Retail Banking Trends to Watch in 2022

Jim Marous:
Hello, and welcome to Banking Transformed. I'm your host, Jim Marous, owner and CEO of the Digital Banking Report, and co-publisher The Financial Brand. The pandemic represented a tipping point for financial institutions, forcing them to accelerate digital transformation, rethink business models, and illustrate a level of empathy for employees, customers, and communities that had been ignored in the past. The speed of change has never been this fast and will never this slow again. Innovation has taken center stage with an imperative for enhanced customer experiences, driven by automation and technology.

Jim Marous:
We are fortunate to have Michael Abbott, senior managing director and global banking lead for Accenture on the show. He will discuss the top banking trends for 2022 and share ways organizations must become future ready. As we've mentioned in Accenture's 2022 banking trend report, the pandemic forced financial institutions to immediately move from a reaction to a proactive mode and to question many long held assumptions about their customers, their employees, and their purpose. Speed and digital banking transformation was redefined as organizations reimagined banking from a blank slate.

Jim Marous:
The question becomes, how does a bank, credit union, or fintech firm become future ready? As I mentioned, we are fortunate to have Michael Abbott, senior managing director and global banking lead for Accenture on the show today to discuss some of the key trends Accenture's season 2022 and beyond. So welcome to the show Michael. As you and your team were developing this year's trends report, how many of the trends for the upcoming year were really a result of the pandemic and is the most significant... What is the most significant tipping point we will be seen in banking?

Michael Abbott:
Yeah. Jim, great question. I would say probably the majority of the trends are a result of the pandemic. And when you look at it, you had mentioned your opening there is that if you look back three years ago and you asked yourself, "Is there going to be a day when I'm thinking about I can eliminate my call center, I can have people taking phone calls anywhere in this country, any time of the day or hour via a cloud-based application, and I'm going to accomplish all that in a matter of a few weeks. I think all of us would've agreed, there's no way, three years ago, as a banking executive, that you would've said that, but today, I don't know if any bank that's not doing something or thinking about it that way.

Michael Abbott:
So when you look through all these trends and whether it's the digital brain and a caring heart and saying, "How do we take what we've done in branches for 50 years, and put it back in the digital, and put humanity back into it?" Almost every one of these trends are a result of just the sea of change that we've seen going through COVID, and frankly, to a great extent, what bankers have learned that they can do, that they never knew they could do.

Jim Marous:
Yeah. You bring up a good point there, that there's no way for any bank today to say, "We can't do it." Because my example is PPP loans. If you had said that the government was going to drop something on the bank's desk on a Friday and say that you can start offering it on Monday and where the majority of small banks were up and running on Monday with PPP loans, where, as you mentioned, all the employees were in remote, they had never developed a product this quickly, and it was actually developed for them. Many of them didn't really have digital lending solutions in place, yet both the finance institutions and their partners, and I give a lot of credit to the core providers and a lot of other partners that are out there ready to jump on this, but to think that the government said, "Oh, offer it on Monday, here you go." And they did it, really takes away a lot of the excuses, doesn't it?

Michael Abbott:
It does. And I think all of us would recognize because we all use mobile apps. So all of us would recognize that we could digitally interact with our bank personally. But what I don't think we fully all appreciated is that those same interactions that we've we've come to expect of consumers could, as you astutely mentioned, they've moved into the commercial aspect of it, into the mortgage aspect, into very complex products that normally we would've said, "You have to walk into a branch to do this."

Michael Abbott:
So what you saw was you saw, really in the first 12 months of the pandemic, is you saw digital efforts that would've been going on until like 2025, all be pulled forward in the first 12 months. But it's also opened up the banker's eyes to realize, it's going to be a radically different operating model going forward. And again, think of the value, especially for the smaller, medium, or community bank that comes through walking through a branch, those interaction points are critical, but now you need to make those happen in a digital sense, you need to have conversations there. So technology is going to advance on that side, they're going to have to think radically different.

Jim Marous:
Well, the definition of digital actually changed because the fact that financial institutions in our research we did for digital bank reports said, "Yes, we have digital account opening." And then you found out that when we asked them, "How long does it take?" Well, it takes about 12-15 minutes, and you still to come to the branch to sign things, and to transfer funds, or authenticate the KYC, and things of this nature, and you realize, "Guys, the definition of digital changed."

Jim Marous:
And organizations realize that they had to perform more Apple Car did, more like Instacart, more like Netflix, more like Amazon, where doing digital was defined as something much more than just being able to use digital, which, that's huge. One of the key trends you mentioned in the report was the importance of innovation, not just the creative component of developing new products and services, but the speed at which innovation must be created. Have we moved away from the next big thing to rapid iterations in response to marketplace needs?

Michael Abbott:
That trend was in there very purposely, around the need to reignite innovation. And when I look back, I've been in the banking industry for probably two and a half decades getting close to three, you look at the major innovations that have driven revenue growth for bankers, true revenue growth, debit cards, rewards cards on credit, adjustable rate mortgages, zero fee banking, checking, all those things, almost every single one of them occurred between 1990 and 2005, before the great recession. Ask yourself, if you're being very honest, what major bank innovation has occurred after the great recession? I would argue that the great recession wasn't just the recession economically, it was a recession in innovation. And what banks need to do if they want to drive revenue growth again, which has been trailing GDP growth for the last five to seven years, they need to get the innovation going again.

Michael Abbott:
And because they stepped away from innovation, and for right reasons, they had to get their compliance and regulatory house in order, fintechs have stepped into that innovation. So for example, you look at Chime, Chime represented one of every new bank account during the pandemic. How'd they get there, simple proposition, they said, "We'll give you a paycheck two days earlier." What bank could not have done that innovation if they were thinking about it? The problem was, they're not thinking about innovation as a growth engine anymore. They've been so focused on compliance, risk, reg, and so internally focused, they let the fintechs jump in.

Michael Abbott:
And I would argue, Jim, what needs to happen is banks need to get going on the innovation front again, that's the most critical thing they need to do to drive the top line. Now, they'll get a nice tailwind this year if the rates go up, but true innovation's going to have to happen at the product level.

Jim Marous:
Well, and the speed of innovations has to change. I laugh at a major top five bank that announced that they were going to be coming out with a brand new mobile app in early 2022, and they had been working on it for a year. And I laughed because the real I idea of iteration and innovation in banking from a fintech perspective would be, you know what, we're going to be showing you something that we practiced, and put in place, and iterated a month ago, not a year ago.

Jim Marous:
And I looked and I said, "Geez, if they're going to be announcing ahead of time that they're going to be introducing something and that they've been working on for a year, six months of that is probably already outdated in the marketplace as far as being innovation. You said you've been in banking a couple decades, I've been in it for four decades, and we were always looking for that next big thing, and we take years to introduce something important. And you look under your mobile app and you see how every other digital organization is continually iterating and continually innovating in some way to make it easier, better, faster, more secure. And I think the way we innovate and I talk about the innovation lab, the fictitious nature of those was done for the shareholders more than was done for the customers, it really has to be redefined, doesn't it?

Michael Abbott:
It does, but I'll tell you, here's a prediction I'll give you today, we didn't really put in the trends, but this is why this innovation trend was so near and dear to my heart, if interest rates rise, and let's say they rise up to 1 1/2%, 2%. This will be the first rising rate environment in a post digital age. And for your viewers and listeners, I let that sink in for a second, the first rising rate environment in a post digital age, think about all the innovation that occurred in the credit card industry in the '90s around balance transfers, 0% APRs, rewards programs, et cetera, that same level of innovation, if you want to hold onto your deposits, and you don't want to have to go to that ALCO meeting and explain why all your deposits are running out the door, there is going to need to be an incredible pace of innovation in the deposit product side, think teaser rates, I mean, things we couldn't even imagine right now, sitting here today.

Michael Abbott:
Just think why not give 5% for six months and then give an extra rewards program, additional points off of your mortgage. Think about all the things that you're going to want to do on the deposit side, that you've just completely ignored for the last 20 years, because [crosstalk 00:10:28], you're going to have to innovate. And by the way, if those rates start moving up every quarter, and that money starts running, the speed and pace of innovation that's going to need to occur just in the deposit market alone, is going to be off the chart. And the ones who can do it at pace and not having just having to simple be at the top of bankrate.com, and give up all their margin, Jim, I would argue those are the ones that are going to win. So it's got to move beyond just the shareholder showcase center into actually being able to move this speed and pace in the bank.

Jim Marous:
On one side, having good revenue streams and having good earnings is a dampening effect on innovation. On the other hand, we've already seen Current introduce a $4,000 savings account that I think you're going to get 5% or something, relatively enormous compared to what it used to be, rate of interest. So we're already starting to see some of the fintechs currently compete for deposits because they realize, if I can get the customer in the door, they won't go back. I may not get their complete primary account, but it's going to be very interesting to see what's going on in innovation.

Jim Marous:
Another area that really has gotten disrupted and continues almost every day to get disrupted is a payments marketplace. So customers are opting out of plastic and cash and into mobile apps and sometimes brand new credit alternatives. What do you and what does Accenture see as the future of payments ecosystem system and how do you see crypto, NFTs, and even buy now pay later furthering this disruption?

Michael Abbott:
Yeah, it is a great question. Look, if you look at this, and I'll talk about it, there's the consumer side and the corporate side. On the corporate side, there's a whole nother topic, I'll leave that for another day around ISO 20022 and then the ability to put accounts receivable, payables, and I think the advanced functionality that's going to occur on the corporate side. But bringing it back to the consumer side of it, yeah, I believe you're going to see a convergence and you've already started to see it with the ability now to tap and pay and payments effectively becoming invisible. I think the bigger question that's underlying this from a banker's point of view is, will we eventually see the merger of payments and banking come together?

Michael Abbott:
Let me just give you a simple vision here, which is if I give you your debit card and the minute you pulled out that debit card on the front was printed your balance, right where you stood, would you ever want to let that go as a consumer? And the short answer to that is, no, because we all feel at the heart, we all feel that we're out of control in our banking and we just want to know where we stand. To put that in perspective and I'm going to tell you where this is going to go, 90% of mobile bank app usage is simply checking your balance. So what I'm going to see is I'm going to predict what you're going to see a convergence of the banking experience and the payments experience. And here's how it's going to work, if you look at the Apple Card that was launched with Goldman Sachs, the real innovation of the Apple Card was not the card itself, the real innovation is that there's no mobile banking app. The card has been brought completely to life inside of the mobile payments experience.

Michael Abbott:
Your question around payments, I think you're going to see payments brought to life in a major way. Both banking's going to become part of the card in a digital sense, you're going to have the ability to move funds around. You asked about crypto and otherwise, just think of it as, "I have my bank card, I have my crypto card, I could move it back and forth and I could just easily, inside of my wallet, make that happen."

Michael Abbott:
The user experiences around us are going to take out an enormous amount of friction in the system, and it's going to make it possible for you to move money in ways that you just never could before, and not necessarily inside of your bank account, almost from anywhere. In fact, if you look now, I know we're going to mainly US audience, but you look at in any network, it means no money can be stranded anywhere. You'll be able to move it from anywhere, any place, any time to any other wallet. That is potentially transformational. I think you're just seeing the beginning of this.

Jim Marous:
So at the foundation of innovation and of payments, is obviously data, analytics, and advanced technology. How do you see this? And you referenced it in two different of the trends with Accenture, how do you see data analytics and advanced technology change in the way that financial institutions engage with the consumer from the standpoint of looking out for them, rewarding them, and knowing them, but also how it's going to disrupt back offices for improved deficiencies and experiences.

Michael Abbott:
Jim, let me take those two one piece at a time. Let's talk first about the experience side of it. We've done some research and what we found was, prior to the pandemic, if you asked customers, "Do you trust your financial institution to look out for your wellbeing?" That metric was north of 40, 50%, is quite high. Post the pandemic gets dropped down below the 30s. So what's happened is, they still trust them, they still trust the bank to hold onto their money, but what they don't trust them for is advice, to get advice from those banks. And why is that? We're not talking to them anymore.

Michael Abbott:
So I would argue what's happened is, in going digital, we've become functionally correct and emotionally devoid. We've lost touch with our customers. We've lost the ability to have a conversation like we're having here today, to ask a question to the customer. And at the basic level, to answer your question about interactions, what technology's enabling you to do and what's happened is these AI capabilities that you can buy on the cloud, by the way, by the drink, you don't have to spend a fortune to build this stuff anymore, now you can set up conversational AI that feel almost human, like texting with your banker.

Michael Abbott:
So one way or another, in the digital side, we need to move beyond this functioning correct, emotionally devoid experience and move back in the conversation and just think of it as simply as texting with your banker, or being able to quickly get onto a phone call, et cetera. All the technology's there, we just have to bring that to life. And you asked about data, what you can use with data now is, data can act almost as a brain, a digital brain for the banker. And if you think of organizing your data no longer around lines of business like credit cards, mortgages, et cetera, but organize it around the customer, if you can bring in all that data around the customer and think about that customer as a memory, just like a branch manager would've, you can start predicting the intent of the customer, meet them beforehand.

Michael Abbott:
So all of a sudden, when John calls in and you say, "John, are you having a problem logging into our website? We can send you a link and fix that right now," instead of press one for English, two for Spanish, your balance is blah, blah, blah, and you're sitting there for half an hour trying to get out of this stupid IVR.

Michael Abbott:
So technology can really put humanity back in the banking, in a major way, both at the data side, and also the experience. The second part of your question is around operations. And that is where I think we're going to see the biggest change over the next, call it five years, and it's going to happen faster than anything ever has before. And if you look back at banking productivity, I would argue there's been three main factors that have driven it, one is the computerization, starting back in the '60s and '70s, and you could argue, there's a ton of stuff that occurred on that front. The second was the internet, basically, it drove the world flat and you could argue even the ability to do offshoring and put a whole host of stuff over to India that drove an enormous amount of productivity was done because of the internet. The third was mobile, and the fourth is happening right now, which is AIML, and these AIML-

Jim Marous:
And the cloud.

Michael Abbott:
And cloud, and it's because it's enabled from the cloud. And in fact, arguably AIML is now surpassing human capabilities on a lot of fronts, the ability to detect speech, et cetera, that combined in the back office with design-led thinking, what we've learned with digital, is driving towards what I would describe as zero operations. Meaning you can pre-predict what the customer wants before they get to you and actually fix it. In some of the stuff, I've seen at these banks, 60%, 70%, 80% productivity increases in these operational manual processes. This is without a doubt, I think going to be the next big leap in productivity, and it's probably going to finally, and you've already seen this in some of the larger banks, disconnect the revenue growth from the headcount growth. Meaning you're going to be able to grow your revenue at a dramatic rate outside of your headcount growth rates on the productivity side.

Jim Marous:
So it's interesting though, because fixing the back office also fixing the experience. We've seen those organizations that can't get out of their own way with digital account opening, and they try to digitize old processes as opposed to starting from a blank sheet of paper, which your report talks about numerous times. And saying, "Okay, how do we build it for a digital experience, which gets efficiencies in there, but it makes for a much better experience because how does Apple Card open an Apple Card with four steps?" Well, they do it because they completely rethought what it took to open an account, what it took to open a relationship. And bringing it back to the first part of your answer is what we're looking at is not making it so transactions are faster, but where engagements are better. And I think the future banking's not really going to rest on experiences as much as engagements.

Jim Marous:
I got frustrated when my personal bank said, "What do you want your minimum balance to be before we warn you?" I'm going, "I've had my account with you for 15 years, you should know on each day of the month, what my minimum balance should be because when my mortgage payment, my card payment, my American Express payment are all coming up. You know when I pay them, you know what my inflows are, very much the same way that PayPal is able to offer me an ongoing small business line of credit because they know all my inflows and outflows from my business side." It's using data to help me be better at my financial wellness and it makes both the efficiency and the effectiveness greater.

Michael Abbott:
You know what, Jim, again, for us bankers who have been around for... this is no different than what our branch manager used to do 30 years ago. It's just knowing your customers, organize the data mentally around, they knew who you were, they knew you were just starting a family, buying a car, they knew you needed a house, they'd ask you the questions. We have all that information, we just choose not to use it today in a very effective way.

Jim Marous:
Oh, and we don't do it mechanically, we don't do it automated. And I remember being in the branch and going through all the NSFs and all the loan not paid and saying, "Okay, who am I going to give a break to? Who am I not going to break to? Who am I going to reverse the charges on?" These things can be all automated. I mean, you look at what Amazon does with returns, they determine in each case, "Do I really want the return or do I just want to a customer feel better and say, hey, we'll send you out what you need, just keep what you got." It's interesting.

Jim Marous:
It's also interesting, you talked of it, and we're jumping all over the places, there were 10 trends, but one of them had to do with talent. And really, when you talk about talent and the future of work, organizations that have become more digital-ready, there's obviously an increased need for experience and talent that understands future technologies. How do you envision this war for talent playing out? How important are partnerships with other organizations going to be, to maybe to secure some of this talent? And how important is training going to be in this new future of work and hybrid environment?

Michael Abbott:
Yeah, it's an interesting question and I think, it obviously all maybe, to some extent, depends on the size, but maybe the largest banks can, in theory, go out there and pay anything, anybody they want and get that but that's not going to be the case for the vast majority. So when I look at what's happening right now, what we see is we see the old vertically integrated model of banking from a technology stack, owning all that up and down the stack, basically writing your own word processor, that's gone. So what's happening, fortunately, is banking is being sliced into horizontal capabilities that have expertise out there. So what banks are going to need to do increasingly, is look to hire not the person who could write the word processor anymore, but the engineer that knows how to string together the various different components that are out there.

Michael Abbott:
And it's a different mindset. It's a product engineering mindset rather than a, "I want to write the code myself," mindset around that. And the banks that can do that, and increasingly we're seeing more and more go after it that way, when you think about that from that point of view, all of a sudden you can find the people in your organization that are willing to train, willing to learn, give them the time and space, give them a challenge saying, "I want to issue XYZ new product, what third-parties could you go get those APIs from instead of building it yourself? How could you make this happen quicker, faster?" I've also found if you can press timeframes, people will get a lot more creative in terms of how they get there, so force a different way of thinking. And then to answer your question specifically, yes, training and reinvesting in those people is the way, but you want to be able to show them, "Hey, here's a future for you, and here's what you can do for me."

Michael Abbott:
And I believe many of these banking technology people, they can do this, there's no doubt in my mind that they can do it, but leadership have to decide to challenge them and has to break the mold of, "Well, we're just going to run the same playbook and run the COBOL code and update it next week again." Because unless you break that mindset, you're going to be stuck in that forever.

Jim Marous:
You talk about the talent that's needed. My son just graduated from university, he's 24 years old right now and he's a data analyst or a business information, BI engineer, and one of the skillset sets-

Michael Abbott:
Wait, send him my way. Jim, if he has his resume, send him over to me.

Jim Marous:
Well, it's interesting, he's working in the healthcare industry and one of the things that people were surprised by, that he didn't realize how important it was, was his whole focus. He could do the coding, he could do the visual analytics, all the things he had to do. The thing that set him apart, as I said, he didn't understand how strong this was, was his ability to deploy that knowledge, to be able to work with clients and show them how it works, to be able to communicate. And really, this is what financial institutions as a whole, have to do. It's really not the fact that you can make even better reports than you used to have, but can you deploy these across the organization so others can make use of this data, and empower the people so that they don't feel like their jobs are at risk, but actually, we've made their job easier and more impactful because of the data we give them.

Michael Abbott:
And just imagine if you took all those COBOL programmers' time and you could take that away and you could drive them towards that product innovation question we were talking about earlier, just think about the revenue growth potential there. It all made logical sense.

Jim Marous:
Well, and Leah and Sean, my producer and sound engineer know that I often talk about the onboarding process. And if you gave the tool that the machine learning, the AI, and data analytics can bring, and you give the answers to your tellers, all of a sudden, you get them back to being involved where right now, they're sitting idle much they're worrying about. "Jesus, my job's at risk because I'm not busy as I was before." Well, now you give them the tools to do what they do best, which is customer care, and you actually have them being empathetic toward that customer, and it becomes a big deal.

Michael Abbott:
I believe what's going to happen here is, think of the onboarding experience, in particular, everyone thinks of, "I'm going to develop a digital experience." I think the answer to this is not a digital-only experience, it's a connected experience. It's not even Omni, it's about just being able to start in one channel and continue the conversation. You run into a hard point, "Let's talk to the customer service rep that might be in a branch societal right now that can help me through it."

Jim Marous:
Your organization itself found that digital onboarding is not as effective as it was in the human sense. Well, that's not a reason for keeping the branches open, well, it is a reason for keeping humans involved. You can reach out. And in fact, if I'm a customer, I'm going to be impressed by the fact that my bank calls me, and I know closest branch which maybe five miles away, and says, "Hey, we see you opened an account, we want to help you get through the startup process." And doing it better than you ever used to do in the branch by itself because now you have the time as well.

Jim Marous:
So one last trend I want to talk about, and it was definitely an outgrowth in the pandemic, but more subtle than the health issues, was the heightened focus on sustainability, from the focus on the environment, to equality, to financial wellness for the masses. Is this trend only here because we're aware of it or is it going to be something that's an ongoing trend that's only going to get stronger?

Michael Abbott:
No, I mean, especially I'll talk about the sustainability part of it because that's the core of what we're seeing right now. I think you're going to see continued efforts on the sustainability side, from not just a policy point of view, but as bank customers are demanding that the banks to take kind of a position and help out on that front.

Michael Abbott:
So we're seeing it and you're seeing it take off in Europe in a major way. And what banks are doing is they're... In fact, I just talked to a major one today about this, is they understand their role is to help finance the transition. I think everyone thinks of it as shutting down lending and other things like that. I think the word you're going to be hearing this year is much more around transition, how do you finance a transition? How do you help people understand it? How do you help invest in areas? But also, frankly, in many ways, how do you help existing corporations that might have large carbon footprints neutralize them by helping them invest to get on the other side of that equation?

Michael Abbott:
So I think you're just seeing the beginning of this. And we had another trend in there this year, which is around Green Gets Real. And the concept behind that was that the greenwashing that's occurred by just putting out platitudes, et cetera, those days are over and now it's going to come down to measurements and metrics. And we're seeing it across the data supply chain, especially out of Europe right now and I believe that will also be coming to the US. And then ultimately, it'll be up to policymakers and others to decide the pace, the speed at which we can transition but I think you're just seeing the front end of this right now.

Jim Marous:
It's interesting, before the pandemic, I was in Paris in one of my last trips and I was amazed by the financial institutions in Paris and how front and center, their whole sustainability and their green banking efforts were. I mean, they were changing the way they invested, they were changing the way that they worked as a financial institution and they were helping organizations do better, as you mentioned, on the carbon footprint, but it was far advanced to what we had seen in the US up to that point, and we're playing a catch-up game there for sure.

Michael Abbott:
Yeah, there's no doubt, but I think we will get there fast. And I think people are now starting to come into, "Okay, how do I make this real and how do I make real actionable moves here, versus just kind of put out a platitude and say, "We're going to commit it to X, Y, and Z." Banks are truly starting to get to understand how can I drive this as part of my lending. And frankly, again, for heavy carbon industries, help them get to the other side of that equation because they're going to need to invest to do it anyways.

Jim Marous:
So Michael, the entire concept of digital transformation is relatively undefined for many organizations. I find that in some cases, people are saying, "I'm 80% there." And you're going, "How can you be 80% on the way to something that keeps on moving?" But we can get into that later. But there's obviously a massive amount of discussion on the subject, the be prepared for the future concept is really overwhelmingly important. Where do organizations need to start to be prepared for the future?

Michael Abbott:
Yeah, that is definitely, Jim, a wide-open question. I think many of the organizations have already started. They've gotten the basics. I mean, I can't think of any bank right now that you can't use your mobile app. In fact, arguably, when you look at the ratings for the mobile banking apps in the United States, and you look across the top 10 banks that are out there, it is a sea of famous, they're all rated 4.9.

Michael Abbott:
So in many ways, I would argue that today is that basic digital enablement, is necessary, but no longer sufficient to win. So for banks that are thinking through this now, you have to ask yourself, "How do I move beyond the basics of digital?" And we talked about this a little bit earlier, but the idea of moving these functionally correct but emotionally devoid experiences you have in online and mobile banking, how do you get those conversations back into those, and how do you think about enabling a connected experience between your existing reps, and your digital experiences on those fronts, and how do you take that to the next level? How do you think about the effect that digital is going to have and frankly, the cloud and what's occurring with the AIML capabilities that are emerging out there on your operations and how much expense that can take out? And perhaps most importantly is, how are you going to use digital as a product? And how are you going to attack different markets?

Michael Abbott:
If you think about acquiring as a simple product, the acquiring market for e-commerce and owning that space has been an absolute boom for those that have gotten into it. I would argue there's going to be capabilities on the treasury side, the ability to take your treasury services, put those out through APIs, how are you going to own the mortgage processes and experiences? So the digitization and using digital as an attacker and the ability to drive growth, I think, is going to be the next big phase that we're going to see out there.

Jim Marous:
One of the other reports you put out recently talks about the importance of the organization to understand the signals that are ahead of them, to be able to succeed for the future. From your perspective, how willing are most banking leaders, to let go of the past and grab for the future?

Michael Abbott:
I've been a banker most of my life. I mean, I think as bankers, we're all trained to look at the data and look at the information. The challenge with that is that information is rear-view mirror. That's what's happened in the past and it doesn't give you a view of what's happening in the future. So I think unfortunately, the vast majority of banking, and it's why we have safety and soundness, is driven off of the approach of a rear-view mirror. And what banks are going to have to do is they're going to have to take a look and say, "Okay, I get that's where I've done, but what bets do I need to make going forward?" I remember back in my prior life before I joined Accenture, I had started a mobile payments company and I had the chance to sit down with Steve Jobs for about a week. And what I'll never forget is, he was talking about the iPhone. He said, "Look, I could have kept going with the iPod, and that would've been just fine, but our job is to invent the future, to create what people don't know they need until they have it and then they can't live without it." And I think that's what bankers have to figure out for each aspect of their business lines, of what they can deliver.

Jim Marous:
You just mentioned Steve Jobs and Apple, and when you look at the Chime, when you look at the virals, when you look at the [inaudible 00:33:03], the firms, you really are looking at organizations that have a challenger mindset, that see innovation and see digital transformation as an everyday issue and they don't rest, they don't settle. How important is it going to be for leaders in organizations, that really, they're making money? I mean, I keep on saying what essentially is, it's really hard if you're a doctor like we are to say, "Guys, things are more broken than you think, don't simply look at the earnings numbers, look at what you need to do to be prepared for what is going to come, and it's going to be harder and harder to change the further away from where you are today it gets." And how hard is it going to be to use data analytics and technology investments to drive being ready for the future, to be future-ready?

Jim Marous:
And we talked before the podcast around Jamie Dimon and Chase and their major investment R&D but when you look at it compared to other technology company, that R&D number is not anywhere near the percentage that other companies are. But how important is it going to be for this investment and what is, to some degree, the unknown going to be?

Michael Abbott:
When I look at it right now, and then maybe we'll do a little prediction of the short future here over the next two years, if interest rates are going to rise with the rate that is being predicted by the market and the net interest margin in these banks is going to expand the way we think, to your point, it's going to get more, and more, and more profitable, especially over the next 12-24 months. I think the biggest question for most bankers now is, are you just going to take that profit to the bottom line, or are you going to use it now to invest in the forward ideas that you believe will [inaudible 00:34:43]? And the example you gave from Chime is a great one, which is, again, just getting your paycheck two days earlier. Any bank could have done that, but they're not thinking about product innovation.

Michael Abbott:
So I would say that if you are sitting at the board of these banks right now, and you're sitting at the top levels, you should be asking yourself, "For each line of business, what are the one or two product innovations that I want to make a bet on now, even if they fail, that I believe can advantage me on the other side, and use this period of time when you're going to have incredible profits to invest in that product innovation." And if you do, I believe you will come out the other side more sustainable, with higher growth rates, and frankly, even more, productive and efficient operations. Those that don't, will be on the other side of the equation when interest rates start to drop and probably will be the ones that get merged or are brought into the ones that do decide to invest.

Jim Marous:
It's interesting, I was fortunate to visit Tencent in China, actually the January of 2020. So it is eons ago, but it was the beginning of the pandemic, which we didn't know about how bad it was going to be back then. But one of the interesting things is that we're in their innovation labs, and we saw that they'd run four parallel cloud processing systems at once. They'd go from ideation to implementation in 14 days, they would do thousands of new innovations and iterations a year. And what was interesting about that was the whole mentality around, if something didn't work, we shut it down. It's almost like what Apple does with their voice device. If something doesn't work, we shut it down, we move us to the next thing, we learn from that. How difficult do you believe it is for banks in general to, instead of avoiding risk, which is really what we all were brought to do to managing risk?

Michael Abbott:
I think you separate this into two parts. One is the product innovation side of it and product risk and how different products rates, pricing, when you get into regulatory-driven questions on one side and how you have to have those buttoned-down versus experience innovation, and on the other side of it, we have banks right now, that are innovating and spinning out experience changes literally on a daily basis. So it is absolutely possible for them to be thinking about how to drive experience changes, et cetera. We also have banks that used to take nine to 12 months to launch new products, that do developing new technology stacks that are just modern and agile, taking the digital technologies and pushing them all the way to the back end, they can now launch products in a matter two to three weeks, even regulatory-driven products.

Michael Abbott:
So I do think it's absolutely possible, but you have to set a high bar. And I would tell you that you've probably heard the buzzword agile, everyone's talked about how you need to be an agile organization. The biggest lesson I've learned about agile organizations from the CEO and the board level is that, don't worry about all the buzzword bingo, ask your teams why they can't launch and do a product in four weeks, why does it take them... Measure cycle time because if you start measuring cycle time, what'll happen is your organization, the natural metabolism will speed up. And as a leader of these organizations, you need to be looking at increasing that rate of metabolism and that's what you were getting to, any organization can do it, but they need to focus on that metric, not all of the buzzword bingo, that's out there today.

Jim Marous:
That's a great point that really it gets down to, how quickly can you get to market with something? And what's great is even the biggest organizations realize it's sometimes easier to get there with a partner as opposed to doing yourself and they're no longer taking the annual change mindset, but saying, "How can we do this even faster?" It's a great point.

Michael Abbott:
We had an organization that had done this big... Had a major strategic consulting firm at the top of the house, were doing an agile transformation and they'd been going on for a year and a half, they went in, they stopped all this agile transformation. They said, "I'm just going to measure cycle time and I want to reduce cycle times." That organization now, the speed and pace to that organization, they are literally launching products in a matter of weeks, at this point in time.

Jim Marous:
And it impacts everybody in the organization. As you mentioned, it has a residual effect across the organization saying, "You know what, we can't look at what we want to do in 2023, we got to figure out what we're going to do in February."

Michael Abbott:
Yeah, exactly, and by the way, everyone in this organization's thrilled and happy and they're even going so far as they're going to merge the technology and product groups. They're putting them together into one tech product group to drive the future. So very, very interesting.

Jim Marous:
Well, it's interesting. As a major bank, a top 10 bank, once said, "We put people in a room and said, fix something and we realized that we weren't going to go in the right direction because bankers just can't do anything without adding." So they said, "Okay, we're going to start with a blank sheet of paper, we need you to create something that's going to look like this." And get them to work around the table and it was much more efficient. So Michael, as we wrap up, what's the biggest opportunity you see in banking today?

Michael Abbott:
I would say product innovation. If banks can get the product innovation going again, I think they can start driving revenue growth at the top line, they can meet their customers' needs, it will also help them drive an incredible amount of innovation on that front. And I also believe it's necessary to win because in a rising rate environment, we're going to see the deposit side of the equation, which we've not seen in 20 some odd years, move at paces in a post-digital world that, I think, will open a lot of eyes. And that innovation, that metabolism, is going to move beyond just what the pandemic has done, which is, showed us all that we can move digital at pace. It's going to show us that we can move product innovation at pace too and that could change the future of banking.

Michael Abbott:
I would say the biggest risk is the legacy systems and the potential boat anchor, that they drag banks down. I've seen a lot of banks out there that have code 40, 50 years old, eon. Whether it be ultimately regulatory pressure, market pressure, if they cannot get beyond these legacy environments, I think there's serious risk to the sustainability of those franchises without having a modern technology stack over time. I'd say that it's an odd risk maybe but that boat anchor could really take a lot of banks down over time if they don't get it right.

Jim Marous:
Michael, thank you for your time today. Gosh, it went fast and it's interesting because this is probably going to come out into January when we're talking the trends predictions, but the reality is, these have great evergreen value. In many cases, these are going to be some of the same trends predictions we're going to have next year, just moving them forward. So I think we have to look at the report, look at the ideas, they were great. How do people get ahold of the report?

Michael Abbott:
At our Accenture website, you can go to accenture.com and you can search on banking. You'll be able to see the top 10 trends and download it, it's out there publicly.

Jim Marous:
Great, thanks so much for being on the show today.

Michael Abbott:
Jim, thank you.

Jim Marous:
Thanks for listening to Banking Transformed. Raised to top-five banking podcast and winner of three international awards for podcast excellence. If you enjoy what we're doing, please take some time to show them love in the form of review, it really helps us to continue to get some of the best guests on the show. Finally, be sure to catch my recent articles on The Financial Brand and the research we're doing for the Digital Banking Report. This has been a production of Evergreen Podcast. 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, it is increasingly difficult to plan for the future if you're looking at the path.