Steve Ellis is executive vice president and head of the Wells Fargo Innovation Group, an enterprise-wide organization devoted to accelerating the company’s delivery of next-generation, customer-inspired technologies, products and services. Steve served as chairman of the board for NACHA, The Electronic Payments Association, from 2005 to 2008, and is a board member of First Graduate, a nonprofit focused on helping young adults become the first members of their families to graduate from college.
At Sibos 2015, I spoke to Steve about how Wells Fargo was an early thought leader in the online banking space, and how his own role adapted to the changing financial services landscape during this time.
Wells Fargo is probably one of the earliest identifiers of online banking. You invested in fintech startups very early. Was it a cultural factor or a leadership factor that led to this?
To me, it’s a cultural factor. We always look for tools, services and processes that can help our customers. We value the customer. I’ve been with the bank for 28 years, and we’ve focused on how to use technology to provide better value to our customers. We see this as a way to differentiate ourselves, and our customers see us as someone who can bring them things that others can’t. We believe that the more money we invest in our physical and virtual footprint, the more competitive advantage we’ll have, and I think we’ve seen that we’re right.
How has your role at Wells Fargo evolved in those years?
I was the person who got into the internet religion a long time ago and helped build the very first commercial internet platform for the company. It was organized around customers and not around banks or products. We understood that customers don’t want to be online very long. We were very good at building something that was very easy and that saved them a lot of time. With technology advancements, we got mobile phones and smartphones. We said, smartphones are computers and customers are going to bank on mobile next. Then we created mobile banking facilities.
Wells Fargo always looks for and welcomes new ideas. I think it’s cultural for us. We get a lot of feedback from our customers about what they’re looking for, and we build things as per their requirements rather than buy things. Customer experience is really important and we want to build the things that help with that ourselves, and we partner around the edges. This feedback loop with customers is fundamental. For example, we roll out new versions of our portal every 90 days, and we’ve been doing this since 2000. Customers adopt and then they adapt, but they always love to give us feedback.
That’s an interesting point of view, as fintechs say that they want to take on the customer experience, and banks will support them in this. Do you see this happening or do you think banks have a key role to play in reaching out to the end customer?
The answer is yes to both. It would depend on what the fintech is doing. Let’s take PayPal as an example. They sometimes compete with us, and they sometimes help us in our services, so you need to consider the overall piece of what matters.
The other piece here is that this explosion of fintech companies has just taken place over the last three years. They’re really using data in very creative ways around behavior. They’re bringing in all kinds of nontraditional data, for example, social platform data. We’ve been doing this too, but in order to tackle fraud, for instance, and not to reshape the business. I think there are things for us to learn from fintech, and there will be places where partnering with them will make perfect sense. There are things that some fintechs do that we don’t want to do. I’m a firm believer that this competitiveness is good. It’s going to push the banks to innovate and create. It’s going to bring new value to the customers. I think it’s a huge opportunity for all of us.
You’ve spoken about how Amazon and Google are what customers want and that’s what they aspire to have from banks as well. Do you think it’s going to take years for banks to get there, or is that a quick goal thanks to innovation groups such as yours?
That’s a very interesting question. There are all kinds of customers, including some who are very happy with the banks right now. I like that fintechs are going after emerging markets where there are no banking services. That’s very smart, as it brings people into the financial system. On the other hand, there are some companies that are trying to take an existing service and completely recreate it. That’s much harder.
I think we’ll see a shakeout over the next couple of years around the fintech companies we’re seeing today. It’s about good ideas beating sustainable companies, and that’s not easy. You need to create value and you’ve got to find customers. I think you’ll see a lot of partnering and acquisitions soon. My guess is that once we get through this boom, there will be a rationalization of fintech companies leaving a few strong ones.
I think banks are moving in the right direction. It’s about enhancing customer experience. These fintech companies are really into behavior analysis and know how to use data. You need to create a really good upfront customer experience, which banks should learn from fintechs right away. And then there’s this algorithmic thing around underwriting, which I think we’re better at than most people understand.
I thought the session this morning at Sibos was absolutely fantastic. You spoke about the privacy of data, with data becoming more open and more available. Is privacy and security becoming an issue, and do banks have a role to play there? What can go wrong with the way fintechs are handling data?
Let’s take security first. If customers don’t trust us, they’re not going to bank with us. If they trust us, they will be comfortable with us holding one of their prime assets. I think cybersecurity, which I’ve been involved in, has a lot of focus now and we’re beginning to be able to take advantage of it. I feel very happy that we at Wells are doing great things around this, because if the financial services don’t work, it’s like the electric grid is going down or people running out of water. We have no choice but to perform well, and I think that’s a place where banks will play an important role. And I would expect there are more partnerships there than at other places.
Regarding privacy, my gut says that some types of privacy are just going to go away, like location privacy. Then the other part is really confidential things that are really important and central to me: my financial services and my health information that I want to control alone. We want to set up an environment where our customers own and control that data and they exclusively agree about who gets to use what, when, where and how. Who sees what within your financial services ecosystem should be owned and controlled by the customer.
I keep hearing about how good you are at small business lending, especially around analytics and machine learning, and this is one of the biggest fintech markets out there. Can you talk a bit more about your work in the space?
We started doing faceless lending a long time ago. We’re the largest small business lender in the US and we’ve used data and analytics for a very long time. I think it’s an underserved market, so you see a lot of fintech companies there. I thought the startups on the panel today (Future of Money) were really smart. They were very cognizant of the value that assets banks have and the value they can bring, and how you put that together.
Lending credit is a business process and not just the upfront underwriting, and I think banks have a big part to play here. Banks have a big advantage in regards to up and down cycles – we’ve lived through 2008 and the Great Depression, while these fintech companies haven’t. I also think that banks are really good at behavior analysis, and we can close the gap in the amount of time it would take you to learn how to really underwrite in a worst case scenario. A partnership between fintech and the banks could be very beneficial to both sides, as well as small businesses.
Cost seems to be the main factor for major banks to adopt blockchain. What do you think are some of the use cases for Wells Fargo?
Blockchain creates trust between two parties even though they don’t even know each other that well. In supply chains, people usually don’t know each other, right? I think supply chain is a great candidate for blockchain technology particularly across countries. I also think it’s good for speeding up the settlement process between banks. I’m not a big fan of the cryptocurrency angle. We’re very interested in the blockchain technology and are doing some proof of concepts. I think we’re more in the test and learning phase and are trying to figure it out.
What big investments are you making?
I would say a lot of those initiatives are around the customer experience. We’re focusing on the behavior piece, the biometric piece, and on how to use things about you to help serve you better. Things like biomarkers and location-based services. When you think of how trust works, it’s not only about user ID and passwords, it’s a whole ecosystem around that.
We’re also focusing on voice assistance and speech analysis, like Siri. I think these services will lead to more conversational styles and be very useful for us and our customers. In fact, we’ve invested in a ‘Siri for financial services’.
And you invest a lot in big data startups, too.
Yes, because if you don’t get good at data, you’re not going anywhere. We’re an information company, so we have to be good at it. This voice and speech recognition stuff is one of the paths. Data can go in a lot of directions, and it’s very intriguing.
This is something I’m asking all my interviewees. What do you think are the big fintech trends for 2016 that you think will have a deep impact on the banking industry?
I think the ongoing work they’re doing around credit is a big deal. I think serving underserved markets is big. The behavior analytics they’re also doing is one of the best places for the banks to learn and partner with.
Is the underserved market in the US still big?
It’s about 20% of people in the US who don’t have a checking account. It’s a bigger group than you think.
Are you working on any other big initiatives at Wells Fargo, with upcoming announcements?
We’ve done quite a lot on voice biometrics. We’ve been using voice to recognize people inside our company for years. If you have called in today for some reason, we can take your voice and use that to authenticate the next time you call in. With customers on the mobile phone, we’ve done a combo voice and facial recognition pilot and we’re now moving to drive that into production. Also, one of the startups in our accelerators authenticates you from the veins in your eyeball. That’s going in pilot next quarter. So, there’s some very cool stuff. I’m very big on biometrics. I’ve always seen that it’s really important to move from user IDs and passwords to something about who you are.