Financial Services: Innovation Meets Regulation
Transcript
STEVE HENDERSHOT
Go to Silicon Valley, and you’ll quickly hear about MVPs. Not most valuable players, but minimum viable products—skeleton builds that development teams stitch together and release into the wild, and then wait for consumers to figure out what works and what doesn’t, what’s missing and what they like. It removes traditional testing from the equation, and Andreas Madjari doesn’t like that part.
ANDREAS MADJARI
You may have heard the phrase, “Testing is for cowards.” I disagree here. Testing is for people who believe in quality. And banking is trust business. People trust banks with their money. And that means we have a huge responsibility.
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NARRATOR
The world is changing fast. And every day, project professionals are turning ideas into reality—delivering value to their organizations and society as a whole. On Projectified®, we’ll help you stay on top of the trends and see what’s ahead for The Project Economy—and your career.
STEVE HENDERSHOT
This is Projectified®. I’m Steve Hendershot
Some big banks are having a tough time right now. Consumer tastes are changing quickly, fintechs are catering to those tastes with new products like peer-to-peer payments and cryptowallets, and some of the big banks are struggling to keep up. It’s just not easy to adapt on the fly when you’ve got centuries of organizational bloat weighing you down or when the software that undergirds your whole operation was written when Steve Jobs and Bill Gates were teenagers.
But they have to change, have to innovate, and they know it. That’s the situation for Erste Group, a 201-year-old bank headquartered in Vienna that operates in Central and Eastern Europe. Andreas Madjari, whom we heard from earlier, is a member of the project management governance team there, and he’s helping the bank navigate these changes. He’s all for innovation, but rather than just lifting the fintech startup playbook, he’s trying to structure the bank’s projects so that the results are reliable—and will build upon the consumer trust that Erste has spent centuries earning. His market—countries like Serbia, Romania and the Czech Republic—is also pretty unique.
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ANDREAS MADJARI
Eastern Europe has still a lot of growth potential, especially on the retail side. Not everybody still has a bank account, not everybody has a credit card. The countries are very much into cash. So we will see an alignment there. We will see the need for those banking products as things speed up, and banks are very good intermediaries to support the economic processes.
And as for the trends, IT is catching up with everything. As we have transformed our whole lives through the internet revolution, so has also banking been affected, people have now more expectations. The retail client doesn’t just do his banking business through the branch. The client wants to do his banking business 24/7. So following these trends, we will have a strong focus on digitization, on making our services available through even more channels and at day and night basically for our customers.
STEVE HENDERSHOT
One of the highest-profile tech innovations you’ve introduced thus far is the internet banking platform George, which you’re now rolling out across your different markets. Was there anything unique about the development phase for George that contributed especially to making it work?
ANDREAS MADJARI
I think one of the key success factors for George was that they had the necessary priority and management attention. So they were allowed to do things in the back then completely new way. Management was committing to that. Management was giving people the empowerment that agile requires, and we involved both the customer and the technology side, so our IT people from the very beginning, and we allowed them to grow. We allowed them to experiment.
And it was not like, “Okay, you have to tell us today where you will be in a year, otherwise we will cut you off.” It was even through something that was called George Labs growing in a laboratory environment, hands-on, trying out little steps, and it was a phased rollout. So we didn’t do a big bang for George across all the countries. George started in Austria, in a well-established market, in an environment where we had lots of experience, where we had a certain stability, and it was rolled out in parallel to the existing solution. So we really could do this incremental thing because in the beginning, when George was newly born, just like any child, it didn’t have all the capabilities of its grown-up net banking equivalent. It grew step by step. And I’m very proud to say that we had the guts at some point to say, “Okay, George is now ripe enough. George has matured to the point where we can retire its predecessor.” And we did that.
So, the critical success factors definitely were understanding that agile requires this kind of empowerment and liberty and priority. Because all the agile of the world will not work if you still micromanage the team or give them two specific goals to achieve, then you’re back to predictive.
STEVE HENDERSHOT
Were there any examples with that project at any stage where the sort of extra user feedback and testing and iterative mini rollouts along the way yielded insight that you might not have otherwise uncovered had you just developed the whole thing and released it?
ANDREAS MADJARI
What was truly surprising is that people like to focus on the essentials. So I think many colleagues, they were watching the project with a grain of salt. They were taking with a grain of salt what was coming from there because we are used to the full palette of banking products. And then comes the George team and says, “We will start without A, without B, without C. We do not have from the beginning buying and selling stock in that product.”
And of course, the fear was, “Oh my God. Customers will not accept that because they will miss all the functionality.” Turns out customers were more than happy to switch to a slim and quick and modern interface where they could do the most important 80 percent of their lives. So that was a surprise that goes very well along with what agile is there for. In terms of specific features, I think what we have learned is that at some point you start to struggle because there’s always more ideas than budget. So one lesson learned is that hard prioritization is needed even in an innovative process like that. Because you have so many ideas and the resources are set. So if you don’t go down that path and have a focus on that, you’ll lose it.
STEVE HENDERSHOT
Now you get to play futurist. Forecast out a year or three or five, how are things likely to look different, and how is that likely to affect your project portfolio?
ANDREAS MADJARI
I would say what’s coming in one, three or five years needs to be in our portfolio right now. Because if you don’t shape the future now it will roll over us, I would say. What’s coming? I wouldn’t expect a big explosion. We need to be reliable. We still need to offer services. We need to be able to offer these services on even more channels in an even more flexible way. We need to be very open to the customer’s needs. We should not forget that what we have done to the retail customer may also be a topic for other market segments. So probably also we will see a change in what bigger companies expect from their banking services. How interactive they want to be with their bank. How strong they want to integrate. That will be a topic.
Otherwise, we will hopefully see a stabilization. We will see more cooperation. We will see a consolidation of the fintechs. We’ll probably see more online with the banks. But my gut feeling also says we might see the return of the branch because many, many branches have closed. There are banks that are completely without branches. Banking is a trust business. Banking is a people business, and you need a face for the customer. So I would expect the bank that balances that best will be there in 10 years very successfully. And the bank that only puts everything on one card may struggle and will have to adapt much more radically.
So what’s the future to bring? A bit more cleanup, more product innovation, more real time, more instant gratification as we see the millennial generation now coming to the market expecting that and definitely the reliability that banking always stood for with a couple of exceptions that hurt us a lot in the past.
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STEVE HENDERSHOT
Erste Group’s challenges aren’t unique among established banks trying to figure how out to innovate and compete in a changing marketplace. In fact, 70 percent of banking executives are investing in simplification, and only 17 percent feel well prepared to pull it off, according to PwC. Since 2013, banks in Europe have doubled the percentage of their IT budgets they devote to new technology investment, from 13 percent to 29 percent, according to Deloitte, and that number is still climbing. In North America, banks have traditionally invested more in tech projects, and by 2022 nearly half of their IT budgets will be devoted to them.
The reason for the surge isn’t just that big banks are getting smart. They’re also trying to counter the rise of fintechs—upstart startups who are bringing new products and solutions to market at a pace that has knocked the established financial services players off balance. One of those startups is Chipper Cash, a Silicon Valley company that’s focused on enabling consumers in Africa to send money to one another across national borders, quickly and securely. The service is taking off, and the company raised $8.4 million in seed capital last year. Projectified®’s Hannah Schmidt spoke to Alicia Levine, the company’s London-based chief operating officer.
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HANNAH SCHMIDT
Let’s talk about how you’ve seen fintech develop and change in Africa.
ALICIA LEVINE
Fintech itself, I think, has really, really exploded in just the last sort of two to three years in Africa. I think in the last year alone, we saw over a billion dollars in startup investments in Africa, and at least 50 percent of that went to fintech, which is massive increase from the prior years. So, I think that there’s a lot of people that are seeing sort of a number of conditions which make Africa ripe for fintech disruption. One is mobile money, so a number of the countries are already pre-dispositioned to understand that you can transact through your phone and through technology outside of the traditional banking sphere.
Number two is that you still have such a massive untapped population who is starting to get access to smartphones because the cost of smartphones is dropping. They’re getting more and more access to better and cheaper internet connectivity. They can get online to the internet, they can download apps, they can utilize apps, etc.
HANNAH SCHMIDT
And Chipper Cash is one of these fintech companies part of this boom. So tell me, how does the platform work?
ALICIA LEVINE
Essentially anyone that has access to a mobile money account in a country where we operate, or bank account, depending on the country, can actually load money from their bank account or their mobile money account into the Chipper e-wallet and then send that money across borders to anyone else who also has a Chipper Cash wallet. And they can do this without fees. It’s instant and it’s secure and it just opens up opportunities for cross-border payments, cross-border commerce. You have lots of diaspora happening and movement happening of people even within Africa. People going to school in different countries, people getting jobs in different countries, people wanting to engage in commerce with people across borders.
HANNAH SCHMIDT
And when we talked about mobile money previously, you said mobile money was something that we were really focusing on in the last five years. And something like Chipper Cash seems to be what’s next. Is that accurate, and could you kind of expand on that?
ALICIA LEVINE
I think from our perspective we really believe that’s true. From our perspective, mobile money really sort of opened up the trust and the opportunity for people particularly in East Africa to really understand that there was a new way of transacting money that didn’t involve opening up a traditional bank account. And traditional bank accounts have lots of, lots of barriers that I think those sort of in the U.S. and Europe take for granted.
And mobile money essentially took away that barrier because for a lot of people they didn’t have the ability to sort of go to a bank. They potentially didn’t even have the documentation that they needed to walk into a bank branch and open up an account. And so once they had the access to mobile money, they sort of realized that there are opportunities and ways that they can send money securely. They can save money securely. They can actually build some sort of credit within their mobile money account, which allows them to potentially take a small loan and take a risk or build their business.
And now that people actually sort of see that that’s possible, the next step is what can we actually do now that we understand that we have access to financial services through mobile money? And we think that there’s a big opportunity in cross-border commerce and cross-border payments. In different value-added services that once you have a Chipper Cash digital wallet, you can pay for bills easily. You can potentially get loans easily. You can potentially get access to other sorts of investment opportunities or savings opportunities that are a bit more complicated and take potentially more development. And something that’s more complex than just the basics of what mobile money offers.
HANNAH SCHMIDT
We start with mobile money. Now we have something like Chipper Cash. And as you were talking about allowing them to build this credit and loans, do you see that’s kind of the next step of where fintech might be going, especially in these emerging markets to give people this opportunity? Is this the next step that’s coming?
ALICIA LEVINE
I think it’s a lot of things that are coming. I mean loans sort of through application-based services are already here, and there’s pluses and minuses to them, but it’s basically allowing somebody to also build sort of a financial history. A sort of digital identity that’s related to financial services. And once you have that information about an individual, starting to collect and starting to be saved in one particular place, it allows just lots of other opportunities to open up, like I mentioned, around just basics of savings, basics of different types of investments, big or small.
Credit doesn’t necessarily have to be a loan. It could be a loan, sort of a cash loan, but it could also be just qualifying for a loan to go to university, qualifying for a loan to buy your first house or apartment, or something like that. And for many people who didn’t have traditional bank accounts, those opportunities literally didn’t exist. There are other things I think that a product like Chipper Cash also opens up potentials for in the future, things around like bitcoin, for example. So when you have lots of countries that have currencies that are quite unstable, the ability to actually invest in something like bitcoin provides some sense of stability outside of a domestic sort of currency that you could invest in, or even sort of use as a mechanism for foreign exchange. And I think it’s just, again, lowering barriers to transferring money into commerce. One challenge with mobile money is that it is quite expensive. Even though it’s pervasive, you still have transfer fees that are 5 percent, 7 percent, 8 percent, and those are really, really high barriers to cross.
HANNAH SCHMIDT
So what kinds of work or projects do you think we’ll see as fintech grows across these African countries?
ALICIA LEVINE
I think that you’re going to see a continuing shift in the power dynamics of the financial services market, and so if you kind of look and see what’s happened in the last several years around communication, for example. In the last few years, when you think, “Who are the dominant players in communication?” The telecos are still there, but obviously you also have companies like Facebook who have just come in and completely changed the way that communication works.
And I actually think you’re going to see something quite similar in banking happen in Africa. And so right now you have the traditional banks that are really dominating markets, have the customer trust, have sort of the most brand trust and brand awareness. And I think you’re going to see a similar shift going on to sort of mobile money, digital banking, etc. And so I think that there’ll be a lot of work, a lot of projects that are going to come out in relation to that.
I think that there’s a role that bitcoin will play, particularly in the African continent across all the different currencies. I think I also mentioned something around sort of a digital identity, and I think that that’s really tied to what sort of having a financial services identity does as well. So that opens up lots of different opportunities.
And I think that you’re going to have a lot more talent and investment either coming to Africa or just never leaving. And so all the different opportunities around building talent, finding talent and attracting investment and absorbing investment are really, really going to provide a lot of opportunities for projects and work moving forward.
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STEVE HENDERSHOT
The barriers to innovation and successful project implementation vary substantially depending on whether your company formed in 1819, like Erste Group, or in the last few years, like Chipper Cash. A multicentury head start does confer some advantages, not least a long track record of trustworthiness and durability. But even the most flexible centuries-old bank is going to struggle to reinvent itself as technology changes at an unnerving rate and scale. The interesting idea here is that banking is unlikely to be a case of Amazon-style disruption, where the old industry scaffolding is just swept away and replaced by a tidal wave of cardboard boxes. There will still be a place for 200-year-old banks, and also their chipper young competitors, as we work out the future of consumer banking. The projects that bring about that future will have to be innovative but also robust, and project leaders will have to navigate regulatory challenges as well as those presented by the albatross of legacy tech.
At least there’s only so much legacy to worry about—just imagine if Erste Group did have to contend with 200-year-old spaghetti code.
NARRATOR
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