Innovate on Purpose · Innovation | Strategy | Leadership 2 @JPNicols JP Nicols has been...

1Innovation | Strategy | Leadership

Innovate on Purpose


@JPNicols

JP Nicols has been internationally recognized as a

leading voice for innovation, strategy and

leadership, and his work has been featured in

leading conferences and publications.

He is Managing Director of the FinTech Forge, and

was founder of the Bank Innovators Council, now a

part of Next Money.

He is also an instructor at leading graduate schools

of banking, and a regular guest host of the global

fintech podcast Breaking Banks.

@JPNicols


3Is a Poor Teacher

Success

Innovation | Strategy | Leadership


Rising Asset Prices


Falling Interest Rates


1980

• Depository Deregulation and Monetary Control Act

• Authorizes new thrifts and phase out deposit rate limits

1982

• Garn-St. Germain Depository Institutions Act

• Deregulates S&Ls and allows ARMs

1994

• Riegle-Neal Interstate Banking and Branching Efficiency Act

• Eliminates interstate banking and branching

1999

• Gramm-Leach-Bliley

• Repeals part of Glass-Steagall

2000

• Commodity Futures Modernization Act

• Prevents CFTC from regulating most OTC derivatives and swaps

2004

• SEC proposes Voluntary Regulation

• Allowing investment banks to hold less capital

Source: Center for Economic and Policy Research

In an Era of Deregulation

7Innovation | Strategy | LeadershipInnovation | Strategy | Leadership

Global Financial Crisis

BroadbandMobility

Smartphones

Social NetworksApps

Big DataCloud

Blockchain


Threat of

New Entry

Supplier

Power

Buyer

Power

Threat of

Substitution

Competitive Rivalry

Porter’s Five Forces


Blockbuster’s Head of Digital Strategy, 2010

“We’re strategically

positioned better than just

about anybody out there.

Never in my wildest dreams

would I have aimed this high.”


Video Americain in Baltimore - Image credit: Baltimorefilmguide.com


30%

20%18%

16%

10%

4%

1%2%

18%

26%

23%

13%

9%

6%4%

1%

Branches nearme

Leadingonline/mobile

No foreign ATMfees

Many branchesand ATMs

ATMs near me Convenientbranch hours

Phone OtherSource: Novantas ® 2016 The Financial Brand

2014

2015

What is Convenience?


U.S. Smartphone Penetration

6%11%

17%

27%

42%

54%

65%

75%79% 81%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Source: comScore


2010 2011 2012 2013 2014 2015

Mobile Banking vs. Branch Banking(Weekly Transactions)

© 2015 GA Javelin LLC

Branches Mobile

40%

30%29%

30% 28%

24%

9% 9%11%

22%

27%

30%


Bank of America 2016

18.7 19.6 20.2 21.3 21.6

15% 16%17%

18% 19%

0%

10%

20%

30%

0

5

10

15

20

25

4Q15 1Q16 2Q16 3Q16 4Q16

Active Mobile Users

Mobile % of Total Deposit Transactions

12xWeekly Mobile

Interactions

Weekly Branch

Interactions


DisruptionIs already hereIt’s just not widely distributed yet


”By 2025, the largest financial institution in

the world won’t be a bank for a leading

developed economy.

It will be a technology company working in

emerging economies.

They won’t sell bank products, they’ll surface

bank utility through every day experiences.”-Brett King


Experience Level

Tactical Level

Strategic Level


2012

2013

$ 26M

$800M


20


Short-term

Cash

Receivables

Inventory

Long-term

Vehicles

Equipment

Real Estate

Equity/Other

•Reduced Friction

•Customer Experience


Digital Threat… and Opportunity

-16%

-13%

-6%

-35%

+5%

+10%

30%

+45%

Increased revenue from innovative new

offers and business models

Innovative new offers from

competitors

Margins

New products, distinctive digital sales,

and using data to cross-sell

Increased

operational risk

TOTAL

McKinsey Analysis, 2015

Impact of Digital - % Net Profit for Retail Bank

Lower costs


$4.7Trillion

Goldman Sachs, 2015


The Industry Will Survive



But Will You?



Your Own Kodak Moment?


“If you don’t like

change, you’re going to

like irrelevance even

less.”General Eric Shinsecki


You Don’t

Out on the

Edge…

Have to be


…But You Do Have to

Close the Gap


89.1%

74.3%

68.3%

49.5%

39.6%

35.6%

26.7%

81.9%

0.0%

76.9%

47.7%

79.6%81.4%

63.5%

54.8%

Ease of Use Speed to Market Lower Fees Social MediaIntegration

GoodService/Experience

QuickTurnaround/Faster

Service

PersonalizedService/More

Features

Lack of Service byPrimary Bank

Capgemini/EFMA World Retail Banking Report, 2016

Bankers

Customers

Why do Customers Like Fintechs?


39.6%

35.6%

26.7%

79.6% 81.4%

63.5%

54.8%

Good Service/Experience Quick Turnaround/FasterService

Personalized Service/MoreFeatures

Lack of Service by PrimaryBank


Bankers

Customers


$40B invested in fintech

companies in last 3 years

New strategies, acquisitions and

acquihires by incumbents:

•Citi

•Capital One

• BBVA

•Others

Encroachment from

adjacent players:

•Walmart

•Amazon

• Facebook

•Others


Incubators PartneringInvesting Building OwnAcquisitions

Build, BuyOr Partner?


4 KeysTo Innovating on Purpose


Look Beyond

the Next Few Quarters

1


We always overestimate the change that

will occur in the next two years…

…and underestimate the change

that will occur in the next ten.

Don’t let yourself be lulled into inaction.- Bill Gates


Technology

Trigger

Peak of Inflated

Expectations

Trough of

Disillusionment

Slope of Enlightenment

Plateau of Productivity

The Next Big Idea?

The Gartner Hype Curve, 1995


Early

Majority

34%

Late

Majority

34%

Laggards

16%

MIL

Early

Adopters

13.5%

Innovators

2.5%

Chasm

Diffusion of Innovation

Everett Rogers, 1957

Geoffrey Moore, 1993


Early Majority

34%

Late

Majority

34%

Laggards

16%

Early Adopters

13.5%Innovators

2.5%

Technology Trigger

Peak of Inflated

Expectations

Trough of

Disillusionment

Slope of Enlightenment

Plateau of Productivity

Chasm

Financial Services


Early Majority

34%

Late

Majority

34%

Laggards

16%

Early Adopters

13.5%Innovators

2.5%

Trailblazers vs. Traditionalists


Trailblazers vs. Traditionalists

• Master Known Knowns

• Enforce Best Practices

• Explore the Unknown

• Discover Next Practices


The Alloy Organization


Business Prevention

Department



Innovation

Theatre


Innovation

is about

Value Creation

2


Plan your Work,

Work your PlanDoesn’t work anymore.


No Battle

Plan

Survives

Contact

with the

Enemy

- Helmuth von Moltke


Everybody has a

plan until they

get punched in

the face.- Mike Tyson


Test and Learn


FIRE™ Process


FastIterativeResponsiveExperiments


Be Willing

to Partner

3


– JP Morgan Chase CEO Jamie Dimon

They (fintech startups) are very good at reducing the 'pain points' in

that they can make loans in minutes, which might take banks weeks.

We are going to work hard to make our services as seamless and

competitive as theirs.

And we also are completely

comfortable with partnering where it

makes sense.”


Consumers Trust Banks…and Fintechs

0% 20% 40% 60% 80% 100%

Banks

FintechsCompletely

Somewhat


90%

96.4%


Willingness to Refer

Banks

Fintechs

Capgemini/EFMA World Retail Banking Report, 2016 (North America)

63.7%

50.5%


“We already partner.”

“We have some tech vendors and

a procurement department”


Bankers are from Mars…

• Technology

•Culture

•Cost

•Compliance

…Fintechs are from Venus


‘Move fast and

break things’

doesn’t work in a

highly regulated

environment.


is an Act of Leadership

INNOVATION


4


Customer Relationship Management

Product Innovation

Infrastructure Management


Customer Relationship Management

Infrastructure Management

Product Innovation

Efficiency/RenewalStrategies

Growth Maturity Decline


“And-I’s” need support


Innovation vs. Core Business• Existing Products

• Existing Customers

• Existing Markets

• Internal Resources

• Reduce Variability

• Meet/Exceed Metrics

• Increase Volume

• Maximize Profit

• Manage Known Knowns

• Enforce Best Practices

• New Products

• New Customers

• New Markets

• Partner with Others

• Increase Variety

• Create New Metrics

• Nail it, then Scale it

• Maximize Learning

• Explore Unknowns

• Discover Next Practices


“Management is doing things right.

- Peter Drucker

Leadership is doing the right things.”


Look Beyond

The Next Few

Quarters

Innovation

Is about

Value Creation

Be Willing

To Partner

Innovation

Is an Act of Leadership

1 2

3 4


New Landscape

Do Nothing Take Action

Old World Order

Embrace,

engage, and

partner with

new players

Give way to

Fintech

innovators

Double down

on existing

strategies

Hope this is a

temporary fad


The best way to

predict the future

is to create it.


JPNicols.com/BOP

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