If bankers could somehow periodically step out of themselves and take a look at their industry and their institutions, through the eyes of an outsider, they could gain the perspective of the customer. In a sense, that is what nonbank fintech companies and other players have been able to do, because they aren’t bankers immersed in the day to day. If they did, they might realize that for most consumers and many businesses, the financial services business is not the center of their universe, not what they wake up thinking about.
“In the industry, we think a lot about banks, because we’re either at banks or working with banks as consultants or vendors,” says Dan O’Malley, executive vice-president and chief digital officer at Eastern Bank. O’Malley has young children and that has helped him understand where the consumer perspective is today, but even moreso where it may be going.
“Younger folks think a lot less about banks and a lot more about their money,” says O’Malley, head of Eastern Labs, the mutual bank’s research and development arm. (Eastern Bank is the cover subject of our June-July magazine.) “They want to know where their money is, but it’s in the sense of wanting to spend it or wanting to save it. But it’s more about their money than about specific bank products.”
Over time, O’Malley says, the emphasis in the industry will follow this thinking, and move away from “products” to functions.
“It’s going to be more fluid,” predicts O’Malley. “For example, you’ll be able to borrow pretty much on demand, and you’ll do that using a couple of different assets that you can leverage. People will think less that ‘I need a home equity line of credit’ and more ‘I need to borrow right now, and I’m going to do it now’.”
Even now, consumers don’t think that way, O’Malley argues.
“Take the ‘checking account’,” he says in an interview with Banking Exchange. “That’s a very archaic term, isn’t it? It’s not really a ‘checking’ account anymore. It’s a ‘current account.’ Really, it’s just ‘my money’. That thinking is going to happen on the lending side, too.”
Banks typically see their products and services with hard lines around them in part because of their history, and in part because of regulation and regulatory reports. Even today, with much of the product dictation of pre-1980s regulation long gone, bank services still typically fall into neat boxes. Indeed, that leads to the commoditization of banking.
Clearly, O’Malley thinks it’s time to blur the lines and deliver on functionality that customers want.
Speed versus bank culture
Related to this line of thought, for O’Malley, is the need for speed in banking. And he sees that as challenging the current banking culture.
“Banks hesitate to embrace real-time decision making and real-time actions by customers,” he explains.
First, he says, real time seems to lack checks and balances that go with traditional concepts of prudent banking. Second, there’s the perception that speed connotes sketchiness—“Isn’t someone who wants money right now risky?” says O’Malley, enunciating his perception of industry viewpoint.
“The industry has to embrace speed,” says O’Malley. “It’s not about being faster, it’s about being easier. But easier is faster.”
This evolution is happening all around the business now, after being talked about for decades, says O’Malley.
Eastern Bank is already on board with this, in its first major launch since Eastern Labs opened its doors in the spring of 2014. Express Business Loan launched earlier this year as a means for existing customers, and soon, new customers, to obtain working capital loans of as much as $100,000 at bank interest rates in five minutes. [Express Business Loan won Eastern the Celent “Model Bank” annual award earlier this year.]
The lab is building out the Express product to include lines of credit and more this year. Rather than expand this into a nationwide program that would be a competitor to marketplace lenders, Eastern plans to license the technology to other lenders. O’Malley believes that commercial customers still need a live banker as part of the mix. The banker’s role will change from credit evaluator to more of an advisory role, but O’Malley sees no end to the human element in business credit.
O’Malley compares this to modern surgery. Patients still need human surgeons, but no doctor would nix robotic assistance, for instance. To do so would be “barbaric,” in O’Malley’s words.
Putting on a fresh digital face
O’Malley sees all of this in terms of evolving banking towards a more customer-friendly model. A project underway in his lab in cooperation with other parts of the bank is a complete revamp of Eastern’s digital face.
Twelve members of the Eastern Labs staff are part of a team of 30 bankers working on a complete overhaul of all digital interfaces. The group as a whole includes the bank’s IT staff, which is separate from the Labs, as well as “the business lines, wanting to take their customers’ experience to the next level.” Eastern is working with Infosys in making this transformation happen.
Why such urgency? It’s a matter of competition and customer appeal.
“Many online banking interfaces in the industry, even the good ones, have grown really complicated,” and they look plain old, says O’Malley. “Outside of the top five banks, say, it’s become pretty bad. It’s become hard for the customer to find the stuff that they need to do. For example, how many clicks does it take to do billpay? That’s what our customers tell us, and that’s why we’re totally changing it.”
O’Malley suggests that bankers think of the five most-used apps on their own smartphones. What makes those their go-to apps? And do their own banks’ apps function anything like that? Likely not.
“Turbulence,” for O’Malley, summarizes the multi-faceted change that banks have been going through for a decade. He says more bankers need to wake up to the fact that turbulence “is not going to stop.”
“Some bankers seem to believe that once rates go up, everything is going to go back to ‘normal’,” O’Malley says. “First off, rates aren’t going up. Second, things aren’t going to go back to normal. For 15 years a series of systemic changes have occurred in banking and that has become a bigger deal in an era of compressed margins. Technology is expensive. Building it yourself is really expensive.”
Even with a budget for development, this is tough, and so, O’Malley says, “the pinch is happening, and the pinch is not going to go away.”
Creative tension in a bank
There is a balancing act O’Malley must do at Eastern between the need to find new, easier, faster ways to do things in a competitive environment against the need to get each evolution done right.
Among the functions of Eastern Labs—which has 130 employees—are development, product management, and the bank’s customer service center. Portions of Labs reside at Eastern’s Boston headquarters—including one section right off the main lobby that serves as a declaration of intent as well as a functioning lab—and a portion is as at the company’s operations center in Lynn, Mass., to the north.
O’Malley came to Eastern with both consulting and banking experience. He was head of PerkStreet Financial, a direct banking company, and before that held multiple positions with Capital One. By training a data scientist, on his LinkedIn page O’Malley describes himself as “Entrepreneur. Data nerd. Banker.”
Banking Exchange discussed the role of a lab in a banking environment, new technologies, and more with O’Malley during a visit to Eastern Labs. Here are edited excerpts from the conversation:
Banking Exchange: How do you manage Eastern Labs in today’s turbulent environment?
O’Malley: Banking is a complicated industry. Banks, for a given size, tend to have many more products than a nonbanking company of corresponding size. When it comes to doing new things and building out new functionality or new businesses, you can’t take too many shots at one time. It’s difficult to get comfortable with this when so much is changing. But you have to decide what you really want to put your chips on and make it work.
At Labs, the development team will only be building one thing at a time. That team might have some small tests going on in other areas, but it is concentrating on building one thing. Our development team is of a size where we can put everybody on one project and have it move much more quickly. Other teams in Labs are working on other projects, such as the digital revamp and a refreshing of the origination system of large business loans.
You need to have dedicated resources on projects that need to happen quickly. If you don’t do that, then everybody does it off the side of their desk. And then it never happens.
Banking Exchange: You have stressed the importance of testing in product development in a lab environment. Why?
O’Malley: It’s critical to let the data dictate what is a good idea and what is a bad idea. That’s as opposed to solely relying on industry beliefs of what’s a good or bad idea.
Some people in banks—not at Eastern—believe you don’t have to address opportunities and problems quickly. There’s thinking that banks have been around for a long time, that they are stable, and can solve some challenges in due course—“Why now?”
Building tech for a bank is lot of work. It’s not like throwing up a basic web page. There’s a lot of difficult integrations with lots of systems and it all has to work. You’re dealing with people’s money. The level of rigor you have to hold yourself to for audit, for
compliance, for regulatory work, is a higher standard.
The way you learn in a lab is to run tests. Then you read the results and iterate, iterate, iterate. If you are doing your job right, you should fail more than half the time. Within a bank that is culturally challenging.
The bank will never fail. But ideas can fail and that’s how you learn.
We had to get the rest of Eastern comfortable with that. As an institution we’ve become quite good at that now.
Banking Exchange: Where do ideas originate here?
O’Malley: The problem isn’t to have better ideas. The problem is to test faster. Any idea can be good or bad, until you test it. We hear about ideas that sound interesting, or that others have suggested to us that they think are worth pursuing. We talk a lot with the rest of the bank. And then we take a whole bunch of ideas, pick something, and test it as quickly as we can.
I’ve been building new technologies and new businesses in banking for over a decade, now, and I’ve developed an ear for things that can be tested quickly. And I’ve got an ear for things that, if the tests succeed, can be “platformized” and turned into a bigger thing. There are other people in Labs who have learned the same methods.
But the first criteria is that whatever the concept is, it has to be truly a leapfrog of capabilities for how Eastern reaches its markets. And we look for ideas that can be monetized outside of Eastern itself.
Not a lot of ideas pass all these filters.
Banking Exchange: There is so much talk about blockchain technology today. It began as the mechanism behind bitcoin, but it has grown beyond bitcoin. What is your view on blockchain’s future? I heard someone at a recent conference say, “Everyone believes blockchain is the answer. I say, ‘What’s the question?’”
O’Malley: It’s a way of using a distributed ledger that allows you to generate trust cryptographically. Mathematically that’s really, really cool, if you are a nerd—which I am.
Blockchain is getting co-opted by the big banks incredibly quickly. They have hundreds of different applications for ledgers they need to keep track of.
Blockchain is going to change the industry. It will probably take ten years because it is so early. It will revolutionize how people move their money around.
Regarding that guy’s comment, to the blockchainers, that’s like asking “TCP/IP is a great answer, but what’s the question?” And the answer is, a whole ton of ecommerce, a whole ton of research, and much more. Nobody was thinking about ecommerce at all in 1985.
[Transmission Control Protocol/Internet Protocol is the basic communication language of the internet. It began to move out of the domain of the Defense Department in 1985.]
It was a nascent technology at that point in time. That’s where blockchain is now, it’s super nascent. It might take us 20 years to really figure out where it’s going.
Banking Exchange: Who are the people you talk to in the industry? Heads of other financial labs?
O’Malley: I don’t spend a ton of time talking to other lab heads. I spend a lot of time talking to bankers. These are people who are working on transforming the technology stack for banks and looking for solutions to help them do that. So it’s CIOs, business-line heads, presidents, and CEOs. Bankers.
The community of fintech entrepreneurs is both big and small. There are lots of people working in this field, but it’s small in that many of us know each other and we talk frequently. When you go to Money 20/20 you can’t walk more than ten feet without bumping into someone you know, and some other conferences are just the same now.
So those are my groups, bankers looking to understand how we’ve transformed Eastern to date, and other fintech entrepreneurs who are working on other ideas. We all kind of help each other out. We give each other feedback on what we’re working on.
Banking Exchange: What’s the role of the branch now that so much can be done on a handheld?
O’Malley: If a customer’s preference is to never walk into a branch, I’m fine with that. The marble façade office where we make you come to us is a dead business model.
Increasingly, what customers demand is being able to do business with banks on their terms. That might be on an iPad while they are watching TV at night. It might be a personal visit from a banker to their office. Or it might be a trip to a branch if they have a confidential matter that they want to be out of their office for. We have to meet customers where they want to be.
Banking Exchange: What was the tipping point? And how has this changed banking?
O’Malley: For retail banking and small business banking, it was when the customer didn’t have to come into the bank to do transactions. Foot traffic has fallen precipitously.
What changed is that banks stopped having all the opportunities to have conversations with customers that they used to have. That was how relationships were deepened. That means you have to go to your customers or find new channels, like email, Facebook, and other digital content to re-create that relationship.
Bankers need to get out of the branch and into the community, more and more. They don’t have the technology to do that yet. We are in the process of enabling that now. Using Express Business Loan, our bankers will be able to walk around every day with a way to take a loan application out of their pocket in five minutes. That’s really exciting, and transformative for the industry.
Where things come together is that using Express we can use data to get to know you before you ever apply for a loan.
We can make the experience of getting a loan instantaneous and amazing, and leave customers wondering how we ever did it. The answer is “data,” and a new set of better tools.