“Banks need to ask themselves whether they are flexible and sensitive enough to adapt to the rapidly changing context.” Harrie Vollaard, Head of FinTech Ventures at Rabobank, has established several partnerships with startups, manages the Fintech investments for the Rabobank, is involved in Fintech accelerator programs around the globe, and created several spinoffs. Speaking at FinovateEurope 2018 about Creating A Digital Investment Experience To Compete In A Zero Interest Rate Environment, we chat to him about his key tips for banks who strive to create a successful digital agenda.

Finovate: What does a bank need to focus on when building a digital agenda?

Vollaard: There are three key areas that banks need address to build their digital agenda:

1. A clear innovation thesis and establishing the areas you want to focus on. Here are four areas that we have defined: financial cruise control, platform banking, emerging technologies as business model enablers, and data for food.

2. Open infrastructure to collaborate. To facilitate in- and out-coming datastreams as well as delivering services to third parties and incorporating external services. I envision a satellite structure of the bank’s core assets surrounded by an ecosystem of third parties and startups where the bank is still the first point of contact.

3. A company-wide digital DNA. This is the key success factor and enabler of innovation. Innovation departments running innovation projects and proof of concepts are essential, but in order to be successful you need scale. Scale can only be accomplished through the business lines and marketing department. The bank needs to look beyond the existing products and that can only be accomplished via a customer-first approach, which means a full adoption of a lean startup methodology and product development processes that facilitate iterative learning. A more Darwinian approach is also preferable; it is not the best executed project but the most adaptable organisation who survives. Banks need to ask themselves whether they are flexible and sensitive enough to adapt to the rapidly changing context.

Finovate: How does the fintech sector offer a growth opportunity for banks?

Vollaard: It offers growth in three key areas:

1. Delivering better, more transparant and cheaper services to our clients (challenger banks, personal finance management, market place lending), streamline business processes (by use of Artificial Intelligence, Blockchain), taking out risk (RegTech). The bottom line it the business model optimization; to improve cost/income ration and to increase customer satisfaction.

2. Adding additional services on top of existing banking infrastructure; services more embedded in the real life/business of the clients. A shift from product oriented to service oriented, related to the real customers needs/pains. E.g. in the value added services on top of payments. Bottom line it is business model extension fulfilling customer/client needs embedded in real life events.

3. Exploring new innovation areas; reinvent the business model of the bank. E.g.  transforming your assets in to new service offerings to your clients (e.g. delivering trust services (secure login, authentication, signing services to our clients). In general it means cross industry innovations. Example: We developed an FX platform for ourselves which now can be solved as a B2B solution to other financial institutions. Bottom line it is business model innovation.

Finovate: How has Rabobank collaborated with fintechs to expand products and services for customers?

Vollaard: 90% of the collaboration with fintechs are focused incorporating their services in the service offerings of the bank or in the business processes of the banks.. E.g. Sparkholder with loanstreet; a pre-approved finance tool for SMEs.

9% of Rabobank is an extension of our services, such as Rabo&Co with FinTech Cloud Lending solutions, which is a market place lending solution for SME clients.

1% of the collaboration is related to business model innovation, such as working together with fintech Signicat delivering e-business services iDin (secure login, authentication, signing services to our clients). With our corporate investment arm Rabo Frontier Ventures we are focusing on this category.

Finovate: What are the drivers for change in digital investing?

Vollaard: The most obvious one is the customer and business need. Although this seems like a no-brainer, for the incumbents it means a transformation from a portfolio of financial products (which served the customers of the past) to financial services that fit the customer needs of today.

Another driver is the technologies that offer us opportunities we have never seen before, such as risk models/predictions based on different data sources, optimizing business processes, and new revenue streams.

Finally, there is the regulatory motivation and the harmonization of legislation across Europe to stimulate innovation and lower the thresholds to then expand.

Finovate: How can you compete in a zero interest rate environment?

Vollaard: By making investment more accessible; a mobile only investment app focused on millennials whereby the roundups from transactions are invested in ETFs. The threshold is very low to invest in and a small amount being invested on very regular bases counts up without the customer even noticing. It is completely chat-based, user friendly, design-focused and automated with low cost operation. It is a new and engaged target group.

We know the success that Betterment, Wealthfront, Nutmeg have had serving customers via insightful and user-friendly websites. Inspired by them, we introduced last year Rabo Beheerd Beleggen, which has been accepted with huge success.

Finovate: What will new technologies – like artificial intelligence and blockchain – mean for investment management?

Vollaard: The second wave of technologies impacting the financial industry will offer substantial investment opportunities and reduce costs significantly.

AI can slash down costs by 30% by reducing manual work, and blockchain/smart contracts will eliminate steps in the value chain.

Speaking at FinovateEurope 2018, Rohit Talwar – global futurist, author, and the CEO of Fast Future – discussed The Rise Of The Machines – The AI Revolution And The Road To Superintelligence. He specialises in the future of financial services and the challenges of preparing society for the disruptive impacts of exponential technologies.

Clear away the vendor hype and desperate “me too” announcements from across the sector, and the evidence is starting to mount that financial services is exploring serious applications of artificial intelligence (AI). The technology is being deployed in everything from complex internal reconciliations, risk identification, and fraud detection through to customer service chatbots, robo trading, and targeted marketing based on deep customer profiling. Furthermore, in the fast-paced world of fintech start-ups, we are seeing AI-powered hedge funds and advisory firms, personal finance managers, and a host of sites that offer us the potential to streamline traditionally slow and expensive processes for everything from invoice financing to personal insurance.

So, now the game is on, where can we see it evolving to in the coming years? One area is in real-time fraud detection for banking and credit card transactions – spotting and preventing situations that might otherwise take us weeks to resolve. At another level, investors and regulators could eventually be able to monitor the behaviour of fund managers and personal advisors. These systems would examine transactional behaviour, personal spending patterns, and social media activity to detect the potential for insider trading, market manipulation, and misuse of client funds.

For individuals, the aggregation of our personal data with that of millions of other people will allow our intelligent finance advisors to recommend cheaper alternatives for goods and services we buy regularly. The next step would be to aggregate our purchasing to secure discounts from key suppliers. Indeed, we might authorize these advanced comparison tools to switch our purchases, insurances, and even savings on a continuous basis to whoever is offering us the best deal.

Taking this a stage further, new opportunities might arise for those who have a detailed understanding of our lifestyles from travel, to dining, and clothing purchases and link this to our personal financial management. Such sites might be authorised to trade unused airmiles and store loyalty points on our behalf, negotiate entertainment discounts for us, accept paid adverts to our social networks, and rent out our driveway as a parking space. Such systems would then invest any cash surpluses earned on a moment by moment basis using our preferred risk profile as a guide.

The next evolution might to employ a personal AI clone or “digital twin”. These applications would build a detailed understanding of our lifestyles and be authorized to buy, save, sell, or trade on our behalf. Depending on the level of authorization, they might undertake credit card purchases, bank transactions, and bill payments, complete loan or mortgage applications, and even make impulse buys. The system might report back on every transaction or simply deliver an end of day voice or video mail to update on the day’s activities.

The list of potential applications is literally limitless. From streamlining and reducing the cost of activities that are currently an expensive hassle, through to finding new ways of making our finances go further, AI seems increasingly likely to become a vital part of the financial ecosystem. While many of the new AI ventures will go the way of most start-ups and fade away, some will survive. Furthermore, the best ideas are likely to be adopted by more established players as they seek to transform themselves into more customer centric enterprises. The hope is that successive waves of AI innovation will help us make far better use of all the assets at our disposal – not just our cash.

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