‘The migration to a more connected platform is the gateway to growth for banks’: Publicis Sapient’s David Donovan
- In his financial services practice, David Donovan works with most of the largest banks in the world.
- He delivers his views on where embedded finance is headed and why it's so important to get right.
Today’s guest is David Donovan, executive vice president at Publicis Sapient. He leads the firm’s North American financial services practice. Publicis Sapient is a domain-lead digital consultancy. It works with many of the major banks and that gives David a good view into what’s going on strategically and operationally on the ground in banking.
David shares how he sees bank adoption of embedded finance and platforms as a critical growth avenue in the future. Large money centers can take a page out of big technology’s playbook. Consumers want their favorite brands to be connected. With all the data and services they offer, banks have the opportunity to create an “invisible fabric” around their customers, helping them feel that their bank is their personal CFO and there for them throughout their financial lives.
Publicis Sapient is a sponsor of Tearsheet’s upcoming Embedded Conference.
Embedded finance is something that’s a key strategic theme for us at Publicis Sapient. When you look out at the landscape for financial services companies, whether you’re a large money center, in fintech, or an asset manager, the migration to a more connected platform is really the gateway to growth in the future.
I think that for large money centers like JPMorgan, they have to think about how they’re going to grow their earnings. And for me, when I look at banks, I feel like they’ve been on the defensive, they’re a prisoner to interest rates. They’re a prisoner to variables outside of their control. And I think they could take a page from big technology in that they need to understand that they can create a connected platform. Consumers want their brands to all be connected. Whether you’re in finance, or whether you’re in retail, or auto, they want all their favorite brands to be connected in a very seamless, transparent way. That’s going to create valuable services for them.
Some banks get it
So, with JPMorgan, as an iconic bank with tons of data and tons of customers, I would tell Jamie Dimon to create this connected platform where you build an invisible fabric around the customer, and you take services to where the customer wants to be, wants to have those services consumed, because I feel like people think about banking when they’re doing other things. They think about banking when they’re shopping, or when they’re planning travel, or when they’re out with their friends. And you need to create this invisible fabric around the customer, so that they can feel like their bank is their personal CFO that sits in their pocket at all times and helps them to live a vibrant life.
There are a couple banks out there that get it. They understand that they need to partner with large user bases. They need to create very personal moments. Goldman Sachs is one of those that comes to mind. They’ve created a platform and they’re partnering with iconic brands like Apple, creating the Apple Card. They’ve partnered with Amazon and now with Walmart on small business loans. They’ve created a platform around customers.
Let’s just take Apple Card, for example. Apple Cards have been in existence for a year, and they’ve already signed up 3 million customers, I think. That’s almost a third of what USAA has and USAA has a very impressive credit portfolio. It’s a great example of the power of two iconic brands partnering together and leveraging technology to create a much more seamless experience for their consumer base.
Brands playing in financial services
I think technology has created this connective tissue. When it’s augmented with a strategy and when you use data, you can create immersive experiences for your customer base. I’ll give you a great example, which is really cool. It’s a company called Acorns, which I’m sure you’re familiar with, which is around micro investing. And what’s interesting is it’s a very seamless service. It’s like a robo-adviser with a very immersive experience for consumers.
But what’s interesting is they’ve also partnered with many brands across verticals. I’m seamlessly saving because they’re rounding up my change. They’re putting $5 a week into this robo-adviser that I’ve set up. But here’s the cool part: I got an email the other day from Acorns, saying Nike is running a special today where they’re going to kick back 10% of anything bought at Nike and put that into your investment account. And it had just one simple button that you could click, and I thought, well, you know, I need a new pair of sneakers for the gym.
So, I click on the button, and it takes me right into the Nike ecommerce website. I find a pair of sneakers I like. I buy the sneakers, everything’s seamless, I don’t touch anything. I don’t pull out my credit card. I’m not wiring money. It’s just point and click. The $150 sneakers come to my house and $15 got kicked back into my investment account. And it was all handled through Acorn’s API’s. It just goes to show you that the seamless connected experiences, that this invisible fabric that we talked about, this is going to continue to proliferate as time goes on, and this is what customers are going to expect their experiences to be like.
So whether it’s going to a gas station and filling up your car, you will never have to pull out a credit card. You’ll be charged instantly almost like Uber. You’ll have an account set up where you’ll be able to be charged right away or like what Tesla is doing. When you buy a Tesla, you automatically get insurance embedded into the sale. You’re going to continue to see more options like that.
One of the biggest financial institutions that I think people don’t even understand is Starbucks. Starbucks has this app, I barely go inside. I punch the coffee I want and then checkout. And then I walk into Starbucks, they hand me the coffee, and the whole transaction is already taken care of. That’s what the world is moving towards. And that’s the opportunity for banks, because banks certainly have a lot of information on customers. I think customers trust banks. There’s a brand of trust, and there’s a brand of security there. So they have an opportunity. But if they don’t take advantage of that opportunity, then they’ll be disintermediated.
Big tech’s interest in finance
I think big technology is starting to get involved in financial services for two reasons. One is that they don’t want their workflow broken up in their core business. I think when they look at banking in its current state, they feel like there’s a little bit of dysfunction.
I also think they see the opportunity to disrupt that business. And if you think about it, from a return on investment, it’s a great opportunity for enterprises to grow their businesses.
Moving towards platforms
The really exciting part for me as someone who’s leading a business unit here at Publicis Sapient is that emerging technology is so intuitive, and it’s going to change the way businesses interact with each other and the way businesses interact with consumers.
It’s also going to look like banking-as-a-service, and you’ve had a lot of really unique firms come on your show. Whether it’s Galileo or Marqeta or Synapse, they’re able to create this gateway from the legacy technology of banking and connect experiences. And for Publicis Sapient, that’s what we try to do. We’re trying to upskill the architecture within these enterprises, like through data management. One of the things that’s consistent with all banks is that they have siloed businesses, which means that their data is very siloed. We’re trying to unlock that data, and create one single layer of data, so that these banks or asset managers or fintech can use that data in a very positive way to create better experiences for their clientele.
Banks are afraid of turning into ‘dumb pipes’
I think that’s where they’re headed if they don’t go on the offensive. Goldman and BBVA have figured out that they want to be in control of their destiny. They want to create that platform that creates that immersive experience. They want to be connected to large user bases, so that you can bring out the best in services. It’s all about controlling the homepage. I think Amazon’s business model has kind of proven that, right?
If you look at banks, JPMorgan is the biggest bank by market cap at $300 billion. Well, Amazon’s at a trillion dollars. So they’re showing you that at the end of the day, let’s be honest: these companies want to grow. And I feel like the best way for them to grow and also create brand value is to create these connected ecosystems where they either produce those services internally, or they partner with third party partners to white label the services.
Consolidation in banking
I think 2021 will be a very interesting year. I think it’s going to be a huge M&A year, because, for one, the regulators have not allowed banks to return capital to shareholders. So you’re not seeing buybacks, you’re not seeing an increase in dividends. And in some ways, that’s a good thing.
I feel like hopefully, as time goes by, and we’re able to recover from the COVID situation, banks are going to have a better understanding and visibility as to what their exposure is, and then they’ll be able to hopefully go on the offensive. They’ll start to use their capital to grow their earnings in a productive way. And that could be M&A.
Morgan Stanley’s business strategy is very different from Goldman’s business strategy. Goldman’s very much around building this platform of invisible fabric with the customer being in the center. Morgan Stanley is saying, let’s acquire firms that will help us in the fee revenue business. So they’re looking for captured assets. They bought E*Trade, they bought Eaton Vance. They’re looking at it for fee income, it’s very stable. It’s not as risky as some of the other banking activities of lending and some of the other more risky business initiatives.
What I like about what Morgan Stanley is doing is they have a strategy. What’s your strategy? I think every investor should be asking their financial institution: how are you leveraging digital technology to advance your strategy, instead of just saying, oh, we’re going to transform our business. Yes, you’re going to transform your business. But what’s the endgame? And I think that’s where Goldman is doing a really great job. They’re leveraging technology, but they’re also creating this platform.
What startup would you create right now?
I would want to have a company that’s based off of a culture and a set of values. A company that’s going to create a greater good for consumers. Education is a huge gap in our country right now in the way that there’s inequality in the way education is delivered.
So, if I was going to do something, it would be around financial literacy, helping a greater community of people become more financially literate, understanding a checking account, understanding debts and assets and liabilities, and how you can build for a future, how you can save for retirement or you can save for vacation or for a house. I feel like financial health leads to a better life. If you’re on a good financial footing, then you’re probably going to be less anxious. And hopefully you’ll be able to enjoy your life. So, I would create a fintech that creates personal experiences for clients and also helps them solve problems.