Innovation in Financial Servicesby@digintent
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Innovation in Financial Services

by Digital IntentOctober 10th, 2018
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<em>The financial services industry impacts us in broad sweeping ways, perhaps more than any other industry. And technology is forcing legacy institutions to adapt while juggling massive compliance, security, and legacy platform concerns.</em>

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The financial services industry impacts us in broad sweeping ways, perhaps more than any other industry. And technology is forcing legacy institutions to adapt while juggling massive compliance, security, and legacy platform concerns.

In this discussion with Jason Henrichs we talk about how financial services companies can adapt more successfully, leveraging unique frameworks that keep the existing business moving while enabling rapid tests and decision making. We also discuss how various emerging technologies are going to impact financial services going forward.

DI: I know you’re working on several things almost always. What are you up to these days?

Jason: The main thing is I’m co-founder and managing director of a company called Fintech Forge. We’re a managed service business that helps financial institutions extend their innovation capacity, and we’ve developed a proprietary way of looking at innovation in a highly regulated environment.

Related to that, my partner JP Nichols and I are the co-hosts of Breaking Banks with Brett King, which is the largest fintech podcast in the world. And we use that platform to talk with innovators and push the evangelism of the need to evolve and better serve our customers with financial services

Lastly, I am the chairman of FinTex, which is a non-profit industry association growing the financial technology ecosystem in Chicago and the broader Midwest. We try to push both incumbents and startups to build better financial service products that are more inclusive.

Innovation and Regulation in Financial Services

DI:You mentioned regulatory issues being one of the more unique aspects of financial services. What are some of those challenges or problem, and what are some ways organizations try to navigate that?

Jason: When we think about regulation, it really has three components.

First is intent. What is the intent of this new thing that you’re trying to do?

The second thing is the policies and procedures around how it’s delivered. And the last are the outcomes.

We’ve avoided measuring intent because that requires personal judgment. And outcomes are hard to measure — it often takes a long time to develop.

So the emphasis from a compliance point of view has been to audit policies and procedures. This leads to the people, processes and technology being optimized around scalability, reliability, and compliance. And as a result they’re very rigid. They’re expected to deliver with 5 nines.

It turns out people don’t like if you send a wire transfer and it doesn’t arrive. Doing your job 80 percent of the time isn’t going to cut it.

When we think about innovation — doing something new to create value — if you’re doing something new, you have to learn. And learning requires actually having things go wrong, which is the antithesis of optimizing for the highly reproducible five-nines.

So how do you actually build these two organizations that can work together simultaneously? We would never suggest throwing out all of your policies and procedures, regulation be damned. You can’t just treat your existing business like a startup — that doesn’t work.

When you’re executing your existing business for the types of results that you’ve come to expect, you can predict with high accuracy and high precision — just keep doing what you’re already doing.

But when you’re looking at something new, you’re probably going to have dramatically difference results. You might have a 50% completion rate, and you’re looking to get it to 80. You need to go do experiments and do things very differently.

And that’s where our frameworks around doing experiments comes in. We call it FIRE building on the forge as an analogy. How do we do Fast Iterative Responsive Experiments?

  • Fast: shorten the time between the discussion and actually having a result that can be debated.
  • Iterative: take the result and you continue to build on it.
  • Responsive: you need to respond to what you learn and it needs to change your mind.
  • Experiment: at least half the time it isn’t going to work as you expect.

DI: Do you recommend that the team responsible for the core business is also executing on the innovation stuff? Or do you recommend carving out a separate team, like a Bimodal IT methodology, where they have a very different mandate to move fast and break things, they’re measured differently, etc?

Jason: For the majority of institutions, if you’re looking to actually transform your mainline business, disconnecting it completely from that customer-facing experience actually makes it a bigger challenge because you need the customer to be driving what innovation looks like.

If you’re creating a separate group that focuses on innovation where the mandate is about complete reinvention, we think it’s totally appropriate to create an innovation team that’s completely separate.

In most organizations, we’ve found it’s very successful if they work in that bimodal mode. They work in the core business, but then they jump in and participate on FIRE teams with very different objectives. It actually becomes a badge of honor to spend time on a FIRE team.

As an interesting byproduct, people often carry those practices back into the other parts of their job. We’ve found over and over that job satisfaction actually goes up as a result of feeling like they’re doing something new. It gives them a special sense of purpose.

DI: Once you get this team carved out and they adapt to this way of working and they’re moving quickly and they fall in love with that approach, and they want to bring it back in, how do you how do you maximize the likelihood that the organization, when they do kind of get folded back into the mothership, welcomes that change and adapts accordingly?

Jason: One of the important things is the fire team doesn’t actually leave its day job.

The fact that we’ve asked people to take on more work than they’re already doing, and they consider it a badge of honor and job satisfaction goes up is not what you’d expect.

But they’re feeling purpose because they’re helping drive change, and they find some other areas where they can either free up time or use time that was being misallocated anyway.

But remember, these experiments are meant to be as incremental as possible. And the results are being published continuously. The whole idea is to quit doing things that aren’t working sooner.

So that’s part of how we change the cultural stigma around stopping a project. It isn’t failure; pursuing it even though we know it isn’t going to work or meet our expectations would be the failure.

So by publishing those things along the way we can adjust as we go and work with the body of the organization.

It’s like using your own stem cells to grow your replacement organ. It’s not like a fancy consultant can come in and successfully say, “Here’s your innovation strategy, go execute it and call us when you’re done and successful.” That’s just not likely to be adopted.

It’s our perspective that the best ideas are by the people who are closest to the business, but what they haven’t had is a toolkit and a governance process for how to actually take ideas and evolve them into what will ultimately be successful.

Using Innovation Accounting in Financial Services

DI: When you’re teaching a team to think this way, they are probably used to measuring success in a certain way and they’re used to measuring things of a certain size and a certain degree of scale. But when you’re talking about some of the more disruptive stuff, they probably look really small. How do you teach them to understand the definition of success with an initiative like that is going to look a lot different than how you may be used to evaluating success or failure?

Jason: We’ve created several lenses for the executive leadership teams to create innovation portfolios around. Those lenses need to take into account each organization’s individual strategy.

For some, innovation might be focused on new revenue growth. For others, it might be around expense reduction. So they’re going to be heavily focused on the tactical and the back office and what they’re doing for others. It’s transformation.

We work with a small bank that is in the Midwest that is not growing. In fact, it’s shrinking. Your ability to take share against competitors in a shrinking population environment is relatively limited. So they’re trying to create a new business unit that is going to act as the banking rails for fintech startups. That’s a transformational lens.

A lot of what we do is also give them the concept of building a portfolio of innovation. You’d never have your retirement tied up in a single place. Likewise, you need to tailor your portfolio to what your strategic objectives are in your portfolio.

You’d never allocate, the same amount to every single thing. You don’t say, “Hey 25 percent fixed income, 25 percent large gap, 25 percent in small caps, 25 percent in emerging markets. And boom, I’m done.” That might work at some point in your life. But as you get closer to retirement, you’re probably shifting things, but you keep small allocations.

Artificial intelligence is a great example, especially around doing some of the natural language processing and the ability to translate that into advice, etc. For most institutions, you can’t write a really good business case right now. If you’re dealing with things that are emphasizing learning, you’re either deluding yourselves or it’s just never going to pass the hurdle. So you need to redefine what the hurdle is.

So using AI as the example, don’t make a huge investment, but begin to play with it a little bit. Invite some companies in that are working in this space, whether that be IBM or a start-up, to just begin to open your eyes. Say, “We’re in the exploratory phase. It’s a small investment. It’s an investment of time.”

Or you take the next step which is “Hey, you know, is there a platform that we can redraw what the hurdle, redraws what the risk is we’re willing to take?” We call that in our nomenclature your FIRE break.

And so what’s the risk appetite? What’s the investment appetite? Let’s run an experiment and see what happens. Do customers engage with it? Do they not engage with it?

You can easily convince yourself to just be a fast follower and wait until someone else is successful. But that is actually really dangerous. The likelihood you will catch up is very low. And you can’t just take this same technology and assume your customers are going to use it because someone else did it. You need to tailor your innovation efforts to your unique strengths, weaknesses, and vision of what you’re trying to become in the future.

DI: You and I have talked in the past about the Volcker Rule and how that adds some complexity for banks in terms of being able to execute on things that would be considered speculative. Do these innovation initiatives fall under that and, if so, how do people mitigate that?

Jason: Volker was specific to investments in terms of financial returns, and some of that’s been repealed. But if we speak broadly around regulation, my view is deregulation isn’t the answer and over-regulation isn’t the answer.

Regulation is monumental, and here’s how I define a monument.

  • It’s normally done in response to something really, really bad that happened.
  • It takes a long time to build.
  • The only thing that tends to visit the monument afterwards are the pigeons.

When I say monumental, I really mean it’s like building one of these monuments that becomes overgrown. The problem with that is deregulation says “let’s hold back for as long as possible and see what happens”. Well that tends to be really bad, and so then we overreact and go to the other extreme.

Dodd Frank’s a great example of this. By the time the bank’s got everything implemented, the world moved much further and faster past it, so we’re creating this backlog of systemic risk.

We work with a state bank regulator. And the regulation they’re using for cryptocurrency is from the pre-civil War era that was created to regulate the interstate transfer of private currency via steam boat. But it’s the only regulation on the books that is applicable in the same way.

We talked about testing and learning in our approach to innovation. I think we need to take a very similar approach in how we think about regulation. We need to not be afraid of trying something not working and taking it off the books and saying, “Nope. No longer applicable.”

The UK did this with the FCA when they decided they’re going to be the fintech capital of the world. They actually merged all of the agencies, put them into one that only had two arms, and one of those arms is really around looking at how it helps pursue innovation, and cleared the rest out.

We’re not going to do that in the US any time soon. But there are ways that we can take a more engaged, proactive approach.

Arizona just passed a fintech sandbox bill. There’s lots of discussion with this idea of an OCC — the office of comptroller of currency — doing a national charter that says not every bank needs to do all of the functions of a bank. This is an important first step.

It was challenging when the CFPB first came about and I was running one of the first Challenger banks in the world called Perk Street. One of the things they actually did well for as much heat as they take is they would be willing to sit down and have conversations. Historically, regulators have been sort of “Well, we’ll let you know when we come and do an exam and tell you whether what you did was right or wrong.”

In the post-meltdown world, some of the other financial implications of this — where your auditor isn’t supposed to give you guidance in advance of the audit — is like, it’s almost like having your doctor say, “I can’t give you any advice until you’re sick.” That doesn’t make any sense. Wouldn’t it be better if I didn’t get sick?

Innovation sandboxes in financial services

DI: You mentioned the innovation sandbox. I don’t know if they’re using the definition of sandbox the same way that you have used it in the past, but for folks that maybe don’t know, can you talk about why you believe having an innovation sandbox inside of an organization is important? And then to the degree that it is relevant and that there is overlap with legislation? How is that either enabling or making it more difficult?

Jason: You hit the nail on the head with part of this when we talked about the financial accounting versus innovation accounting.

If you take a new endeavor and try to hold it to the same standards of your existing business, it’s not going to match up. This is the innovator’s dilemma by Clayton Christensen — the incumbents have a tendency to over-invest in what they already have because the incremental investment is a lot more certain than pursuing something new.

I like to say the competitive advantage of startups is their desperate. If I don’t figure out how to sell you stuff at a price point that I can make money on I before I run out of money myself, I will go out of business. So they will very quickly develop products that customers want, versus the incumbent will continue to optimize, get that 2 to 5 percent growth, cut out 2 to 5 percent of cost and it works very nicely.

You need the sandbox to say, “OK, we can’t throw all the rules out. We actually just need a different set of rules.” And those are the rules are going to govern the boundaries and expectations.

I think you’ve heard me use this phrase before around innovation theater. The purpose of innovation isn’t to be like, “I have an idea that. There’s going to be Legos on the tables and it’s going to have all the slogans.” How many companies have you been in that that’s their innovation effort. They use Macs versus PCs, and they don’t actually have any outcomes.

That’s why our definition of innovation is “doing something new to produce a tangible result”, which is really important because when economies take downturns, that’s when those programs quickly go out of favor, or even before that when the CFO says, “We spent how much on this lab?? What has it produced?”

It needs to actually have an end in mind in terms of the problem you’re solving, and needs to be making steady measurable progress against it.

Measuring the success of innovation initiatives in financial services

DI: Do you ever run into a sunk cost issue, where even if they identify success criteria, they run experiments and they don’t hit that goal, but they got 80% of the way there? How do you navigate that gray area there around success and failure?

Jason: I mean, it’s a great question. There is this tendency where no one likes to be wrong, particularly in financial services. If you have a loan officer that has a 5 percent loss in their loan book, that’s going to be an ex-officer.

But if you have an innovation department that has a 95 percent success rate, I will tell you you don’t actually have an innovation department there. Just a group executing on things that are already there.

The flip side is, you can’t just celebrate every failure and say, “Yay, we failed fast.” You actually need healthy tension in the organization to have debates on getting results, even if they weren’t what you were expecting.

There are three outcomes to one of these experiments.

  • I’ve identified another experiment that needs to be done to de-risk this.
  • I’ve learned all I can and we should just table it.
  • It’s ready to graduate into the mainstream business and we want to actually roll it out much more broadly.

That should be a spirited debate, and it’s one of the reasons that we take a very strong view on governance. The fire team comes up with what the experiment is and then presents it to the governance group. They’re the ones proposing which of those three outcomes we’re at.

That’s why we don’t want an over-funded project, because that’s where the inertia comes in, and the sunk costs. It’s one of the reasons we find the CFOs become some of our biggest advocates.

One of the things we do to help teach this is we’ll take an executive leadership team, and we’ll sit them down to play poker.

DI: Bankroll management.

Jason: It is. Put them on teams instead of individuals. They have to place their back before they see any of the cards. They only get to see what’s in their hand, like typical Texas Hold’em, before they get to see any of the incremental cards. They place their bets and then they’re done.

Well guess which team wins every single time? It only takes a few hands. But the one that gets to see the incremental cards and can then decide to fold or not fold, they win.

And then we turn around say, “Then why do you run your business this way where you fund a two-year plan to go do this innovation thing? Instead, as part of your standard annual capital planning process, put aside a pool of resources — those are dollars and people — for your innovation budget.”

Don’t allocate it to a specific project, because that’s going to create the inertia you talked about. If it’s fully funded to specific programs, surprisingly it always gets spent.

My wife works in advertising. Success for her is on time in 98 percent of budget. If they do that, the client is thrilled, except they know what they’re actually spending it on. If your innovation program is like, “Hey, we spent 98 percent of the budget. We spent it on time.” Well that isn’t necessarily success. So you need that ability in-flight to course correct.

Unbundling in financial services

DI: From a startup’s perspective, where you’re dealing with, not even 800-pound gorillas —

Jason: Trillion-pound gorillas?

DI: Yeah, exactly. By definition they probably have to take an approach where they take off a small piece of something and try to just focus on that, and maybe over time if they’re successful they can layer additional things. Do you feel like the trend around unbundling happening with financial services customers? Do they want to interact with fifteen or twenty different apps all loosely connects through APIs? Are the days of getting the majority of services through a single monolithic institution over?

Jason: I think this is one of the biggest impacts the iPhone had, other than keeping us glued to the screen for ten hours a day. It’s conditioned us to tailor a whole set of point applications into a single device. People don’t care if they have to flip between five different buttons on a phone to get what they want because it’s highly personalized, right?

Call it the “app genome” on your iPhone or your Android. It’s highly tailored to you. And you don’t care because it exactly matches your needs.

You want to tailor your music? Hello, Spotify. You want to personalize your mutual fund? Hello, Betterment. That propagates all the way through our financial lives, particularly as digital allows us to take so much of the friction out.

That’s actually where too often we just put digital lipstick on the analog pig. We don’t solve the underlying actual experience issues. We just put a digital interface in front of it. So let’s think about your mortgage application. I’m not sure the last time you got a mortgage.

DI: Two years ago. So still relatively fresh.

Jason: Yeah, and were you shocked that even though it was more digital, it was still excruciatingly painful and it never made you want to buy or sell property?

DI: Yeah. It was still eighty-seven steps. It was lots of e-mails that didn’t tell you anything where you had to log into a special interface due to security concerns. You couldn’t access it via your phone, so I had to wait until I was in front of a laptop. It was tough from a friction perspective. If you talk about BJ Fogg’s behavior model — my motivation was sufficiently high where I was willing to overcome all of those issues. But it was definitely tedious and the efficiencies gained from the tech were marginal at best.

Jason: I’m sure someone there was very proudly talking about their all-digital experience. But if you said, “I don’t care about my digital experience I care about my user experience,” it was horrible.

But look at someone like Rocket Mortgage. They didn’t just make it all digital. They re-plumbed the system and the processes they go through. I don’t care if my existing bank offers me a mortgage unless it’s at a rate that is significantly better if they’re putting that much friction in the process.

Why do I have to give you my bank statement? You’re my bank. That was my experience two years ago. It makes no sense to have to keep explaining these things. You didn’t actually solve the problem. I’m going to gravitate to whoever can actually solve my problem.

Now am I going to pay a tremendously higher rate for that? No. But whoever can deliver the most value and just get me through the process as fast and as easy as possible is who I’m going to go to.

The rise of robo-advisors in fintech

DI: You mentioned transparency. I think about robo advisors and the sarcasm I would imagine financial advisors probably had when it came out that consumers are going to trust a robot more than they’re going to trust you. And then it turns out “Yeah, actually, I do believe that they’re going to do a better job than than Joe who took however much training.” It’s got to be disruptive for them.

Jason: Well, look at the three biggest custodians, Schwab, TD, and Fidelity, that sit behind the majority of advisors now all offer their own robos. I don’t think the advisor goes away completely, but their role is changed dramatically.

How do you build wealth?

  • Well, you need to invest consistently, regardless of market going up and down.
  • You need to do with a market exposure that is cost efficient from both the fees and the taxes.

Nothing does that better than a robo does. Except the robo doesn’t have human empathy and understanding the human condition to help you go solve these other things. It’s a joke that John Stein at Betterment and I’ve kind of had as an argument for close to a decade now, which was no one wants to talk to their advisor until they need to talk to their advisor, at which point the machine doesn’t cut it.

DI: When you need to be talked off of a ledge. The robo advisors haven’t dealt with a severe market correction yet. It’ll be interesting to see how that unfolds.

Jason: I think we’re going to see the future is going to belong to the cyborg. It’s to be no longer this environment where it’s either all people or all do-it-yourself. Those two things need to blend.

The ability to charge 1% fees as a financial advisor — those days are quickly waning. They’re going to need to figure out how to do it efficiently. And as compliance and technology costs go up for them. They either need more big clients or to serve a lot more smaller clients. The only way they’re going to be able to do that is through technology.

Leveraging data for financial services innovation

DI: Have you seen examples of organizations that are leveraging data well, not just sending me a more tailored to e-mail based on my interests, but actually improving customer experience. Is anybody doing that really well?

Jason: There’s a huge advantage to the incumbent because they have the data. They just need to choose to use it differently than they have before, because right now too often they spend all of their time mining for the wrong things.

I like that they do my fraud protection, but they do a horrible job of learning my actual behaviors. They do very little to experiment with what they can do differently.

Imagine Amazon. They have a whole host of data about you and they’re really good at mining it to deliver non-intuitive offerings to you just based on the experiences they’ve seen. I don’t know about you, but Amazon recommends something and it wasn’t even something I was searching for, but it’s something I want.

DI: With financial services, it seems like it would be harder because I’m not trying to change checking accounts or add credit cards on a regular basis, and active investing isn’t necessarily even a good idea.

Jason: Let’s just take “active” and cut “investing” and this is where I think so many banks can exist at the user experience level. They’re used to selling you products. If they were to think about selling you actions or outcomes, then suddenly the host of this data and what they can be able to provide you as a service that you’d be willing to pay for is very different.

Instead of saying, “Hey Sean. Here’s a new credit card for teachers or a checking account that has incremental little value compared to what you had, but I’ll give you 500 dollars to do it.”

What if they were to say, “Hey, Sean, we’re going to help you live a better financial life. We’re going to use this data to help you save more and save in the right places to use credit when you need to, and there’s a monthly fee attached to it. But we’re going to show you based on your history, here’s your trajectory. And here’s how we bend that curve.”

I bet you would pay that, and I bet that you’d be a much stickier customer, and you’d be a much longer term profitable customer, and then they could find products that they could layer in that are better for you.

DI: We’ve talked internally about some of the relaxing around in accredited investors and some of the things that would theoretically open up. It’s been a little surprising to me that you haven’t seen more offerings tailored to those types of investors through some of the traditional financial institutions. Maybe there are good reasons for that.

Jason: I can tell you what some of the good reasons are. I don’t know if you looked at what bank profits are lately, but they’re at record highs when the cost of borrowing for the bank is practically zero. Slightly above that now, but they just got a massive corporate tax cut and the economy is booming, so you’re not seeing default rates go up and the prices that they can charge are up, whether it’s their commercial or their consumer customers.

That’s one of our problems with banking — the profitability is driven by debt. What is the spread on how I can get money in versus what I landed out at? We need to rethink that model.

Blockchain in financial services

DI: Let’s talk about blockchain. In the hype cycle it seems like we’re probably in a trough of disillusionment. There’s been a lot of pilots, but it doesn’t seem like there’s a ton that’s happened in terms of in production applications, either in the private blockchains or otherwise. What are your thoughts on the underlying tech with distributed ledgers? How do you feel about folks’ interest in either providing exposure to tokens or even leveraging their own tokens?

Jason: Great question. Lots of parts there — let’s start with the first one.

Distributed ledgers are not new. They’ve been around for a really long time. And the answer to everything is not always blockchain. Why use a blockchain when you could use the traditional distributed ledger that is cheaper to operate and works just as well. And why you a distributed ledger when it’s actually a database you need?

It’s so easy to play buzzword bingo. When’s the last time you hired a hammer company? You don’t hire a hammer company, you hire a construction company, and the type of the company you hire is different if you’re building a high-rise or you’re building a house. So why do we throw around the idea of “blockchain companies?” If the problem you’re solving is blockchain, that’s a circular reference.

Is there a lot of legitimate use for blockchain? Yes. I had the CEO of Currency Cloud on Breaking Banks a couple months ago and we’re talking about the last mile problem.

The episode is actually titled “The Last Mile” on The challenge being if you’re solving the middle part of the problem, it’s really painful to get the information in or the information out. If I’ve accelerated the middle part, have I actually solved any of the problem?

So where I’m seeing the most interesting applications, in particular with blockchain and distributed ledgers, is either being wholly used within a single organization or within closed networks.

A great example is there’s a very large bank that we spend a lot of time with that is putting all of their treasury management on the blockchain. It is a global bank. So every day they have to reconcile what their risk capital is and what they’re holding in reserve by putting it on an internal version of blockchain. They have to share pieces of this with regulators and with outside audits, and blockchain allowed them to share pieces of it versus everything, so they freed up hundreds of millions of dollars that they already had on their books that now they can actually use for lending.

Now another company, they use Bitcoin to move money from one country to another and instantly change it back into fiat currency, but it is faster and cheaper for them to do that internally then it is to do a traditional bank transfer.

DI: Seems like there would potentially be like in our even an arbitrage opportunity for them there too. Just because I know that there’s fluctuations in price across borders — that doesn’t sound like the primary reason why they would be doing that, though.

Jason: Yeah, that’s one of the things we’re trying to get out it. In the three days that it currently takes me to be transferring money around I’m taking currency risk whether I like it or not. This a way to take the currency risk out as well as the time factor, and they control the transaction completely.

AI in financial services

DI: What else are you interested in from an emerging tech perspective, either specifically as it applies to fintech or just sort of in general?

Jason: I’m simultaneously fascinated and scared to death of where we’re going with AI. Not in an Elon Musk sort of way, although I can see his point. But I start to begin to question and worry about the moral implications of when we’ve completely abdicated our own sense of ownership over it.

Yet at the same time, one of the reasons I can’t let it go is I look at the financial situation of the majority of Americans and it scares me and it scares them.

There’s Pew research that shows 84 percent of Americans say their number-one or their number-two stress is running out of money. And that’s something that’s getting worse, as we take away social safety nets and that stress level goes up.

With AI, we could have a person on your shoulder who answers every question for you. Can you afford that vacation, Sean? Should you be getting this mortgage versus that mortgage?

But the question is, who’s providing that? Facebook reminded us that if you’re not paying for it, you are the customer. I would say I accept that they own all of my information and will be monetizing it some way and I’m fine with that because of what I get out of it.

But if I’m looking at the ability to bring great advice that alleviates stress to the masses, what are the implications for who owns that and how are they monetizing it?

What does that mean for us as the individuals — is it being used for good or is it being used for bad? Is it actually taking our own sense of ownership away from us? At the same time, it’s here and it’s not going away.

DI: Are you concerned that we might be widening the income gap? Now the people who are going to have access to the best information or the best machines will have the most data to train on and are able to learn the fastest. We’ll concentrate wealth more than we already have. Is that a legitimate worry or is that less of a concern from your perspective?

Jason: I actually think it might go the opposite.

One of the most exciting things about financial technology broadly, not just AI, is what used to be either unprofitable market segments or unprofitable products I can now actually bring to the masses.

The potential for fintech to be one of the greatest drivers of financial inclusivity and hopefully to shrink those gaps — well, I don’t know that you ever shrink the gap completely. But can we close the disparity between the 99 percent up to the last 2 percent in a much better way than we ever have before.

Basic Income

DI: Do you get involved in conversations around basic income?Are people talking about that with any level of seriousness? Economically, it seems like there’s some problems with that idea.

Jason: Are there?

DI: Logistically, how much money do you have to create to do something like that?

Jason: There have been some economists that have said that it actually could end up saving us money.

DI: Really? Interesting. Where would you recommend reading about that?

Jason: Oh now you ask the challenging question. I’ll have to find it for you.

But this is this is what I would point you to. Do you know that the UN publishes an annual report on happiness — on global happiness. It looks at if you really want to look at the well-being of a country, GDPs are the worst possible measure. They’ve been to several countries with economists who have been pursuing this idea of “gross domestic happiness.”

One of the things they found is that the countries that do the best on gross domestic happiness are in the Danish region. And what do they have in common?

  • They all have universal health care.
  • They all have universal free education that’s top-notch.
  • They put in place a whole bunch of social safety nets including a version of UBI, and happiness goes through the roof.

Now you could also argue that the US is hands-down one of the most productive countries and one of the most innovative countries. Don’t we need that pressure to cause innovation?

Yes, to some degree. I don’t think that necessarily goes away.

Jeffrey Sachs is the economist from Colombia that leads that UN effort, and he talks about looking at the trade-off. Would you rather have universal misery or trade off some of the fast pace and the innovation — which, by the way, some of it might be moving faster than it should — and generally raise the level of life satisfaction. Is that a trade-off we’d be willing to make?

The beauty of fintech and other technology is the ability to do some of this is going up, and the question will become, “So where you we actually derive the purpose that gives life satisfaction,” which is another key ingredient in the happiness index.

I think personally if we were to shift the stress people feel in their financial lives and replace it with another purpose like family and community and creative endeavors, whether that creative endeavor is something like invention or art or gardening, not only would general happiness go up, I actually think our overall productivity as a society would go up.

Let’s think about some of the things that are completely unproductive. Well from a financial point of view, the amount of money spent on treatment of illnesses, many of which are based on bad lifestyle choices like obesity, is a lot.

If people actually had financial incentives to live better lives versus feeling stuck in what they’re doing, or if people had more time to be with family — you know, one of the signs for being at risk is actually the absence of a father figure in the home.

Can we act on what is one of the biggest drains on society? We incarcerate so many of certain parts of a population that if we can address some of the grassroots issues of this — let’s not talk about prison reform, let’s talk about how we need fewer prisons.

The opportunity for fintech to create social good

But there’s the opportunity within financial technology to promote financial inclusion and to bring more people into the system.

With those resources, they can do other things that make the other parts of their life happier and more productive and to me that’s the promise and the number one reason I’m excited about fintech.

We need innovation, to bring it full circle. If we maintain the status quo of how we approach the world and people’s finances and companies’ finances, that isn’t sufficient for me.

DI: So for folks who want to learn more about the stuff you’re working on, how can they find you?

Jason: Listen to Breaking Banks at or you can check out what we do at Forge.

DI: Awesome. Jason, thanks for being super generous with your time. I really appreciate it and always learn a ton from you. Thank you for taking the time.

Jason: Thank you, sir.

Originally published at on October 9, 2018.