The future of retail banking

A Bank Relevant interview with SPENCER JONES

Spencer Jones, former BofA, TD, and Chartway FCU

Bank Relevant colleague, Pari Bose and I had a mind-blowing interview with Spencer Jones, a truly charismatic thought-leader in the digital banking and payments space. Pari never forgets to mention — “Spencer brought emotional-intelligence to digital banking.” Our conversation covered a whole host of engaging topics such as the role of the chief digital officer, the importance of culture in banking, emerging banking models, PSD2, the role of the branch, and of course, Amazon.

Spencer’s current work in banking revolves around crafting customer-centered experiences and transformational strategies designed to grow the banks and credit unions he supports. Spencer has held North-American executive banking roles in: strategy & planning, digital, omnichannel (sales/service), payments, technology, and operations. Spencer was the Head of US Digital & Sr. Vice President with TD Bank, and held several other Senior Vice President roles with TD. Prior to that, he was with Bank of America and Chartway FCU as senior vice president of technology, channels, and payments. Spencer is also an entrepreneur, holding a U.S. patent for an EFT authentication system. Before entering the financial industry, Spencer was involved in several silicon-valley start-ups, and worked for Sprint Telecom in both their domestic and international divisions.

Pari and I are pleased to share our insightful 30-minute conversation with Spencer Jones in long-form.

Please note, the views and opinions expressed in this interview are those of the Spencer, Pari, and myself only. They do not necessarily reflect the official policies or positions of our respective employers. Examples of analysis performed within this story are only examples.


WHAT’S UP WITH THE CDO?

Pari Bose:
Let me start by asking you about something that’s highly probable: Let’s imagine that you’re appointed as the CDO of a top 10 bank next month. Let us say, you are a bonafide Chief Digital Officer; you sit at the CEO’s table. Your chief mandate is to leverage digital to reclaim the central position in the consumer’s financial life. Would this be the right task to focus on as the new CDO? What would be your top three priorities?

“I think that the role of Chief Digital Officer is suffering.”

Spencer Jones:
I think that the role of Chief Digital Officer is suffering. I think it is partly because the other conventional C-suite officers are saying, “Let’s get a Chief Digital Officer, and somehow shazam, we’re fixed.”

If I were a CDO tomorrow at a top 10 bank, I’m not sure my mandate would be any different from my C-suite colleagues. It would be around growth, providing the most compelling customer-centered experiences, taking risk and complexity out of the organization, and bringing agility. So, whatever my mandate would be, it can’t be a mandate that my colleagues don’t also have. My tools of execution may be different. However, I think being a CDO with your own mandate can turn out to be a flawed objective, and would be tricky to execute.

Pari:
So, are you saying that Chief Digital Officer role by definition is a dysfunctional role? Maybe the position as we know it shouldn’t exist?

Spencer:
In my mind, these roles are defined by the tools each C-suite executive utilizes to execute strategy. The CFO’s role is to execute strategy through P&L, balance sheet, lending relationships with the banks, and the ability to communicate the economics of the bank to the public marketplace. It’s all in service of a common strategy. If CTO has their own strategy, a CFO has their own, and the CDO has their own… I’m not sure it works. I typically observe that new CDOs are brought in with their own mandate. However, many times, the CDOs mandate seems to be almost disconnected from the rest of the bank.

Syed Bukhari:
I find that the overlap the CDO role has with CIOs and CMOs can make it tricky. Depending on the organization, the CDO’s priorities might be cutting into the other C-suite roles, and that creates all sorts of challenges.

Spencer:
And often, at many banks, it overlaps with the Chief Retail Officer.

Pari:
So what advice do you have for CDOs? How do they navigate?

Syed:
Exactly, how should CDOs navigate the political landscape, when they’re coming in and possibly carving out other areas?

“Are you a baker, or are you a cook?”

Spencer:
Haha, well, as a new CDO, you gotta know what your skill set is. For example, I’ll refer to one of my favorite interview questions, “Are you a baker, or are you a cook?” Neither is wrong, but they’re different. Similarly, you gotta know, are you a leader or manager? Neither is wrong, but they’re different.

If you look at Steve Jobs at Apple, I think he was a leader. I think if you look at Bezos at Amazon, I think he’s a manager. They both carried the title of CEO. Jobs is the kind that’s all on stage, leading the folks and winning hearts and minds. Yet Bezos reminds me of a typical private-equity firm CEO, one whose strategy is to plan the work, and then work the plan.

If you’re trying to be a Chief Digital Officer, you’ve got to consider: What are you, and what do they need? The title isn’t necessarily most important. It’s about fit. The focus should be the bank’s need and your style, that’s what matters. If you’re a leader and you’re all about brand, but they’re bringing you into an organization where they need you to be a manager and really good at execution, then that’s probably a bad fit.

THE EMPLOYEE IS KING

Pari:
Whether your charter is to deploy technology or to build experiences or to grow the business. What’s the North Star for a CDO, or any c-level banker? Shouldn’t the North Star be the customer in the digital age?

“I actually don’t think the customers are most important. I think the employees are. If you take care of the employee, they’ll take care of the customer.”

Spencer:
Maybe. I actually don’t think the customers are most important. I think the employees are. If you take care of the employee, they’ll take care of the customer. If you have a business proposition that you think is truly valuable and unique, and you’ve surrounded yourself with great employees who equally think it’s unique, then all you have to do is take care of those great people, and they will take care of the customer.

Syed:
What’s your definition of great people? Today, most people talk about digital and design skills, being able to use emerging technologies, etc.

Spencer:
To me, skills are secondary. I’m really interested in the different profile mixes of folks in the team. Some are analytical, others hard-charging. Some are type A, others type B. Some are introvert, others extrovert. Some are genuine and tell you the truth no matter what; others soften the blow with kind words. Some encourage, others discourage. Some are tactical, others strategic. I think the most important thing is understanding what you’re looking for. Everybody has God-given gifts. They’re perfect for something. You just need to figure out how to assemble those gifts in a way that’s perfect for what you’re trying to do.

Pari:
This sounds more like a coach trying to assemble a football team.

Spencer:
Haha, yes, it probably is. If you get a whole bunch of people and they’re all digitally skilled and brilliant, you might end up with a bunch of brilliant digitally-skilled jerks.

WHAT’S CULTURE GOTTA DO WITH

Syed:
Pari and I have been involved with many digital transformation strategy initiatives, even speaking to banks’ boards on occasion. Invariably, we hear about the inhibiting effect of culture and leadership. Other industry commentators such as Chris Skinner has claimed that legacy leadership is a bigger problem than legacy technology.” What are your thoughts on the importance of culture in digital transformation, and how might we shape that in banking?

Spencer:
Again, think of sports teams. Many times, a team will have the best players with the largest payroll, and they still don’t win. But other teams with smaller payrolls and less talented players operate as a team, and they win. When you go back and look at 1980s hockey, the teams won because they played together as a team.

Miracle Speech — You were born for this — Herb Brooks, Movie: Miracle

Culture had something to do with that — the desire to put a strategy before yourself was a desire to play as a team. It was a desire to understand the “why” behind what you’re doing. Every bit of effort in your “how” supports the “why.” I think companies sometimes lose that.

Syed:
What are some things that bank leaders should be thinking about, or what can they do to cultivate that kind of culture?

Spencer:
The sports analogy still holds. In the sense of, Why are we here? What are we trying to do? And does everybody at the organization understand the “why”?

There’s a quote from John Maxwell, “Leaders touch a heart before they ask for a hand.” The premise is that when your employees buy into what you’re trying to do — if people understand the “why” and they’re emotionally connected to it — then everything they do moves that strategy forward. However, if people do something to just to get a paycheck, if they execute because it’s their job description, or because somebody said we want to increase shareholder value — then there’s no emotional “why.” It’s a job; it’s a transaction. And when it’s merely a transaction, there’s not a whole lot of sentimental value.

At the end of the day, we’re human beings. We like to be part of a winning team. We want to make a difference. In the transactional worldview, you’re not gonna get that level of effort. But if you’re emotionally committed to something, say, ‘changing the world,’ ‘disrupting banking,’ ‘customer first’ or whatever it is, you’re committed to it. It changes how you do every part of the job — how you solve problems, how you interact with your colleagues. You tend to think of your colleagues with the best intentions first. When it’s a transaction, you look at a colleague and say to yourself, “No, they aren’t doing their job. They don’t understand the work. I’m in charge, they’re not, or she’s in charge, and I’m not.” Employees don’t think in terms of how to win. They think, how do I satisfy my job description? Ultimately, I think culture is the reflection of the team when people understand why they’re engaged in something, and emotionally connected to it.

Pari:
Do you think that kind of a model or thinking can be applied to a bank with thousand or more employees?

Spencer:
I think it can, though it gets harder. It becomes rarer and rarer, in terms of examples where it works. Look, when you are emotionally connected to an organization, you’re committed to relationships within that organization. It’s harder to commit to an ideal. It’s easier to commit to people. If you think about the military, that’s an organization spread out all over the world. And yet, one of the most significant principles of the military is, “It’s not about me, it’s the guy next to me.” They keep the relationship local. It’s about getting him or her out alive. The big ideas — for the flag, for the country — those are macro ideas. Soldiers believe and respect those ideals, but I think, it’s really because of the guy or the gal next to you that makes it all work. Lastly, numbers aren’t the issue. I think the location is. Culture is harder the more spread out we are.

THE EMERGING BANKING MODEL

“…the retail banking model is now becoming symmetrical, transparent and democratized.”

Syed:
Would it make sense for banks to try to emotionally connect with their customers?”

Spencer:
I don’t think so because it can be a bit of a flawed model. I would say that banking originally, and even currently, is based on an asymmetrical relationship: I, as a banker know something you don’t. And as a result, I’ll charge you a fee or you’ll pay me interest. This is based on perverse incentives that either, a) I’ve gotten something for less than what I’m charging you, or b) I’m going to give you something for less than it cost me to have it. And that asymmetrical relationship is in my interest, not yours.

This model is being challenged in today’s setting. It is because the retail banking model is now becoming symmetrical, transparent and democratized. Knowledge is everywhere. The network self-corrects. The idea of having asymmetrical command-and-control of knowledge is becoming less and less of the model.

Syed:
Pari told me a story about digital “dog biscuits” in relation to digital customer experiences when you worked together. Can you share with us what that means and the backstory on that?

Spencer:
Haha, yeah. In that case, the organization needed a bit of symbolism around a rallying cry to demonstrate how their digital experience was human … in the form of a digital “dog-biscuit.”

It is not common for bank tellers to give out dog biscuits to pets visiting branches, but TD does. And it works — it makes sense because customers are delighted and feel TD not only cares about them, TD also cares about their pet. For little things like this, TD is seen as a friendlier kind of bank. Our employees understood it, and customers understood the sentiment. But it worked in a physical world. That model has been around for a 100 years. The challenge was to figure out how to deliver that experience digitally. Digital “dog-biscuit” was a bit of a rallying cry to figure out the equivalent.

Pari:
Spencer, some say US retail banking might make a comeback like we haven’t seen in years. With signs of regulatory relief, lower taxes, and rising interest rates nationally, we could see banks starting to flex their investment and competitive muscles in a way we haven’t seen for a decade. Two questions: First, do you agree with this observation? Second, do you think bankers will actually take advantage of this windfall, and reinvest in new capabilities to gain back the relevance they’ve lost in consumers’ lives?

“I don’t think the dearth of investing and cutting-edge innovation among large banks is a money problem… I think the model has permanently shifted. The relevance of banking and the role it plays has become diluted.”

Spencer:
Pari, your question belies a point of view. Let me play this back here… the reason relationships have changed — and the reason banking potentially has become less relevant — is simply because the banks didn’t have enough funds to invest against disruption? If you believe in that as your premise, then of course yes. Regulatory relief, lower taxes, and rising interest rates will provide banks the incentive to invest against disruption and finTech, etc. But I think you gotta ask yourself — do you agree with this cause-effect relationship? I don’t.

I don’t think the dearth of investing and cutting-edge innovation among large banks is a money problem. I think the relationship of the availability of funds to investing is flawed in the current context. Like i stated earlier, the interaction model has changed. You don’t fix that and put it back the way it was by having money. I think the model has permanently shifted. The relevance of banking and the role it plays has become diluted.

As an example, some folks today have no idea why you need to own a car. They’ve grown up with the idea that car ownership and maintenance is not worth the benefit. On the other hand, I grew up in a generation where you couldn’t wait to get your license because you couldn’t wait to get out on the road and drive! We have a generation growing up that doesn’t appreciate driving. They don’t see a need or benefit. A generation from now, driving might be considered odd. How do you put that genie back in the bottle, right?

Pari:
I totally agree with your example. But basic financial needs like paying bills, making purchases, or paying someone else are banking use-cases that are going to be around, no matter what. These are some of the most fundamental transactions we perform with our money. How can banks continue to own this space in a way that is relevant to the consumer’s life?

“But the word “bank” today is more of a verb than a noun.”

Spencer:
You’re absolutely right. In 1994, Bill Gates made the provocative and still controversial statement that banking would be needed, but banks themselves would not. Commerce will continue to occur. But the word “bank” today is more of a verb than a noun.

TO BRANCH OR NOT TO BRANCH

Syed:
The subtitle of Brett King’s book Bank 3.0 is, “Banking Is No Longer Somewhere You Go But Something You Do.” On the other hand, Bank of America just announced last week that over the next four years they plan to open 500 new branches. How does the “future branch” fit into the worldview you’re talking about where the model has shifted, and things are becoming democratized and transparent?

Spencer:
The premise around the branch has changed. I think those banks that have large branch networks are still trying to figure out how to monetize them in a way that’s sensible. If I were a betting man, and looking at how Bank of America brings new branches to the marketplace, it will be fundamentally different than how they work today.

I think the interaction model in the branch is different now, and will forever be different. The physical model supports a human need — People prefer relationships and human touch. Some prefer a high human touch service. So, the physical branch will most probably continue to serve this. However, if the physical branch utilizes a supermarket type model, then I think it becomes an unsustainable interaction model.

Syed:
Talk to us a little bit about how the customer interaction model has shifted, in terms of both physical and digital fronts, and what it will look like in the future.

Spencer:
When TD acquired the artificial intelligence startup, Layer 6, Michael Rhodes, TD’s group head of innovation, technology & shared-services made an interesting statement. He said, “What we hope to gather from AI is the ability to kind of know and understand our customers, in the same way, that store manager knew back in the 1970s.”

I speculate that we’re heading towards mass-personalization and mass-contextualization on a huge scale — except it’s not carbon-based. It’s not from humans; it’s ones and zeros based. This is both cool and scary.

WE COULD NOT STAY AWAY FROM AMAZON

Syed:
Amazon just announced they plan to deliver a checking account-like experience. We all noticed that a few weeks ago they reduced their interaction with Bank of America and Merrill Lynch. When they did so, I posted on social media that it was a signal that Amazon is serious about getting into the banking space. Lo and behold, a couple weeks later, they’re now partnering with Chase, and they plan to enter the space. What are your thoughts on Amazon’s plan?

Spencer:
Look, Amazon is also picking a second headquarters. Looks like they might take on UPS or FedEx. They’re the largest cloud provider in a whole industry they’ve created from scratch. They’re also really challenging Apple’s Siri with Alexa. My point in calling this out: Amazon is disrupting everywhere. It’s just flat out amazing how many places where they’re truly turning over industries.

I’ll confess I don’t understand Amazon’s go-to-market. But their partnership with Chase seems like they’re saying, “We want to be in financial services, but we don’t like to carry the margin-dilutive regulatory burden associated with banking. So we’re going to white-label some of that stuff from Chase.” If that’s their approach, I think that tells you a lot about one of the most disruptive institutions today. By the way, Amazon also announced that they will partner with Chase on healthcare.

What it tells me is, yes, Amazon thinks there’s money to be made in the financial industry, and there’s money be made in monetizing their huge customer base. Yes, they think there’s there’s a role for them to play in the financial industry. But they don’t want to go near regulation — they don’t want to go near anything that has a dilutive effect on their margin.

How will Amazon stay above the fray, but enter the market? It’s very different from going into healthcare, very different than logistics and web services. I actually think it bodes well for finance and the financial industry. Sears had a credit card. So did Macy’s, and many others. They were all trying to figure out how to monetize their base. What they ended up doing was creating an indirect model for banks. Amazon’s checking model could be similar to the MBNA indirect model.

Syed:
Great point. Maybe that shows us how banks will have to explore different business models — banks as a platform, or banks as a value-added services.

THE BRAVE NEW WORLD OF OPEN BANKING

“…is banking more like a utility?”

Pari:
Spencer, I’d like to hear your thoughts around the Revised Payment Service Directive (PSD2) in Europe. How do you see changes similar to PSD2 affect banking?

Spencer:
How PSD2 is affecting banking relationships is pretty material. I would argue, more so than Amazon. In this model, I see the bank as the custodian of the account, not the owner. As a result, the lifetime value of that account, the profitability, the regulatory risks — all those associated things change. In this model, the consumer looks at their checking account like they do their mobile phone number. Just like a mobile phone number, they can take the account number, and it doesn’t change. This profoundly affects the switching costs, acquisition costs, and retention costs. And it profoundly changes the relationship between the bank and the customer. For example, in the past, all of us have had mobile phone numbers where we couldn’t port our numbers to the new carrier upon exiting the old one. That was a high barrier to attrition. But in the open banking model, since the customer is the true owner of the account, they can give anyone access to it, and they can easily move it anywhere. It changes the relationship the bank has with the customer — and it raises the expectation the customer has of the bank. It raises the value of other banks trying to lure that customer. Then we begin to consider — is banking more like a utility?

Syed:
In the future, if banks end up being like utilities or telecoms, then they’ll become platforms. In that model, what value-added services would banks provide? Or, would there be any? What are some of the products or services that banks could still provide uniquely?

Spencer:
I’ll attempt to answer your question with an example. I think there’s a broker component to a bank — understanding the risk in the identity of a customer — and that’s potentially an Equifax-like model or a sort of trade-line model. The ability to pass a relationship from one bank to the next … maybe there’s a risk premium with that. Sort of like passing a loan from one bank to another bank. Or selling a book, you get a premium when it moves because you’re describing it as “a” paper, “b” paper, “c” paper. After a while, banks get to a place where they see account movement more like trading as opposed to attrition. You could end up getting to a place where the whole movement of checking accounts is more like a stock market. So, that’s one concept.

“Should banks run toward the 1950s classic, or do we run towards 2020 and become technologically advanced? Playing in traffic is the worst possible place to be. Pick one side of the road and go.”

Syed:
That’s pretty cool. That’s akin to a secondary lending market where you package checking accounts, grade them and trade them. Very interesting. We’ve never had anyone say that. A few weeks back, we had a conversation with another Bank Relevant guest who said the old 1950s community banking model needs to be translated into the digital age. At what points of interaction will customers and banks meet?

Spencer:
Funny, I find myself thinking … what’s the difference between classic and old? Old to me is a 1990s automobile, and classic is a 1960s car. You pay a premium to buy the 1960s car; the 1990s car you sell because it’s not working anymore. Similarly, a bank can actually take a counterculture approach, sort of a Republic or something like that, and say, “You know, we’re only going to do five to eight really opulent branches, with high-touch and a country club-ish feel, and you’ll pay a premium for the relationship. You are not trying to be all things to all people. But, you are trying to be everything to a few people.” That benefits the classic model where you get 1950s tight margins. I think a lot of banks are stuck in the 1990s of our car analogy. Should banks run toward the 1950s classic, or do we run towards 2020 and become technologically advanced? Playing in traffic is the worst possible place to be. Pick one side of the road and go.

Syed:
Mind-blowing interview. Thank you very much.


A BIT ABOUT PARI & I

Pari Bose: When Pari is not being a father of two very busy daughters, and trying to get his resting heart rate below sixty, he manages to dabble a bit in digital banking and payments. A resident of the beautiful town of Fair Haven on the New Jersey Shore, Pari draws upon his product management and operations background to take ownership of strategic directions and operations of digital customer experiences for banks and credit unions. Pari is almost always reachable by LinkedIn.

Syed Bukhari: Syed is a former Gartner, PwC, and JPMC executive who advises leaders at top 20 retail banks about experience-led digital transformation and innovation. He’s passionate about consulting and uses all his God-given wit, grit, and personality to make his clients look good and achieve success. When he’s not on a plane or at an airport, he helps his wife with her pet travel startup called SnubStub and reads a lot about child psychology and early education. Connect with him on Linkedin.


Special thanks to the following Friends of Bank Relevant for their support with the editing of this article. Syed and I are grateful for their support:

Jim Averna: A credit union executive and long-time resident of the Pacific Northwest, Jim is currently enjoying life in the South Puget Sound in Washington state with his wife and young daughter. His 25+ years in financial services have been focused on continuously improving the digital branch experience and remote channels service delivery at community banks and credit unions; from the early days of online banking and bill pay, to latest in digital customer experience and remote channel strategy.

Cathy Heckler: Greater Philly area bank-marketing and product management virtuoso, Cathy Heckler remains fascinated by the daily changes in banking and technology and the implications and opportunities that presents to do really interesting work.


Copyright 2018 Syed Bukhari and Pari Bose. All rights reserved.