Banking Differentiation Through Relentless Innovation

Jim Marous:
Hello, and welcome to Banking Transformed, I'm your host, Jim Marous. Owner and CEO of the Digital Bank Report and Co-publisher of the Financial Brand. As the competitive marketplace and financial services expands and diversifies globally, it is more critical than ever for organizations to drive innovation and to differentiate themselves. But innovation differentiation requires an openness to change, a high level of engagement from all levels, and the use of data, applied analytics, new technologies, and skillsets that many banks and credit unions lack.

Jim Marous:
We are fortunate to have Jason Henrichs and JP Nicols on the show today. They are co-founders of FinTech Forges and the Alloy Labs Alliance. We'll discuss how innovation is not just the next big thing, but creating value across the entire customer journey. As it says on the FinTech Forbes website, balancing the pressure of innovating in a highly regulated environment while responding to the rapid changes in the dynamic FinTech landscape is hard, but it's not impossible. In fact, innovated at digital speed and the scalable manager has been made easier than ever thanks to the existence of exceptional solution providers like FinTech Forge and the Alloy Labs Alliance.

Jim Marous:
As I mentioned, I'm so happy to finally have my good friends, Jason Henrichs, and JP Nicols on the show. Their organizations, FinTech Forge and the Alloy Labs Alliance, help organizations of all sizes build innovation processes that work. So before we get started, could each of you share a little bit about yourselves and your organizations for those people listening who may not be aware of who you are and maybe not aware of your organization.

Jason Henrichs:
Thanks, Jim. Really excited to finally be here. I started to get a little offended, honestly. I'm like, "Jim doesn't think that I do good enough content to be on his show." Thanks for finally breaking down and letting us be here.

Jim Marous:
Oh, it's not a matter of breaking down, it's completely omission by stupidity on my part. So I'm really glad to-

Jason Henrichs:
No, no.

Jim Marous:
... finally get you both in the same place.

Jason Henrichs:
A little bit of our founding history, so JP and I got to know each other when he was at this little bank called... What was it again, JP, that little bank you worked at?

JP Nicols:
Oh, U.S. Bank.

Jason Henrichs:
Yeah, that little one, not at all known for being innovative, and I was running, at the time, one of the first challenger banks in the country called PerkStreet Financial. Before that I had headed strategic implementation today. That was something more like innovation when I was at First Marblehead. I did have some corporate roots before getting into the startup land. But when we came together in a post U.S. Bank, post PerkStreet world, we looked at the landscape because we were getting calls from all these banks from as small as 200 million up to our largest is one of the biggest banks in the world, and they all had the same problem or thought they had the same problem.

Jason Henrichs:
Which is, "Hey, can you help us with our innovation strategy or digital transformation?" Used almost interchangeably. Our realization was they didn't need a better strategy, they needed a new way to execute. Maybe JP had... let me pass the baton to you as with FinTech Forge, that's where you spend day in, day out. Your day is helping banks pick up the pace.

JP Nicols:
Yeah, and just to pick up on the bio, much like Jim, I started my banking career in Cleveland with the old AmeriTrust, the old Cleveland Trust Company and was acquired in 1992 by what was a little bank, at that time, Star Bank. We grew that from six to 400 billion, changed our name twice to become U.S. Bank. That's where I really started to understand how the world was aging and how FinTech was really changing the landscape beneath our feet. So I was lucky enough to be a part of a small team that we really started to think about innovation and I can take no credit for any of the cool things that U.S. Bank has done in the innovation front. Most of that's happened outside of my responsibility and after I left.

JP Nicols:
Dominic Venturo and others have done great work there, but I do credit Richard Davis when he became CEO in 2007, he said, "Look, there's a lot of great things you'd say about U.S. Bank, but being innovative isn't one of them and we need to change that." I'm worried, frankly, that we have a lot of banks who, especially over the last year and a half with COVID, they've digitized existing processes and they think they've taken the hill already, "Yep, we did innovations. We can check that off and get back to the normal thing." I know we'll come back and talk more about that.

JP Nicols:
But I'll just say now in short fashion and an introduction to what we can talk about later is that our industry has developed a lot of really good managers and not enough good leaders. As Peter Drucker likes to say, management is doing things right but leadership is doing the right things. As the world becomes more complex and more disrupted, it's harder to figure out what those right things really are.

Jim Marous:
It's interesting, I also, when people ask me, in the US, what do you think is one of the best or some of the best innovation companies as far as financial institutions? And U.S. Bank is one of the first ones that come to mind, and it startles because they don't really know that. I said, "You got to understand that it's a cultural thing." It happens throughout the whole organization, not in the flash and dance type way, but in an ongoing innovation iteration perspective.

Jim Marous:
It's no secret that one of the biggest challenges in the banking industry is actually having this legacy leadership embrace change and support the innovation process outside of the innovation lab and into the streets. Jason, you've been passionate about this forever and you have a few great quotes and things you've said over the years. But how do you accomplish this for your clients with regard to actually having them get off stuck?

Jason Henrichs:
Yeah, the problem with many banks, when we approach innovation, we treat it like a core conversion. Which I've survived several of them, will never do again which is why I advise, and steward innovation with banks. Don't actually work for a bank anymore because there's the risk I'd have to do another a conversion. But in a core conversion, you can predict with pretty high fidelity in week 32 on Tuesday, maybe Wednesday, "We're going to do the following thing." If you're doing something entirely new, you're not going to be sure what that future state is going to look like. If you spend too much time trying to think through the plan and what the end state is, you're doing one or two things.

Jason Henrichs:
You're either not doing something that's interesting and new because it's highly predictable, or you're creating a plan that you're going to stick to and you're going to ignore all of the learnings you have along the way. Lao Tzu has a great quote that, "The journey of a thousand miles begins with a single footstep," is you don't become innovative by thinking about innovation. You become innovative by starting to act innovative. The cultural change is one of taking action, not about "Oh, we need to change our culture and then we can actually go innovate."

Jim Marous:
It's interesting, JP, I recently had Eric Fulwiler from Rival, previously from 11:FS, and actually from VaynerMedia on this show. And we discussed the need to be fast and not necessarily perfect, and to learn from everything. How is this accomplished in an industry that is so focused on risk avoidance?

JP Nicols:
Yeah, Jim, I know you've heard me say this all lot before, but a lot of banks tell us that they're a fast follower, and to which we often respond, "Well, you're half right. There's nothing fast about what you're doing, but you're definitely a follower." One of our member banks at the Alloy Labs Alliance, and I know Jason wants to talk more about that in a minute, but Quontic Bank from New York. They have a phrase that we like a lot. They really emphasize progress not perfection, and this gets us back to where we were talking about in my history at U.S. Bank. What we found, and the research around this industry and other industry support this, is that the most innovative organizations have both top down and bottom up.

JP Nicols:
You need the top down to give permission to try things that we don't know what it's going to look like. That's one of the things about risk management is we like to do things that others have done. Most banks don't want to be out on the bleeding edge and that's okay. But when you're trying something new, like Jason was just saying, it's not the same as doing a core conversion where you know what all the steps are. It really takes courage and leadership and be able to say, "Well, we're going to explore here." So being able to give permission to favor or progress over perfection is really important. Well, the bottom up is also important because those are the people that are close to the customer, they're close to the product, they're close to the problems that are trying to be solved by the product.

JP Nicols:
You really have to have both to make it happen. But if you had to choose one, I'd start with starting at the top and the organizations have to really understand what it means to be innovative. That means taking some reasonable amounts of risk. We always like to say we think of innovation like weight loss, right? Weight loss is simple, you just need to move more and eat less, but it's not easy. Innovation is simple, you need to try a whole bunch of things as quickly and cheaply as possible. Stop doing the ones that don't work and double down on the ones that do, but it's not easy either. You really just need to give permission to test and learn, and if you do it as quickly and cheaply as possible, it should be okay if it doesn't work.

Jason Henrichs:
One of those things at the top, JP, that I think is so important is most CEOs did not get there without having this polish and veneer of perfection. Like it's very rare that you would hear a CEO talking about all the mistakes they made along the way in their rise to the corner office. That, unfortunately, trickles down through the organization. So at the top, part of the cultural change needs to be we need to distinguish between learning and failure because we will do some things that don't work. Actually, if it was a good idea to pursue and it was a well thought out plan and it was well executed and no one got hurt along the way, and we stopped doing it.

Jason Henrichs:
That's not a failure, that's actually success. That's not how if you look at most board books and how they're being measured, very few of those organizations say, "Hey, what things did we stop doing because we realized they weren't working?" You want to see on time, on budget, and what the ROI is? Some of our most innovative banks within the Alliance, their boards have actually, after some of the work do with them, that's actually a significant part of the conversation in the boardroom now. Which is what did we learn and what did we stop doing? Because if everything we did worked perfectly, we didn't do anything interesting.

Jim Marous:
Well, it's interesting, it starts at the very beginning or the very, what I call, lowest. I don't mean that by level of the organization, part of the organization. I was a teller when I started the banking business, and as a teller, you won't get fired if you don't give great customer service. You will get fired if you don't balance your window at the end of the day. JP, I think you started in the branch as well, but I'll tell you, there was more than a few times that I put five cents into the cash drawer so I could get out of the office. That's that whole perfect versus close to perfect mentality. But it's interesting also, everything that we're talking about really gets down to the legacy mindset.

Jim Marous:
Financial institutions are making money today, so it's well hard for the leaders to think differently. But you see it in every size organization thinks it just makes you scratch your head. Most recently, and I've mentioned this on a recent podcast, was about a week and a half, two weeks ago, a major, as in top five financial institution announced that they were going to be coming out with a brand new customer mobile app that's going to be better than ever before and that had been working on it for a year. Both parts of that blew me away. Number one, why do you announce something that isn't out there yet? And secondly, if you've been working on it for a year, I'll guarantee you that at least six months of that is already outdated in a real world.

Jim Marous:
On the other hand, when I went to Shenzhen, China in the beginning of 2020, I went to see WeBank Bank, and boy oh boy, WeBank was interesting running four parallel cloud platforms to do innovation. They're running around 1000 iterations and innovations a month. And new ideas go from ideation to implementation in 10 to 11 days. JP, how do you get an innovation mindset embraced when you're so encumbered by legacy products and legacy processes that really slow everything down?

JP Nicols:
Well, yeah, and add to that, on top of what Jason said, think about most senior executives at some point came through a lending role in their history and being right 99.9 or 99 point something percent of the time is the right level of errors in the lending business. There are times where Six Sigma makes sense. You want your network uptime, you want your audit committee and you want your loan book to be highly, highly accurate. But innovation is about what we like to call one Sigma thinking, "There's a 60% chance this is probably the right thing. Let's go ahead and make that decision." It's difficult to do that, but the leaders have to give that permission to do that.

JP Nicols:
I think one of the other things is being honest about where you are today and how innovative you are. We have a simple self-assessment. We work with banks on assessing where they are in terms of their innovation maturity. Where most of them overestimate their own level of innovation, but almost all of them agree they need to get better at speed, they need to get better at having data to drive the decisions, and they need to get better at being experimental. It's one of those things where you just have to do it. You just have to say, "We're going to run some experiments and we can't game plan our way to what this experiment might look like." We actually have to run it in the real world.

Jim Marous:
So isn't this what Alloy Labs Alliance was all built around, was the ability to test. Even, more importantly, for small organizations to learn from each other to test new things to continually iterate. What is the mission of this group of organizations and how well has it played out? Jason, I'm going to start with you on that one.

Jason Henrichs:
Yeah, so one of our realizations in the journey of FinTech Forge, and the reason we have two different brands will become apparent in a second. Because FinTech Forge is where we work one on one with an institution to create this innovation capacity. We realized that you're just never going to compete with Chime raising 200 million every other week. It seems like in the heart of Silicon Valley and the companies they can acquire. You're not going to compete with JPMorgan Chase. You might even be a top 25 bank and unless you've gotten your resources highly aligned, how are you going to compete with a Chase in a city and be of it like the things they're doing.

Jason Henrichs:
The aha for us was, "Well, there are some models for this." There's some great collaborations out there like peer working groups and QSOs, and the credit union space, but it wasn't solving the fundamental issue, which was how do I actually do more faster? You're not going to be able to go get a whole bunch of new resources. Chris Nichols from SouthState Bank, one of our founders, said, "I couldn't go to the board and say I need tens of millions more every single year. I'm still not going to keep up with that, by the way, so we needed to innovate on how we innovate." That's what Alloy Labs is about. The mission really is around how do we most efficiently keep up in the digital arms race while more effectively finding ways to go differentiate.

Jim Marous:
So how many organizations are in the Alloy Labs Alliance?

Jason Henrichs:
Well, we've gotten a little more exclusive because we've realized this is not a membership organization where by showing up that's sufficient, or you just get something for paying your dues. If you don't show up intending to do work, you're not going to get much benefit out of it. We've really upped the screen on that. We're north of 50, approaching 60 banks doing it, and I would say they come in two flavors. Those who have already reached, another Chris Nicholism, they've already reached their critical velocity, they're not going to go any faster. They're going as fast as they can with what they have. The second flavor, those who are doing it and they're running around the track and realizing, "Oh, man, I need a super booster. Like this just isn't going to work on my own. I can't accelerate fast enough on my own."

Jason Henrichs:
But I would say the common denominator is we, and would not have known this when we started, we skew towards the more innovative banks. I guess almost by definition, like you know one of my favorite phrases is the Fintech Petting Zoo or talking about innovation theater. These things that make us feel innovative like, "I went to Finnovative and I'm so proud of myself. I collected a bunch of cards. We did a follow-up meeting." No intention really of finding a way to partner, and that's fine for some banks. They feel like they've checked the innovation box and they're ready to move on. Our banks are the ones who are digging in deep on things.

Jim Marous:
It's interesting, as you've mentioned, you have already solved by the membership group that these people already have the leadership issue and the culture issue figured out, at least to a pretty good degree. They wouldn't be involved, they wouldn't be actually putting resources and doing things if they weren't. But, more importantly, you're really giving the ability for scalability. For the ability to actually vet different partners to say, "Here are some things you may want to try." You're able to have these smaller financial institutions act as one, and you've already checked off a lot of boxes that they don't have to check off again. You're able to bring to scalability to this. JP, from your perspective, what are your one or two favorite case studies you've had with the Alliance that has really moved the needle from where they were to where they are today?

JP Nicols:
I'll actually let Jason give you a couple from the Alliance as a group. As he said, I tend to work more with the banks individually, and I'll give you a couple from that. One of my favorites was one of our member banks was really working through, "Hey, we have done digital account opening and we're pretty happy with that. We need to reinvent branch account opening right now." They had a whole team and they're looking at a different set of technologies, a different budget and a whole different process. By going through our process, we call FIRE, Fast, Iterative, Responsive Experiments, one of the things that they realized through this was, "Well, wait a minute, why are we going through this as a completely separate process?"

JP Nicols:
In fact, one of the things that they applied as a principle in setting up their digital account opening was, "We don't want to just digitize a brick and mortar pen and paper design process." But they said the other way actually might make a lot of sense, "So why don't we buy a handful of iPads, work with the software we already have that's consumer facing and figure out what would we need to do to change that for the cases where we have in branch opening." They ended up knocking two and a half million dollars off of their budget because they really didn't need all that new software and all the new process around that. By them thinking through, "Look, what problem are we actually trying to solve and for whom?" They were able to create up some resources.

JP Nicols:
And they're really excited because they have gone on to set up multiple FIRE teams to be able to address different issues beyond that. One of the other banks similar situation with that, in their case, they were looking to write a seven and a half million dollar check. And they had spent a lot of time figuring out the technical feasibility, "Will tab a fit into slot B? Yes, it will." They spent a million dollars and a year figuring that out. When we got involved, we ask a really simple question, "Well, what are you actually trying to accomplish here and for whom?" We realized they really hadn't done any feasibility testing. Jim, it made me think of what you just said about spending a year on a mobile app. I sure hope they were talking to customers along the way because this bank wasn't.

JP Nicols:
What they ended up finding out by going out and testing with the customer, and I'll give you the shorthand version, but the CIO had all the buzzwords. It was real time, omnichannel, in the cloud, best in class, recommendation engine, blah, blah, blah, blockchain, AI, something. What they found out was the customers were really happy that they were thinking about them and suggesting best next product, but it didn't have to be real time, omnichannel, in the cloud. So there were a whole bunch of capabilities that people were chasing because it felt like that something others needed to do or others were doing, and therefore, they needed to do. They actually realized, "No, once we're clear about what we're trying to do, there's actually lots of ways to get there."

Jim Marous:
It's interesting, that whole concept of the movement from the digital to the end branch, and we're seeing this also in research we're doing, is a lot of organizations have completely eliminated the building for the online. They're basically taking the mobile and making it online. But, as you said, there's some organization now that said, "You know what, rather than trying to rebuild our in branch, we're just going to cut out that whole process and almost make the branch manager like as if they're a customer opening account for themselves but now doing it for customers."

Jim Marous:
And it streamlined so much. Plus it put your mindset in saying, "If we can fix it for digital, it makes all the processes easier." Jason, I know you need to leave us because of another commitment but before you go, what is the single most important recommendation that you have for banks and credit unions that want to move to innovation process forward in 2022? In the same sense, where should they start?

Jason Henrichs:
One is get started, you just can't afford to wait, and the second piece of that I would say is get out of this incrementalism view of what do I do today and work backwards from what do my customers need from me tomorrow? Let me give an example of that. From Alloy Labs, we spend a lot of time talking about skating to where the puck is going to be and what does that mean? In a world where it's just moving so much faster in terms of Amazon and Google and Walmart don't think of themselves as becoming banks, but they are providing financial services because they're going out to do these other things. So we need to rethink what is it we do. We talk a lot about this concept we call the edge of money.

Jason Henrichs:
As banks, we're used to being at the center of money. Deposits coming in, the payments going out, the loans going out. For our customers, those are a means to an end. Like it's about being at that edge where the money meets their life and their broader goal. I don't wake up in the morning and go, "I need a new mortgage. Why? Because going through the mortgage application process sounds like a lot of fun." It's, "No, I'm having a baby, I'm moving to a new town, I'm buying my first house. I'm retiring and empty nesting, buying a second house because I've been successful." That mortgage means something broader. From that landscape and being customer driven, one of the things that we do as banks is we run a reverse accelerator called the Concept Lab.

Jason Henrichs:
It's an accelerator like you would find with ICBAs or Y Combinator or Techstars. They solve their problems in the right way. Ours is about how do we accelerate in the bank the adoption of new technologies and new services that aren't necessarily related to banking, right? They're not the bank tech companies or even necessarily a FinTech company. So a great example I'll leave you with, two of our banks, the Cooperative Bank up in Boston and Citizens in Northern up in Pennsylvania, after going through the Concept Lab, have partnered with a startup called Careful out of New York city. What Careful does is they help adult children plan and manage the healthcare expense for their aging parents. Now we found them because we start with the Concept Lab, we're strategic first in our partnerships and in the investment fund we have.

Jason Henrichs:
Which means we start with the bank saying, "What problem statements would we generate?" Then we go to the top tier VCs and we say, "Hey, who's got a solution that could solve a problem that looks like this?" And aging parents was one of our problem statements. One of their VC's like, "Well, they haven't really talked about partnering with banks, but guess what, community banks have a lot of old customers." They're like, "Okay, we'll give this Concept Lab thing a try." And sure enough, we found out a business model and a use case that works for both of them. For the banks that participated, it was a big step into the unknown. They're like, "We don't do things like this." But that's how we reinvent banking is we got deeper into the customer lives and what their needs are.

Jim Marous:
It's interesting, maybe one of the places we're going to see the most change in the next five years is the whole revenue model of banking. Just this week Capital One has decided to eliminate overdraft fees. Well, that revenue's got to be picked up somewhere and open banking provides the opportunity to look outside of banking to organizations that want the customers that we already have and be able to contact them with offers that they'll actually pay for that capability. Jason, thank you very much for your time today and I'm going to continue with JP. But we still have JP on the show discuss a bit about his perspective on innovation as we enter 2022.

Jim Marous:
JP, it's interesting, we look at a lot of these dynamics that are going on in the industry right now. We look at new revenue models. We're looking at the importance of speed. We're looking at, most importantly, the ability to succeed using partners. As we look at 2022, my belief is that the ability to partner with organizations such as yours gives you the advantage of not only speed of movement and moving forward at scale. But you really are alleviated with the challenge that I'm seeing across the industry that I'm having difficult time with whatever today is. In other words, because change is happening so fast, just keeping up with today is difficult. But you're really providing organization the ability to move forward with your partnership, correct?

JP Nicols:
Yeah, Alloy Labs Alliance is completely member driven. There are no FinTechs or any other third parties can pay to play or influence favor. It's really all about giving the banks an ability to share resources, share the cost, share the risk, and maybe most importantly share the learnings. Everything we do is member driven. It's really up to the members to decide what they want to work on. Then we provide that external perspective that really helps them. Within the Alliance, we've got, I think, eight now centers of excellence around different topics of things that the members decide they want to work on. Everything from strategy and business model, the cybersecurity, the banking as a service, to RPA and AI.

JP Nicols:
All different kinds of topics. But what we're focused on in the centers of excellence is not just a discussion group, what kinds of outcomes can we create as a group and how can we work together to create those? It's when you think about our industry, Jim, you know this as well as I, we look 95% the same as every other bank, we sell 95% the same products and services backed by 95% of the same policies and procedures. And really figuring out so for those things that we're doing, how can we get the efficiencies and the economies of scale around those things? Then where can we make the difference in that other 5%, right? That's the edge of money that Jason was talking about. I think that's really what the future looks like.

JP Nicols:
You and I both came up in the '80s and '90s and 2000s in the banking industry where everybody was executing the same business model as everyone else. Those that won did it just a little bit better, created a little bit more margin and were able to buy the less efficient competitors. Everybody knows the blockbuster story and it's old and worn out by now, but I think it's still actually useful because that was the blockbuster model. So Netflix didn't beat them at their own game, they changed the game and that's what's happening with FinTech now.

JP Nicols:
The banks that are winning are those that are able to be efficient, and because you still have to defend and extend the core business. So how do you do that as efficiently as possible? But, at the same time, look for opportunities to create options for the future and be able to explore things like the partnership with Careful, Jason described, and we have some other partnerships that we've done. What we're looking for is not just the companies that are replumbing banking, but those that are reinventing banking.

Jim Marous:
It's interesting because I wrote an article today and I referenced the fact that most banks are still taxis in an Uber world. Unfortunately, when we see the difference to be so great, we sometimes get focused on the next big thing. I know you're a proponent of continuous incremental innovation, or basically to put another way, to have relentless innovation. How do organizations change that mindset of saying, "Innovation's got to be a big thing." How do the put it across the entire organization to say, "What we've got to look for is that ongoing incremental innovation."

JP Nicols:
I'll start with maybe one thing not to do that we see a lot, and that is don't delegate this to your IT team. Because technology is so important and most, many at least, banking leaders, aren't really all that fluent with the technology. It's easy to try to delegate this. But most of the technology teams really aren't ready for that either. They've got a full-time job already with five nines uptime and network security and all of that sort of thing. This really is about leadership and strategy and understanding what to do. One of the banks I worked with hired a pretty expensive consultant to give them a banking roadmap, a digital roadmap, they called it. They said, "Okay, we've got our digital roadmap. Can you help us execute this?" They showed it to me, and it was essentially a shopping list.

JP Nicols:
It was a bunch of check marks, "Here are your biggest competitors. Here's all the features in digital and mobile banking that your competitors have and here where you have no check mark next to their check mark, you should go do that." I really challenged that and said, "Really? Because what this is, is a roadmap to complete parody with a competitor that's about 100 times bigger than you are and is are you sure that's what you want to do?" So being able to take a step back and think about what are the areas that we always talk about it in terms of playing defense versus playing offense. If there's some things that you don't have today that you need to have, but they're mainstream, at least amongst the biggest banks, then that's really a defensive strategy.

JP Nicols:
Go do it, but don't convince yourself you're going to win the game just by doing that. On the other hand, look for those opportunities where you can play offense. The biggest risk here is letting off the gas before you get across the finish line. How do you find those opportunities to really make a difference? Then you ask about so what do you do internally as leadership? I'll go back to our mantra, we just call it FIRE, Fast, Iterative, Responsive Experiments. If you are creating options for yourself for the future and you're looking at the edge of money for places where you can play offense and you maybe don't know what it looks like, instead of waiting for the market to define it for you, go out and test and learn and get out there and try some things and figure out what works. Like I said, if you do it as quickly and as cheaply as possible, it's not failure, as Jason said, it's learning.

Jim Marous:
If I'm hearing this correctly, what we're really talking about is the need to have speed and agility and flexibility. Not only in the innovation process, but in the solutions that you're trying to bring to the marketplace. Because if I'm not mistaken, right now the best innovations sometimes are being able to do it at digital speed. Does this provide a bit of an advantage to smaller firms that may not have the funds to completely revamp their core? But the ability to be responsive to marketplace and to make those incremental improvements on speed? Is this an advantage that smaller firms may have in the marketplace?

JP Nicols:
Well, I'm going to say yes and no, Jim, because I think if it were a binary choice and you ask most managers, "Would you rather have scale or not have scale?" You'd rather have scale. If you have scale and you've got a big organization, yes, you have some hurdles around legacy thinking and behaviors and technologies that are harder to overcome. But you can create anti-scale intimacy, whatever you want to call it, you can create small groups inside your company to go get that. You can't create scale if you don't have scale. But that being said, I think the shorter answer on that is, yeah, it is an opportunity because the chance to really differentiate yourself, find those spots to play offense on the edge of money are really unique.

JP Nicols:
We look at community banks in this country and they've been an important part of the fabric of society and the financial network that we have. But the primary differentiating factor for decades was location, and having a physical location of X number of contiguous counties was a moat at one point in time. It's obvious that is no longer a moat to the business. How can you redefine community? How can you redefine your customers? One of our members, we love telling the story of TAB Bank, you probably know the team there out in Utah. TAB stands for Transportation Alliance Bank. They like to call themselves... they were mobile banking before there was such a thing because their initial customers were truck drivers.

JP Nicols:
They were all owned by a family that owned a chain of truck stops and they solved a very specific need, which was drivers get from point A to point B. They've dropped off their load, now they have an empty truck and they need to fuel it up and get it home, and all they have is a bill of lading. They put fax machines in the truck stops, created a little factoring company and a prepaid fuel card. From there, they added ATMs and some other services and build on that. They have customers today in 50 states, so they were really able to use that narrow focus and small customer base to really narrow down. If I go back to what I said a few minutes ago, if we're all still 95% of the same, if we do this right, we're all only going to be maybe 80% the same.

JP Nicols:
Yeah, we're a bank and we have a balance sheet and we have loans and deposits, but we're going to have banks that are really focused on different customer subsets and different markets and niches. And I think the ones that are winning today are already doing that, and I think those that don't do that will just be a part of that continued consolidation that we're seeing.

Jim Marous:
I asked this with Jason before he had to leave, what key recommendations do you give banks and credit unions of all sizes as they enter 2022 and where should these organizations start?

JP Nicols:
Maybe the best place to start is where we start both in the boardroom and in the classroom where we teach at some of the leading graduate schools of banking. Let's start by defining innovation, and in our mind, innovation is implementing new ideas that create value. Now, most everybody gets the new ideas part, but A, they've got to be implemented. Having a good idea is worthless, you need to implement it. And understanding how and where you're going to create the value is the part that really is the unique thing for everybody. While a lot of organizations are really trying to reduce operating costs and get the efficiency ratio down right now, that's fine, and you can innovate around that.

JP Nicols:
But you can also innovate in ways that don't involve technology. One of our banks said one of the things they were most proud of, they said, "Well, we feel embarrassed about this, but if we're honest, one of the best things we did in the pandemic was cut a mail slot into the doors. It was a 1930 solution, but they had customers who couldn't come into the bank and make deposits. They cut a mail slot in and were able to process those. But that's innovation, they understood the problem that they were trying to solve. I think embracing that throughout the organization, and like I said, not delegating that to IT, it really needs to happen all over the organization.

JP Nicols:
Then understanding where you're trying to take the organization, even if you don't understand what the final destination looks like. Lewis Carroll like to say, "If you don't know where you're going, any road will get you there." But trying to understand, at least, look, if these are our customers and this is where we're trying to go. Then let's pursue those opportunities. Let's innovate around that. Let's put that in our strategic plan. We always like to say the problem with most strategic plans is they're neither strategic nor plans. They're a collection of tasks that they feel they need to get done, and then many times that's driven by that parody checklist that we talked about a few minutes ago. So really understanding where you can make a difference and just doing the reps. Get out there and try some things, and if it doesn't work, try the next thing.

Jim Marous:
Simon Sinek said quite a while ago, but it's probably more important now than ever, is every company much start with their why. Figure out what you're going to do and what you want to be. As you said, you can build brand new segments or double down on segments that perform really well for you. Which allows you also the opportunity, as we get into an open banking environment, to find partners that also want to reach these same companies, completely changing revenue models. JP, I can't tell you how much I appreciate you being on this show. We have known each other for a lot of years in many different ways.

Jim Marous:
We realized we followed parallel paths at different points in our career, both myself and you, and my wife and you in certain ways. It's important, as I say, in every single podcast I have, more than ever, it is important for financial institutions to partner with those organizations that can give you speed, agility and flexibility while getting through the destination fast and you can get there on yourselves. With that in mind, how do people reach you and Jason if they want to discuss how FinTech Forge and the Alloy Labs Alliance can help them in the innovation process?

JP Nicols:
Oh, great. Thanks, Jim. Yeah, it's funny I was laughing as you were saying that, we have known each other a long time and none of that was the times we actually lived in the same city.

Jim Marous:
Exactly.

JP Nicols:
Which was even longer than the time we've known each other.

Jim Marous:
Yeah.

JP Nicols:
We're both pretty active on social media, but alloylabs.com. It's [email protected] and [email protected]. It's pretty easy to find us. But, yeah, if you're interested in this, you want to talk more about it, we put a fair amount out on our blog and we talk about these things. Like I said, we teach at a lot of the graduate schools of banking so we're happy to talk with folks, whether it's about their bank individually or how they can benefit from partnering with others through the Alloy Labs Alliance.

Jim Marous:
It's interesting, JP, I've known both you for a long time, and anybody who's listening, if you want the starting point, if you want to just pick up the phone and talk to somebody, these are the people to do it. Because more than anything else, more than the business they're in, they have a passion to help. This is how the whole organization got started in the beginning, it is what they're doing with Alloy Labs Alliance, it's what they do with FinTech Forge. But most importantly, it's the passion for serving others that makes them special in the marketplace, and I cannot say enough how much following JP and following Jason on Twitter, on LinkedIn, on Facebook, all the different channels. But also reading what they write gives you a great headstart in the marketplace. Thank you so much JP, and certainly pass on my thanks to Jason as well.

JP Nicols:
Will do. Thanks for the kind words.

Jim Marous:
Thanks for listening to Banking Transform, the winner of two Communicator Awards for Podcast Excellence. We appreciate the support you have provided and hope you continue to follow Banking Transform on your favorite podcast app. In addition, if you can take a little time to show some love in the former review, we'd really appreciate it. Finally, be sure to catch my recent articles on the financial brand and check out the amazing research we're doing for the digital bank report.

Jim Marous:
This has been the production of Evergreen Podcasts. A special thank you to our producer, Leah Longbrake, audio engineer, Sean Rule Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous. Until next time remember the secret of change is to focus all your energy, not on fighting the old, but on building the new.