October 26, 2015
LTP: Dominic, thank you for your time and my first question is – as CIO, what are the top two things you are looking at right now?
Dominic Venturo: First, let us clarify what CIO stands for. As a Chief Innovation Officer, my group and I are not a part of the technology organization. Many people, when they see CIO think of Chief Information Officer, they think of the technology organization. Within the innovation group at the bank, we are focused on the longer-term horizon and all the way through the current period. We are looking at portfolio projects, which means that projects that we could be piloting today. Today you saw a community project that we are piloting in San Jose as retail bank partners. The context, awareness and location have been on our radar for probably 3 years now. Where we could have said that it is important to understand how are we going to interact with location services, it’s important to understand how to understand context: is somebody driving, is their mobile device moving faster that they can walk? So we shouldn’t be presenting content, things like that. That is the way we are structured. In terms of the things that are on today’s radar screen, many of those sit within our confidential structure, because we have not yet rolled a pilot out or we have not said we are active in a particular space. However some of them we are doing too.
Generally speaking, biometric security is a space where we think there is a lot of opportunity to make banking more seamless and at the same time more secure. Digital identity is an interesting space too; we have looked at some interesting opportunities in the space because we are a bank that has to comply with the KYC norms and the fact that we are highly regulated, so we are in a unique position to be able to be an identity provider. Are you familiar with the NSTIC framework? NSTIC is the National Strategy for Trusted Identities in Cyberspace – it is a White House initiative. Under that umbrella, there are things like identity provider and there is a relying party, somebody who is going to use someone’s digital identity. This is all part of the framework. Within the financial system, because of our unique role and our unique assets and capabilities, we think there is an opportunity to play in a federated identity space, and that is another example of the space. You start to see some interesting things that can come out of that and biometric security. I mentioned location and context, which is also interesting. Couple of years ago we actually were early in the augmented reality space, which might be a little surprising for those who don’t know about it. We built an app, used the camera system within the phone, an overlay system, where you see where offers are available when you are just walking down the street. We were early in the space and wrapped up the pilot to wait until the technology evolves.
LTP: I will come back to the biometrics topic again a little later, but let’s talk about real-time payments. What are U.S. Bank and banking industry generally doing about it? Just as a benchmark, there are several countries in the world including UK, Australia, Japan, India, who have real-time payment systems today and in the US we don’t have something like that. And to be specific, I am talking about interbank transfers.
DV: To say that we do not have any perhaps would not be very accurate. I agree that we do not have a national real-time payments standard. There are real-time payment systems, which work just fine in terms of real-time transfers and the variety of products and services they have. We were one of the first banks in the U.S. for some time to participate in the Visa Personal Payments service. Now it is Visa Direct. But at that time it was basically debit to debit, real-time Visa card transactions. In the corporate payments system using electronic payments, we have a number of other things that are real time. However, you are correct; there are no national real-time payment systems. The things that are considered national and ubiquitous would be ACH, which is definitely not real-time. The industry will evolve and there will be a real-time payments platform, whether it’s completely end-to-end or not. The use cases have been established, but the requirements are still in development. The financial institutions community is participating in the requirements development. We are one of those banks. We are also one of the members of The Clearing House, which is actively rolling out payments infrastructure facilitating the work. We think that with the seat at this table and the input that we were able to provide, we will be able to leverage the new set of capabilities.
LTP: I know there is no timeline, and we do not know when we will get there. However, are you saying there is progress??
DV: There is progress. It may not be published, but there is a timeline.
LTP: According to our research, there are more than 4,500 startups in the FinTech space. A lot of them are in the U.S. and FinTech is hot right now. Jamie Dimon said recently that ‘Silicon Valley is coming’ and some people believe that the banks are being disrupted. Do you see startups today as entities that you can leverage and partner with in certain categories or you see them as an inspiration for building better products or is it just competition?
DV: There is a whole bunch of different lenses that you have to apply to that topic. And it depends on the hat you are wearing. So I am going to wear my Chief Innovation Officer hat and when we look at the space, we are looking at: how are technologies emerging, how are customers preferences changing, how are the ways that customers do business changing? And on top of that – really strong primary research to understanding interesting problems to solve. Then we are either trying to solve them ourselves, or collaborating with those who have solutions that solves it. Because may be they were there first, they have got a good idea. That is one of the reasons we are part of Plug and Play. We are able to see those companies that are solving interesting problems. In today’s presentations the companies almost always used the approach this is the problem – this is the solution. The reason we love that approach is that if you are really solving a problem then you could argue about whether it really solves it or not, but it means you are focused on something.
We do not see that as a competitive threat, we see that as an opportunity to partner and do business together in a couple of different ways. At the bank level, we help small businesses, we solve their problems, we are one of the biggest SBA lenders in the country, and there are many other reasons we pay attention to the startup community as well. We think that partnering with small businesses enables us to learn a lot and to provide feedback that is really difficult for them to get. I appreciate the fact that it is difficult for a small business early in the startup phase to be able to sit at the table with a number of bankers with 20+ years of really deep experience and expertise and at the same time leading some of the industry leading products and services that are getting launched. It is hard to get them matched together and make that happen. However, when it does happen, it is awesome. So we see it as a real opportunity from different angles.
LTP: Since we have been able to engage with many banks globally, we have seen that a couple of years ago the whole concept of hackathons came into the picture. Many banks and FinTech companies have been organizing those to generate new ideas and to attract talent. We have already seen incubators and third party accelerators in this space where banks can become members or partners. In the last couple of years we are also hearing about self-run accelerators and innovation labs by banks. What do you think is a good format for a bank to work with and engage startups?
DV: It depends on a bank. There is no easy answer to that one. It is going to depend on the bank’s culture, risk tolerance, many things. We have a dedicated innovation team, but we do not have an innovation lab that you could go take pictures of and show. We have a place where we work and we call it a lab. But it is where we work. We bring partners and potential partners and we work with them. But we don’t have a showcase where we show the latest technology and it’s because we are really not making technology devices. In some cases, we are just writing the software that makes things work better. Every bank will have a different approach. Moreover, part of it depends on the businesses that they are in. Do they take companies public, do they have a venture capital arm, and do they have other things that some of these and other activities may make more sense than they would make for us. Just because we are structured a bit differently, we are participating in different spots in different ways.
LTP: I agree. In fact, with one of the banks the problem was that they wanted to work with the startups, but they are not sure about all the contracts and agreements, IP ownership and how to take care of that.
So going back to biometrics, some researchers have said that the fingerprint is not really unique. And it can also be manipulated; there might be two or three people in the world who have the same fingerprint. And then we have seen some banks who have started talking about multifactor biometrics - voice, face, eyes, fingerprint. What is your thinking on that?
DV: It is all a tradeoff. You can make something perfectly secure, but it’s impossible to do business with. You have to decide. I don’t know if it’s possible for two human beings to have the same fingerprint, but let’s just say that it may be possible out of the billions of people. Then you would say that the odds of the fingerprints are good. It is a balancing act. Financial institutions know how to make passwords more secure, but it makes user experience much more difficult and it adds friction to the experience. There is a balance. You still see examples where existing technology has not caught up to legacy systems. Can you take things that others are doing and incorporate them into your product design knowing that every single one of them has a certain use case or a risk case that you have to individually assess?
LTP: Let's talk about Blockchain and bitcoin for a bit. Many banks are conducting studies on how blockchain can be used. I have written a lot about that and studied different use cases, both financial and non-financial as well, and there are some interesting ones. Is there something that is real and close to implementation that you see from a blockchain prospective?
DV: I think you saw some interesting examples today, right. There are companies working in that space with practical use cases and there are plenty of others. We haven’t done any pilots in the space that we have announced publicly so I don’t have a lot to talk about in terms of products, concepts or ideas. What I can say is that when you look at the collection of technologies that are like distributed ledger, and there are different ways to approach that, you start thinking about those new platforms and capabilities, there are many things to consider. How does it fit into a regulated entity ecosystem? Whether things are auditable and traceable? How about when goes wrong? How do you manage security and things like that. There are a lot of things that have to be considered in the space which is why I think you see folks creating other technology solutions that are like a Blockchain solution but are actually a different technology or a different approach or a different ecosystem in its entirety. I cannot comment on anyone in particular, but I can say that is how you know it’s early stage – there are interesting opportunities people want to pursue. People will look at one version of technology and then decide – I like the concept but I cannot use that version of the technology, so I am going to create another version, or a standard or approach. It's early days, but I think all that activity is a good sign in terms of innovation and new product development.
LTP: Regarding some other spaces, which we have not talked about so far, such as lending and remittance: Lending is the most funded segment in the FinTech space for the past three years globally. With remittance – some of the largest banks have moved away from that space. A lot of banks think that they can’t depend on MTOs given that the regulations and compliance issues are rising and there have been money laundering and other issues in the past. In addition, there are new players now, like Xoom and TransferWise, that have been doing well. What is your view on how banks will play in these two sectors vis-a-vis the startups?
DV: From an innovation perspective, we (our group in the bank) are less product focused, and we are more technology, trend enabling focused. My group, for example, is not into creating new lending products. We have people that are great in that space. However, I think the market dynamics, especially in the U.S., have created some opportunities in the lending space that might be unique due to various conditions, that are subject to change. Part of the way we look at this as a bank is for the long haul and in different market conditions. What does it look like in a low interest environment, high interest environment, low unemployment, high unemployment, etc.? It is an important space, there has been a lot of innovation in that space, but if you look at traditional banks that are doing a good job in that space, we are still growing and we are growing well. That tells us that there is also an opportunity to continue to do what you do and you do it a little bit better. In the remittance space, outside of my group’s responsibility, what I can say is that U.S. Bank has a whole suite of P2P solutions for customers. We have been integrating those and pushing them to all the channels. Through online, mobile banking, partnerships – like with Western Union that enabled us to get to the places where we do not have distribution endpoints.
LTP: You said that your focus is not as much on product development, but on the overall platforms and long term bets. So the next topic is about APIs. We have been writing a lot about it and I can give you an example from our perspective. Instead of subscribing to expensive financial databases we can plug into an API that gives us low cost access to various types of financial databases. And you can make an API call as and when you need the data. That totally makes sense to me as a user. Now when we look at the financial technology space there are probably more than hundred companies that are offering APIs. And even more are beginning to do the same. When I ask this question of the banks, they say they are working on it, but there is no timeline or view on whether there is going to be an open API ever.
DV: I was totally with you until you said open APIs. I think one of the things you need to be careful about when you think about banks, while APIs and developer tools could make a lot of sense, I am not sure they will be open. In other words, access to them will have some review and approval process to become part of the system and it’s no different when it comes to becoming a vendor of the bank or becoming a partner, or a provider that has access to information, etc. There are many stringent rules around how that happens for a good reason.
Now let us back up and see what we have been doing. Our global merchant acquiring business which is a subsidiary business, has a group that is an agile development shop and is product focused, working side by side with the technology partners. And guess what - they are using some APIs and developer portal toolkits internally and also externally. My group sponsored one of the original projects to stand up a developer portal and to create the library and the documentation. And to be able to allow them to do that, we found that for the partners or the companies that we are doing business with they want to be able to leverage that as a means to integrate with us or to be able to process through us. That allows them to do it easier, faster, in some cases cheaper and it gives us the benefit of a customer doing business with us faster. It started out as a pilot, it’s now commercialized, it’s part of the business and part of how they do business. We are a believer in the approach with an actual tangible example.
LTP: And will this move to other groups in the bank?
DV: We have not announced other things, but part of what my group will do is take a pilot and move it through the commercialization. Once we do that, we will look at the opportunities that we leverage in other places where it makes sense. You will see other places where it will make a lot of sense over time. However, will it be everything? No. Just because it would not make sense to do.
LTP: The next question is regarding mobile banking. What kind of upward trend are you seeing? What is the growth looking like? Somebody at a UK bank said recently that the biggest branch they have is the commuter train that comes into London downtown in the morning because so many people are logging in through the mobile banking channel. How is growth looking for you?
DV: That is a great question and I honestly do not know any statistics around that. The mobile banking group is part of our omni-channel group run out of San Francisco. It is a core, almost mature product set. I know it sounds strange, but the innovation group doesn’t pay close attention to the day-to-day statistics about the existing stuff. I know it’s an important channel and it’s been growing, but I couldn’t give you numbers or statistics.
LTP: And the last question - what do you think about Plug and Play and the work that they are doing?
DV: Well, I meant what I said on stage earlier. The reason that we picked them to partner with was because they figured out a model that is scalable, repeatable and predictable. They have a process that has a science behind it, and they are good at curation. They have the connections that help them find new players. It appears that it’s turning more into a draw funnel, getting a lot of applications through the success of the programs, and allows through the visibility to even get better. We are excited about it. We do not have a corporate VC, so for us it is a great opportunity to be able to participate in the process in a way that may have not been available to us otherwise.