How does your role as Chief Innovation Officer fit into the strategic framework of U.S. Bank—especially its payments franchise? How do business units draw on your group and how does it compare to an R&D function, if that is a fair comparison?
The Innovation group started about 11 years ago in the Retail Payments group and is now a 30-person team. Bear in mind that this was before the iPhone, but we could see that changes were accelerating—advancements in technology, different customer behaviors, etc. Over time, our group evolved to support the Bank beyond our original payments charter. For the most part, it is fair to compare the group to an R&D function, but the nature of our engagement with the Bank operating groups is a critical call-out. In other words, we take a “hands-on” approach with our business partners to collaborate, test and learn. It is more of an Applied R&D approach. We jointly identify trends, isolate the problem we are trying to solve and look for ways to commercialize any solutions. I cannot overstate the importance of the partnership-based approach that our group takes across the Bank. We are very much aligned with the Bank’s operating groups rather than operating a stand-alone support function.
Given the pace of innovation and the amount of capital being directed at the fintech space, what criteria does your team use to filter the large number of opportunities that must cross your desk?
At a fundamental level, we focus on what problem or need the concept is attempting to address, coupled with the size and uniqueness of the opportunity. We tend to think three to five years out as we evaluate most opportunities. As background, over the past 18-24 months, we have screened approximately 700 companies, been in active engagement with tens of them and in production with a handful. An important part of our approach is our involvement with organizations such as Plug and Play, INV Accelerator and the venture capital community. Our external engagement facilitates our access to opportunities and sharpens our ability to evaluate them.
There are a growing number of cooperative arrangements between fintech players and incumbent banks driven in part by the need for fintechs to access distribution and, of course, funding. What is U.S. Bank’s perspective on the evolution of fintech and the appeal of partnerships versus other strategies, like acquisition or in-house development?
The fintech landscape has evolved from its original mindset/mantra of disrupting the banks via disintermediation to a more cooperative approach. Put another way, many banks and fintechs are now customers/partners of one another rather than competitors. Over time, it became clear that fintechs and banks have many complementary assets and reasons to work together—banks have strong distribution, established brands and large customer bases. The fintechs have technology platforms that can help expose the banks to APIs and development portals, so there is a fair amount of middle ground to collaborate in. The connectivity solutions coming out of fintech are quite interesting when you think of new apps such as budgeting tools. It is better to collaborate on standards and certifications. From our perspective, partnering with fintechs is much like other build, buy, or partner decisions.
U.S. Bank partnered with Bank Innovation, Fiserv, and five other banks in 2016 to launch the INV Accelerator. Can you describe the strategic benefits for U.S. Bank of supporting fintech start-ups?
There are different ways to approach fintech—we are also involved with Plug and Play, have direct interactions with start-ups and have ordinary course discussions with the venture capital community. The INV Accelerator is another way to expose our team to new companies and creates a forum for us to give and receive feedback on new concepts and developments. The diversity of thought and different points of view are valuable to all parties. One of the benefits of our participation is that it helps us think differently not just in product development, but in other areas of our business such as recruiting and ways to engage with firms of all sizes.
Mobile payments are playing out as more of an evolution than the revolution many expected when Apple Pay was launched in 2014. Can you share your thoughts on mobile payments? One recent entry is Zelle, which U.S. Bank supports—what do you see as the key factors for Zelle to succeed?
For starters, we have come a long way. Looking back in time, one of the original use cases for mobile payments was a narrow attempt at contactless payments. In an early pilot before the smartphone, we had to give away the phone to a test population. In another, we placed stickers on the phone. Today, customers have smartphones and we have strong mobile payment growth, albeit with relatively low adoption at this time. However, it is important to recall perspective—ATMs had 20-year adoption curve by way of example. When you consider where we are on merchant acceptance, there are reasons to be optimistic over the long-term—the opportunity to speed up the checkout process in the context of EMV/Chip is meaningful. Progress is being made to integrate loyalty programs and offers to give customers more reason to engage on mobile.
Zelle is quite exciting and it is evident that the Zelle team paid a lot of attention to the details to get it right. Zelle is simple in its design and use, offers real-time payments, and, in most cases, is free. Zelle has expansive reach/coverage across the universe of banks allowing for ubiquity and compatibility. Further, the use cases are increasing.
Looking back, what are some of the lessons learned in the market’s journey toward mobile payments given the different attempts to build adoption?
A handful of learnings come to mind. One of the most significant was the need to solve for the customer relationship as opposed to the customer transaction. It is now clear that the integration of banking, loyalty, offers and payments is a must-have. Thinking in terms of the payment transaction alone is far too narrow. Another learning is the need to contemplate the knock-on or secondary effects of certain decisions, such as losing your phone or the sticker serving as the contactless feature in our case.
In 2016, you called out the Internet of Things, beacons, conversational interface, visual interface and distributed ledger technology as areas of focus for U.S. Bank’s innovation team. What is U.S. Bank doing to experiment and position for change in those areas?
These areas are still areas of focus for us. As an example, we enabled voice-based commands on Amazon’s Alexa platform in September. U.S. Bank is an investor/participant in R3 on the distributed ledger front. The Internet of Things is on our agenda and introduces a number of opportunities looking forward. It also raises questions such as what is the most effective way to manage and monitor payments and how to handle security in an autonomous environment. We are also spending a fair amount of time in the areas of artificial intelligence and machine learning as we bring more focus to potential use cases across the Bank.