Jeremy Balkin, innovation mogul and Head of Innovation at HSBC Bank USA, shared how the bank has made innovation a key component of its culture in the first webinar session of Efma’s ‘Innovation & Fintech’ webinar series, held on 5 June 2019.
So, Jeremy, what does innovation mean to you?
When I joined HSBC in 2015, innovation as a word and role did not exist. The first thing I had to do was create a definition that everybody could understand and buy into. The way we defined innovation was “doing something differently that creates value”. Innovation is not only about technology, although clearly that’s important – every single person in the organization can do something differently that creates value in their job. So we’ve tried to embed this concept of innovation in the DNA of everyone at HSBC. This same definition should apply to every company, and not just in banking, because these days there’s a lot of competition for customers’ time and attention which means you have to find ways to add value to their lives.
Not only that, but we all benefit from the industry innovating because it delivers a superior customer service, reduces the cost to serve, increases economies of scale, and improves the perception of financial services in the minds of customers, especially skeptical millennials and some younger customers who have been adversely impacted by the financial crisis. It’s very important to re-engage them, and innovation is clearly part of that. It also helps to attract new talent – we want the best and brightest minds from diverse backgrounds with different skillsets. That’s how we will change the industry culture and make sure we remain relevant for the next 150 years.
Why do you say that innovation runs through HSBC’s DNA?
HSBC was founded in 1865 by two fellows in the UK based in Hong Kong who had this audacious desire and ambition to finance trade with the United States. The way I think about it, in 1865 that’s essentially a fintech company building their logistics! In a way, it was the Amazon of financial services at that time. 154 years later, think how many startups or even big companies don’t exist anymore – yet look at the bank today!
It’s very easy to talk about innovation, but at the end of the day it’s about execution. The regulatory constraints we have as an industry to keep our customers’ information safe limit the possibilities for a bank compared to a tech company. But that doesn’t give the banking industry an excuse to be mediocre. Instead, it means we have to be even more progressive, because customers have more choice today than they’ve ever had.
The advent of fintech competition, for example mobile platforms that deliver one product or service exceptionally well – faster, smarter, cheaper and when, where and how the customer chooses – is a big threat to banks. Having said that, the role of the bank in society is very important – for economic development, security, community – and therefore it’s a very good basis for taking advantage of competition. I welcome competition, especially from fintechs, which is why here at HSBC we partner with fintech companies to deliver better experiences.
On what areas of innovation does HSBC Bank USA focus?
While 95% of the innovation that customers see is through the retail end of the bank, 95% of the value of innovation is actually on the institutional or wholesale side. So it’s a delicate balance between how we allocate my time and my team’s time to solve real problems and challenges for the bank. The contact center is a great example, as customers interact with the contact center, but they don’t actually see it. If you standardize around 95% of the simple interactions through AI and natural language processing, you free up agents’ time to work towards more complexed higher value needs for the customer. This is an example of a process improvement in the backend – the customer doesn’t see it but they feel it – so that’s where the value derives.
Do you mean customer or economic value?
You could actually look at defining value in more than just economic or customer value, for example it could mean value to employees. Arguably, it’s the people working in financial services that have been the most impacted over the last 10 years – if you look at morale, employee engagement scores, and attractiveness of financial services.
One of the things we’ve done with the employee in mind is partner with Samsung Smart Watch to trial the world’s first deployment of wearable technology. We saw how we can optimize our frontline staff communication and the results were staggering – not only the efficiency gains in terms of customer waiting times and happiness, but also how our people feel. And happy employees give you happy customers.
Can you give us some examples of the innovations you’re delivering at the moment?
A year ago, through a partnership with SoftBank Robotics in Japan, we launched the first consumer facing robot called ‘Pepper’, to gamify the banking experience and excite the customer in a branch in New York. Now we’re in four US markets including Miami, and we’ve had over 25,000 customer interactions and a 60% increase in new business at the branches where Pepper has been deployed. In Seattle, we also had the highest ever recorded branch customer satisfaction score in the month after launching Pepper.
So far, we’ve had 99% positive sentiment across all media and over 1 BN social media impressions with regards to HSBC and Pepper the robot. Often when banks get press attention, it’s negative, which feeds into employee morale and customers too... So I found it most heartening, not only because our story has put a smile on our customers’ and employees’ faces, but also because it has delivered tangible business results. There’s a myth that robots are going to replace people, but if that’s the attitude, we’re all in trouble. Technology and people need to work together.
Similarly, five years ago, people were saying that fintechs were going to take over. But if we’re still talking about fintechs and banks like two adversaries, in five years we will both lose. We fundamentally believe in the power of collaboration – that’s why all the things we’ve been doing have been through partnerships, for example, with Samsung, SoftBank Robotics, and a company called biz2credit in Canada on business banking.
Can you give some examples of how you are competing with GAFA and big techs?
It really depends on whether we see these companies as competitors, partners, or both. Depending on the regulatory situation in a particular market, sometimes they are allowed to be competitors, sometimes they’re not. In Hong Kong, for example, we built a peer-to-peer payments solution for HSBC customers called PayMe, which we then opened to non-HSBC customers. As I said before, competition benefits all of us, especially customers, so it’s important for the industry that we have this interest to improve the customer experience.
A lot of big techs have these huge platforms, and some of them are looking at financial services as a vertical to create new business. However, in the US, no tech company wants to be regulated like a bank, and that’s why we haven’t yet seen any of them try to compete in financial services, because they would risk having their entire business under the radar of banking regulators.
It remains to be seen if there is a healthy medium between the two different environments. In Europe, open banking poses other opportunities as well as threats. Some customers are also realizing the hard way the value of their personal data and aren’t happy with how tech companies are using or monetizing it. Historically, the bank has been a metaphor for trust in society, whereas tech companies or fintechs don’t have this level of trust.
There is a huge opportunity now with PSD2 for banks and competitors to jump into the banking market in Europe – are you planning something special there?
We’re very proud of our European footprint. It’s fair to say that European economies in aggregate terms have been going at a different speed to the US. Open banking is opening new opportunities for banks, financial services and technology in Europe in ways different to the US. My colleagues in Europe have created something called ‘Connected Money’ which serves customers when, where, and how they choose. And we’ve now built a new mobile banking platform that’s been deployed in various markets and recognizes changing customer behaviors.
If you’re young and European, you’ve maybe been skeptical of some of the national banks over the last ten years and think it’s safer to be aligned with a global bank like HSBC that has a footprint in different markets. You might also be a millennial who likes to travel or an international customer who likes to move temporarily to work or study in different countries. In an increasingly globalized world, HSBC naturally fits in with this customer demographic.