How Mobile Drives Digital Transformation

- Jim Marous

Welcome to Banking Transformed. Today I'm really fortunate to have a friend on the line that who's been a friend for quite a while and heads up a company that I have a lot of respect for: Tom Hogan.

- Jim Marous

Tom, Welcome. I'm glad you're able to join today. I know you've been very busy and I wanted to touch base a little bit on the importance of the digital channel – something that obviously Kony is is very proficient at. But I was wondering just out of the box here you know what is going on in the industry right now in the digital channels more specifically probably the mobile channel that is different than what's been going on in the past.

- Tom Hogan

Yeah I think that you know the big driver here is you know back in the day and you know turn back the hands of time a decade, a lot of the deployment of technology across industries and in particular in the financial services space, was designed to drive things like efficiency, security, accuracy of information, you know all those different factors that automation and technology – and specifically in banking the core systems – provided. That was where a bulk of the focus was, dating back five or ten years. Then what happened with the whole consumerization of I.T. in the digital era (emerged over the last you know five plus years) and the name of the game from "assets under management" and "capturing and retaining new clients" which are two very important metrics for banks, shifted from efficiency to delivering you know the richest possible digital experience that was relatively seamless across channels that made it easy for customers to open accounts, apply for loans, transfer assets, and bank on their own time and on their own schedule. So the war if you will, the competitive war, now sits totally in the front office. That's where most bank CEOs, CDOs, you know the people that lead the retail banking unit for a bank they're all very focused now on digital as the the weapon to go win that war. So that's sort of the macro shift that's driving a lot of the attention and thinking around digital.

- Jim Marous

So when you talk about the the digital channels the mobile channel being the the weapon of choice in the war for new customers and growth of relationships how well armed are the traditional finances to this today compared to who they're battling against.

- Tom Hogan

Well the challenge there is I think there's a silver lining. I'll tell you the challenge first is everybody understands that's the vector that matters. Unfortunately that includes the call it the top 20 money center banks around the world that have enormous amounts of people and money to go pursue leading edge innovation around digital. So if you're anything but – I mean forget about Tier 1 Tier 2 Tier 3 – if you're anybody but that sort of top 20 you know your immediate reaction is "I'm at a huge disadvantage because I don't have the money and the people to innovate and compete with the JP Morgan's and the Wells and B of A's and the U.S. banks of the world" but So you could argue they're not armed and they're at a disadvantage. But actually a silver lining, Jim, is you know necessity is the mother of all invention. And so because they don't have billions of dollars and tens of thousands of developers they're not only forced to seek other options in the market that bring equal or better solutions with faster time to market from partners like Kony. And I actually believe and we're starting to build enough proof points that for fractions of the dollars and fractions of the people, many of these you know call it Tier-2-and-below financial institutions are able to deliver an equal or better solution. Absent help from somebody like Kony then they are not armed and they don't have the resource or the domain expertise in digital. But the good news is there are options and and a short list of companies like Kony that I think can answer the bell and help them compete and win.

- Jim Marous

And it's interesting because you're right. I mean over the last actually just a short period of time two years probably we've really gone from having to buy the the mobile or digital apps and capabilities from what I call the big players where it is pretty much a you get it as it comes out of the box to highly customized solutions. Do you see the future of mobile being from a banking standpoint being a quantity or quality basis from the standpoint of functionality and the ability to connect with consumers.

- Tom Hogan

Well it's so let me back up. The path for the Tier 2 and Tier 3 banks, historically (and now historically it's short history), you know let's call it from two years ago to say five years ago, has been to buy solutions from the legacy core vendors. And candidly you know there's a DNA in technology.

- Tom Hogan

It's a different DNA. And so the offerings that the big legacy vendors were providing – Yes it was cheap. Yes it was quick. But it was completely insufficient to compete with the bigger banks, which is why when you look at charts that monitor the flow of assets under management over the last decade the big institutions have been winning that war. It's not because they provide the personal touch; it's because of the robust nature of their digital. I think your question was you know is it quality or quantity when it comes to mobile. I think I would argue that you know that they're related but but delivering a a by the way that you know people asked what makes a killer mobile app and banking and I get asked that and by prospects and CEOs looking to start the journey you know the answer may be counterintuitive which is you have to provide a differentiated experience in something I'd call you know call it sizzle (or some other metaphor) but something that's engaging, that when you see that app (again it could be you know in the mobile world on your phone smartphone or even in the Web world), but but a home screen or home page that's inviting, stimulating, engaging, and got some creativity, but the app itself is has ease of navigation. It's in a way it's simple and it's easy for users to adopt and and perform the tasks or chores that they're trying to do. So that combination of differentiated engagement with with ease is is really the key. And so if you deliver that from a quality perspective and you know the quantity I think comes.

- Jim Marous

You know it's interesting because at your event in Austin a few weeks ago, Accelerate, one of the things that was brought up by J.D. Power who actually presented there, was the fact that you know the biggest banks without a doubt have the most functionality. However more is not necessarily better, and organizations on the smaller scale can actually compete you know in the marketplace by providing, as you said, highly engaging functionality of the parts to that consumers want you know. And I think what's interesting and I saw that at the financial brand forum last year is organizations really partnering with each other and having discussed with each other about delivering better solutions to what I'll call the middle market and lower market from an assets standpoint organizations. And it happened in every area and can you talk a little bit about how you're working with not only the core providers but other organizations such as data providers and you know we've had some conversation with Salesforce and other organizations to get a more rounded solution for financial institutions of all sizes.

- Tom Hogan

Yeah. Before I do that so I sort of missed half of your question and you said quality or quantity. I totally agree with you if your point was. Is it better to have quality versus more functionality and solve world hunger and one mobile app. I totally agree with the point. JODIE POWER made. I thought you meant quality quantity was access. Number of people that are adopting the mobile app which I think comes from the simplicity. Yet the level of engagement. So. So just want to underscore I agree with your point and the point that J.D. Power made.

- Tom Hogan

On the second point. Look at what I would say is that you know if you talk to a CEO of a bank, and just have them articulate the breadth and range and moving parts that they need to contemplate. Whether it's their cores, back end, the 360 view of the customer, trying to eventually fold in augmented intelligence to provide intelligent promotions in the whole CRM world. The list goes on and on with KYC, payments, and the whole digital front. I mean it's a very complex giant jigsaw puzzle, and I think it's safe to say that nobody right now delivers an end-to-end, highly integrated, best-in-class answer to everything.

- Tom Hogan

And so I think the key for people that aspire to to be consultative value and partner to banks, is to bring to the game what you've got that's best in class, but also acknowledge – not only acknowledge but proactively work to abstract the complexity for the bank to use your stuff in a modular way and in you know interface with and leverage different pieces, like the ones you've referenced with Core. So in the world of the front office, maintaining an agnostic position as it relates to cores, knowing that there's you know there's five to 10 of them that make up 90 percent of the cores in the world, and you know banks are generally loath to migrate from those cores, because 1) the risk and the cost to migrate and then 2) they're now scratching their heads saying there's no payback for me to migrate my core I'm not winning or losing the war for clients and assets over my [core.] Nobody walks into a bank and says Hey kid can you tell me who your core is. But they all walk into your bank and ask and talk about the experience they just had on your mobile app. And then when they went home and jumped over to their desktop or black laptop to continue the relationship and how hard or how easy that was. And so you know so that's an example of where you know the right strategy is to through an open technologies and API-driven products to bring your best-in-class, but complement and sort of cohabitate with this range of other product segments like cores or vendors like Salesforce.com or you know people on the payment space and so on. So I think that's the trick to adding maximum value.

- Jim Marous

Yeah. And it's interesting you know as we as we look at the marketplace where one of the things that caught my attention in some of my first visits to Kony was that you're not just serving the financial marketplace. You serve other industries as well. What advantage does that give? This would not only be applicable to mobile apps, but what advantage does it provide if a solution provider has experiences outside of banking?

- Tom Hogan

Well I think you know when you talk to when I talk to banks and leaders of banks, as you would expect, most of them are pretty proud of what they do. They believe they have a ton of industry and domain expertise. And you know truth be told you know most of them would would have the view that they wouldn't learn a ton from watching or listening to other banks or their competitors. So for them, the challenge is more "I have a vision. I know what I need to do. And it's now [about] my ability to execute with speed and precision." Conversely there are leading-edge things that are happening in industries like healthcare or retail or energy or travel and transportation and hospitality. You know there's ideation and innovation happening in those industries that may not be obvious things to port to the the banking world. And so I think it's an interesting potential source of advantage. Well you know in the Kony ecosystem where our dominant vertical is clearly banking; it's it's over 50 percent of our business and it's our fastest growing. But we also do business with some of the leading brands in the world across those verticals and the banks it's funny you almost see a higher interest level in sometimes connecting the dots and comparing notes with key leadership from the other industries just to say "hey what are you doing that we might not have thought of in the banking world?" And then maybe I can get a jump on my competition in banking by by hijacking this killer idea that you know as an example you might use a retailer for an in-store experience. Maybe there's some things there that we could port to the in-branch experience if you're a bank. So it's maybe a counterintuitive value add that that brings interesting value.

- Jim Marous

OK. It seems to be evident in our research and what you just discussed that organizations kind of know what they have to do and where they have to go and that experience is probably more important than just being able to do something on a mobile platform or a digital platform. You have a lot of salespeople out on the field right now and a lot of organizations knocking on your door, but as they knock on your door they feel like OK I kind of know what I want and I want to have better than I've got. But what are the challenges that you're seeing in the movement from "geez, I want it" to "I'm going to do it."

- Tom Hogan

Couple of challenges. One is, To your point they sort of have a vision and know what they want to go do. But banks historically aren't aren't a landing spot for digital natives and millennials that that are both tech-savvy and sort of grew up in the in the digital world and so you know one of the challenges just plain old simple. You know people in-house that have the skills you know needed to go to drive that transformation. That I think is probably one of the biggest challenges that they're faced with.

- Tom Hogan

I think the second one is – the way these things typically happen is somebody has this grandiose vision. You sit down and you you know you do blue printing on where you're going to start what you're going to deliver. And then you get halfway or a quarter of the way into a project and the world is changing so fast right now, and the emergence of new ideas and new offerings is so real time, that you're halfway through your project and it's so tempting to say well let's let's delay going live or into production on this for three or four months so that we can go add X, you know the next big thing or the next big feature, and that's a cycle that never ends. And so the trap, that a lot of banks that are in this transformation journey fall into, is never getting out into production with a core MVP that then you can use to get feedback from your customers in the marketplace and prioritize what those next things should be. Which is the right way to do it. You know again one of the sort of pitfalls that is not uncommon is you get into this perpetual process of extending new ideas and then you wake up and you say Gosh it's been twelve 15 months since I started and I was originally hoping I'd get this thing out in the hands of our customers in six months and here we are nine months late... why? And it's typically that scope driven by innovation so it's a bit I think skills and then the constant reaction to evolving technologies and then scope creep that are the two things they point to.

- Jim Marous

You know it's funny you mentioned that because it is a big challenge right now is looking at all these things as conversions that happen in a 3 6 9 12 month period as opposed to the way that most digital companies update their apps which is daily, hourly, weekly, and sometimes you know the bankers can't get out of their own way when it comes to the ability to really think I'm an agile basis. And and as you mentioned taking the steps necessary to move the needle and it doesn't have to be you know completely remodeling the whole house. It can be putting the paint job on the outside or or changing the Cabinetry or changing the flooring. We sometimes overthink the process and really we got to break this into smaller parts. I think a lot of times yeah.

- Tom Hogan

Yeah, In fact you know we had our user conference as you know a couple of weeks ago in Austin and we were had the privilege of having JOHN Jaclaes the CEO at Partners credit union share his experience and he was pretty clever he almost started his presentation by asking everybody to to raise their hand and take an oath of, I think he calls it progress versus perfection, and it really captures the notion in the spirit of what you just said, which is you know don't try to boil the ocean be agile get you know get product out in the market it's not going to be perfect. And even if it was given changes in innovation you're going to want to evolve it in and kind of manage the process with that mentality versus you know as you said banks are very risk averse for all the right reasons given the sensitivity of what they do. And so you know the DNA of a bank from a change-management perspective is different than the formula for success today, which is bite-size, agile progress.

- Jim Marous

Change is difficult as as you all know and especially in the banking world and you know we were creatures of habit as an industry. And I think you know we just have to look at say. You know I remember back in the day when we were just starting with mobile banking the company was trying to decide who they'd partner with. And my recommendation then was just do it. If I go back to the way back to the beginning of the CRM process, I go: "you know a bad decision, or a subpar decision made today, is better than trying to find perfection two years from now because it's going to change tomorrow." All the providers are keeping up with each other. So the reality is you know to different degrees but if you need something is going to come your way if you if you make some of the right decisions early.

- Jim Marous

When you're looking at the future. And I I will not put a timeline on it because we'll be wrong. There's no reason to start you know have a conversation where we're wrong to begin with. But if you're looking at the next big thing with regard to digital apps and mobile banking, what do you see as being not the incremental thing but really what's going to change the way that we engage with digital devices?

- Tom Hogan

Well I think I'd point to two things and one of them you know one of them is I think a direct response to your question, and the other one is as well, but it might be a little bit self-serving. And I'll start with that one, which is that we have digital. Obviously we're a digital company and it's the core of what we do, but we also have a point of view that people still value and appreciate the human touch. And so one of the things that we see leading-edge people doing today – so you know the fast followers are trying to figure out how to digitize and create a modern digital experience. The leaders have already done that and they're now they're in sort of edit mode on the technology but now they're starting to think about how do I maintain that human connection while I leverage the ubiquity and convenience of digital. And we've all heard the loaded question of how many more of you raise your hand to look forward at picking up the phone trying to call (I won't name a big institution) then going into a VRU with 17 options of hit 2, pound tha, and then at the end of the trail, you don't have your answer and you slam the phone down in frustration. And so how you know how do you maintain that human touch while you extend your leadership in digital? And the people that can do that I think will have an enormous advantage going forward.

- Tom Hogan

The second the second category really is is bringing more augmented intelligence into all the things we do. We've made huge progress on ease, but but we're not there yet. We recently were acquired or have plans to be acquired by TEMINOS. And so the amount of financial and paperwork tied to that transaction that I've been doing on a daily basis for hours at a time that is is not intuitive, not user friendly, and I just sit as I go through these processes and a lot of it involves you know wiring of funds and closing stuff and so it's all very Money and Banking centric. We still have a long way to go. So I think that the crystal ball for me would be: continued progress on ease, adding true intelligence to processes on both sides of the equation from the customer and the bank itself, and then how do you protect the human touch so that you don't become this completely digital robot in the sky and can still serve your clients.

- Jim Marous

I almost broke out of laughter when you mentioned about the the difficulty of doing simple things on digital when when you're working especially overseas. I had a situation I was going to pay a contractor I signed up for Transfer Wise said okay. I'm good there. I did everything I'm supposed to do on that end. They say connect us to the bank, I do that. And the bank goes "you need to have some kind of connection that we don't have." Well after peeling back a lot of layers because they didn't really say what the problem was, I found out that the bank had such a risk-averse nature (and this a major top five bank) that they don't connect with companies like transfer wise. And as a result I not only had to go into the branch to do something that was done at a computer almost in a snail's pace. You know the good news is was not paper involved the bad news was the paper was on the computer and at the end of the day what end up happening was I had to make the transfer I had to do it by wire, it cost me three times the amount the transfer wise was going to charge me, and the bank simply goes you know "it's just the way we do things" and that's just not an acceptable answer anymore.

- Jim Marous

And I I continually go you know it's not just because of my knowledge of banking, but I go, "Guys. You're not making sense here." It's the knowledge that almost every consumer has right now, because they go dammit. Amazon doesn't do this to me. Google definitely asked me this you know as you said the ease of of engagement. And you know you also mentioned the whole issue of the human aspect. And you know you alluded to it but you know it's interesting because Kony is a fintech company – a large one but a fintech company. And something that I was indirectly involved in (in some of the discussions about it) you acquired a mobile platform or an app from a traditional bank.

You built or you bought an app that was created by Umpqua that allows organizations to truly bring the human aspect onto the digital device. And I think one thing that was interesting about that acquisition was that, because of the the history of what they were doing they found that geez, it's not like people want to engage by face. As much as you think that's really cool to be able to visually connect with your banker – that's not what they want. And in fact you found that it wasn't even by voice, but by text. BUT it was a real human. Are you seeing some traction on that acquisition and what the whole acquisition round that the human plus digital means?

- Tom Hogan

Yeah. In fact I mean just as recently as yesterday I was in Los Angeles with the CEO of a bank and they were very excited and interested in the whole Kony portfolio and the implications of the TEMINOS acquisition. But he flat out told me, he said "I know I shouldn't say this as the CEO of the bank, but the thing that I am most excited about is this product and ENGAGE" because they're are you know there are three billion dollar credit union where the CEO is connected in the community, and he said "I just can't wait for the day when I meet one of our members or clients at a restaurant or a little league game and they start bragging about how thrilled they are about the combination of that personal touch with the convenience of a chat-based channel that allows them to ask questions or you know gives instructions that do things and in the convenience of chat. So you don't have to drive to a branch you don't have to sit on a phone in a VRU," you just log into the app and you know you do what you need to do or ask your question. And the difference – and everybody gets confused and thinks so what's the difference between that and a virtual assistant? And the answer is that those clients get to pick – literally – the person that's their virtual banker, based on a profile, and that person is always the person that receives that text message. So you get a chance to build a relationship of trust and knowledge over years. But access that person and and transact with that person via the convenience of a chat-based channel. And so the interest levels, Jim, are [great.] Because they get it. I mean bank CEOs know that, in addition to the convenience and all the cool things about digital, service still matters. And I would say most banks still take pride and take a position that they want to differentiate themselves on service. And so I think this is going to be a big deal.

- Jim Marous

Well we've pretty much run out of time here but I'll tell ya, Tom, it's always great to talk to you. I was going to say it seems like just a couple weeks ago we had a long conversation and we did know beers. No beers involved this time but I will tell you you know I think there's some exciting things on the horizon not only for Kony and TEMINALS but in the mobile and digital banking space overall. I think that as we look forward and we look at the differentiators in banking in the future, it's going to be what we can do on the digital device. It probably, as you mentioned, is going to include a human aspect. It's going to include voice. Its going to include A.I. It's going to probably move from a "ask a question" and it gives you answer to it promtps you based on where you are, what you're doing, and what you're going to be doing, based on history. And that level of experience, that level engagement, really is important but it is also important for the organizations that are out there to start embracing this change now, because as much as they may want to remodel a branch or build a new branch, I'd rather see that money allocated towards a better digital experience. And obviously given your history and your background you probably would too.

- Tom Hogan

Completely agree.

- Jim Marous

Hey Tom thank you so much for being on today and I appreciate you taking time out of your busy day but you take care.

- Tom Hogan

Jim I appreciate the opportunity to visit with you with you given your thought leadership and following in the industry it's a great opportunity for us so hopefully the folks that participate in the podcast will get value out of it. And we. We appreciate the opportunity to partner with you.