Citi Ventures’ Vanessa Colella: ‘No one runs innovation, it’s all about unleashing it’

As one of the largest financial institutions in the world, Citi takes its innovation efforts seriously. Combining internal and external models of collaboration with a disciplined corporate venture arm, the financial services giant ensures that it has a lot of coals in the innovation fire.

Leading those efforts is Vanessa Colella. Vanessa runs Citi Ventures and is the Chief Innovation Officer at Citi. In my talk with Vanessa, we explore how Citi combines internal and external innovation and what role venture investing plays in the overall mix. For her, all this talk and activity around innovation addresses something very simple: how to get the best results for Citi’s clients.

Vanessa Colella is our guest today on the Tearsheet Podcast.

SubscribeiTunes I SoundCloud

Below are highlights from the episode, edited for clarity.

You are both Chief Innovation Officer and also run Citi Ventures. What’s your mandate?
My role entails a variety of things, from our venture capital equity investing on a global basis — that’s about bringing the outside in and staying on top technology and new developments in fintech — to working with our internal innovation labs and external and academic partners.

How do you encourage innovation within the organization?
We also run a program at Citi Ventures called D10X, which stands for discovering exponentially better solutions for our customers. We bring the same principles of entrepreneurship and ingenuity into a 206 year old company to unlock the promise of how our employees know they can best serve our clients. Innovation isn’t one single point or approach. We’ve greatly benefited from the perspective that it’s both about internally what we can do to drive better solutions for our clients as well as externally understanding what’s happening in the marketplace, what entrepreneurs are doing and where technology is moving. Sometimes people ask me if I run innovation as the Chief Innovation Officer. No one runs innovation. It’s really about unlocking the creativity and promise of what all our hundreds of thousands of employees bring to work every day to unleash that to drive results for our clients.

What are you looking to accomplish with your corporate venture investing?
We’re strategic investors, so we’re doing this to understand and participate in the technology ecosystem driving change. This isn’t something you can be an observer of. It’s something you have to get in the game and work with entrepreneurs. Our mantra has always been to champion our entrepreneurs, to help them scale their businesses quickly and efficiently. This approach is different than a lot of corporate venture capital firms who think a lot about finding entrepreneurs who can help the parent company. We’ve learned that a company as large and diverse as ours can have enough demands on an entrepreneur and a startup that they can’t keep up. Instead, we find that we’re able to work with them to scale their businesses. It can turn out that they become partners of ours or we’re able to help the launch into new markets.

What drives success in equity investing for Citi Ventures?
It’s two-fold. We understand that venture is both an art and a science. So, we judge success in the strategic impact an investment has on our firm and our clients, as well as the ultimate success as our companies. Today companies in our portfolio employee over 10,000 people.

Bankers, legacy structures and relevancy: The industry on what’s stopping banks from innovating

Tearsheet Conference

One of the biggest themes banks are touting these days is the importance of customer experience. Gone are the days of sales and transaction-centered banking.

That cultural shift is one of many legacy banks have made over the last decade and comes in large part from the realization that customer expectations have been raised by other industries — they want customized and even personalized service, they want it to be fast and they want it at their fingertips whenever and wherever they may be.

But the banks that exist today were born at a different time. For all the progress they’ve made in keeping up with their non-bank financial startups, they’re still regulated like old financial institutions and in many ways are stuck in their old ways. We asked attendees at the Tearsheet Money conference in New York Monday: What’s prohibiting banks from innovating to their fullest?

Dan Kimerling, head of API banking, Silicon Valley Bank
That they’re run by bankers. There are many things outside the control of bankers. For example, the policy prerogatives of various regulators are more focused on eliminating the down side than trying to incentivize the upside. There are also a number of internal things — how we think about what is risky versus not risky to how do we recruit, retain and develop talent. In general, most banks were built in an industrial era and we’re in the digital era. The realignment of organizations for this new world is slow and painful. This is not only true in financial services.

Stephanie Hammes-Betti, svp innovation design, U.S. Bank
Banks need to look ahead and think about how the customer experience is changing as the technology is evolving and finding ways to stay relevant in those scenarios. For example, let’s say in the future you have AI. What if it becomes a bot or something that’s in your phone or in your earpiece? With that tech, how do we use it in a way the customer finds relevant to the jobs they need to get done?

Jeffrey Brown, global banking and financial services consulting leader, Genpact
The biggest issue is that banks think about it way too much as a front end problem rather than a middle- and back-end delivery problem and that the next wave they’re going to have is because they’re going to release the value and the capabilities of the middle and back office. Being able to take the lending time down from 40 to seven [days] — that’s not a front end innovation that’s a back end innovation. But [the front end] is what the customer sees and likes.

Ronak Daya, product manager, Bond Street
It’s a combination of having existing systems in place that need to be migrated to the new way of thinking and embracing iterative development—that takes time. The middle office and the back office need to be modernized—that takes a while for banks to do. The way they operate right now, they’re constantly chasing. They start bringing in new technology and moving in that direction, but by the time they get there it’s changed.

Om Kundu, founder of InSpirAVE
Any large institution executing a known business model is an oil-tanker in the ocean, it’s set in its direction. Doing something that is fundamentally different is kind of like changing the direction of the oil tanker. The way banks have been set up with their legacy infrastructure, with the organization and the folks that work in them is akin to realigning that oil tanker. That’s part of it. That’s where partnering with fintechs comes into the picture — they’re fearless about making a new model come to life.

Inside Bank of Ireland’s New York innovation hub

Ireland’s largest bank is looking to build startup talent — and it’s looking beyond Ireland to do it.

Far from its other training spaces in Dublin, Cork, Limerick and Galway, the company last month opened its midtown Manhattan workspace to Irish and European startups looking to expand to the U.S. market, its first outside the country.

Through Startlab NYC, as its known, the bank offers 12 months of free office space combined with networking and mentorship opportunities. The space currently hosts three companies, and startups have until Friday to compete for the remaining four spaces up for grabs. Though a natural fit for financial technology companies, the bank said it’s happy to look at companies in other industries. The current cohort includes location-based marketing startup Pulsate and interactive video technology company Axonista.

The bank said it isn’t taking an equity stake or investing capital in the companies, but Carolyn Quinlan, program manager at the Bank of Ireland’s innovation team, said it will connect them to venture capitalists, government agencies and other contacts. For the bank, it can be a way to find talent, or find new technologies it can use for its own business.

The bank’s move mirrors those of other foreign-based banks building innovation labs in New York City — including Deutsche Bank, which opened a lab last month, BNP Paribas and Barclays.

The rise of Irish startups in New York may be a nod to the country’s emergence as a technology center. A KPMG report released Tuesday noted that multinational companies such as Amazon and Linkedin, along with growing companies such as Kabbage, are increasingly choosing Dublin as their European headquarters as the country’s financial technology sector increases operations and headcount. The Irish startup community in New York has grown so large that it has its own non-profit association — Digital Irish — with over 1000 members and its own angel investor network. Other countries have also stepped up their technology communities in New York, too, with examples like La French Tech NYC  and the U.K. financial technology community outreach in New York through its nonprofit, Innovate Finance.

For Irish financial technology companies operating in the United States, beyond the obvious hurdles of getting a product to market, finding local partners is an obvious area where bankers’ expertise can help.

“When you’re selling to banks, it’s about reputation and longevity risk,” said Jon Bayle, founder and CEO of Dublin-based deposit management startup Deposify, a company that’s currently hosted in the New York Startlab. “Part of that comfort is being in their market — being able to sell to them face to face.”

Deposify, whose U.S. head office is located in Boston, depends on partnerships with banks to be able to offer its service to landlords, property owners and tenants. Earlier this year, the company announced its first partnership with an American bank, People’s United Bank. To Bayle, working with a major bank partner allows his company to reach a larger pool of banks in the U.S.

“We’re not banking partners, and by working in close proximity to them, we can lean on their expertise and access their network,” he said.

A major bank brand’s connections can help Irish companies navigate local regulations — a boon for startups looking to grow their reach in the U.S.

“Expanding to the U.S. fintech space is very regulated, and the licenses don’t transfer from Europe to the U.S.,” said Flavien Charlon, co-founder and chief technology officer for Dublin-based Trezeo, a startup that operates an income smoothing service for freelancers. “It’s like you’re starting from scratch — the Bank of Ireland has critical mass there.”

Homepage image of the Dublin workspace courtesy of Bank of Ireland

U.S. Bank’s Dominic Venturo on creating a model for innovation

US Bank's Dominic Venturo on fintech innovation

This week on the Tearsheet Podcast, you’ll hear from U.S. Bank’s chief innovation officer, Dominic Venturo. Dominic describes what’s prompting banks to innovate and how U.S. Bank approaches innovation and judges its own success, including his team’s KPIs. You’ll also hear his take on whether the senior innovation role is just a flash in the pan or will be a key part of banking leadership out into the future.

Subscribe: iTunes I SoundCloud

Below are highlights, edited for clarity, from the episode.

Why are banks focusing on innovation?
U.S. Bank has a large payments business, which makes us kind of unique. Because the size of our payments business and the innovations happening in payments, we started the innovation group about 10 years ago focused solely on the retail payments side. We began to build out a practice by looking what was happening in fintech and emerging technology. Our original objective was to change the paradigm around how we did product development and to test and learn, fail fast, and hopefully less expensively for new things that weren’t quite well known. We then expanded that to the rest of our payments business lines and a couple of years ago, we expanded the innovation group to the rest of the bank.

U.S. Bank’s brand of innovation
Every institution innovates differently. Our approach is to work with the businesses to understand their objectives and strategies. We want to keep a long-term eye on emerging technology and how consumers and businesses interact with technology. We’ll blend that into the product development roadmaps for the businesses. In some cases, emerging technology will look like it has a lot of potential but then you really have to see how it applies to a business, whether it solves a customer problem or pain point, and whether it can scale to a company our size. I don’t know if this is different than others, but it’s definitely our approach.

Things like design thinking and empathy building have been built into our practice. We’ve also evolved the way we’ve handled research. We’ve done ethnographic studies on our customers and use that to identify pain points and future problems to solve. This model isn’t unique to innovation but it may be in financial services in general and banking in particular.

How do you judge success in innovation?
The first thing we do is ask what problem we’re solving. If you’re not actually solving a business problem, it could just be a shiny new object that’s interesting only to us. The next thing is to think about the technical feasibility and product performance. Early on, we could do this as a proof of concept to just prove whether the technology does what it promises to do. We then check to see if it’s scalable and can be run at the enterprise level. Lastly, we check to see if the behavioral changes occur that we expect to happen.

All along that journey, there are different dates we use to measure and check to see if we’re reaching our desired objectives. If we’re not, we want to know that early so we don’t continue to invest time and resources. That’s back to the fail-fast principle. When we look longer term, at the portfolio level, we’re measuring our throughput — how many new ideas are coming into the idea funnel and are being evaluated. Of those ideas, we see how many are turned into POCs or pilots. And once you get into the pilot phase, we measure how many of those are ultimately converted or commercialized into a product or a feature of a product. If we’re generating enough good ideas, we should see a fair level of conversion at the portfolio level.

The state of bank innovation in 5 charts

Major banks have been doing more work with the startups that once tried to displace them. Most other banks, with fewer customers and less capital, are still figuring out their long-term digital strategies.

In the last two to three years, banking giants have invested in fintech startups and partnered with them, they’re opening expensive new innovation labs and digital hubs and creating C-suite roles dedicated to leadership in innovation. Smaller institutions have been thinking about a digital overhaul for just as long, but without the resources to invest in fintech initiatives or the massive customer base to test pilots, they’ve been slower to move.

Below is a look in five charts at where banks are focused and what’s challenging them on the innovation front in 2017.

Banks care about improving their digital experiences
Of the more than 100 banking executives surveyed for industry strategist Jim Marous, 71 percent cited improving the digital experience in their top three priorities for 2017; half also identified enhancing data analytics as a priority and 41 percent cited reducing operating costs.

Just 10 percent, most likely those from major institutions, indicated that investing in or partnering with a third-party fintech startup is a priority.

Mutual opportunities
The relationships between traditional banks and startups is getting cozier. The initial intent of so called fintech startups was to disrupt old banking institutions and an old way of doing things. For the small number of banks actually partnering with and investing in these startups, the areas in which they see eye-to-eye are all crucial to the development of banking as a platform: with APIs, data analytics and automation, banks can actually act as home plate for a host of other financial services and applications.

Both traditional banks and fintech startups goals and perceived opportunities aligned closely in the areas of creating open APIs, automating and digitizing operational processes and consumer experiences, utilizing data analytics, exploring new business models and developing the mobile channel, according to the ACI 2017 Fintech Disruptors Report.

Mobile will continue to be an important channel for both sides of fintech, especially as the industry moves more in the direction of contextual experiences and commerce. However, outside of the giants that have the means to fund and scale different initiatives, most banks don’t even have a sturdy mobile strategy in place yet.

Partnering for a better customer experience
Companies that participated in the ACI survey indicated payments (68 percent) and banking infrastructure (43 percent) are the areas they’re most interested in working on with startups. Some 40 percent indicated they’d like to partner for e-commerce opportunities, 37 percent for remittances, 32 percent for security and fraud management and 29 percent for core consumer banking operations.

Many banks don’t have an innovation chief
The biggest challenge for banks seems to be hiring and retaining innovation talent and leadership with the specialized skills necessary to lead an increasingly digital bank, according to a new report by Celent, Innovation Outlook 2017: Making Progress.

“Typically those have to do with things like managing an innovation program,” said Michael Fitzgerald, Celent’s senior analyst who authored the report. “Classically these roles have required project management or business analyst skills. It’s different in these innovation programs because unlike the IT programs insurers and banks usually have, things are shorter in duration in terms of frequent deliverables and therefore require more discipline.”

Just 20 percent of the innovation practitioners surveyed indicated they had a chief innovation officer inside their organizations, although Fitzgerald noted existing leaders could assume other titles, particularly in earlier efforts.


Someone needs to manage the budget
One of the biggest problems with not having an obvious innovation head is the use of funds for innovation projects can be a little disorganized. The source of the funding doesn’t matter as much as the need for it to be managed comprehensively, Fitzgerald said.

Most innovation budgets are taken out of an organization’s technology budget, according to Celent. Of some 30 innovation program leaders surveyed, 67 percent indicated they pulled innovation funds from the technology budget, 43 percent from individual business units’ budgets, 30 percent from a separate venture capital type fund for early ideas. Some 30 percent of organizations have a centralized innovation department budget and 10 percent indicated innovation isn’t part of the budgeting process.

“One of the things we see in these successful programs is human resources plays an active part in all sorts of different points in the program,” Fitzgerald said. “In practice though, innovation leaders are pretty reluctant to get HR involved. The perception is that HR is about layoffs.”

Challenge Board Confessions: Financial institutions get real about marketing challenges

Being a financial institution in today’s market is grueling. Not only do you have to keep up with the rising level of compliance and regulatory burden, but customers are becoming increasingly demanding of the expectations they have from their FIs. Add to that pesky fintech upstarts that, while not winning away a lot of new business, are at least winning the PR wars, and you’ve got a challenging environment.

At last week’s Tradestreaming Money Conference in New York City, we asked participants to share their biggest challenges, giving them anonymity in exchange for their feedback. Here’s what they told us:

the difficulties of embracing risk at financial institutions

Embracing risk

“Banks don’t want to try new things in this environment. We have lots of discussions about finding ways to innovate but at the end of the day, most senior leaders are caught in a CYA mindset and nothing really gets done. Innovation gets increasingly harder as organizations get bigger. People and teams tasked with trying to maintain competitiveness in the financial industry frequently push up against organizational boundaries when they try to change things. How do we embrace the unknown if we just cling to accepted practices?”

the challenge of marketing to millennials

Marketing to millennials

“Incumbents have done a good job marketing to the previous generation. We got pretty damn good at it. But it’s like the Innovator’s Dilemma. We’re doing an awful job making our institutions and products relevant to millennials. We need to look to other firms, like Google and Apple, as examples of brands embraced by the younger generation.”


Making silky smooth experiences

“If there’s anything B2C fintech firms have taught us is that there’s a ton of runway to improve the way we deliver our services. The challenge is only partly regulatory. The other challenge is getting the right talent into our organizations and giving them the room to do things differently than we’re accustomed to.”

marketing challenges for FIs

Marketing bang for the bucks

“It’s still surprisingly hard to understand the full marketing lifecycle and how well our funnels work. The difficulty is compounded because of all the channels we now maintain. It’s not just an analytics problem. How come we still can’t measure the ROI of our marketing initiatives across all our channels?!”

the challenges of legacy fintech

Legacy systems

“Our reliance on our legacy systems is a big challenge for us. Systems have been built upon systems for decades. Now, when we want to make a change, we’re forced to think and work through all the contingencies and dependencies of our platform. It’s just really hard to be nimble if making seemingly small changes takes month at a time.”


What so many financial firms get wrong with innovation

Financial firms talk a lot about innovation these days. The thing is, innovation can mean lots of different things. For some incumbents, it means creating a corporate venture arm. For others, it means running hackathons and building an in-house lab. Others structure internal divisions tasked with making their companies more innovative.

So, what is innovation?

joel albarella of New York Life Ventures
Joel Albarella, New York Life Ventures

It’s actually whatever you want it to be, according to Joel Albarella, the senior vice president and head of New York Life Ventures. He says financial firms need to have a serious discussion to help define what kind of organization they want to be in the future. Once the goal is set, innovation becomes the means of getting there.

We sat with Joel to talk about how he’s faced the innovation challenge at New York Life and how he recommends other top financial institutions do the same.

What common mistakes do many firms make when it comes to innovation?

One mistake is treating innovation like a typical business problem and using established business practices to solve it. The first step is to define what is meant by “innovation” at your firm. This can range from simple “innovation theater” — essentially, PR — to significant change within the core — transformation. Management must decide just how far down the rabbit hole they are prepared to go, which of course is a paradox: Strong incumbents, with strong leaders, find it difficult to allocate capital over the long term, particularly to things lacking clarity on projected returns – which is exactly what true change may require.

This may be why we often see corporate venture capital units progress in fits and starts. Often a unit is stood up for the right reasons, until a new set of logical business leaders, making good business decisions in a effort to enhance established financial metrics, reallocate the capital to higher returning areas — in other words, doing their jobs! It’s classic “innovators dilemma”.  So, patient support from the top is critical.

I’d also recommend staying under radar as long as you can, though I understand not everyone can do this. We launched 5 years ago … quietly. It allowed us to build a network slowly, and gave us the power to ask the question: how did you find us?  And it allowed us to learn before we got up and faced professional level VC competition. Not rocket science, just basic self-awareness.  We’re a mutual insurance company for a reason, we are making promises and we are honored to earn our customers’ trust — so we take a long term view — and this has helped our Ventures group.  Let me ask you: If you’re new to something, would you rather have added pressure right away or have time to come up the curve?

What do you look for when you make an investment?

Our investment approach is patient, opportunistic and collaborative.  We are proud of our network of external trusted relationships that we have built over the years — and it’s very helpful to our deal diligence.  Of course, we love it if we have a subject matter expert internally with a specific view on a particular technology or a startup, but it’s not required.  We invest in start-ups broadly related to New York Life that provide opportunities either now or in the future to better our business. We are stage agnostic and check-size agnostic.  The other side of the coin is we give up rapidly scaling our exposure to the asset class on the direct side (through leading rounds with big checks and aggressively seeking deals)  But we like that trade.  So far, we’ve made 12 direct investments and are pleased with early returns, but more importantly we have played a part driving the testing (and in some cases usage) of new technology throughout the company.

What have you done internally to improve your testing/deployment of new technology?

One example of how we’ve expedited our testing environment is that, from the beginning, ingrained in everything we do, we tie in people from around the organization and we support them to test and move quickly. We enjoy community building internally, New York Life is like a family, but we try not to pause on ceremony. For example, we created a process to avoid the typical anti-start-up bias in large companies. We gathered the right folks in IT, procurement and legal and made the case that a one size fits all procurement process that worked historically for giant vendor relationships (like hiring Cisco or IBM) is not agile enough for the testing start-ups. Engaging a startup for a quick test, for quick learnings, with fast failure as a goal — doesn’t require the same level of rigor.  We called it our vendor SWAT team, and it helps us stand up tests quickly — And we are lucky to have the right people within the company to support us. We meet quickly/virtually, agree on the nature of test and stand it up. And we are always transparent with the start-ups and quick with unfiltered feedback.  They know that a larger engagement will require a deeper review, and that’s okay, it’s wasting time that’s killer for a start-up.  And we are not trying to replace procurement, but maybe we can be a stalking horse.

Is corporate investing enough to innovate?

No, it’s not enough. My view is that you first have to answer the question : what does innovation mean to you?  How does your organization define innovation?  The answers should drive what you do. You may quickly realize you’re bumping into some sacred cows. Do you want to launch new products in market? Are you looking to attack distribution? Is exploring commodity pricing on the table?  Or are you just looking for more knowledge about key themes?  The answers should drive your “innovation” strategy.  Importantly, there are no universal “right” answers to these questions — a fact that can feel uncomfortable for leaders of successful companies whose companies have become incumbents due in large part by their ability to find “right” answers to business challenges!

Hear more from Joel Albarella at Tradestreaming Money 2016 in New York City this November 14.

4 charts on the state of digital transformation in banks

Digital transformation is one of the buzzwords causing a stir in the banking community. Many bank execs are leading the process of unifying digital strategy and operations, spanning from the front office to back office.

Digital transformation is seen as the way banks can ensure they serve their customers even during times of great changes in technology and customer expectations. Data shows, however, that bankers are still thinking of innovation in a very siloed and opportunistic way.

According to CSI’s 2016 banking priorities study, about 11 percent of banking executives plan to enhance mobile or omnichannel banking. 18 percent plan to incorporate new technology. Driving interest income and loan growth was seen as the greatest opportunity.


Most bankers will say their organization in engaged in digital transformation. Many banks, though, still manage their transformation as business-led “islands of innovation”, posing as digital transformation, while true business-wide transformation remains much rarer, according to a recently published IDC report.

Only a quarter of respondent banks in the IDC study are in the two highest maturity levels and are truly able to support the level of agility and innovation that the market demands.


North American banks are investing the most in digital transformation. One in five banks is investing more than a quarter of its IT budget in DX initiatives, which is three times greater than the next closest region.


Digital transformation usually starts with front office applications like mobile banking or other customer service initiatives. However, as banks progress in the digital transformation maturity journey, back and middle office initiatives get more focus. Projects prioritized in the next 24 months, according to the IDC study, are more likely to be middle- and back-office focused, like building an enterprise-wide compliance architecture.


How ING uses culture to develop innovative products

ING Group released its quarterly earnings this week, beating analyst consensus figures by 40 percent.

The Dutch bank attributes the increase in profits to the success of its customer-first strategy, which puts a strong emphasis on innovation.

This strategy, the bank claims, helped it acquire about 650,000 new retail customers in the first half of 2016. The bank’s core lending grew by EUR 14.8 billion in the second quarter.

ING recently launched a slew of digital money management products. The bank added a forecasting feature to its mobile banking app in the Netherlands, which enables users to gain more control over their finances. ING in Spain launched a digital financial advisor called My Money Coach that helps customers to manage their current and future personal finances. And similarly, in France, the bank launched Coach Epargne, or Savings Coach.

In addition, ING joined forces with a Belgian bank to launch an integrated mobile payments and loyalty platform. This solution merges the loyalty platforms of both banks, with ING’s Payconiq app.

Payconiq was developed by bank employees in its accelerator. It’s symbolic of how structural and cultural changes can have bottom line effects.

About 2 years ago, ING appointed a Chief Innovation Officer that reports directly to the CEO. The Chief Innovation Office, with a team, resources, and responsibilities, was given the mandate to be a facilitator of innovation and transformation within the bank. Words like agile and lean, a staple in Silicon Valley vocabulary, are now part of the bank’s handbook.

One of the major changes is project-based teamwork, which acts as a catalyst for breaking organizational silos, explained Diederik Heinink, from ING’s corporate communications office.

Based on an identified customer need, a group of the most relevant people from various departments are gathered together and tasked with developing solutions. Doing things this way, the bank hopes, will ensure shorter time-to-market and more customer-centric offerings.

“It is very much about collaboration, sharing, and openness,” Heinink said. “We want to tap into the talent of people we have in house.”

Once a year, the bank hosts an innovation bootcamp. The competition allows anyone of its 50,000 employees a chance to submit product ideas. The top 10 submissions then move on to compete against one another.  The top 3 ideas are incubated alongside three fintech startups in the bank’s accelerator.

Last year, about 1200 ideas were submitted by bank employees. Payconiq, the bank’s mobile payments platform, was developed in this manner.

The push for innovation is part of the bank’s Think Forward strategy, which was crafted to offer better solutions to changing customer demand, mostly around speed, user experience and mobility. The bank focuses on empowering customers to take better control of their financial lives through the use of the bank’s products,

Among the core areas the bank focuses on are payments, lending, robo advice, money management, working capital solutions, and financial markets. Recently, ING started cooperating with Kabbage and funding loans on the platform. Currently, the bank is working with about 45 fintech startups, according to Heinink.

“We can learn from the startups’ agility, entrepreneurship, and know how,” he said. “They can tap into our strong brand and 35 million customers.”

Banks are increasingly aware that they need to collaborate with fintech startups in order to win over customers, who are less and less loyal to one brand. As customer habits change, many banks are charting their own courses of innovation, finding the right balance between homegrown innovation and partnerships.

How MasterCard Labs fosters a culture of payments innovation

Mastercard Labs fosters a culture of innovation

Selfies that authorize credit cards, laundromat washing machines that call when they’re free and distributing food assistance in Africa by debit card are all steps on the path toward one common goal, according to MasterCard CEO, Ajay Banga.

“Our vision is a world beyond cash,” Banga explained in a recent interview at the Stanford Graduate School of Business. “85% of the world’s retail transactions are cash and check. Only 15% are electronic.”

To realize that vision, Banga has transformed MasterCard over the last five years by making technology and innovation critical to MasterCard’s identity, and the results are paying off.

Banga, an Indian Sikh who wears a black turban, was previously the Chief Operating Officer at Citibank, a protege of banking mogul Sandy Weill’s, and was being groomed as a potential CEO. But he chose to leave all that behind for a different kind of job:

Citibank had 290,000 — 300,000 employees around when I was leaving. And at a point of time, 200,000 of them used to work for me. And it’s impossible to make change with 200,000 people in your 3, 4, 5 year span. But if you’ve got 5,000, 2,000, 10,000, 15,000 people working for you, you can touch them, feel them, put your arms around them, they know who you are, they can understand you, you can make a difference. You can actually change things in that company. […] [W]hen I joined MasterCard, we had 9% of our population was millennials. It’s now four and a half years later, we closed last year with 34% from millennials. I could never have done that at Citi. I just could not.

Banga has made innovation a priority by forming MasterCard Labs as a center for developing new technologies that reports directly to him. Banga approves the division’s overall budget himself, but doesn’t provide any oversight. “So I told them, here’s the money, you choose the projects. I need commercially viable two products after two years. If I don’t, I’ll fire the whole lot of you and start again.”

At Work at MasterCard’s NYC Technology Hub
At Work at MasterCard’s NYC Technology Hub

One example of using technology to push the boundaries of existing payments is MasterCard’s Identity Check mobile app, which uses selfies as a form of biometric identification. The app addresses the problem that people typically choose weak passwords for authenticating online payments.  As reported in The Verge, users will have to actually blink while taking their pictures to prove that they are not merely presenting a photograph, and MasterCard algorithms can detect the use of video.

Groceries by MasterCard
Groceries by MasterCard

MasterCard is also working with established businesses to develop new products and services. The company partnered with Whirlpool to create an app called Clothespin that helps washing machines and dryers tell customers when machines become available and operate without the use of piles of quarters. Working with Samsung, Groceries by MasterCard is another project of MasterCard Labs that integrates a program within the “family hub” refrigerator. Groceries will learn family shopping habits and “suggest” re-stocking and new products. Over the last five years, the company has worked with partners such as the World Food Program to distribute aid to the poor in developing countries, and recently they’ve given cards to Syrian refugees.

Innovators at MasterCard Labs are also turning to the creative community for a source of ideas outside of the kinds of workshops and hack-a-thons designed to generate ideas from engineers and programmers. This weekend, MasterCard Labs will host its first “Fashion and Design Hack” with students from the New School’s Parsons School of Design. MasterCard executive Sherry Hammond explained to Finextra that the company wants to, “integrate design-led thinking into payments innovation and tap into the creativity and ingenuity of the school’s design students.”

MasterCard Labs executive John Sheldon recently told Fast Company that his division’s job is “looking ahead three to five years, taking risks, failing smart, quick, cheap, and learning something along the way.” MasterCard Labs strives to “be the company’s own disrupter,” hosting 48-hour “Innovation Express” events to create new products such as the pre-payment and ordering app Qkr, which has been taken up everywhere from Yankee Stadium to restaurants all over the US to school lunch programs in Australia. Despite all his team has accomplished, one challenge remains for Sheldon, “I also want to solve for giving the tip to the guy at the garage who brought my car back without a scratch – because it represents the barrier between where we are now and the cashless society we envision.”

MasterCard’s commitment to innovation seems to be paying off for investors, too.  The company’s share price is up over 250% over the last five years.

photos courtesy of MasterCard