How Two Innovative Banks Maintain their ‘First Mover’ Advantage

One of the biggest challenges in banking is trying to keep up with the changes in digital technology, consumer expectations and governmental regulations. Innovation leaders from U.S. Bank and BBVA shared insights into how they maintain a 'first mover' advantage.

To grow market share and profitability, banks and credit unions need to dedicate financial and human resources to the innovation process. Rather than simply taking iterative steps, organizations need to disrupt the status quo both in the back-office and in the external delivery of financial services. The winners in the future will be defined by those organizations that can leverage digital technologies to deliver a customer experience that goes beyond the ordinary.

As part of the development of the Innovation in Retail Banking 2017 report, sponsored by Efma and Infosys, we conducted an exclusive interview of two of the foremost innovation leaders in the banking Industry. Dominic Venturo, EVP and Chief Innovation Officer of U.S. Bank and José M. ‘Seppe’ Villa, head of Open Innovation at BBVA in Spain shared their formulas for innovation success.

Picture of Dominik Venturo headshot

Dominic Venturo

As the Chief Innovation Officer of U.S. Bank, Dominic Venturo leads the innovation process at one of the most progressive financial institutions in the U.S. The innovation group at U.S. Bank started more than a decade ago as part of the retail payments group and is now a 30-person team.

Over time, the innovation group evolved to support the bank beyond the original payments charter. The group takes a “hands-on” partnership- based approach with internal business partners to collaborate, test and learn – similar to an applied R&D approach. This allows the group to be aligned with U.S. Bank’s operating groups rather than operating a stand-alone support function.

Picture of Jose M. Seppe Villa headshot

Jose M. ‘Seppe’ Villa

José M. ‘Seppe’ Villa is implementing open innovation models, in order to overcome existing limitations in the organization and to attract the best talent. Consequently, it is creating a knowledge network around the Innovation Centers, such as those in Madrid (Spain) and Bogota (Colombia), which are the areas where the BBVA group’s most disruptive projects are being carried out.

Innovation Centers play an essential role in the digital transformation that is underway in BBVA today. The group is relying on ecosystems for innovation and talent worldwide, with the aim of fostering a culture of collaboration with entrepreneurs, startups and developers. A community of innovation in which new ideas are one of the mainstay of its growth.

In this interview, Venturo and Villa discuss the impact of innovation at U.S. Bank and BBVA, and the opportunities, challenges and future prospects for being a first mover with new technologies.

How Does Your Organization Support an Innovation Culture?

Venturo: U.S. Bank prioritizes education as a vehicle for cultural change both inside and outside the organization and creating a culture of innovation is the most important thing we do from an innovation team perspective. It involves the entire enterprise and means that every employee, be they in a branch, or call center, or wherever, has the capacity – and the authority – to be an innovator.

  • Employees can present ideas in response to internal challenges we pose or as a recommendation for how we can improve in our various lines of business. This has led to the development of several products currently being offered, or in our product pipeline.
  • Another is the bank’s Innovator in Residence program through which small teams of employees leave their day job to work with the innovation team for six weeks to solve a problem. Once armed with new “design-thinking” practices and/or tools, they return to their lines of business to further evangelize the culture of innovation across the enterprise.
  • While we believe strongly in looking inward for inspiration, we’re not afraid to look outward as well and have a robust history of Fintech partnerships, including Plug and Play and INV Fintech Accelerator.
  • We’ve sponsored, or participated in, large scale and local hackathons where we encourage teams to use our APIs to solve real problems through the development of new product ideas.
  • We recognize the importance that diversity represents for the future of innovation in financial services and engaged with Technovation(MN) to teach young women how to code by challenging them to develop an app that helps young people build positive savings habits.
  • We also have three innovation hubs in Minneapolis, Atlanta and San Francisco, and if you walk into any one of those locations, you’ll feel like you’re in an emerging Fintech company.

Villa: Innovation and digital transformation is promoted from the top-most senior executives in BBVA: Francisco González (Executive Chairman) and Carlos Torres Vila (CEO). Thanks to that, the culture of being innovative gets way more easily adopted by the employee base.

Being a great foundation isn’t enough, however. BBVA’s Talent & Culture (Human Resources and staffing unit) is creating special programs to help the company transform better and faster … starting with themselves. They have just announced they will operate as a 100% agile organization.

What Role Does Top and Middle Management Play in Building an Innovation Culture?

Venturo: The leadership at U.S. Bank – up to and including the board – is fully behind what we are doing in innovation across the enterprise. We endeavor to stay a step ahead for our customers and continually improve the services that we provide to them.

Middle managers are crucial to helping us deliver on this expectation. With leadership support and engagement across all levels of management, we find that teams are really effective at leading innovation efforts.

Villa: BBVA’s CEO assumes Innovation and Digital Transformation is his 100% responsibility and plays an extremely active role in delivering the message and educating the whole staff in this vision and journey. BBVA’s Executive Chairman has been claiming banking will be profoundly transformed by technology for 10 years now. As you can imagine, having the top-most executive fully convinced there is no other way, BBVA’s employee base mindset is rapidly converging to become accustomed to our fast-paced environment.

Middle managers are key in all this journey, as they are the ones with direct access to the people capable of doing the magic. Those who don’t get the message and don’t get aligned in whatever manner, will be left ‘out of the game’ soon. Like it or not, a digital revolution is happening all around us, and quoting Charles Darwin, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

What Are Your Three Biggest Innovation Challenges?

Venturo: Three challenges that we recognize today are investment, pace of change and the balance of security and convenience.

Investment is all about making sure that you have the proper processes in place to remain ahead of the curve for customers. We believe in an iterative approach based on testing and learning. We’re not afraid to fail, but when we do, we hope it’s fast and in a way that we can learn from it. 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.

With regard to pace of change, our CEO likes to say that he’s seen more change in the last five years than he’d seen in the previous 30; it’s likely that fintech is a big driver of that. There is so much to stay on top of these days. It’s very difficult for a business to run its core business, do its annual planning and product development while also keeping an eye on three to five years into the future. By partnering with our various business units we can have some teams focused on the long term view and others delivering against current objectives.

Balancing security and convenience is tough. There is no challenge financial institutions take more seriously today than ensuring the security of our customers’ information and at the same time providing the ability for customers to do business with us how, when and where they want. And while we’re at it, we need to make it easy and hassle free to do business with us. This balance requires a lot of careful planning, design, and engineering. The stakes are high and we take it very seriously.

Villa: The top challenges (for us and the industry) is our legacy which includes:

  • Mindset: People looking backward as opposed to looking forward.
  • Processes: Defined in the past for a different environment which are now obsolete.
  • Technology
  • Regulation & Related Functions/ Activities: We live in a hyper-regulated industry and regulations don’t move as fast as the surrounding environment.

Our response to these challenges include:

  • Mindset: BBVA is creating the right programs for people to understand and participate in the digital transformation program starting with a multidisciplinary 500 people team in Digital Transformation Spain (Business, IT/Engineering, Product, Segment, …) back in 2014 and preparing plans for multi-disciplinary teams and projects for the whole organization.
  • Processes: Adopting agile as the way to do everything and training BBVA employee base to contribute in this new way of creating our products and services.
  • Technology: BBVA is introducing, for long now, state of the art technologies in their software creation process and have ambitious plans for migrating existing and ancient technologies to the ones in this new era.
  • Regulation & Related Functions/ Activities: Colleagues get onboard as soon as any new creation process begins so they can raise their voice very early in the process and avoid any wasting of time later on. They also contribute with alternate approaches for being able to keep the innovation pace in our products and services proposition while keeping everything under the umbrella of regulation, risk control, security, etc. BBVA is also playing an active role with different regulators to share with them our long-term strategy and let them know the implications around the usage of new technologies in banking.

How Do You Encourage Disruptive Innovation?

Venturo: Disruptive innovation is not necessarily good by definition. It is a term that can sometimes be misunderstood. It is true that many changes we see in banking are iterative. We are deliberate in our approach to innovation, but never shy from making a case for big ideas or dramatic shifts in how we need to do business. Building trust, understanding the trends on the horizon and how we can adjust to those trends while maintaining that trust is more important than being disruptive.

Our overriding preference is for solutions that improve customer experience, solve a problem, or address a new opportunity in a different way, rather than innovation for its own sake. If it doesn’t do at least that much, it’s likely just a shiny new thing in financial services. There doesn’t need to be a bias towards disruptive, unless your mission is to disrupt a particular part of a value chain.

Villa: I would describe this as normal as, like it or not, the banking value proposition has not evolved as fast as the world has moved around mobile & cloud.

Having said that, beyond the digital transformation journey, BBVA is also keeping an eye on the long term. Because of that, BBVA created the New Digital Business unit some years ago, with the mandate of scouting, discovering and/or creating the new banking products and services that will be there in the future.

What are the Biggest Threats and Opportunities Over the Next 5 Years?

Venturo: We recognize there are threats, particularly around security. But we also believe that there is a tremendous opportunity through the exploration/expansion of Fintech partnerships. The Fintech landscape has evolved from its original mindset/mantra of disrupting banks via disintermediation, to a more cooperative approach.

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. Fintechs have technology platforms that can help integrate to the banks to APIs and development portals so there is a fair amount of middle ground to in which to collaborate.

Put another way, many banks and fintechs are now customers/partners of one another, rather than competitors.

Villa: I would say the biggest threat and biggest opportunity are the two sides of the same coin, with the biggest threat being getting disintermediated and becoming ‘the pipe’ in another organization’s ecosystem. I would see the biggest opportunity as being the one keeping the most intimate and close relationship with our customer based on reciprocal trust.

Do You Believe Future Innovations Will be Built, Bought and/or Partnered?

Venturo: Put simply, we don’t believe that any one of these three approaches will dominate our innovation efforts going forward. For as long as our innovation team has been in existence, we’ve been receptive to each approach where it makes the most sense for a given project/initiative.

Read More: The Four C’s of Innovation

Villa: To me the virtue would be right in the middle, with 50% being internal innovations and 50% being external innovations through partnerships, collaborations and/or acquisitions. Internal innovations are centered around the ‘based-on-trust relationships’ I mentioned above. Our customer contact teams will know what the customer needs/ wants, and, in my humble opinion, this close relationship and trustful conversation will provide a huge number of clues on how to better serve our customer.

For external innovations based on buying or partnering, technology and knowledge is available to everyone, everywhere at any time so you just can’t pretend to have all the talent within the boundaries of your organization. Creating a model/platform where a traditional and well-renowned financial institution can smoothly work and collaborate with other brilliant people/companies is key to get connected to what’s happening out there (your well-known world) and will be most helpful to devise your future roadmap.

Download Your FREE Innovation in Retail Banking 2017 Report Today

The 86-page Innovation in Retail Banking 2017 report, sponsored by Efma and Infosys, includes the results of a global survey of more than 250 financial institutions, case studies from organizations of all sizes and insight contributions from some of the most respected innovators in banking, including Dominic Venturo and Jose Villa.

This is a must-read for all executives involved in the innovation process and available for immediate and FREE download. The report also illustrates the varying priorities of organizations of different sizes and the challenges and opportunities in the marketplace. You can download this Digital Banking Report at no cost by clicking here.

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