REVOLUTION 2017 Preview: Bank Innovation Expert JP Nicols

JP Nicols is a leading voice for innovation, strategy, and leadership in the financial technology (FinTech) industry. A top-rated keynote speaker and advisor to startups and Fortune 500 companies, JP has been named to multiple lists as a top influencer and thought leader, including: FinTech influencers you should be following in 2017 (#15), Top FinTech Influencers in the United States of America (#5), and FinServ 25: The Most Influential Voices in Banking.

We’re excited to announce that JP will be speaking at REVOLUTION 2017, AvidXchange’s annual users conference, which will take place May 9-11 at the Charlotte Marriott City Center hotel. JP’s work has been featured in some of the FinTech industry’s top publications, including American Banker, The Financial Brand, BAI Banking Strategies, Investment News, Bank Innovation, and many others.

After spending twenty years as a part of the leadership team growing a $6B regional bank into an industry leader with over $400B in assets, JP is working at the intersection of FinTech, innovation, and financial services to help others turn potential into performance. He is a Managing Director of the FinTech Forge, which extends the innovation capacity of financial institutions while dramatically lowering the cost and risk of innovation. JP was also a founder of the Bank Innovators Council, which is now a part of Next Money, a global community committed to reinventing finance through design, innovation, and entrepreneurship.
In preparation for REVOLUTION 2017, we sat down with JP to talk about FinTech trends and what we can expect from the industry’s burgeoning relationship with risk-averse financial institutions.

In your own words, how would you define FinTech? What do you see as the future of the industry?

FinTech is one of those words, like disruption and innovation, that means so many different things to so many different people. In the broadest sense, it’s a portmanteau for financial technology. I think the definition most people mean when they use the term is “financial technology that is changing the way people interact with their finances.”

It could be back office things you don’t see, or it could be something new and revolutionary like blockchain (a distributed database that maintains a continuously growing list of ordered records) or distributed ledger (a consensus of replicated, shared, and synchronized digital data geographically spread across multiple locations). For me, the definition is somewhere in the middle; it’s something that really creates change.

The one thing we all have in common is that we all have to interact with our money. Whether we’re a commercial business or a private individual, we have money to borrow, save, move around, and transfer to another party for payment. FinTech has taken a lot of the friction out of that process. I think one of the new features of FinTech that we’ll see more of is that it’s disappearing – it’s less discrete and more embedded into your life.

What happens when your car has a payment card, and it automatically pays for tolls, parking, and insurance? We’re not even scratching the surface of what that future looks like yet. FinTech will be increasingly embedded in the fabric of how we operate as businesses and how we operate as individuals and consumers. That’s where I think the future of FinTech is going.

What inspired you to get involved with the FinTech movement?

I saw the financial services industry not paying enough attention to emerging technologies like big data, smartphones and apps, and artificial intelligence. We were too focused on best practices we had developed over decades, if not centuries. I saw the way people’s lives were changing with technology, and how they were living their lives with very smart, connected devices in their pockets and their home. If you think about your customers, they’re taking advantage of this technology in their personal lives. They’re watching whatever they want all weekend on Netflix, and ordering things on Amazon Prime that, in some cases, arrive later the same day. But, that kind of rapid progress wasn’t happening in the world of finance.

When I left U.S. Bank in 2012, I focused on helping financial institutions and FinTech companies work together to create new, innovative solutions. I’m very interested in how you get things done inside a mature company. Whether that’s in the highly-regulated environment of financial services, or not, companies have these internal barriers that prevent them from trying new ideas. We get so used to perfecting the best practices we’ve spent decades formulating that sometimes we forget about developing the next practices. And, that’s what I want to spend my time working on.

I’m currently launching a podcast and a book, Serial Intrapreneur, about people on the inside of mature organizations who are getting things done and fighting what I like to call “the business prevention department.” There’s always plenty of people around to say, “No, we can’t do that, because we’ve always done it this way.” I want to change that.

There’s a great quote from Bill Gates, who says, “We tend to overestimate the amount of change that will occur in two years, and underestimate the change that will occur in 10.” I think that’s a profound sentiment, because our customers are already accustomed to the on-demand experiences they have in their personal lives. If financial institutions can’t deliver those same kinds of experiences, then the customers are going to go somewhere else.

There’s a great line in Ernest Hemingway’s The Sun Also Rises where someone asks the main character, “How did you go bankrupt?” He replies, “Two ways. Gradually, then suddenly.” I think that’s the way disruption happens. At first, it’s very gradual, but then suddenly there’s a turning point. We don’t always see it coming, but we can look back on it and see where things accelerated.

Some would say that finance and technology are incongruous, and that it’s an odd marriage. What are your thoughts? Why do you think these two areas are becoming one?

I’ll answer the last part of the question first. I think for the leaders of the industry, yes, they will become one, but it will take a long time for all the followers to get there. There are two main themes that I think about here. One theme is this notion of financial institutions as gatekeepers. In the past, if you wanted to borrow money, save money, invest money, or transfer money, then you had to go to a financial institution and pay the ‘toll’ to them to provide those services—that’s changing.

If you look at the skill sets and the personalities of people who go into banking, we typically hire financial people that understand balance sheets, interest rates, demand curves, and those kinds of things. Those elements of the business won’t go away, but technology has helped us solve for a lot of those things. So, we need fewer people who are good with Excel, because a lot of that is being automated, but increasingly need people who are good with clients and other kinds technology, like data science and artificial intelligence.

If you think about people who get into banking, stay in banking, and get promoted in banking they’re very risk-averse people. When you’re a bank, you gather deposits, mark up that money, and lend it back. You need to be right 99 percent of the time over the long run. When your losses get over 1 percent over time, you begin to eat into your capital and bad things happen. Banks go out of business, and that’s what happened in 2008 with the global financial crisis.

I don’t think risk is a one-size-fits-all proposition. Taking little risks, like trying new things, trying a product or software with a set of customers and seeing what you can learn from that, is fundamentally different than big, bet-the-farm balance sheet risks. However, there’s also massive risk in taking no risk at all, because the risk becomes that your business goes away. If you’re not relevant to your customers, then that’s the riskiest path of all.
One thing that we talk about a lot at FinTech Forge is moving people to a test-and-learn mentality. That’s very common in technology companies like AvidXchange and across Silicon Valley, but it’s a new concept to most people in financial institutions. If you sit down at a poker table, you would not push in all your chips to the center of the table and say, “Give me some cards, I sure hope they’re good!” You would bid the minimum ante; if your cards are good, you’ll take bigger bets. If they’re not, you’ll fold and try with the next hand.

That approach makes all the sense in the world when you think about it from that perspective, but why can’t we apply it to financial institutions? Why do we still think we can get all our people around a big conference table and plan it all out from there? If we focus hard, we’ll make up a bunch of numbers in a spreadsheet and we’ll flip the switch and go into execution mode. Then, 12, 18, or 24 months later we’ll know if it worked out or not.
Instead, let’s narrow this down to a hypothesis that we want to test. Let’s get it in the customer’s hands sooner, rather than later, imperfect and warts and all, so we can learn from it. That’s less risky than sinking $10 million into a project and crossing your fingers for 12 months.

You’ve seen FinTech startups fail and succeed. In your opinion, what tends to be the downfall of those that don’t make it, and conversely, what are the successful companies doing correctly?

One of the things I see most often is people have a technology or a capability, which isn’t the same thing as having a product, and that isn’t the same thing as having a company. There are failure points along the way, and one of the common ones is not getting traction – if you’re not solving a problem someone cares about, it doesn’t matter how cool the technology is, or how unique it is.

I’ll never forget a tweet I saw from Finovate (one of the FinTech demo shows) that someone said about someone on stage, “They’re solving a problem no one has with a product that no one wants.” It was damning, but they were absolutely correct. The software was really cool, flashy, looked amazing, great UX, but I couldn’t think of anyone who had the kind of problem that it solved.

So, I think #1 is understanding who the customer is, what their pain points are, and understanding what jobs they need to get done. If you can line up against that, and embrace that test-and-learn mentality, then you’re on your way.

Within FinTech, what do you see as the biggest opportunities for innovation? You mentioned blockchain earlier. Should that be on our radar, and what else should we be paying attention to?

Gartner gave us the hype cycle, which I think is an interesting framework to think about in this regard, and blockchain is probably at the top of a hype curve right now. That doesn’t mean it’s meaningless; it just means it probably won’t do all of the things that we say it will today, and it will probably come along a little slower than we think. It doesn’t mean it won’t be transformative. I also think we’re in the very early stages for more B2B or SME solutions. I think, just like smartphones, just like tablets, just laptops, the owners and managers of small and medium-size business are bringing those technologies into the companies and expecting them to be available for them on a commercial basis, because they’re certainly using them in their personal life.

I think there’s still a pretty big gulf for most small business owners and managers.  Going back to what I said earlier, about the person who is watching what they want on Netflix, and pushing a button to take an Uber from point A to point B. That same person at 10 o’clock on Sunday night suddenly thinks, “I want to increase my line of credit, because we need to buy some more inventory for that big order,” and they try to complete it online and if they can even get it started, in most cases they can’t get it finished. They’ll come into the office on Monday morning, and have to finish it. And, that’s a really big disconnect. I think the opportunity in SMEs, and for that matter, even on up to some of the large corporate entities where the banks have traditionally played more on the balance sheet of providing multi-million-dollar loan packages for large corporations, I think there’s a lot of room to grow and we’re going to see that in 2017 and 2018.

Most of what we’ve seen in the past has been from the consumer. Starting in the payment space, trillions of dollars in transactions that take place all around the globe, and there’s been a lot of friction and a relative amount of expense in that. Then, we saw it move into some of the business lending. We still haven’t seen a lot in the commercial space, but I think we’re going to see a lot more.

What skills should financial/banking professionals be developing to prepare for the future?

Boy, we could probably generate a long list. I would start closest to the customer with design thinking—CX/UX skills. Again, if you look at the handful of leading financial institutions, they’ve done that. Some of them have even acquired design firms, but that is the exception, not the rule, across the thousands of financial institutions around the world. I would probably start there.

The next place I would go is data science. One advantage that financial institutions have is that they have a lot of data on their customers. They know how much they own, how much they owe, what comes in, what goes out, where it goes, how it goes, but they do very little with that information.  And, they certainly do very little around predictive analytics and providing the next best offer and providing a better customer experience. So, I think any of the disciplines that would fall under the broad heading of data science would be one area we need to develop.

How has the “fun” culture of tech startups impacted the more conservative, risk-averse financial executives and companies when the two merge and become a FinTech company?

I see three groups of financial institutions: leaders, leaners, and laggards. It’s a power curve with a very small number of leaders, and within those leaders you see agile, specific Scrum and software development, and also smaller, more responsive teams that are embracing that test-and-learn mentality. Then, there are a long tail of laggards (“that just doesn’t seem like what we do around here, son”). I spend most of my time with the people in the middle, the learners. These people are intrigued by it, but unsure of how to get started and they’re wary of things that seem like fads.

“I don’t understand how wearing a hoodie will make anyone more productive,” – well it doesn’t, but neither does making sure they have a perfect Windsor knot in their tie. As an aside, someone had leaked the summer dress code for one of the Wall Street investment banks, and it was incredibly descriptive about what brand you should wear based on what level you are in the company. Man, is that a waste of time and energy. I understand you want to look presentable to your customers and you’ve got to fit who your customers are, but it’s the exact opposite of most bankers’ reaction to startup culture.

I don’t think that putting in free snacks and a ping pong table suddenly gives you a startup culture. I think some people pay too much attention to “innovation theater”, and they’ll do open office plans and casual dress and other things. Those can be important steps in the right direction for the kinds of people you want to hire, but it’s got to go beyond those surface level things. I think form follows function here, and if you get that backward, then it’s not as effective. If you’re hiring the kind of people we just talked about, and building the kind of culture that is customer-focused but a testing-learning culture, it’s going to lead you to those kinds of things. But, if your leadership style remains the same, then hoodies and sneakers won’t have a big impact.

What do you enjoy doing when you’re not working? What are some fun facts about JP Nicols?

I was born in Akron, Ohio. I lived pretty much every stereotype there: I bowled on Saturday mornings and my mom and dad met at a roller rink. It’s so Akron. I’m a big soccer fan, particularly of the Seattle Sounders (MLS). My daughter and I have season tickets. I love the international culture we have in Seattle and soccer is a huge part of that.

The MLS average is 21,000 per game, which is healthy, but in Seattle it’s double that—42,000 a game. It’s a big deal here. They’ve been competitive every year they’ve been in the league, but this past year we finally won the MLS cup. My daughter and I flew to Toronto to watch the final, and that was a highlight for us to spend our time together with a team that we love, to travel across the continent in very cold weather. We got a pretty strong fan base and it took the Toronto fans by surprise how many people were there and how loud we were!

For more information on his work as a speaker and innovation consultant, visit his official website. For social media enthusiasts, you can follow JP on Twitter @JPNicols.