Great chat with Tristram Waye that covered some critical elements for Innovation in Financial Services.
One of my more fun podcasts because Tristram is another innovator who asked all the right questions.
Topics include everything from my own career as an innovator, best practices, what really constitutes an innovation lab, China’s fintech innovation and CBDCs versus digital currencies.
There is a problem in the industry in that people believe or C-level leaders suddenly believe they are innovative if they buy a new technology.
There are so many different names for the various groups of people who are being asked to do something different and to change the status quo within their institution. If you’re in that group, or if you know of a group of people in your company that fits roughly that description, they’re an innovation lab or innovation team – regardless of what they happen to be called internally.
The inspiration was really, to help a younger generation of innovators, who are working in labs, to understand the problems and what the best practices for innovations are in their organization.
So in 2014, when the Chinese government allowed digital banking license to go to Alibaba and to Tencent, which produces the WeChat platform, it was the equivalent of giving banking licenses to Google and Amazon.
Instant payment is guaranteed through Central Bank Digital Currencies. It will be a revolution in how we use money and how money is transported electronically. And it will free us from much of the banking system that mandates that we use the banks to pass around money, from one place to another from one person to another.
Introduction: I’m Tristram Waye and this podcast is produced in conjunction with the NCFA Canada. That’s the National Crowdfunding and Fintech Association based in Toronto. Today our special guest is Rich Turrin coming to us from Taipei. Rich is an American expat who has been working and living in Singapore and China for many years. He is a fintech and AI consultant and an innovation lab expert. He has decades of direct experience in finance and fintech spanning from trading floors to IBM’s Cognitive Studios.
Rich is the author of: Innovation Lab Excellence: Digital Transformation from Within. The book is an inside look into innovation labs and what it takes to make them successful and why they fail. There are numerous insights in the book for fintech innovators from startups to large financial firms. I consider this book must reading for innovators, corporate executives and sales professionals that are selling technology into large financial corporations. This is a wide ranging discussion, and I hope you can find a few gems that can be applied to your fintech innovation efforts.
Tristram: Okay, so we’re recording. Great to have you here, Rich. Can you tell us a bit your about your background?
Rich: Sure. Tristram, thank you for having me today. First, my specialty is innovation in banking. For most of my career, I worked on a trading floor and I designed and innovated new products for banks. I then eventually, after the financial crisis, left for Shanghai, China, where I was both an MBA school professor for a while. And also worked for IBM, where I worked in financial technology and using the latest AI, blockchain and other technologies to try to revolutionize the very financial industry, that I had worked in for the major part of my career.
Tristram: Right now after you left there, you’ve gone on to are you doing consulting?
Rich: Sure. Post IBM basically, I wrote a book called Innovation Lab Excellence, Digital Transformation from Within, and I consult. So my life has changed radically. I’m no longer working for a big corporate, which gives me the ability to speak very freely, which is amusing from time to time. Overly candid. But the real point is, what I’ve done is I’m trying to take a lifetime of working in financial technology, and when I worked in banking – I’ve always worked… I’m a former mathematician. And what I do is, I work with math, computer programmers, and technology to enhance or somehow do something new in finance. That’s what I’ve worked in for the entirety of my career. It’s always had math and coding behind it. And that’s essentially the roots of what’s happening as we look at the FinTech revolution today.
In fact, I think If you look at the FinTech revolution today, it is a retail personal revolution. That is that the financial technology is directly impacting the retail clients and both brokers and banks. And if you look at the start of the revolution, revolution 1.0, if you will, it started in the 90s when we started using desktop desktop computers to revolutionize and destruct and disrupt the commercial or business to business side of trading and banking. So, it’s a real – if you look at it, it’s really a progression out of b2b or wholesale business deeply into the retail business with the advent of better net services.
Tristram: And what were the type of products you were developing for financial services firms when you were there?
Rich: Sure, when I worked in financial services I did…here’s the disclaimer: I never touched a subprime product. So don’t blame me for the meltdown. In fact, what’s interesting is I worked in specifically in structured products. And I worked in exotic structured products like weather derivatives, earthquake bonds, tax optimization, which has some pretty negative connotations to it – because, we can all say, I can say this with great clarity. Big companies don’t pay the same taxes as you do. Because they had people like me and still have people like me, at large investment banks, optimizing their tax payouts. So sure. I worked in those areas, but never touched subprime, which is, you know, sort of
Tristram: A badge of honor. Right?
Rich: Yeah. A badge of honor considering how how bad it got and, no, most of the products that I worked in never tanked, like the products like subprime did,
Tristram: Right. Okay, now I’m interested in the thinking behind your book about innovation labs, which by the way, I thought was excellent. And there’s a lot of material in there that a wide swath of people could benefit from. From selling to financial firms to financial firms themselves, fintechs and technology companies generally. What was the idea behind the book originally, how did you come to this particular topic?
Rich: Sure. It was really interesting. The inspiration for the book came to me when I was heading IBM’s financial technology operations in Singapore. It was on their laboratory. So if you will, IBM has a very large AI laboratory and my clients were other laboratories. So, groups of young people predominantly in and around banks who were part of bank innovation labs. They would come to IBM lab and say: look, we need AI. IBM, what can Watson do for me? Watson being IBM’s big AI offering.
So, what was fascinating to me, is that I saw that the young people who were staffing these labs, looked at their problems and bringing innovation to their respective banks as new and unique. And they were, in fact, the same problems that I had worked in for my career for 18 plus years, and then again at IBM. So, the inspiration was really, to help a younger generation of innovators, who are working in labs, to understand the problems and what the best practices for innovations are in their organization.
Because basically, a young person will come up to you and will say, look, we are shocked. We are hired to be innovators within a bank, and the people in the bank don’t want to talk to us. Or the people in the bank don’t like our innovations. We’re the people in the bank and the list goes on and on. And to me, those are the very same issues that I had been dealing with for the entirety of my career as an innovator. So to them, it was new, to me it was pretty normal.
Tristram: And as an old trader myself, but more on the equity side, I understand the the resistance and making adjustments; even though the technology changed throughout the entirety of my career. So I can understand that response.
Rich: Absolutely. And you know, and this is a really important part of the book in the sense that younger innovators, or innovators in general think that innovation will be welcomed into the institution that they’re trying to bring it to. And in fact, what they meet with is tremendous amounts of resistance. Because innovation scares people.
So what the book tries to do is to lay out a series of best practices. Now, I don’t say rules. No, I say best practices that you can pick and choose from. With the end goal of the best practices, trying to change the culture of the institution that you work in. So, let me take a step back.
One of the issues why young people or innovators overall have so many problems with innovation, or bringing innovation to their companies, is that the culture of the company has not been sufficiently altered to accept innovation. So you can pay a management consultant, and many companies do. And the consultant comes in and he says, well, you need to have a culture of innovation. And the next contract, of course, with the consultant is what to do to get it.
So in my book, what I try to lay out the best, or a dozen best practices, and if you apply some portion of these best practices, you’ll be closer to getting this culture of innovation you need internally – to be able to adopt the suggestions and work comfortably with the innovators or the innovation labs that your company may have created. So that’s that’s sort of behind it all.
Tristram: There’s a couple of these best practices that I’d like to get into more deeply. But before we do that, for anybody that doesn’t have an idea of what an innovation lab is, they have different names and financial services, correct?
Rich: Absolutely. There in fact – there is no set term for innovation lab is the most, is one of the more common, but really many, many companies have small groups. It could be as small as two or three people, and they’re telling them to do something different or something innovative. And what, whether they’re called Strategy Team.
Tristram: Center for Excellence is one right?
Rich: Oh, I love it. Yeah.
Tristram: I think that one is at JP Morgan.
Rich: There are so many different names for the various groups of people who are being asked to do something different and to change the status quo within their institution. If you’re in that group, or if you know of a group of people in your company that fits roughly that description, they’re an innovation lab or innovation team – regardless of what they happen to be called internally. So it’s anybody who’s trying to break the status quo and to introduce something new, something different within their company.
Tristram: Now, in terms of the lab itself, it has a job, but there’s also things that it’s not supposed to be doing. What are the things that an innovation lab probably shouldn’t be focused on?
Rich: Yeah, that’s really interesting. That probably comes out of a chapter that I called: Buy, don’t build. So one of the issues that innovation labs have, is that people who set them up, believe that they should be building technology. And if you’re an innovation team that’s been paid to build technology, that’s fine. But many are set up with the idea that they should bring innovation in. And then as an afterthought, they say, well, why don’t you build this code? Why don’t you construct this solution for us?
And what I always say is that innovation teams should be the best implementer of technology. They should be able to implement technology, set it up quickly on whatever systems the company may have. Try it out, see if it works, and then decide whether to buy or use or use this solution somehow. What they shouldn’t be is the coders of production code, because that takes a lot of time, and a lot of effort, and it’s something that an innovation team should not be, generally speaking, should not be set up to do.
Of course, there’s broad interpretation of what an innovation team is. And if you if you buy 50 coders, okay, that’s a different type of innovation team. But in most cases, innovation teams should be the implementers of technology. They shouldn’t be tasked with building production code, because it’s not very efficient for them to do it.
And the team won’t bring much innovation to your company, if they are sitting there doing the detailed part of coding, which is a lot of work. And that’s not to say that they shouldn’t do some coding to understand, if it helps them understand how a solution works. But production coding is generally not what they should be doing.
Tristram: Okay, now one of the distinctions that you made, which I thought was interesting was the distinction between somebody that’s working in an innovation lab an innovator versus somebody that is working in a typical IT department. They have very different roles. And so the expectations for each should be should be carefully considered. Can you talk a little bit about that?
Rich: Oh, sure. You know, there’s a tremendous amount of overlap between innovation teams and IT teams. And some companies have handed over innovation to the IT team. And that’s not necessarily a bad thing, but it does raise some issues.
You have to remember the IT team in most organizations is designed to promote the status quo. To keep systems stable. To make your computers systems work as smoothly and securely as possible. They are not by nature, the innovators. Now there’s another issue here in that the IT team is usually not connected to the business.
So, yes, there’s a different distinction between the innovation team and the IT team, and they should work together comfortably. But the innovation team is a separate standalone role designed to transform and bring innovation into your company. Whereas the IT team should be the people who examine the innovation team solutions very very carefully. And if necessary, call out issues of security or stability that might in fact, impact your business. But in general, they should not be the people who are leading and responsible for innovation in your company.
Tristram: Okay, of the 12 best practices that you list, the one that resonated the most was the focus on people and not the technology. Could you go into that a little deeper for people- because I thought that was a fundamentally important thing. And there’s another rule here about the difference between transformation versus disruption. Again that concept of communication, which is really really valuable.
Rich: Sure. There is a problem in the industry in that people believe or C-level leaders suddenly believe they are innovative if they buy a new technology.
Okay. Ready. We want to be innovative. We’re a bank. So we’re going to go buy the latest chatbot technology, bolt it onto our existing systems. Well, it’s a good start, I’m not knocking it. But that is not the same as changing the culture within your institution to promote innovation. So what many do is to focus on the technology: We bought an AI system. We bought some blockchain technology that we’re testing.
Now, the real issue is not to focus on the technology, but to focus on making your staff and the culture of the company that you work in – make that culture a positive one so that innovation can flourish.
Now, what does this mean?
Not surprisingly, many of the innovative solutions that companies, who are supposedly innovative put up, are not technically very difficult. So the real issue for Innovation is not necessarily saying: Oh, this is such complicated AI, it’s going to take us a long time to put this together. No! It’s very simple technology oftentimes. But the suggestions have to come from the business units that need it and use it.
So, let me take an example.
You can decide that you’re going to use an AI technology, and you’re going to say, okay, we’re going to put this AI technology to work, and we’re going to put it on answering people’s questions on the internet. And that’s a great use! Nothing wrong with that – if that’s decided by a high level manager, that’s great.
But the same solution would be much better placed, if it came from within the business units who know what the problem is – who know who the clients are who have questions to answer and who know what the answer to the questions are. If you have a culture of innovation internally, and you can have the business unit leaders actually suggest the use of this technologies, it’s much faster to set up. It’s much more effective. And promotes others within the company to make suggestions for innovations that can in the end, save your money or increase or expand your business. So that’s the culture of innovation.
You also made a second point about what not to say.
So one of the other problems that younger innovative or innovators have in particular, is they want to disrupt stuff. They go into legacy industries that have existing practice, and they see that what the company needs, in their view, is not gentle transformation. What they see they want to disrupt, use digital technology and disrupt.
Now, their heart is in the right place, they want to help people and they want to help the company to do well. Unfortunately, if you’re an innovator and you go into business units within a company and you start talking to them about disruption, you’re not going to win a lot of friends.
And many other people working in labs said: gee, you know, I went to talk to this group and they didn’t really like my idea and we wanted to disrupt them. So, you know, you have to be very careful in the digital transformation business and the language you use around your clients. And clients are the people in the business units that are in your company.
So, I’m talking about disruption may be necessary in certain cases, but in other cases, or most, it’s a actually going to inhibit people’s desire to actually work with your innovation team. And may actually scare people.
So, no doubt some places need disruption. But disruption is a buzzword that people get scared of. Because many times when people hear disrupt, they think: what have I done wrong? I’ve been running this department for five years, now I need to be disrupted? Why? What did what did I do that was so bad, that it needs disrupting?
Tristram: Yeah, it’s like the personas when you talked about the different reactions that you’re likely to get from people when you approach them with the solution and how that solution comes out. It reminded me a lot of Geoffrey Moore’s book, Crossing the Chasm, where he’s exploring all the different parts of the innovation curve and all the different personas of the different customers and so on. If you’re using the same language for the hardcore tech guys at the beginning with the conservative big companies where you want to be, that’s not a great message, and it’s not going to work very well.
Rich: Absolutely not. You know, it was really funny. The tough part about being an innovator, as you so accurately point out, is that you’re always speaking to different audiences. And if you’re going to be an innovator and you’re going to successfully – forgive the expression, but sell, because that’s what you’re really doing internally with a new innovation. You really have to pick your words very carefully, and meter the message, or monitor the message, to meet the audience who’s hearing it. So you may have one message for the IT department. Another for C-level management. Another for the business unit that’s most closely impacted by your innovation.
You have to be very, very careful. And you have to be a really good salesman or sales person to sell innovation internally. It’s a really, really tough job.
Tristram: How would you recommend that young innovators go about doing this type of thing? Because this doesn’t apply to just young innovators inside of a company in an innovation lab. It’s also people selling services to large companies where they may be approaching different business units. So some of these things may apply.
Rich: Yeah, that’s a really interesting question. So how can we take – how do we take innovation as a general concept and sell it? And let’s look at the scenario you set up, as you’re selling innovation to someone on the outside. In other words, you’ve got an innovative product and you have a client you want to sell it to. And that’s exactly what I did when I was at IBM, selling AI blockchain and other technologies.
You know, the real trick is to understand the audience. And understand what part of the chain your client sits. So, if you’re, and this is the same if you’re just an internal innovator, if you’re going to the C-level meeting, these people might be focused solely on the revenue potential of the solution. So you have to sort of see who you’re talking to, understand what their key areas of focus are, and tailor your message accordingly. The C-level is revenue and or technology in service of a better future for the company in some form or something future looking.
If you’re working with a business unit that is looking at technology, you have to sell them on either a revenue component or a savings component, one of the other. Because a business unit manager is being monitored by his or her numbers on a daily basis. Or on a on a quarterly basis.
And if you’re talking to IT department, you have to go in and speak as to them as to the technical parts of the solution that will serve their interests in running both secure and stable systems. So it’s a tough one. And if you’re trying to sell something, you have to guess best as to the sensitivities of the clients you’re going to be dealing with.
Tristram: I noticed one comment that you made in relation Financial Services in particular which is: if you’re selling to that group, and whether you’re at the Innovation Lab level or not, and you’re not including compliance, at a bare minimum, you’re going to have a problem. Because you can’t do anything in a financial firm without the buy in from compliance.
Rich: Absolutely. And that was a consistent error that I saw. What is it in baseball, unforced errors? I think it is. I’m sorry, I’m pretty bad at sports. But the point is, one of the issues that I saw with labs is that they were promoting technical solutions and had considered the compliance as a secondary consideration. In other words, the technology comes first. This technology it’s blockchain, for example. It’s blockchain. It’s revolutionary, we really need to use this and their second or third conversation was with a compliance department.
Well, you know, that’s what I call an unforced error because the compliance department has to be early in the discussion of the technology, not a second thought. So, compliance department in any financial institution now is a – is an absolutely critical component of getting anything approved. They’re a stakeholder and everything you do. And yes, if you want to check out technology first, please be my guest. But your second stop is to compliance.
Tristram: What could a small startup type company learn from the experience of a larger Innovation Lab inside of a big company like that? What are there some things that they could take away from that experience that might be useful to them?
Rich: Absolutely. Okay, so let’s just let’s just look at that scenario where you’re a startup and you’re selling into a big company. I look at – when I wrote the book, I say very clearly the three stakeholders in the are lab managers, C-level executives, and business unit leaders. Those are the three stakeholders in innovation in the company, and in certain circumstances IT. But if you’ve already got an institution with an Innovation Lab, they’ve already made that separation between IT and innovation that I spoke about.
So if you’re a smaller startup and you want to sell into a larger institution, one, seek out the innovation team. Alright. Because the innovation team is set up in most cases to understand how to work with a smaller organization, a smaller startup. Alright.
So if you go to the IT department, they oftentimes say, look, give me the last 10 years of your history, your financial statements…they’re not set up to purchase from a small startup, whereas the innovation team is. So recommendation one, if you’re a small company selling into a larger organization, seek out the innovation team because they will be better situated to actually buy your services.
Number two. The other two stakeholders that you’ll have to deal with are going to be business unit leaders and potentially C-level, but less so. But the other person you have to convince is the business unit leader. That means somebody who has the actual business problem that you’re trying to solve.
So first stop innovation team. Second stop, convincing the innovation team to actually connect you with internal leader of the business unit within the institution. And getting both of these people on board is absolutely is absolutely critical.
So if you’re going to talk to a business unit specialist, that means that you have to be an expert in your solution. And have the street street cred, as I would call it, to be able to to talk to somebody who does this in their business every day. And have your picture solution and have it seem – have it appear necessary for that person’s business.
So those are the those are the two major sales avenues that you’re going to have. Into the innovation team and then to the business unit, and and my advice would be just start with the innovation teams because at least they’ll know what to do with you. They’ll know how to acquire and or manage your services.
Tristram: Now, in terms of a FinTech startup, for example, are there are there some things that they can learn from these labs as well those inside of a financial institution? Are they operating, essentially, in a similar way, where they might be using a lean startup type of approach to get started?
Rich: Most of the startups are ( ) What we’ve seen the with FinTech startups now, in particular, is that as the FinTech business has gotten more people in it, even the startups are more sophisticated – the real trick seems to be, people who have some innate connection with banking or finance. And they were working in a business unit. Knew what specific problem needed to be solved, and then started of FinTech that solves a very real problem that they saw in their prior institution, and want to sell that to other institutions knowing full well that it’s a problem. Does that make sense?
Tristram. Yup. Yes it does.
Rich: And those are the fintechs, or the smaller fintechs, that seem to have a higher degree of traction. Because when they go to either a business unit or the innovation lab to sell or to pitch, they can find somebody within who says, I know we’ve got this problem. It is clear.
They’ve seen the problem. They’ve lived the problem. And when they tell it to other people in a different institution, about the problem, those people are also well aware of it. So, that seems to be the one road to success. Although, my goodness, there are so many roads that I have not traveled upon, or have not experienced. I – there is no – I don’t think there’s a…
Tristram No Holy Grail…
Rich: secret weapon to getting acceptance in a larger institution from a fintech startup. I don’t know what the magic potion is.
Tristram: So you worked with with innovation labs in Singapore and in China, Is that correct?
Rich: Yes. Mostly in Singapore. China’s sort of an interesting study. I lived in China for 10 years. And China is interesting because whereas in the West, we have innovation labs, and yes, China also has innovation labs, the culture of innovation within large companies in China is much deeper. So a lot of innovation doesn’t really need a lab. You can find the business unit manager who is both innovative and empowered to be innovative and set up innovative solutions within the remit of his business unit. Whereas in the West, much of this business must be funneled through the innovation team and business unit leaders would be hard pressed to want – they are there – but in general, it’s harder to find business unit leaders who would be welcoming and able to set up an innovative solution on their own. But in China, they’re really miles ahead of us on this.
Tristram: And what would you say is the explanation for the differences? Is it because the West typically has a more well established banking and and financial system versus what’s what’s in China, which is relatively new?
Rich: The the banking system was very well established in China as well. The problem is that the banking establishment focused predominantly on the more wealthy segment of the Chinese population. So in 2014, when the Chinese government allowed digital banking license to go to Alibaba and to Tencent, which produces the WeChat platform, it was the equivalent of giving banking licenses to Google and Amazon. For lack of a better example. And in doing so they completely disrupted the incumbent banks.
Now, in the West, the concept of giving Amazon and Google a banking license is not even a thought because banking is so heavily regulated. But they actually did it in China, and the results were that it disrupted every incumbent bank, within a year. They had large losses. Older credit card business was gone. Payments business completely gone. It was a revolution.
So they had their revolution all the way back in 2015. So you’re looking at institutions that are five years plus ahead in disruption relative to the Canadian and US or European example. Does that make sense?
Tristram: Yeah, and it made me wonder, about the discussion of open banking in Canada, which is kind of a – it’s not really – doesn’t seem like a discussion. It doesn’t seem to be really going anywhere. Other than HSBC Canada coming out and saying, we really need to have this conversation, recently. What I was thinking is, even if we did have open banking, it probably would not move as quickly as as it did in China. Would you agree with that?
Rich: Absolutely. Look, when the Chinese government licensed Alibaba and Tencent’s We Chat as banks, they burst the dam. And they allowed the tech business to absolutely infiltrate banking. And it was truly a revolution.
Now, it was a revolution from a data collection standpoint. It was a revolution from the mobile payment perspective.
China, a country of 1.4 billion has gone virtually cash free. And it did it at a record breaking two and a half, three years. You know, amazing! When you started If you asked me, and I’m in the FinTech business, how long will it take me to go cashless? I thought, you know, what, five years, six years? No, you know, five to 10 would be that would have been my guess when this all started. So, mobile payment was so successful through WeChat and Ali pay, that in roughly three years, the country went cashless. It’s mind blowing.
So, yeah, while the Canadian banks are discussing open banking, open banking has been thrust upon the Chinese incumbent banks, and they don’t have the luxury of time. They have to do it. So what does this result in? This results in a bank, like the – one of the largest banks ICBC, running an online internet commerce platform. Let’s call it you know, an eBay. They run an Amazon for lack of a better example. Where you actually can go on ICBCs site and buy whatever it is you need to at their internet commerce site. And they have it both for retail and they have it for commercial use.
Now you say, well, why would a bank do something like this? Ah, they do it because they can offer credit to people. And once they offer credit, and once they get credit, they extend credit and get repayment history, they can now start to understand who you are, as a client. Understand your repayment history,and offer you new, better, more credit, different products. Use their information on you through your buying to impact your banking experience. So open banking is a real thing in China, and it was forced upon the incumbent banks. And the incumbent banks were forced to react. It’s it’s very real to them and very necessary
It is still In the US and Canada, it’s real, but the reactions are are much more moderate, because nobody is facing a real challenge from big tech, which is disrupting – thoroughly disrupting their business.
Tristram: Okay, are there any banks or institutions in North America that you would say are doing a great job on the innovation front and sort of leading the pack?
Rich: Oh, boy. That’s a loaded question.
You know, look, the answer is you can point to greatness at many banks. There is no question that JP Morgan has now has internal blockchain system with a JP Morgan code, a coin that they’re going to use. To in the wholesale transfer of funds to foreign locations. So look, this is a great technology.
So the answer is yes, there are certainly banks that have good innovative services. Generally the western banking system, one thing that they’ve all caught on to is that their mobile platforms have to be better. So every bank out there has spent a tremendous amount making their mobile interface better to combat the Neo banks or the challenger banks, the new generation of digital banks. And that’s a good thing that incumbent banks have done. But in general, let me put it to you this way, the most used or the most important function as rated by mobile banking app. users in the US, is the check scanning feature. When you scan a check.
So, my comment to that is, if you’re still worried about scanning a check, you’re all failing.
Rich: Because you really should have promoted an electronic payment system that does away with checks by now. There still is no such thing in the US or Canada, and that’s a failure of both banks, regulators, and the entire system – who are now, in my view, a decade behind places like China, that are very, very advanced and have something like 92% infiltration of FinTech solutions into people’s lives.
So I think it’s an EY study where they did penetration of FinTech into, into users, and it was basically 92% of China or more. I don’t remember if we’re just 92 or 94%. And, you know, the same number for the US and I believe Canada, was somewhere down in the 50s, or the 40s. It was much, much lower. The top European country the 60s if memory serves. And that’s just to show you how different the use of FinTech is between the US, Canada, Europe and China.
So, banks, yes, great. I’m very proud of you for making your mobile interfaces better. Yes, there’s some good technology out there. But by and large, it’s yet another problem that the US, Canada and the West has to – where we have to play catch up with places like China that are technologically very advanced. And we build a lot of great technology, but we’re slow on the actual implementation of that technology.
Tristram: Now, we were talking about Paul Schulte earlier. When he was out here in late 2018, he was talking about how Amazon was developing a whole financial system as a test, I believe it was in India. And he was talking about how a number of banks not only had no idea that they were doing that, but didn’t seem to be all that concerned about it.
Tristram: Have things changed in the last two years, would you say, based on the ongoing developments?
Rich: No. It’s really fascinating. Most people would be very surprised to hear that Facebook, Amazon, and I believe Google…Facebook, Amazon and Google all have direct instant payment systems available in India. So it’s something that we don’t have in the Western markets, and they’re alive and well. And my argument is that they’re being rolled out and tested in India first now. Why?
The Indian government had put together a instant payment API system that runs through the central bank. It’s called the UPI system. Okay. So basically, if you are a Google, Facebook or Amazon, you can interface directly with the government’s system, which allows for instantaneous payment from me to you or from business to business.
Now, for the United States, that is just now being developed. Okay, there’s a sort of a history for what the American banking with the Fed did. The Fed put fast payment into the hands of the major incumbent banks who came up with the Zell system. OK. Now because it was sponsored by the large incumbent banks, the smaller banks in the United States said: we want no part of this because it only supports your monopoly on the marketplace. So smaller, mid-tier banks wanted nothing to do with it- and Zell – I don’t remember how many years it’s been around now, four or five years, it has had very poor penetration into the marketplace.
So now the Fed has stated that it’s going to build its own fast payment system, which will be rolled out, I think it was 2023. It’s coming, but it’s late. And that will be when the US at least, will get some form of fast payment system. But the point is that the major tech players are already running these systems in India. And when that system turns on in the US, they will be more than ready to launch fast payment systems, through their platforms. And that’s when – when that happens something very interesting is going to happen.
And it’s the same thing that happened in China, which is your relationship with your money will change. Now, that’s a big statement. You now are forced to use a bank to keep your money in. And you were forced to go to the bank’s app to spend your money. And you are forced to go to the bank’s app to do stuff with your money. And what will happen is what already happened in China where I can use WeChat or Ali pay, access my bank. I can pay outside of my banking app. I can use my money as I want to use my money, and it’s now mine. And it’s free to use as I wish, depending on which of the systems I use.
So if you could imagine an Amazon using this. You will be free to spend through Amazon on Amazon, using Amazon’s payment system. It’s going to be a revolution. So, what I use is WeChat, for example, I can invest on the WeChat platform with the investment company of my choice. There are WeChat based services, but there’s certainly many, many thousands of other investment platforms that are using the WeChat payment interface. So you, me and everybody else will have greater freedom with their money. And it will fundamentally change the relationship you have with your money. And that’s going to be a great day when it comes.
Tristram: That’s interesting. I was reading some articles about how the Europeans are trying to set up something called PEPSI, the Pan European Payment System or something like that. And Canada’s got Jasper but at the same time, they’re all developing these digital coins. How do how do the central bank digital currencies? How do all these things kind of work together? What what where do you see the end game between, you know, these three competing or the more than three competing forces?
Rich: Yeah. Okay, so let’s go make a quick distinction for our listeners that about central bank digital currency and instant payment. Instant payment does not meant – central bank digital currencies will give you instant payment, but to get instant payment you do not necessarily have to do the step of having a central bank digital currency. So, central bank digital currencies are the digitization of actual dollar bills into a digital product.
So, let me make the distinction. You already have digital currency in the sense that if you look at your bank app on your phone, it tells you you got $1,000 in the bank and those are a digital thousand dollars. That is a digital representation of money. But somewhere there is $1,000 in a ledger in a bank, that is, shows up there. With central bank digital currency, you’ll have digital currency and you could have $1,000 showing in your wallet on your phone. And that $1000 is actually an actual digital thousand dollars that sits on your phone. It does not sit on a bank ledger entry anywhere.
So theoretically, and I’m sure it will be ways around this, but if you lose your phone, you lose the thousand dollars, right? This is what you’ll hear about in the crypto world where “I lost the keys to my Bitcoin account, I had to $2 million in there and it’s gone because I don’t have the keys anymore.” So in Bitcoin, it’s a digital representation of actual money on your computer or on your phone, and that’s what a central bank digital currency is going to be.
And there are advantages to using them in that you can pass money from country to country very quickly. You can have instant payments, just without routing through a bank. I want to pay you $100, I put my cell phone next to your cell phone and the hundred dollars transfers and you now have $100 on your cell phone. So, instant payment guaranteed through Central Bank Digital Currencies. It will be a revolution in how we use money and how money is transported electronically. And it will free us from much of the banking system that mandates that we use the banks to pass around money, from one place to another from one person to another.
You’ll be able to send it directly and those digital dollars can be sent directly from me to you. It’s big. And it’s so big that larger economies like the US, like Canada, are looking at and examining this, but they are certainly not running into it because it has such, so many profound impacts on how we use money.
Tristram: It seems a little bit like the the conversation between the person in the innovation lab and the person in the business unit, doesn’t it?
Rich: That’s very much the truth on a very large macro scale. innovators to say, hey, digital currencies are great. We need them yesterday, why are you doing them? And many governments are saying okay, we’ll take a look, but we’re not we’re not really convinced yet.
But let’s just make it clear, China this year is going to roll out its Central Bank Digital Currency. It will be available for to people on a retail basis, probably in the first half. It was hoped in the first half of the year now that look, let’s face it, we’ve got a coronavirus scare. And the government’s priorities are shifting to saving people from a terrible virus and I credit the Chinese government for doing a lot in that area. You know, we’ve got millions of people who are quarantined. So, how fast the China will be able to roll out its central bank digital currency is sort of an unknown right now.
Tristram: In the current situation with with the virus, and this may seem like an unusual question, but, has all this FinTech innovation been a benefit in an unusual situation like this one?
Rich: Absolutely. It’s really interesting to see. Let’s just look at two two cases. The first case is Ant Financial rolled out a an app that is being used in over 100 cities now. Including the biggest Beijing, Shanghai, all the big cities are using this. And the app is to help you understand your likelihood of transmitting the virus. It basically gives everyone a red, green or yellow, traffic light system. Green meaning you can travel freely within the city, yellow meaning that there are some travel restrictions and red of course, meaning you have to stay home and quarantine. And there’s an algorithm built inside the app that looks at who has the infection in your neighborhood. Whether you’ve come in contact. It’s using big data to understand whether you’ve come in recent contact with people who have the virus and basically what it does is it allows China to end. forcible quarantining of, you know, City of Wuhan, 11 million.
Yes, Wuhan is still under quarantine. But it basically allows them to use a scalpel to quarantine those people who are likely to have the ability to transmit the virus versus those who have very low – low likelihood. So that’s a great example of technology in the service of society, and it’s huge.
And the other thing now, as far as payment and FinTech stuff, the big thing in China now is that they’re actually cleaning the bank notes. They’re actually washing them. Putting them under UV and then holding the aside for two weeks before they re-circulate them. So sure digital payments are wonderful because they allow you to pay person to person without the chance of infection through a bank note, no question about it. It’s huge.
And digital payments, of course allow for supermarket delivery to your home and digital payment. So, you know, during the quarantines people still need to eat, and they’ve been getting all of their groceries digitally. They’ve been paying their rent and other things through pushing buttons for digital payment. And it has helped tremendously to keep things moving, even though there are very difficult quarantines under – underway. So yeah, digital has been huge in this difficult time for China.
Tristram: That’s, really interesting. And speaking of China, I did read the first part of your book. You’ve got a book on China coming out, what is the title of that?
Rich: The ah…
Tristram: Or do you have a title yet?
Rich: Ya I have a title and it’s called: China’s Digital Currency Revolution. It’s all about digital currency and FinTech in China. And it’s pitched so that people can better understand what’s happening in China, because they are living our future today. So if you look at China, what’s happening in China now, that will be the future we will live into. And if you better understand how FinTech and digital currencies work in China today, you’ll see where you will be and you can or we will all be, and you can better position your company or yourself to profit.
Tristram: Terrific. Well, I hope I can get you back on again to talk more about that before it’s released.
Rich: I look forward to it. It should be out – I confess, I’ve been away from home for almost a month now, so writing has slowed considerably. I’m looking for a June launch date for that, hopefully.
Tristram: Okay. Rich, where can people find you if they want to get in touch and learn more about you and what you’re working on?
Rich: Absolutely. The best way to connect with me is through LinkedIn. And my last name has two r’s. So that’s T u rr i n (Turrin). LinkedIn is always is always the best. I have a website, richturrin.com, and if you go to richturrin.com you can download the first two chapters of my book Innovation Lab Excellence. You sign up and it will allow you to download the PDF for the first two chapters.
And of course, the book is available globally on Amazon. So go to Amazon.ca in Canada and you’ll see the book available. So its Innovation Lab Excellence. It’s available in all formats. And I’m not sure the price was, the digital version is a is a good value, this is the marketing hat, I think it’s $6 or $7 US.
Tristram: Well, I highly recommend it. I thought the book was excellent. And I think anybody in the FinTech, financial and tech industry generally, that’s working with financial firms could benefit from a lot of the insights that you have in there.
Rich: Well, thank you very much, Tristram. I appreciate the plug for the book. It’s fun and I hope I hope people like it. What I’ve seen is I get wonderful, wonderful emails from readers of the book, who write me and say: “chapter four, that’s the exact same problem we have with our lab.” Or “chapter six. I was shocked because you know what you wrote, I live every day.” So I love getting notes from the readers who’ve enjoyed it.
Tristram: Yeah. And it’s written, it’s written in, I’d say is plain spoken language. So it’s really easy to read. And it’s very straightforward. It’s not like you say you’re a mathematician, it’s not in the language of a mathematician.
Rich: Absolutely not. It was designed to be easy for people to digest and read, and above all, practical. Practical to use.
Tristram: That’s great. Well, Rich, thanks very much. And if you stay on for a second, I’m just going to hit stop on the recording and we’ll finish up.
Rich: Thank you very much. It’s been a pleasure, and I look forward to hearing from everybody out there. Thank you so much.