Industrializing Innovation

0:02Most innovation labs have the life expectancy of a fruit fly. They launch with a ribbon cutting, beanbag chairs, fidget spinners, fancy sayings on the wall. Of course, the press release that goes out. Then the first budget cycle hits. The sponsors moved on. The lab quietly becomes another conference room. The nice coffee machine, well, never gets replaced. And there's just the fidget spinners left. U.S. Bank is the exception. They've been running a formal innovation practice for 20 years. I'm Jason Hendricks, and on this episode of Breaking Banks, I'm coming to you from the MX Money Experience Summit in Park City with Don Ray, a chief innovation officer at U.S.

0:39Bank. Now, I have some history here. More than a decade ago, I did a speaking series with Dominic Ventura, U.S. Bank's original chief innovation officer. Even then, U.S. Bank was the bank other banks pointed to when they talked about innovation. What strikes me that it's not that they stayed in the game. It's how the approach has matured, how they've actually turned this into a practice that isn't just a department. It is an actual discipline, an intellectual property practice that has the patents. It's got 70 ,000 employees behind it as potential innovators, dedicated centers of excellence for AI and blockchain.

1:19Now, Don is a great person to unpack this. He's not a career banker. He's a former video game designer, holds more than 100 patents, and spends every January walking the floor at CES, looking for what will matter to customers years from now. We get into what 20 years of compounding interest actually looks like, why most banks can't stay patient enough long enough to get there, and what innovation really means when AI agents start making decisions about our money. One more thing before we start. I talk about this a lot. Money experience is not just another conference. It is not a user show that MX puts on.

1:56is where the future of money and your customers are meeting. This session was a lot about AI, no surprise them being a data company, but it really, in its small format, brings the deep thinkers to bear. Folks like Don are not only on stage, they're the ones chatting with you over coffee. So grab your cup of coffee, buckle up, and listen to this conversation with Don. So this is one of my pleasures because we rarely get FaceTime. We get Zoom time or Teams time, but to have you in the same room to ask some of the things that I've been wondering, US Bank, being a Midwesterner, US Bank has the most Midwestern approach to innovation.

2:40It is not flashy. It's not press releases that are overstating, just methodically going and doing it. And I hadn't realized until you brought it up, your innovation efforts at US Bank are 20 years old. Yes. Maybe this is a question we have to go back to Dominic, but how did the U.S. Bank, that's as old as any innovation group that I can think of really within the major U.S. banks. Yeah. So Dominic started the innovation team back in 2006 with a couple of employees and some dogs. Dogs? Dogs. There were dogs in the office. I wasn't there back then. I joined the bank just about seven years ago. But back then, and he was focused primarily in the payments innovation space.

3:28So he grew the innovation practice from payments to enterprise innovation. And over the course of that time, they did RTP, new payment rails, totally from scratch. Google Pay, Apple Pay. They started doing partnerships with technology and fintech companies. and then only really a few years after that enterprise transition did he move on up into the chief digital role and then I had the opportunity to take the reins almost seven years ago. So as you were coming into the organization, has it changed in how the innovation group interacts with the mainline business within the bank? Yes, yes, it definitely has.

4:20And I'd say it's changed on several fronts. So one, like I said, we were still building a lot of the relationships outside of payments when I came in. And then one of the things that I did when I came in is I established a dedicated fintech practice. And that actually really helped grow our relationships because they took a business line relationship manager focused approach towards the fintech partnerships with the business lines. So they wanted to have individual people that built up domain experience around a particular business lines, products, business models, challenges, strategic objectives.

5:09Almost like an embedded innovation person within their lives. In many cases, the business lines would then sometimes hire a counterpart to virtually join our team, like a literal embedded FinTech person. But the thing that, as this grew and became successful, and Megan's crushed it, by the way, she was part of designing that team. But the thing it's allowed us to do is the fintech team has given us a beachhead just about everywhere within the bank. So there's an opportunity for us to have a conversation with any group that we want to focus more deeply on. And a lot of what innovation does is really it's tying in the work that we're doing with the strategic objectives of the bank, the needs of our customers, and the needs of the business line in that intersection space, right?

6:03So one of the things, having observed from the outside, I think it has to have been intentional in this way, that the business line has lost some of the antibodies to kill new ideas, to maintain the status quo. How did you go about getting the business line to align with this idea of, hey, strategically, we have to do new things if we're going to accomplish it? How did you get them over? Okay, so I think we had a lot of successes, but things have really heated up for us now with Gunjan as our new CEO. So Gunjan has been, knowingly or not knowingly, a tremendous supporter of innovation. And she has a very ambitious strategy for the bank.

6:50She is pushing all of our business lines to think beyond Q4, three to five years out. And those folks need roadmaps. They need strategies. They need product and feature planning. And guess who is really well suited to help them with those materials, right? Innovation is. Enterprise innovation is. So we've leveraged a lot of the relationships that the fintech team has made with everyone to then go back to these folks and say, hey, we can help you with your three to five year roadmap, right? We can help you with some of these new product and feature ideas. We have a foresights team that can help you understand how technology convergence is going to impact your products and your business models.

7:38It really does feel like innovation went from the mission of a group to really innovation is owned by everyone across the bank now. They might not call it innovation, but you can just feel in the interactions I have with parts of the lines of business that they've internalized that now. They have. And we've made that part of our, we have also a dedicated team that focuses on employee innovation. And this is outreach across the whole bank. And our goal is to share the same frameworks for testing and learning that Dominic put in place all the way back in 2006 with everyone. And give them permission to solve problems where they sit.

8:25They see a process that needs improvement. They can solve it. Here's how they solve it. And we even do things like hackathons and idea jams and idea challenges that we can leverage. We can help the business line leaders kind of harness the full potential of their organization with those tools that tie in. to their strategic objectives and goals, both in the short term as well as long term. One thing that I learned from Dominic, and I think you've expanded, is this idea of manage risk by appropriate scoping. Risk really is if you scope it well, every one of the risks can be managed. Can you tell a story of how that's worked well to bring that to life for people?

9:15Maybe you're on blockchain or something else where you started small? Oh, yeah. And, you know, Dominic's, you know, his mantra, even to me coming in was make as many small bets and get in and out of them as quick as you can. Okay. And that is all about testing the riskiest hypothesis and get it going there right away. Where we've struggled, it's always been where we are not testing the riskiest hypothesis is first, or we're just holding onto a thing and not killing it when the data suggests we should just move on to the next thing. So those are very hard human instincts to change, right? We want to be right, right?

10:02And I find that you're right. Even when we've invested money, especially where we've invested money, you don't want to let go of that. No. And in the block, I'll tell like the general arc of that blockchain story. We started with one guy 10 years ago, Chris Watson. I don't think you can name it. We started with a guy, one guy. One guy 10 years ago. And he was initially tasked with, is this blockchain or is this Bitcoin thing going to be an issue for us? Okay. And let's learn about this space and the blockchain technology. What is it good for? What is it not good for? And over time, over years, we definitely came to a consensus that private blockchains are where everything in banking is going to go.

10:50We have definitely pivoted since then. We have launched, we just recently launched our USBDC on the Stellar Network, which is a public blockchain network. Yep. I was a little bit surprised by that. Yes, yes. But we worked with that partner to put the clawback and security guardrails and the KYC in place. Okay. Right. Through that. But we started very small. We killed many initiatives. We still have stuff that we are working on that's just not ready yet for the marketplace. place. But we know, we've got a good idea where the market's going to be going. We've taken the time to understand the technology and all the different areas that could impact us in the future.

11:43But we did start very, very small, one person. And then when we scaled up, it was like five people, which is not that big of a scale. And now, only now that we're going to market, have we set up an organization outside of innovation. So the new digital assets and money movement organization under January. So many questions here. So what was Chris's original mandate? Like, how did that mandate come into being? Like, what was he tasked with? So originally, it was just understand the technology. Is there a good, is there a real marketplace for banking now? Here's a cube. here's a computer, go think about blockchain.

12:24Go think about it. Yes, yes, yes. And as time moved on, we actually partnered with our risk and governance teams. And that was not even, I think at the point where we, there was a point where we went from one guy to let's have a team of three or four to five. And that was the point where we partnered with our risk and control groups. And we said, here are the three or four business problems we're trying to solve. and here's why we're trying to solve them. Here's where it's going to be good for the bank. Here's what the use cases are for the bank. And how can you help us get there within our risk appetite?

13:01And how did you know it was time to scale those things? Is there a committee that looks over this or are there milestones that are outlined? How do you know it's time to pass the gate? That was actually a great question. And I mentioned, I think I mentioned our Applied Foresight group. Yeah. So we stood up a dedicated practice And now we've kind of just trained everybody in innovation in Foresights. And that team's now going back to rebuild a more robust R &D practice. But that Foresights framework, which is basically, you can't actually tell the future. But what you do, and obviously, if we could tell the future, we would be on beaches drinking margaritas.

13:44right. But you can see different technology convergences and you can run probabilities on how these things are going to impact your business. Then you can identify market signals that have to be in place for those things to be true. When the market signals showed up, which was basically the election, the big thing that had to be true for us to move into the space in a robust fashion is the regulators need to allow us, they need to provide clarity for what we can and can't do, because we're not going to move into a gray space as a regulated entity. When the market signal appeared that there's going to be clarity in that space, that's when we knew we needed to scale.

14:34Got it. So along these lines, around the scaling, how does the innovation group measure its success? Like this idea of doing lots of little things and getting in and out fast. I love when I hear institutions talk about failing fast. And it's like, well, the point isn't to fail. How do you measure it? What is success in the metrics you put out to your team? So we have lots of different metrics that we measure. But most of the teams have actual quantifiable business metrics that either translate to revenue that a business line will be expected to generate from a thing that we put into production or cost save.

15:27Those are the two main metrics we use. Then we also have time to market is another one. But they have to be measurable. So it takes time to get there. So you had mentioned in the foresight, one of the things for the digital assets group was, hey, we needed an election cycle to pass in terms of, was it going to be a pro innovation as it relates to cryptocurrencies and blockchain versus one that was more staid? And I think, I'm not going to ask you to comment on the political situation, but I think what we found is there is a lot of open ground for institutions to go do things a lot faster, a lot freer.

16:13And the world in that regard is moving so much faster. Like if you look at some of the banks that have raised tons of money that have just come in and gotten chartered. startups that are fintechs that have gotten charters, new charters being issued, fintechs buying banks, banks buying fintechs. That world seems to be changing faster. How is your group responding to that? Because it feels like it almost puts more pressure on your group to develop the tools. I'm not sure if you've ever read Jeffrey Moore and Zones to Win. He talks about this incubation effort. The purpose of the innovation group is to create the raw materials that the mainline organization needs when going through disruption.

17:00Do you feel pressure like you need to be innovating faster and faster in a world that's spinning faster and faster? ED HARRISON We do. We feel a ton of pressure. I feel like this is really one of the best times to be in the innovation business. It's like there's so many different technology convergences coming together. And there's so many new tools you can use to do things differently and faster. So, you know, even with us, we have, you know, we've automated all the stuff that we felt like we needed to do, but we never enjoyed doing in the innovation process. So many of the things that would take, I don't know, a week or so to get together, things like deep TAMSAMSOM analysis, deep business line financial understanding of what a particular innovation idea, what the possibilities were there.

18:09It's so much faster. We have agents that do all of those things now. Or it's just an LLM prompt that everybody has. So if I'm going to make somebody have all these artifacts, strategizer things on these things, nobody has to go make all that stuff anymore. You do the workshop together, in some cases with the business partners you're with, and the AI makes the artifacts based on the interaction and the research that you put into it. And AI is even accelerating the research bit to it. And just the act of doing that innovation process together with your business line partners in some cases, it cements the relationship.

18:54RAOUL PAL, Let's pull on this thread of AI. You did a great job describing how you're using it as a tool to change how you're doing the act of innovation. How are you thinking about AI more broadly within the bank? Is it similar to how the innovation group is using it? Yes. We've always sort of thought of ourselves as both the tip of the spear and the guinea pigs. Okay. So, you know, I think after ChatGPT came out, you know, my big sort of directive to the team is, all right, let's figure out how to leverage this technology to do everything that we're doing today. And, you know, my initial, you know, was we can figure this out for ourselves or we can write around for someone else to figure this out and tell us how we need to change.

19:40So we should be the experts in this space. Okay. And we did that and we've shared our expertise. So a lot of the workflow things that we learned automating our own things, now that's subject matter expertise that helps us and our AI partners in the AI COE develop employee workflow servicing our customers in real time, right? Those kind of things. So a lot of what we learned implementing the technology on ourselves, we now leverage that to assist in a lot of these new workflows. And the people in those workflows, what we discovered is the people in the innovation workflows are really, really critical.

20:27The domain experience of the business line partners and the innovation team members that are doing these things is really, really important. And we're not spending as much time doing administrative stuff. We're spending all of our time thinking about the problems with our business line partners. And so that translates into the banking customer space as when we think about our bankers, what should our bankers be doing? Do we want them fooling around on the intranet? Do we want them spending time with our customers? Well, I was going to ask that to my next question. How do you think about with AI and that space between the bank, the relationship manager, and the customer, and AI?

21:18Where does it begin to fit? Does it displace? Does it support? It supports and augments. Okay. You know, I think most of the data that we've seen, you know, as long as our customers are people, our bankers also need to be people. Okay. Like, I remember coming out of CES, this was last year, actually. And they had these, like, amazing hologram technology there. And one of the press questions to me was, oh, are you excited to replace your greeters in the branch with holograms and AI? No. No one has ever asked for that. No one wants that. I want the greeters to welcome people when they come in. I want them to help the handicap or the old lady person get in the door if she needs assistance.

22:20The people need to be doing people things. Well, and my dog, when we go to the U.S. bank branch, wants a treat. Not getting that from a hologram. Exactly. I'm curious in your personal walk, and you've been involved in several organizations in innovation capacities. what pulled you into this space? You know, actually, you know, when I came out of gaming, I really, I got sucked into innovation in telecom simply by just bringing my game development experience in and building really high fidelity prototypes for Verizon, which they ended up building, you know, multi, I think multi-billion dollar products out of eventually.

23:08And I loved that sort of hands-on and problem solving and how do we think about the needs of the customers, the objectives of the business, and then all the new technological capabilities that you can put together, right? And I came to US Bank to set up their intellectual property practice under Dominic. And my first meeting, staff meeting in Dominic's group, it was in Minneapolis in December, almost seven years ago. I'm sure you love that coming up from Dallas. It was minus 12. And I just remember sitting there listening to Dominic talk going, wow, I just really need to get back into the innovation space at some point.

23:55And I was like, yes, that was like my happy place. I want to get back there. And then six months later, he called me up and I had the opportunity to throw my hat in the ring for his role. And it was an instant yes. We met shortly thereafter. Yeah, yeah, yeah, yeah. So for those interested, like what are your routines that you would share? There are things you read regularly, practices you do. How do you stay abreast? There's so much going on. innovation-wise and in the innovation space itself. What is part of your discipline you've developed around that? I do a lot of research that's tied directly into the stuff that my Foresights team publishes on a quarterly basis around technology convergence.

24:44So they're looking into quantum and things like that right now, further out uses for blockchain, a lot of different sort of identity cryptography use cases around knowing your agents, making sure all that stuff is quantum proof at some point. And then I have my own agents that go out and pull down articles for me to my phone on a regular basis. So that's kind of how I keep abreast. but it's always seeded by those sort of higher level business trends that we actually follow as a group. Critical question here. Have you named your agents? No. Well, we did originally. Like the first ones we named, you all had names.

25:35And then once you kind of get outside the 7 to 10 range, then you just come up with much more functional things. So last question. Yes. Do you say please and thank you to your agents? I am polite to them. And only because I saw that meme that was like, Terminator's like killing everybody. And then that one developer was like, don't kill him. He was very polite. Very polite. Well, Don, thank you for sharing some of the inner workings of the 20-year journey of innovation within US Bank and some of your personal journey. Awesome. Thank you. Thank you for having me. that's it for another week of the world's number one fintech podcast and radio show breaking banks this episode was produced by our u.s based production team including producer lizba severance audio engineer kevin hersham if you like this episode don't forget to tweet it out or post it on your favorite social media or leave us a five-star review on itunes google podcast facebook or wherever it is that you listen to our show those actions help other people find our podcast and in return that helps us build an audience that can be supported by sponsorship so we can continue to provide you with our award-winning content every week thanks again for joining us we'll see you on breaking banks next week