The innovator’s dilemma in finance is huge. Banks have grown so large and profitable in today’s market that they run the risk of taking their eyes off where tomorrow’s market will be. That’s according to John Sculley, previously CEO of Apple and Pepsi.
“Look at Kodak, which doubled down on film to compete with Walmart just around the time Apple first introduced the iPhone,” Sculley said in a keynote address at the Money 20/20 Conference in Las Vegas. “Do banks really have the incentive to pivot?”
As the financial services industry has grown, it’s become significantly harder to skate to where the puck is headed. According to Sculley, who is also vice chairman of Lantern Credit, financial services now amounts to 4 percent of GDP and employs 7 percent of the U.S. workforce, but accounts for 30 percent of corporate profits. It’s that profitability, he suggests, that make it hard for incumbent financial institutions to address changing customer demands.
He’s quick to draw comparisons from other industries as an opportunity to draw inspiration, something he says he learned from Apple’s Steve Jobs. “One of things Steve used to say is that you have to zoom out beyond your industry and look around,” he explained. “When Jobs was creating the Macintosh, he looked at the advances in graphics and fonts and looked at Xerox PARC and he became convinced that there was a way to build a personal computer for non technical people to do beautiful work, to become a ‘bicycle for the mind’.”
Sculley sees consumer credit as an opportunity for fintechs to begin edging in on incumbents’ territory. With a denial rate for credit card applications that approximates 50 percent and no real resolution dispute process for consumers to challenge their credit scores, there’s room for improvement.
Americans live on credit and bettering this process can mean real impact for consumers. Sculley’s work at Lantern Credit centers around what he calls developing an “intelligent credit score” and giving consumers tools to improve their scores.”Imagine applying machine learning and predictive analytics to see give a person insight into how their activities would affect their scores,” he explained. “You can’t necessarily improve a person’s income but you can increase their credit worthiness. Lowering the cost of capital would make a big impact.”
For Sculley, the way forward for the financial industry is to look to the differences between the auto and tech industries. At its peak, the auto industry accounted for $250 billion in revenue. But to do that, the big three auto makers employed 1.2 million employees. Facebook, Apple, and Google have similar revenues and only employ about 127,000 people. Technology enables scale and to do so with fat margins.
In spite of the challenge, Sculley is generally optimistic for the industry to get through these challenges and rise to the opportunity, even if everyone doesn’t make it. “There are bound to be war stories of big leaders of banks who missed the pivot, to customers paying more attention to the opinions of other customers than they do to their bankers,” he said. “Changes are happening in exponential time and it’s a great time to be a disruptive innovator.”