (you’ll hear in the podcast whether he ever made it fly).

Aviation was the new technology then, the way digitization and mobile phones and blockchains are the tech frontiers today -- or genetics or robotics or 3D printing. Aviation was full of novel engineering challenges that were not yet understood. Flight was also inspiring bold predictions about how our lives were going to change, some of which were hilariously wrong – a good lesson for people like me who like to try to forecast tech impacts. For instance, in clearing out our parents’ attic in recent days, my siblings and I found a magazine cover story advising on women’s fashion for the coming trend of traveling by helicopter.

This little podcast touches only a tiny fragment of what made my Dad fascinating, and has nothing on his great life partner, our late mother, Joan Hamilton Doman. They met because she was the only woman in the 50-person University of Michigan flying club in World War II – and she was its top pilot. They had an amazing six decades or so, built around family and his work. He knew all the aviation greats from Igor Sikorsky to Charles Lindberg. He was featured on aviation magazine covers and traveled throughout the world. He was enlisted by NASA’s Jet Propulsion Lab to help design a “space sail” to rendezvous with Haley’s Comet (ultimately not deployed). He’s been honored by his alma mater, the University of Michigan aeronautical engineering school. And when his helicopter company didn’t reach scale, he pivoted to wind energy and invented a superior rotor design for wind turbines, using the same insights he’d developed working with helicopters. He led the design of two colossal experimental turbines funded by the Departments of Energy and Interior and installed in Wyoming. When he “retired” at age 65, he and my mother moved to Rome where he led international engineering teams in designing huge turbines in Europe.

And then, in his 80’s, he started a new wind energy venture of his own.  Right up to his death, he continued to be engaged with an affiliated firm, Seawind Technology, which is actively working to deploy his “Gamma” rotor designs on offshore wind turbines in Europe and other parts of the world.

Decades before computers could model the movements of rotor blades, my Dad used a combination of intuition, math, physics and relentless measurement to understand, correctly, the movement of spinning blades. For both helicopters and wind turbines, my Dad created massively simplified rotor designs and drastically reduced the stress on the blades as they rotate. This captures huge efficiency gains and virtually eliminates blade failure, the bane of most rotor systems. As he explains in our talk, one key to this was to realize that the commonly-used three-bladed rotor design is inherently unstable.  Wind turbines, he argued, should have two blades and helicopters – because they have to fly forward – need four.

Our conversation elicited a lot of my Dad’s thoughts about how to work with young, little-understood technology, as both an engineer and entrepreneur. While we didn’t cover all the ground I’d hoped to, you’ll hear him imparting Lean Startup-type wisdom. As a young engineer, for instance, he used a jackknife to cut open the balsa wood of a Sikorsky rotor blade to install measurement gauges on it and figure out what it was doing. He bought a postwar helicopter body for a dollar. He got hold of a Chevrolet clutch to use in his helicopter engine. His team invented do-it-yourself wind tunnels. It’s an MVP approach – a minimum viable product – in which they methodically identified, isolated, and intensively tested issues and reaped what today we call “rapid learning” and “fail-fast” lessons. As they figured out answers, they quickly pivoted, trying to succeed in an industry where, unlike today’s fintech, entrepreneurs needed huge amounts of capital. (In our recording, he talks about how easily his enterprise raised money, but that pattern did not hold over the decades.)

Our conversation only touches on a few of these lessons (and nothing about the wind business), but shining through it is his defining trait, the one that made him most successful, which was unbounded and insatiable curiosity.

Mainly, this episode shares his secret to being an innovator – and to having a wonderful career. His advice:  find organizations that have a lot of interesting problems, and go there and figure out how to solve them.

For those intrigued with the technology history of the twentieth century, I’m attaching early chapters of a biography that my brother, Steve Doman – also an aeronautical engineer -- is writing about our father’s journey. Here, also, is an overview and short video on Doman Helicopters created by my sister, Terry Gibbon (she too is an entrepreneur, with her own video company).  And here is a short video of one of the wind turbines.

To prepare this episode, I re-listened to the recording just a few weeks after his passing. One thing I notice is that, as we had this conversation after our Thanksgiving dinner last fall, my Dad’s comments kept making me laugh. Whenever he said goodbye to people, he always added the advice, “keep smiling.”  Words to live by.

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Let me share two updates about me and the show.

First, I’ve become involved in a very significant project aimed at helping prepare our U.S. financial regulatory framework for the challenges raised by innovation. I’m going to stay in my Harvard fellowship for a second year, still writing my book on innovation and regulation, but will also be devoting much of my time to this initiative, which I’ll tell you more about as it develops. One result of the new project is that I’ve decided to suspend the Regulation Innovation video series we launched earlier this year. I expect to reactivate it when I have time to create the videos.  Meanwhile, they are still available, still for free, at www.RegulationInnovation.com. Please do check them out. As I said when we started the series, I think the articles that accompany these videos might be the most important writing I’ve ever done.

Second, we will soon be back from the Barefoot Innovation hiatus, and what a line up we have!  We’ll have CFPB Director Richard Cordray; Digital Asset Holdings’ Blythe Masters; National Consumer Law Center’s Lauren Saunders; the prize-winning founders of Bee, Vinay Patel and Max Gasner; Harvard professor and behavioral economics scholar Brigitte Madrian; Funding Circle’s U.S. CEO Sam Hodges; QED Investors co-founder and venture capital wise man Caribou Honig, and the chief compliance officers of both Citi and Wells Fargo, Kathryn Reimann and Yvette Hollingsworth Clark, together.  And those are the ones we’ve already recorded! We have many more exciting people in the scheduling queue. This is why we ask you to send in “a buck a show” – the show has turned into a major enterprise, just because we have so many fascinating people to talk with.

We’ll try to speed up production as best we can, I’ll look forward to your continued feedback.

Meanwhile, keep smiling.  Jo Ann

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Click below to donate your "buck a show" to keep Barefoot Innovation going and growing.

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FINANCIAL INCLUSION: RAUL VAZQUEZ OF OPORTUN

In addition to our podcast, please take a look at Raul's keynote at the EMERGE Forum.

I am constantly amazed by the fascinating and unpredictable course of our conversations on Barefoot Innovation - and what a fun one I had with Raul Vazquez, CEO of Oportun. I always like to ask my guests to tell us how they, themselves, keep up with technology. With Raul, I asked this just as I thought we were wrapping up, and the question launched us on a whole new conversation. He's definitely my first guest to bring up potential uses of virtual reality in financial services, not to mention the first to describe virtually interacting with bison.  He thinks we're heading to a "transformative" ability for "anyone, regardless of their incomes" to be able to immerse themselves in a virtual world to try out products and experiences.

As sometimes happens as I get to know great innovators, this is a second podcast with the same company -- click here to listen to our prior discussion with Luz Urrutia, Global Head of Retail. Oportun is based in Silicon Valley and was formerly called Progresso Financiero. It leverages advanced data analytics and technology to provide affordable, credit-building loans to U.S. Hispanics and others with limited or no credit history. The company's proprietary platform risk-scores loan applicants, calculates each one's ability to repay, approves the loans it believes can be paid back, and sets loan amounts and terms to fit individual budgets. Customer accounts are also reported to credit bureaus to help establish credit history. The goal is to combine a highly personal experience with back-office efficiency. Between 2006 and 2015, Oportun helped more than 689,000 customers, disbursing more than $2.2 billion through more than 1.3 million small dollar loans.

Raul joined Oportun in 2012 after nine years in senior leadership roles at Walmart, including as EVP and President of Walmart West, President and CEO of Walmart.com, and EVP of Global eCommerce for developed markets. He also serves on the Board of Directors of Staples, Inc. and is a member of the Federal Reserve Board's Community Advisory Council. He's a graduate of Stanford University with BS and MS degrees in industrial engineering, and also earned an MBA at the University of Pennsylvania.

This is one of those fun episodes where we could have kept talking for hours if we hadn't run out of time. So...enjoy my conversation with Raul Vazquez!

To learn more about Oportun Financial, click here.

Click here to Opor-tune in to Raul's presentation at last year's EMERGE conference about Oportun's four key learnings so far.

To register for this year's indispensable Emerge in June in New Orleans, click here.

And here's my favorite Wired article on voice technology: "We're on the Brink of a Revolution in Crazy-Smart Digital Assistants"

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A note on the podcasts - A buck a show!

I've decided to distill a lesson from the popular podcast series Hardcore History, by emulating their habit of asking everyone to send them "a buck a show." Some years ago, the show's host Dan Carlin realized the podcast was taking over his life - much as Barefoot Innovatoin has been doing with mine! He hit on the idea of asking listeners for "a buck a show," and eventually reached the point where he can devote himself to producing the series. Barefoot Innovation is produced part-time by me and two young, very talented helpers. One of them has a day job and the other is a full-time graduate student. If all our listeners will chip in a buck a show, we'll be able to expand our interviews, accelerate our pace (believe it or not, we currently run at a four- to five-month backlog from recording date to posting!), and be able to do some fun new things we have in mind for you. We'll appreciate any and all help to keep the show going, and growing!

And remember to post a review on ITunes.

Support the Podcast

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A note on my Regulation Innovation videos and the most important writing I've ever done

Also click here to watch the new Regulation Innovation videos we've posted and read the new articles. These are currently a free sample but will soon become limited to subscribers. Every month, I'm creating a short video briefing and then backing it up with a deep article that shares what I've been learning about financial innovation, and also shares my hard-earned secrets about how I've been learning it. The articles are rich with links to resources -- everything from news reports and white papers to statistical trends to my very favorite Ted Talks.

My goal is to use this pairing of videos and deep articles to repackage my consulting advice, so it can reach a wide audience affordably. In essence, I'm searching the fintech world and curating the best insights for you. As a series, it's a journey through this changing landscape, finding the keys to thriving on disruption with me as your guide.

I've done a huge amount of writing over the years - I've published hundreds of articles. These are the most important, valuable writings I've ever done. Again, these are currently free - I hope everyone will try them out.
 

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Upcoming shows

We have terrific shows come up - the amazing Blythe Masters, the very innovative founders of Bee, and much more.  Join me then!

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Effortless Investing : Jon Stein of Betterment

Welcome to Barefoot Innovation and to a new dimension in the topics we explore. We've talked with many startups in lending, payments, and managing personal finance. Today, we're looking at the most exciting change underway in the investment space - "robo-investing." My guest is Jon Stein, the founder and CEO of Betterment.

We met in their fast-growing offices in New York, a converted warehouse steeped in industrial character and with mouth-watering aromas wafting from a very substantial food bar that lined one end of the busy open space, and offering the special charm unique to businesses where people bring their dogs to work.

In our conversations, Jon told me the story of his personal journey. He graduated from Harvard and - since, as he says, no one was recruiting for jobs with the description of "making people happy" - went into finance. Eventually he went on to Columbia Business School, gained Series 7, 24, 63 certifications, and become a CFA, Chartered Financial Analyst. He expresses respect for traditional financial businesses, but became frustrated by their transactional focus, and also by his own financial life - he had 7 brokerage accounts, invested in Enron, and finally concluded that the industry encourages the wrong investor behaviors, especially in trying to "beat the market." He'd studied both economics and human behavior in college (before behavioral economics caught on) and realized that his interests lie at the intersection of behavior, psychology, and economics. He remembers a professor saying "how crazy people can be, and how very often they would get in their own way, and how even when we wanted to do the right thing, we would do the wrong thing."

He also says he always knew he wanted to do "something big."

So in 2008, he founded Betterment.

Betterment is now the largest independent "robo-advisor," with $4.3 billion in assets under management and 150,000 customers. I've interviewed many founders of startups on Barefoot Innovation, but this is the first one that runs commercials on television.

Betterment aims to optimize investment through automation that produces sound advice for the long term, and that also makes the process both easy and more affordable. It builds around what Jon considers the MOST important advice -- which is too often overlooked, namely -- "How much to save?" The company has also taken on the "behavior gap" in financial advice - Betterment has the lowest in the industry and is trying to drive it to zero.

They are also constantly driving for efficiency gains (his colleagues say if you want to sell Jon on an idea just tell him it will increase efficiency), and for fee transparency. They think this combination of strengths - being advice-centric, transparent, and hyper-efficient -- will revolutionize the investment world. They also think their model, over time, can be applied to a much broader set of financial services. As Jon's biography puts it, "What excites him most about his work is making everyday activities and products more efficient, accessible, and easy to use."

One highlight of our conversation is his insights on the thorny questions of how these innovations should be regulated, including on the advice given, how data should be used to be sure it's helping customers, and how performance should be measured.
 

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Note on upcoming podcasts

Click below to donate your "buck a show" to keep Barefoot Innovation going and growing. (If you didn't hear my explanation on this, it's at the end of the previous episode, with Raul Vazquez of Oportun).

Support the Podcast

Upcoming shows are going to be so interesting. Keying off Jon Stein's thinking on human behavior, we'll have an episode with one of America's top experts in how behavioral economics impacts investment and retirement savings, Harvard Professor Brigitte Madrian. I'm delighted to say Brigitte is also my faculty advisor on the book I'm writing on financial innovation and regulation for my Harvard fellowship this year.

We're also working on a fascinating show on innovation emerging in the insurance sector, dubbed, "insure-tech."

Other guests in the queue include some of the country's most thoughtful bank compliance officers, and the very thoughtful founders of Bee.

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Note on Regulation Innovation Briefing Series

Meanwhile, click here to explore my Regulation Innovation briefings, while you still can for free!  The briefings are short monthly videos, each paired with a deep article about the twin and intertwined challenges of financial innovation and regulation. They are still free for a few more weeks, and then the series will be for subscribers, so please check it out.

As I said last time, these articles are the most important and valuable thing I've ever written. I hope you'll join the journey.

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Its Still Simple : Josh Reich One Year Later

This episode updates one of the very first ones we did in our Barefoot Innovation series, last year. Episode Two featured the two co-founders of Simple, Josh Reich and Shamir Karkal. A year later, we all found ourselves back at the same conference where we'd recorded that program. Shamir has now taken on a new role, leading the open platform innovation of the very innovative bank that bought Simple, BBVA.  Josh, though, is still CEO of Simple (a fact that he says tends to surprise people). So on a very rainy afternoon in Southern California, he and I found a place where we could duck out of the weather (you may hear the deluge in the background), and talked about how Simple has progressed in the year just past.

So...very few people are more fun to talk with than Josh Reich, but I think my favorite thing about this episode might not be the podcast, fascinating as it is, but rather something the podcast led me to. In our conversation, Josh talks about a customer whose dog chewed her debit card - twice! Simple sent her a customer appreciation package with the second card, and she was so grateful that she made a YouTube video about getting it.

Every banker in the world should watch this:  customer appreciation reaction video
 

I won't update the full show notes here - please look at Episode 2 for the basics on Simple which, again, is now part of BBVA bank.  And if you missed it, be sure to listen also to my podcast with Manolo Sanchez, the CEO of BBVA Compass, who I think may be the most innovative bank president anywhere. BBVA is all-in on fintech innovation.

Also, Josh and I did not get to a key update, which is the big move Simple made last year to eliminate ALL its checking account fees. I'm linking to his blog post here explaining what they did and why.  Remember, Barefoot Innovation is a search for better solutions for financial consumers through all kinds of innovation. BBVA and Simple are making this search in a great many interesting ways.

So enjoy hearing Josh's insights, ranging from how to succeed when a big banks buys a small innovator, to the make-or-break power of a bank's culture, to the incredible efficiencies of growing a bank without branches - he shares some numbers -- to his advice for regulators.

And watch for fantastic episodes coming up: Oportun CEO Raul Vazquez; Betterment CEO Jon Stein; two of the country's top compliance officers, together; and Blythe Masters of Digital Asset Holdings - to name a few.

 

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Regulation Innovation Video Series: Briefing One - The Five Tech Trends Driving Financial Transformation

The Five Tech Trends - the latest video in the Regulation Innovation Video series.

Meanwhile be sure to sign up for our new video series, Regulation Innovation - Thriving on Disruption.

These are short briefings - 10 to 15 minutes each - designed to be the single easiest way to understand the huge issues raised by fintech, in both technology and regulation, and how best to address them.

Since fintech is far more about "tech" than "fin," we're starting the series with The Five Tech trends transforming finance.

Plus we have a lighthearted little extra, straight from my own kitchen, on how I was inspired to some thoughts about innovation by a very unusual gadget.

The briefings are designed share in meetings and training sessions, from board rooms to business and compliance teams. They come with access to a subscriber-only website with resources and advice. We have group pricing available - just contact us!

Please sign up for them, and also to get my podcasts by email. And be sure to leave reviews on ITunes.

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Please consider a donation to support our efforts to bring the best thought leaders in the financial innovation world to you.

A dollar a show is all we ask.

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CFSI's Innovation Contest

We have a very special show today. I realized – rather late – that we should do an episode on the CFSI financial solutions lab competition. It’s belated, because the contest is open, now, for its second year of applications, and the deadline is April 7 – just a few days from now. 

My guests are Ryan Falvey, who heads the lab, plus three of last year’s 9 winners. They are Sheri Atwood of SupportPay; Jerry Nemorin, of LendStreet, and Quinten Farmer of Even. They explain how the competition works, what they are looking for this year, and, from the standpoint of last year’s winners, what they have gotten from participating in the program.

FINLAB:  The FinLab is investing about $5 million each year in the contest winners, who also receive a huge array of expert advice and access to networks and resources. Here’s the information on the competition and how to apply by April 7:  Finlab.cfsinnovation.com. And here is an overview of the full list of last year’s winners.

For today’s show, we’re featuring these guests:

RYAN FALVEY

As a Managing Director at the Center for Financial Services Innovation, Ryan oversees the Financial Solutions Lab, bringing together innovators from the fields of technology, behavioral economics, nonprofit services and design to provide guidance, share best practices and develop scalable financial products. He loves to help organizations solve hard problems. Prior to joining CFSI, Ryan was at Silicon Valley Bank, working with leading technology firms to develop innovative payment products and solutions. He also served as the Strategy Group Lead at Enclude Solutions, overseeing its global strategy consulting work in over 30 countries and supporting the development of several of the world’s most successful mobile-enabled financial products. Ryan has a graduate degree from Yale and an undergraduate degree from UCLA. 

Twitter: @TheFinLab, @CFSInnovation

Personal Twitter: @Ryan_Falvey

SHERI ATWOOD

Sheri Atwood, Founder and CEO of SupportPay by Ittavi (acronym for “it takes a village"), is a former Silicon Valley executive, single mom and child of a bitter divorce. Atwood, who was raised by a single mother and was the only person in her family to attend college, married at 19, completed her undergraduate degree in less than 4 years and completed her MBA 10 days before her daughter was born. When Atwood herself divorced at 25, she was the youngest Vice President at Symantec. Before SupportPay, there was no easy way for parents to exchange child support -- and Atwood was so determined to create a solution that she taught herself to code and is today an expert in front-end development. Atwood was named “#5 of 50 Women in Tech Dominating Silicon Valley” and a "Top 40 Under 40 Executive in Silicon Valley." 

Website: www.supportpay.com

Twitter: @SupportPayApp

Personal Twitter: @SheriAtwood

JERRY NEMORIN

Jerry is founder and CEO of LendStreet. He previously worked at Bank of America Merrill Lynch in its Global Corporate & Investing Banking division, helping major companies restructure their debt during the financial crisis and raise money from the high yield debt market. Jerry is now putting that expertise to use in a way that helps consumers in financial distress deal with their debt and rebuild their credit.

Jerry has been a speaker, guest, and advocate for responsible lending and sustainable financial services on Capitol Hill and industry events such as Finovate, SWIFT Innotribe Competition, Experian's Vision Conference and Credit Suisse Impact Investing Conference.

Jerry recently served as Entrepreneur-in-Residence at the Darden School of Business Incubator. He began his career in Tyco's Treasury group and received a B.S. in Finance and Exercise & Sports Science from the University of Florida and an M.B.A. from the Darden Graduate School of BusinessAdministration at the University of Virginia.

Website: www.lendstreet.com

Twitter: @LendStreet

Personal Twitter: @JNemorin

QUINTEN FARMER

Quinten Farmer is Co-Founder at Even. Previously, Quinten ran Client Operations at Taykey, a venture-backed advertising technology company, and was Vice President of Operations at Onswipe, a New York-based startup. Quinten studied Computer Science at Columbia University, and also founded the Open Loans Project, a nonprofit working to bring transparency to the student loans industry. He founded Even to help employers enable workers to even out timing mismatches between paychecks and expenses, especially in volatile or disruptive situations.

Website: https://even.com

Personal Twitter: @Quintendf

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Also, be sure to come to the CFSI Emerge Forum on Consumer Financial Health, in New Orleans, June 14-17. The new contest winners will be announced, and there will be an amazing lineup of speakers and events focused on technology solutions to building consumer financial health and well being.

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As always, please donate to my free podcast series (which seems to be trying to take over my life) and please write a review of it on ITunes!

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At the Front with NFCC's Susan Keating

In 1967, the Beatles sang: "I get by with a little help from my friends." That sentiment captures something at the heart of many people's financial lives today, and it embodies the idea behind the National Foundation for Credit Counseling (NFCC), the oldest and largest nonprofit credit counseling organization in the U.S.

I have known Susan Keating, NFCC's President and CEO, for about 30 years. I've been wanting to record a Barefoot Innovation episode with her, because the NFCC is on the front lines of the topics we're exploring here. They work directly, personally, with the people who are not thriving in our consumer financial system. The reasons people don't thrive are complex. We've talked about a lot of them, and I find it's easy to get excited about new technologies or regulatory challenges impacting them, and to lose sight of the real people who are immersed in these struggles. Helping these people is the driver behind much of the search for better solutions by industry, government, and the innovation world, and it's good to pause and think about who they are.

As we discussed with CFSI's CEO Jennifer Tescher LINK TO IT, the so-called "underserved" market is enormous -- estimated between 70 and 140 million Americans -- and covers a huge percentage of the middle class. It is also heterogeneous. Data from NFCC, CFSI and others is breaking the old stereotype of a monolithic "low and moderate income" category whose problem is just not being able to afford traditional financial services.  Many underserved consumers, in fact, can afford to pay for high-cost financial services, and are doing so, but are stuck there due to a wide array of issues. Some of their problems are caused by their own errors and difficulties. Some are caused by the difficulties of serving them through the business models and cost structures that prevail in the industry today. Some are a mix of both.

Both of these kinds of problems are ripe for improvement today, thanks to the innovations we discuss here on this show. I think, though, that we'll still have a big gap between new financial solutions and the people who need them, unless we build some bridges -- add in some glue -- in the form of human beings who can help people learn to use new technology. NFCC is one of the key organizations able to do this.

Susan talks about all this in our conversation. She describes the massive scope of the challenge; the "new face of poverty" in the United States; the NFCC's focus on "breadwinner moms;" and its key new initiative for helping people manage student debt, with a insight into the daunting scope of that challenge.

Susan's background:

Susan began her banking career in 1974 at First Bank System in Milwaukee, where she became Senior Vice President of retail banking. In 1988 she joined MNC Financial in Maryland and later became President and senior banking executive for Maryland when NationsBank (Bank of America) acquired MNC in 1993.

She went on to become the highest-ranking female CEO of a US-bank holding company, as President and Chief Executive of All First Financial from 2000-2002. Then in 2002, she was appointed to the Group Executive Committee of AIB (Allied Irish Banks plc), which is responsible for developing corporate strategy and overseeing management of AIB Group.

In 2004 she took on the role of NFCC President. She thought is was a short term move but, to her own surprise, she's still there twelve years later, caught up in the mission. Upon reappointment after her first three-year term, she said, "The NFCC is uniquely positioned to serve the many consumers who are struggling to make ends meet and find their way to a better financial future. I am deeply committed to doing all that I can in order to lead the efforts in the years ahead."

Susan also serves on Bank of America's National Consumer Advisory Council; is a board member of the Council on Accreditation; and participates in the Financial Regulation Reform Collaborative, a non-partisan group committed to finding solutions for reforming financial services regulation.

NFCC:

Last fall I had the honor of joining the NFCC's board on the occasion of the organization's 50th birthday. Today the NFCC works with 90 member agencies through more than 750 offices in communities nationwide. Its certified counselors counsel and provide financial education to three million clients annually, focusing on issues that include seniors and the military and guidance relating to financial literacy, mortgages, and credit cards. It recently launched a key initiative on helping people with student debt, and in helping illuminate that magnitude of that challenge, and plays an invaluable role in consumer financial research overall.
Here are some links:

• 2015 Consumer Financial Literacy Survey
• 2015 State of the Financial Counseling and Education Sector
• Student Credit Counseling initiative 

View fullsize

Enjoy my conversation with someone on the front lines -- NFCC's CEO Susan Keating.

And please note:

The video series is launched!  Please come to my new site www.RegulationInnovation.com  where we have launched my video briefing show. It's a practical guide for financial companies trying to figure out how to thrive on disruption-to thrive through the twin, intertwined challenges of technology disruption and regulatory disruption. We're off to a terrific start with the series.

The next video will be called, "The 5 Tech Trends." I made it because I think financial people often underestimate the disruption underway, because we tend to think of fintech as a financial topic. In reality, it's mainly a technology topic. That means the forces shaping it lie mainly in the tech world, not the financial world. That in turn means they are mostly over the horizon, outside the field of vision of busy people focusing on finance.

I've been spending a lot of time in that world, and am creating this video to explain what these five huge drivers are, how they are converging, and how they will transform both consumer financial services and financial regulation. Again, fintech is way more about "tech" than "fin."

I'll also have a light-hearted short video for your entertainment, brought to you from my very own kitchen. I'm going to demonstrate an extremely odd little gadget that contains a big lesson for innovators.

Coming episodes:

Last but not least, come back next time to Barefoot Innovation, when my guest will be the visionary CEO of Opportun, Raul Vazquez. Among other things, he is totally fascinating on the topic of how he personally keeps up with technology.

Up next in the queue after Raul, we'll have a short update with Simple CEO Josh Reich, and then an interview with the founder and CEO of Betterment, Jon Stein.

See you soon!

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Consulting the Source - Leonard Chanin of Morrison & Foerster

I’m calling this episode “Consulting the Source.” My guest would be the first to say he is not the source of our consumer financial protection rules -- that would be Congress. Still, no one has had more to do with translating law into regulatory form than Leonard Chanin.

When Leonard left the Consumer Financial Protection Bureau for his current position at the law firm Morrison & Foerster LLP, it was big news. American Banker wrote: “Morrison & Foerster can’t say it hired the attorney who wrote the CFPB’s rulebook. But it picked up the guy who started the job.”

Actually, Leonard has been involved in the crafting of pretty much all the consumer financial regulations since 1985. And for years he led the legal teams – first at the Fed and then at the CFPB – that wrote them. I consider him the single most expert person in the world on how to write consumer protection regulation in finance. His deep knowledge of the field and his great sense of humor led to a really fun and animated discussion about the challenges of financial regulation.

In fact, our conversation continued for nearly another hour after we turned off the microphone. I often find that, after the recorded part of the podcast, my guests go on to say things even more interesting. In Leonard’s case, he said something I’ve been thinking about ever since, and I got his permission to share it.

He said, “The only solution is to blow it all up. If we just take what we have and try to improve it, we will fail.”

Our regular listeners know I’m at Harvard this year writing a book about modernizing consumer financial protection for the innovation age. I think most people in the financial field agree that the system we have hasn’t worked well. And yet, the course we’re on is exactly the one Leonard says won’t work – taking what we have and just trying to improve it at the margins. The CFPB, of course, is adding vigor and rigor to the effort and having many impacts. Still, this is a good time to examine the basic questions of what works, and whether we could do better.

I met with Leonard in his office in Washington, and we explored it all. Can disclosure ever really be effective? What should we do about information overload?  Is it impossible for regulations to be both simple, and clear, at the same time, or do we have to choose between those two goals?  Should we rely more on principles-based regulations instead of detailed rules? When should the law just ban practices, instead of requiring them to be disclosed?  Should we have a regulatory sandbox? Is it worth trying to do better, given the enormous costs the industry incurs every time the rules change? What could we do better now that people can get information instantly on their cell phones? Should government try to protect people from their own mistakes, or just prevent deception and let consumers make their choices?

I recently spoke at a conference where I said I think disclosure has largely failed as a consumer protection strategy in finance. Someone afterwards said to me that he thinks it was never meant to work – that it was just the industry’s strategy for preventing tougher regulation. I was involved in a lot of those early efforts, and as I say to Leonard in our talk, it seemed like a good idea at the time, to me. It seemed worth trying. But today, it’s time to think again. (For an interesting analysis of the ineffectiveness of disclosure, see this article by Temple University’s Hosea Harvey.

Leonard is currently Of Counsel in the Financial Services group at Morrison & Foerster LLP. He advises clients on issues relating to the Home Mortgage Disclosure Act, Truth in Lending Act, Electronic Fund Transfer Act, Fair Credit Reporting Act, Truth in Savings Act and Equal Credit Opportunity Act.

Before rejoining Morrison & Foerster, he was the Assistant Director of the Office of Regulations of the Consumer Financial Protection Bureau, heading the agency’s rule-making team of nearly 40 lawyers. He also provided legal opinions to Bureau supervisory and enforcement offices on federal consumer financial protection laws. Prior to that, he was Deputy Director of the Division of Consumer and Community Affairs at the Federal Reserve Board. His role there included providing legal opinions and policy recommendations to the Board and the Division on federal consumer financial services laws, negotiating rules and policies with the other federal banking agencies and providing legal views on enforcement actions against state member banks.

Leonard’s law degree is from Washington University School of Law in St. Louis, where he served on the board of the Washington University Law Review. He is a currently a fellow of the American College of Consumer Financial Services Lawyers.

So, please enjoy my conversation with Leonard Chanin.

And…try my new video series, Regulation Innovation!

And be sure to come to my new site, www.RegulationInnovation.com, and sign up for my new series of video briefings!  I’ve posted a short trailer (EMBED?) explaining the videos as a roadmap for navigating through the two toughest challenges facing every financial company – how to thrive on all this regulatory and technology. You can try it out and get started very easily.

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Transforming Payments: Circle CEO Jeremy Allaire

Welcome to our first episode focused on Bitcoin, digital currency, and the blockchain. My guest is one of the most thoughtful people anywhere on this topic and on payments overall: Circle CEO and Founder Jeremy Allaire.

I met with Jeremy at his office in south Boston's "Innovation District," a few blocks from where I live myself. They have quintessential startup space in an old brick warehouse, and we sat down on a New England winter day for a really fascinating conversation.

I often talk about the five huge technology trends that are revolutionizing financial services. Number 4 on my list is digital currency. Not long ago, even senior leaders in banks and regulatory agencies dismissed Bitcoin as insignificant and weird at best, and dangerous at worst. Today, many people still think it's weird and dangerous, but no one thinks it's unimportant. I'm going to assume our listeners know the basics - that Bitcoin invented the "blockchain," which is an open "distributed ledger" of transactions, visible on the internet, and that being on the internet makes it (like everything else there) instant and free. Most people also understand that this can transform our slow, high-cost payments system, and also any other system that is, in effect, a chain of transactions or records. Most people also know the blockchain record is unfakeable, unbreakable, and again, visible - attributes that can fundamentally change how we organize things from money and contracts and legal titles to operational systems and markets of all kinds.

I once wrote a blog post called "The Benefits of Bitcoin", arguing that the cheap and instant movement of money can bring incredible upside potential for financial consumers, as well as new risks. It will eventually change everything from remittance services to the struggles facing people on tight budgets who now rely on cash, since it's the only way to be sure a bill gets paid exactly when it's due.

As understanding of Bitcoin has spread, a new conventional wisdom has emerged - the notion that the crucial innovation here is not digital currency, but rather the blockchain, including closed chains inside companies and closed networks. In our conversation, Jeremy challenges that idea head-on. He argues passionately that the big power in this technology is its openness.

He reminds us, for one thing, that the internet initially spurred hot debate over how to secure the unprecedented free-flow of information. In a widely-circulated article on re/code.com last November Jeremy wrote,  "Remember, the Internet was unreliable, insecure, and filled with creeps and hackers. People wanted safe, secure, trusted and proprietary networks. That was the future...(yet) We all know what happened. Smart creators and engineers from all around the world got inspired by the open Internet...Permissionless innovation took hold, and we changed the world." He thinks we now need to take the basic DNA of the Internet - open protocols and distributed and decentralized networks - and apply them not just to sharing data and information, but to the sharing of value.

He also emphasizes a core power of this - the fact that if you don't have to trust a single centralized institution to facilitate value exchange, amazing things become possible. Jeremy refers to bitcoin as a distributor of trust, one that "provides a highly secure ledger to exchange value around the world." He believes that just as the early Internet disrupted media and communications, this wave of innovation will transform the "trust and assurance" industries - "which includes government, law, accounting, insurance and, last but not least, finance."

Entering into a global economy in which everything from social identities to commerce flow instantly and freely is discomfiting to some. Even though today's closed and proprietary technology and networks create frustration and high costs for consumers, Bitcoin critics still doubt the soundness and resilience of the model. For innovators like Jeremy, though, it is creating a whole new set of solutions that use financial technology to build "smart rules" and business logic that can eventually shape the new laws of global commercial and legal governance.

Jeremy's "aha" moment on this came in 2012, and inspired him to start a company that would use blockchain technology, which he calls the "global trust and transaction ledger," to change the way we store and use money. That company is Circle, a provider of mobile apps "aimed at enabling greater ease-of-use in online and in-person payments, enhanced security and privacy for customers, and the convenience of free, instant, global digital money transfers." A revolutionary idea. As I say in our conversation, I'm a Circle customer myself.  Every time I use it, it amazes me.

Before Circle, Jeremy was an entrepreneur who'd already spent two decades building and leading global technology companies. His first startup, Allaire Corp, pioneered the use of the Web as a platform for commerce and business applications, and grew to serve over 1 million customers around the world. In 2000, Allaire Corp was acquired by Macromedia, where Jeremy became Chief Technology Officer and helped transform Flash into a platform for rich applications and video that became the most widely adopted piece of software in the history of computing.

He then founded Brightcove, the first Internet video publishing platform for websites, smartphones, tablets and connected-TVs. The company has customers in more than 100 countries and powers video operations for 25 percent of the top 10,000 websites in the world. From 2003 to 2014, Jeremy also served as a Director at Ping Identity Corporation, an industry-leading software and online service provider for securing identity on the Internet whose clients include many of the largest financial institutions in the world.

 

In our conversation, Jeremy explains his vision, his long background in technology, how Circle works, their business model and plans, and his thoughts about regulation of finance and fintech.  The regulatory challenges are obviously huge. Circle sought and received the first-ever (and at this writing, still only) New York State "bit-license." Jeremy talks about the challenges of becoming licensed as a money transmitter in the U. S. state-by-state regulatory patchwork. He also recognizes that, importantly, governments throughout the country and the world see potential as well as risk in these innovations. An example is that Jennifer Shasky Calvery, Director of the Financial Crimes Enforcement Network, has testified before Congress that FinCENrecognizes the "potential for abuse by illicit actors," and that the agency has for almost five years worked with its regulatory partners on designing rules that provide the "needed flexibility to accommodate innovation in the payment systems space under our preexisting regulatory framework."

Jeremy Allaire has an exceptional gift for making mind-bending technology and regulatory challenges easy to understand - and for provoking thought. This is, without a doubt, one of the most fascinating episodes we've had.

Enjoy it, and please be sure to click the "Donate" button HERE, and to write a review on ITunes, to keep supporting the show.

And.....Introducing my video series: Regulation Innovation

Meanwhile, I have a video for you -- two of them, actually.

Many listeners know I have long been a consultant to the financial industry, first on regulatory matters and more recently on fintech. A couple of years ago, someone suggested that I take the kind of advice people pay me for as a consultant, and distill it into video briefings that are accessible and affordable for a much wider market. It was a great idea, and so I began building a video series offering my advice.

I've focused the videos on the most important question facing consumer financial services -- How to survive, and actually thrive, through the twin disruptions that are hitting the industry:  technology innovation, and regulation.

I think everyone in fintech will enjoy them, but the series is specifically designed as a guide for financial companies - it's informative, thought-provoking, and practical. It's for both traditional companies and innovators. And it's for the people working on innovation, regulation, and building the business.

I am very confident in saying there is nothing else remotely like it.  Please check it out!

And while you're there, check out my little bonus video because it answers, at long last, this burning question: "Why does Jo Ann Barefoot have an Xbox, since she's never played a videogame in her entire life, and what the heck does this have to do with financial innovation?"

www.regulationinnovation.com. See you there!

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Effortless Saving: Digit CEO Ethan Bloch

This is one of my favorite episodes we've ever done - my conversation with Digit founder and CEO, Ethan Bloch.

Digit has set out to solve one of the core problems in consumers' financial lives - how to save. Their solution is to make savings effortless, using an intelligent algorithm that analyzes your spending and income patterns and automatically moves funds into savings. I had dinner with Ethan last summer and suddenly realized he was describing an "Uberization" of savings, paralleling the financial industry's efforts to "uberize" payments, in the sense of making the mechanics disappear, like the non-exchange of money at the end of an Uber ride.  Out of sight, out of mind. With Digit, you sign up, and you automatically start to save.

I had always assumed that getting people to save requires fostering mindfulness - getting people to think long term instead of short term. Digit is going in the opposite direction - not mindfulness, but mindlessness. Again, effortlessness. Instead of hoping people will form habits that keep them focused all the time, on saving Digit just lets them decide to save one time. After that, they save. He's trying to drive the "minutes per year" spent on saving to nearly zero. No more budgets, expense tracking, figuring how much you should save and can save and did save. They're breaking all those practical barriers that keep most people stuck.

I know it bothers some people to have consumers saving without thinking. We wish, instead, that everyone would become financially educated and focus on their life goals - you could call it developing the financial virtues. There are innovators working on that approach, too, using behavioral economics to get people motivated. Still, if the eat-your-spinach approach was going to work, it probably would have by now. It's time to try new tools. I know other companies working from the same logic.

And here's an interesting twist. After Digit gets people started on effortless saving, they actually do switch over to mindfulness. They start texting their customers about daily savings progress. And they do it with humor which, as I've been saying, is a secret weapons of many fintech innovators. They are blowing up the boredom factor that keeps so many people from focusing on their finances. I asked Ethan for examples of this. Unfortunately I didn't get the jokes because they're aimed at millennials, but if you -- unlike me -- happen to know what's cooler than cool, Digit will send you this fun GIF.

 

Speaking of millennials, Digit's average user is 27 years old. Some people want to dismiss fintech solutions for this group, because so many other consumers need tools too My answer to that is, the millennials are the early adopters of new technology. It makes sense to start with them. As these products get traction, they will broaden.  Listen to Ethan, and many of our other guests, and you hear a big vision about remaking the financial lives of everyone. (And by the way, we do have a show coming up with Bee, which is reaching for a very different market.)

At the age of 30, Ethan is at the forefront of the fintech revolution. Digit is a winner of the Financial Solutions Lab competition sponsored by CFSI and JPMorgan Chase, which focused its first year on solutions for the more than one-third of Americans who struggle with managing cash flow management. (Recall that another winner was Ascend - we talked with its founder, Steve Carlson, in Episode 9).

Ethan explains how much money Digit has saved people so far (by the way, we recorded this discussion late last year, so his progress data are for 2015, not 2016). He explains how customers are using the savings they build up. He describes their investors and business model and plans.

And he talks about how to design great financial tools, that are like smart phones - that people can just pick up and use, without needing manuals, much less lengthy federal disclosure documents.

Speaking of those, Ethan really calls out the failures of disclosures. He also discusses the shift underway toward a more principles-based approach (echoing our episodes with other guests, including Thomas Curry). He describes, too, the huge obstacles to innovation that arise from well-intentioned government efforts, including the difficulties innovators face in working with banks.

Ethan also had the most surprising answer I've gotten yet to my standard question on how he keeps up with technology change.

Finally, for our many listeners who play Barefoot Innovation while you're carpooling to school in hopes it will inspire your kids to grow up and found the next PayPal, I should say I'm rating this episode PG-13, for language. Ethan uses a few words in our conversation that...let's put this way, you hardly ever hear them on National Public Radio.

Learn more at www.digit.co and @hellodigit and @ebloch and find further links below:

• On banks opening up their APIs
• The book "Rainbow's End"
• CFSI's research on the U.S. Financial Diaries

Note to Our Listeners:

If you're enjoying Barefoot Innovation, please be sure write a review on ITunes and also click the Donate button, to help us can keep it growing!

Last but not least, I am finally launching my long-in-the-making video series, Regulation Innovation. It's for people in the financial world contending with the top two disruptive challenges - regulation and technology innovation. It for both business and regulatory people, and for both traditional companies and innovators. I'll have much more information coming on this, but please come to www.jsbarefoot.com in March, and check it out!  I promise, there is nothing else remotely like it.

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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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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.)   

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

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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!

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 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

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