The Future of Banking – New Innovations

podcast

The Future of Banking – New Innovations

In this Podcast, Tyrone Canaday, managing director with Protiviti and our global head of innovation talks about the events he has attended over the past couple months, ranging from Empire Startups to FinTech Week to Finovate 2018 and Consensus, which is a big blockchain event, and Comply 2018, focusing on regtech.


Protiviti Podcast Transcript Transcript

Kevin
Hello, and welcome to a new installment of Powerful Insights. This is Kevin Donahue, a senior director with Protiviti. I'm very pleased to be talking today with Tyrone Canaday. Tyrone is a managing director with Protiviti and our global head of innovation. Tyrone, thanks for joining me today.
Tyrone
Great, Kevin. Good to talk to you again.
Kevin
Tyrone, I wanted to get your insights, or some of your takeaways, from some of these events you've been attending over the past couple months, ranging from Empire Startups to FinTech Week to Finovate 2018 and Consensus, which is a big blockchain event, and Comply 2018, focusing on regtech. I'm sure you have some interesting insights from these events. Why don't you share some of those with us?
Tyrone
Absolutely. I’m just coming off FinTech Week in New York, like you mentioned, and some of the other conferences – Finovate 2018 in Silicon Valley, and then this week with Comply 2018 and Consensus in New York. It has just been a lot of activity, a lot of good discussion and a lot of progression, frankly, around a number of fronts – and financial services and technology – but I'd say some of the key things were around this aspect of advancing the customer experience from super-personalization.
 
As you start to look at the banking and payment industries, they’ve matured quite a bit, especially in jurisdictions like the UK, and a lot of the changes right now are really occurring more on the periphery, while the cores have been built and set. Now you're looking at different innovative third parties, or fintech, that can add specific capabilities to the fringes that enhance the customer experience, and so we saw that with Goldman Sachs and some of the stuff they're doing around Marcus on the acquisition of Clarity, but, really, looking at things like asset visualization – where do you hold your assets? – and doing more graphical interfaces around that, looking at spending habits.
 
There's one capability, one company called Sterling Bank, in the UK, that really impressed with their user experience and their API integration – it almost has this Apple App Store feel to it. I say that's really the first thing, around super-personalization, and under that, you started to see other types of advancements around AI. I know we talked last time about AI and some of the work that's been being done in that space, but there are a number of fintechs that are starting to push that forward, and a lot of the things talked about involved AI driving the next paradigm shift of the user experience, or the UI, and moving toward the spiritual assistance.
 
In Silicon Valley in the last few weeks, there's been a lot of buzz around the new Google IO and the Google duplex. I think a lot of people saw the work that's been done in that space, where AI would be able to create more human types of responses with the voice, and collection, and the more conversational speech responses, but there's going to be a lot more leveraging of virtual assistance in our day-to-day, really helping us to proactively schedule routines and start to give you predictions on the weather or make appointments. A lot of these interfaces that used to be more mobile, they're talking about AI really enhancing that, and changing that to voice-activated interfaces.
 
That was a very interesting concept, and then I was there laughing around the personalization and customer experience, just looking at the next financial product that's right for disruption. There's been a lot of talk around disruptions and mortgage and lending and really interesting fintech – a lot of fintech in that lending space, where they're working around that sweet spot between, I would say, mid-range rates, but also speed to market in terms of getting loans out there. Typically, the best financing in terms of rates come from the banks, but the customer experience is very poor, and they're also very slow and cumbersome. On the other side, you can get quick financing from other outfits, but you'll usually end up paying a lot higher on the rate. There's a sweet spot in the middle there.
 
There's one fintech in particular that we saw out in Silicon Valley called Casazza, and they've got a pretty interesting innovative mortgage product that allows you to flexibly change up your payments on your mortgage through this Casazza loan. If you paid in advance, then you can have this ability to take back those funds at any point in time. If you have a life event, that allows the platform this kind of scale and readjusts your amortization schedule. That was a pretty interesting aspect.
 
Outside of that, the regulatory environment was another big topic of discussion across all the different conferences that continues to be, I would say, a big inhibitor to advancement in the U.S. In other jurisdictions, there are things happening in the UK, and we talk about an Asia pact around different aspects that are advancing around regtech, and some of these standards that they're putting out there, but even in Japan, we're seeing things where regulators are allowing some of the companies, especially the innovative ones, to self-regulate, and they are starting to work with them collaboratively to help shape the emerging technology innovations and regulation around that.
 
Another discussion is that when you start to create new products and services, there needs to be involvement from regulatory involvement and cyber from the beginning, and a lot more acceptance from the technology community to do that, and there's a lot more collaboration, and they're seeing where some of these inputs from the regulatory groups and security groups early on can help mitigate a lot of pain points down the road as you start to go through development and product launch and more of a cultural mind shift of having them involved in these – it helps the creativity process.
 
Last, around regulatory, scaling some of the innovative third parties as they're starting to get a lot more business. How do you start to get them ready for some of the public company transformation aspects? You look at some of the [Unintelligible] that happened late in December, where a lot of the companies, especially in the digital-asset spaces, were getting a lot of momentum, and there's a lot of run-up with some of those companies, and so how do you scale when you've gone from a small start-up to an enterprise-like organization, and you have the right policies and procedures and controls in place? There are a lot of things that you need to mature around, things like your business-continuity plan, your vendor space, your cyber, stocks, compliance and your technology – you need to make sure it scales in conjunction with your business.
 
The big theme was next-gen disruption, and while this past year, there wasn't anything in terms of a killer app, I think there are a lot of innovative third parties that are out in the space. There wasn't anything that really took a big lead, but there's been a lot of investments made in different emerging technologies, and a lot of folks are talking – especially now, right after we had this meeting with the big conference of Consensus here in New York City.
 
We're on the verge of a widely adopted blockchain or DLT solution, and that's really what the talk is right now, especially with recent analysis from Santander around cross-border, as that being a step in the right direction. I know AmEx has got some projects that they're working on the blockchain, which would be big news, but there are two camps on blockchain. Some see the vast potential of blockchain applications in the future, and others think that's right now, it's just overhyped and there hasn't been the adoption and the expected traction as of yet, but I think, from talk in the industry, that we're on the verge of a widely accepted solution, and so that's one to watch, around blockchain.
 
Also, with next-gen disruption, as you move to more of a decentralized model, there's an increasing landscape for cyber complexity and service area, and that was a really a big topic. The cyber security aspect around bad actors, and the ones that are going to be out there, and the decentralized environment. How do you start to guard against that in a more integrated way? Even internal to your organization, it's hard to understand all the known and unknown threats and all the assets that you have in your environment, so that proves to be challenging, but then, from a security point of view, you can't understand just 90 percent of your environment, because the 10 percent that you're not looking at is where you could be vulnerable. All the aspects around shadow IT, just understanding what's inside your environment – then the added complexity is that the environment starts to become more elastic, and that exacerbates the challenge.
 
You said to look at the third-, the fourth-, the fifth-party risk. What's the way to do that, and is security going to be something where you start to – how far down the network do you go, and does identity need to be something that's really consolidated within the organization, or is it something that's going to be decentralized throughout? That’s the debate that's continually going on in cyberspace. We’re also seeing burgeoning partnerships between Wall Street and Silicon Valley. We're starting to see that convergence a little bit, and that was another theme around next-gen disruption, and that was an interesting pattern to watch.
 
Goldman and Apple announced their partnership on Apple Pay. We've also had seen some news around Amazon and the things that they're doing with JP Morgan-Chase around the different accounts that provide value-added services in addition to the partnership with Berkshire Hathaway and JPMC around employee healthcare. Those are all some of the next-gen disruption types of things that were out there that are very interesting, and as you start to look at yourself as an institution and about keeping up with the pace of innovation, I know Protiviti has been helping a lot of institutions out with the agility and the ability to partner with the innovative third parties. They put their price out and provide capabilities to move quickly and nimbly, but make sure that you're not having an overbearing process where it takes such a long time to integrate and work with these third parties, because that's a very big challenge as well.
Kevin
Tyrone, that was a great rundown. Thank you. I have one question: What are you seeing in terms of engagement or progress from start-up born-digital-type companies versus these larger, more established financial institutions with these large legacy infrastructures? Are those larger institutions looking more to partner with start-ups, or are they going through transformation on their own to shift how they're doing business over the long term?
Tyrone
Yes, that’s a good question, Kevin. I think it really depends on the institution. I think they’re seeing a lot of the larger players. Partnerships right now are the key, even though they've got these complex back ends. Right now, to really move at the pace you can move at, you need to partner with some of the innovative third parties, or nonbanks, and you're seeing that a lot in the lending space – I think there were some announcements about how a lot of the big banks are using some of the nonbanks at the front end for providing them financing for different types of loans. That's giving them the speed to market and the flexibility they need.
 
Obviously, that introduces other types of risks, but I think for the banks and the big spaces, the big players, we’re seeing that partnership has been key moving forward, and you start to move toward seeing some of the superregionals. Definitely, they're along that journey as well, some further along than others, and then you’ve got some of the smaller banks and some of the credit unions that are just beginning that – looking at ways to do that, and do that quickly. I would definitely say there's a different view on fintech than it was four years ago, when a lot of the folks were looking at them as a threat. You’re starting to see there that there are a lot more advantages in these partnership relationships.
Kevin
Tyrone, thanks very much for joining me today to discuss some of these many interesting trends and insights you're seeing in the market around fintech and customer experience, AI and so forth. I want to invite our audience to visit Protiviti.com, where we continue to publish a wealth of thought leadership and insights on these topics and many more, and subscribe to our blog, The Protiviti View. You can find that at blog.protiviti.com. Experts and leaders from Protiviti like Tyrone are writing and publishing there on a regular basis, and you can keep tabs on what is changing in the market every day.
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Tyrone Canady, Protiviti
Tyrone Canaday
Managing Director
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