Headquartered in Toronto, Canada, TD Bank has 85,000 employees, and more than 26 million customers across the U.S. and Canada. Most people would assume that such a massive organization — saddled with a 165-year legacy — might struggle with innovation.
That’s where John Thomas comes in. As the EVP and Head of Global Innovation at TD Bank, John has earned a reputation as one of the world’s foremost authorities on digital banking transformation and innovation. His scope of responsibilities at the bank encompass everything from data analytics and personalization strategies, to customer retention and strategic business architecture.
Under his leadership, TD Bank fared through the pandemic better than others.
“We saw our numbers in digital channels go up, like everybody else,” he explains. “Mobile went up 14% in 2020, and online shot way up. More customers used mobile check deposit — that’s up 25% year-over-year — but we had to increase the maximum limit to accommodate those customers with larger paychecks.”
But simply lifting limits on mobile check deposit was just the tip of the iceberg. TD Bank had actually started putting many of the pieces in place that helped them through the pandemic year before anyone first heard of Covid-19.
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“We made some innovative infrastructure investments years ago that served us very well in 2020,” Thomas explains. “For instance, our investments into some loan processing innovations really helped us through the huge volumes we saw from the Paycheck Protection Program.”
“Our wealth and investments divisions were also already very digital-savvy, so when equity markets blew up in the summer of 2020, we were Johnny-on-the-spot. We were ready.”
By having a culture that was not only accustomed to innovation but also further along in the journey, TD Bank was better positioned to tackle many of the unique challenges the coronavirus foisted upon the financial industry. Instead of wrestling with the fundamentals of digital transformation, TD Bank was able to pivot into the pandemic head on.
For example, Thomas rolled out a new virtual queuing technology that bridged digital and physical channels.
“A customer could use their phone — literally in our parking lot — to know when it would be their turn to safely come into the branch,” he says. “In the U.S., this tool was used for over 2.7 million customer check-ins during the pandemic.”
“We also launched a virtual chatbot assistant back in April 2020 because of what was happening,” recalls Thomas. “Almost 3 million requests came through that.”
“It’s been really interesting to see how innovation has taken shape during the pandemic,” Thomas continues. “Everything from curbside pickup in banking — a brand new concept that didn’t exist a year prior — to the evolutions in drive-through model from a safety and sales perspective.”
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Most Banks Get Innovation Backwards
What makes TD Bank so successful pursuing new ideas… and actually deploying them? In a word: culture.
“When we put a customer problem on the table, people mobilize, and that’s culture,” Thomas explains. “We are really a customer obsessed company. It’s in our DNA.”
Even though cultivating innovation internally is ultimately his responsibility, Thomas is quick to point out that he doesn’t deserve all the credit.
“Innovation isn’t just me, John Thomas — it 90,000 people at the company,” he says. “Our cultural framework actually has a concept that the ‘I’ in ‘innovation’ is ‘me’. In other words, innovation isn’t some group in the organization that I oversee. Innovation is all of us. That goes a long way in getting over the obstacles.”
In his view, there aren’t enough companies with the right foundation to innovate — a culture focused on delivering outcomes with critical relevance to customers.
“I think what we see in banks is an innovation model that puts a solution, an idea or some tech first,” says Thomas. “It’s like they’re saying, ‘I’ve got an idea, now let’s go figure out where we can deploy it.’ Like blockchain — ‘It’s really cool, but what can we do with it?’ Then they ideate, they build, and when they’re all done, they turn to their marketing group and say, ‘Now, find me buyers.'”
That’s not at all the way Thomas works.
You don’t find a solution, then go looking for problems to solve with it. That’s backwards.
“I really prefer approaching it the other way around,” says Thomas. “Start with a customer problem, then use research to understand the problem, design a solution, and validate your idea. At the end of that process, you know exactly who you’re delivering what to.”
“You really have to think about that last mile,” Thomas continues. “Too many people in this space think about the technical integration, and they forget where it gets real. That simple thing made a profound difference in our results. It’s so simple, but so powerful.”
Innovation Isn’t About Tech (Even at Tech Companies)
Before Thomas joined TD Bank, he worked at Amazon as a General Manager responsible for UX/design, product, marketing, and sales. Thomas is quick to point out the differences between the approach to innovation at a big tech like Amazon versus most financial institutions.
“If you asked a consultant how big techs innovate, they’re going to tell you it’s about agile development, infrastructure modernization, engineering prowess,” Thomas says. “That’s part of it for sure, but that’s not the biggest difference that I see.”
“I’ve worked for some really interesting companies outside of the banking industry,” he continues. “Some of them aren’t as agile and have an infrastructure that’s as elegant as you might think. But they just don’t take ‘no’ for an answer. They have this attitude that they will succeed in spite of their limitations.”
The biggest difference Thomas sees between tech firms and financial institutions hinges on the concept of long-term thinking about innovation. “If you trade on a growth multiple like Amazon, it frees you up as a company to do things on a very long-term financial horizon, versus companies that trade on earnings multiples — ‘I’ve got to hit our numbers next quarter.’ This difference is more profound than people realize.”
Another difference is that big tech brands approach innovation the right way. “They start with consumers then work backwards towards a solution, versus starting with tech and moving forward,” Thomas explains. “That’s ironic, when you think about it. Some of the greatest tech companies in the world don’t actually innovate off the tech. They innovate off of customer problems, and just use tech as part of the solution.”
John Thomas on Innovation:
“Your culture must embrace the concept that you have to transform and innovate on the customer’s timeline, not yours.”
No More Innovative Excuses
Too many financial institutions cop out with excuses for their lack of innovation. They blame legacy systems that are old and cumbersome, or point to regulatory issues.
“You could bring 40 people in the room to talk about a new idea and 38 of them are going to tell you why it won’t work,” Thomas says. “You can’t go there.”
Despite its size, Thomas says TD wrestles with a lot of the same challenges as smaller institutions. “There’s never enough time, there’s never enough money. It feels like our infrastructure and our decisions are Jurassic. ‘Oh, this digital stuff feels too abstract. I’m not sure what the ROI of digital engagement is.’ But at TD, culture has been everything when overcoming those challenges.”
“You have to say, ‘We’re not going to talk about what we can’t change anymore,” Thomas advises. “We are going to focus on what we can change, and we are going to figure out how to deliver’.”
The Battle for Banking’s Future Has Become Asymmetrical Warfare
Thomas believes the real risks facing legacy banking providers don’t flow from the pool of competitors that financial institutions usually list. “When I think about the more existential threats to the industry, the thing that could really signal a seismic shift is this concept of mathematical asymmetry,” he explains. “Mathematical asymmetry is actually really predictive of what’s going to happen in the future.”
So how does this concept work? “There are two places in banking where there’s very significant mathematical asymmetry. One is in cyber risk. Banks have to get it right every day, 24 hours a day. But the bad actors only need to be right once in a blue moon. That’s asymmetry, and that presents a potential existential threat.”
“The other is what I call ‘business math asymmetry’. Big techs — whether you’re operating an app store or an eCommerce marketplace — operate in models where the margins are maybe 1,500 to 4,000 basis points. But banks operate on a transactional model in payments, or a loan spread model, or a balance spread — between 2 and 200 basis points. That’s asymmetry. And it’s perpetual asymmetry.”
Thomas thinks comparisons between the speed and agility of tech innovators and the relatively sluggish pace in the financial space is unfair.
“Banks trade on earnings multiples, while big techs trade on growth multiples, compounding the asymmetry,” he explains. “What that means, from a practical sense, is there’s a lot of things that they can do that they may never have to monetize.”
In other words, if Amazon decided to offer $200 for someone to open a checking account, they could afford it because they have more than enough revenue, profit margin, and data on every user to compensate for the cost. Banks — with their razor thin margins — would have a very hard time competing against that.
So what’s the right approach for banking providers? “From a practical perspective, the best defense is a good offense,” Thomas recommends. “Be proactive, meet the customer’s needs. That’s going to go a long, long way. I think it’s when you get complacent and let your guard down that you’re inviting asymmetrical problems.”
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Leveraging Data to Drive Digital Transformation and Hyper-Personalization
Thomas is not what you’d call a “faith-based innovator”. He wants data to drive strategic decisions.
“Data analytics has enabled a whole set of changes at TD — not just digital transformation,” Thomas explains. “It’s really a core piece of how we think about CX transformation, marketing transformation, distribution transformation. At our core, we believe that all experiences should be personalized, connected experiences. And data is what enables that.”
Research from The Digital Banking Report found that less than one in four financial institutions are really capable of leveraging data for personalization — e.g., suggesting the next best product to offer someone.
When Thomas heard this datapoint — that a quarter of financial institutions can’t leverage data for personalization — he wasn’t shocked.
“I’d actually be surprised if it’s as high as 25%,” he says with concern.
For Thomas, the real trick is how to turn all your data into something accessible for frontline employees. He says putting put raw data in front of them is a big mistake. You need to think about the interactions they have with customers, and then build your whole strategy — and your tech — around that.
“If you have some kind of data analytics engine, don’t try to move the data to the frontline,” Thomas cautions. “For starters, that’s really expensive. And secondly, it’s risky. The natural reflex might be to move your insights to the frontline, but I wouldn’t do that for the simple reason that many employees might not know what to do with the insight.”
So what’s the right way for a banking provider to internalize their data analytics capabilities? “The way you make this real is to skip to the recommendation,” Employees can handle recommendations.”
You may know that a customer was thinking about X, or did Y yesterday, but that doesn’t mean you should put that information in the hands of frontline staff. You can’t give everyone the data and expect them all to be savvy data analysts. Just give them the answer. Tell them exactly what to do. Give them a tool that says, “This is what you should be talking to the consumer about.”