Managing Product Innovation in Financial Services.

Mr. Andrew Zimakas, Chief Marketing Officer at ING DIRECT Canada (now Tangerine Bank, a division of the Bank of Nova Scotia)An interview with Mr. Andrew Zimakas, Chief Marketing Officer at ING DIRECT Canada (now Tangerine Bank, a division of the Bank of Nova Scotia) on Managing Product Innovation in Financial Services. Mr. Zimakas is a senior leader with extensive operating and consulting experience in the financial services, packaged goods and technology/media sectors.


Mr. Zimakas says the conversation today about personal finances in Canada is not focused enough on ensuring that the lower end of the financial pyramid is really solid. The need to save more than we spend.  There is a budgeting and behavioural aspect to this issue.   The ratio of debt to disposable income in Canadian households has risen to a record high of 152 per cent [source: Statistics Canada], which is slightly higher than the U.S. before the 2008 crisis. There is a need to change the conversation about money, according to Mr. Zimakas. He adds, “We’re keen on going well beyond literacy and focus on behavioural change.  The initiative that we’re undertaking at ING DIRECT to tackle the issue is called Money Movement, which is a multi-dimensional approach to education, motivation and behaviour change.”What does it take to innovate? Arcus Consulting Group has launched a major initiative to explore growth and change as key elements of corporate and business unit strategy. The majority of executives say it involves achieving technological leadership, global presence and a comprehensive portfolio of patents that will enable the company to help define major trends regarding products, systems and services, and to offering its customers important added value. They say such steps reduce costs, increase sales and achieve higher earnings. But how does one come up with new solutions, and can innovations really be part of a strategy plan? Arcus’ multi-industry survey of senior executives found that of all the challenges companies face in this area, the biggest challenge is finding ways to create a “climate for innovation”.


As Arcus research indicates, doing so means that you need to be surrounded by highly talented people.  It also means finding a way to transmit your passion to them, so they will buy into your vision of the future, perform at the highest possible levels, and come up with innovative solutions to the challenges of achieving the vision. No surprise, then, that the topic of innovation has been gaining ground as CEOs seek to incorporate concepts like “a culture of innovation” into their assessments of a company’s long-term value.


Arcus:  Let’s start our discussion with innovation in the Financial Services area and in other markets.  What would you say are the areas in Financial Services where you are seeing a lot of change, areas that could possibly be defined as vectors of innovation?


Mr. Zimakas:  I think it’s relevant to look at financial services both within a Canadian and a global context. There is a lot of regulatory change that is happening and there are going to be higher capital requirements on financial institutions; that is going to have an impact on how financial institutions plan and on their appetite for risk.  Add that to a low interest rate environment and that is market pressure to increase fees and look for new revenue sources. We can see that happening right now in Canada and beyond.  The bottom line is that financial institutions have to differentiate and, from my perspective, that differentiation has to come through the customer experience.


  “The innovation focus hasn’t been on the demographic bulge of the 18 to 28 year olds.”


Arcus:  So globalization and a more controlled regulatory environment are having significant impact on the direction we are heading.  We are seeing changes across many jurisdictions at the same time, right?Mr. Zimakas: Absolutely. There is much more global impact from a regulatory standpoint and even though we have a strong regulatory system here, we can’t ignore these global forces and the impact it has on our financial institutions. If you look at things from the social perspective, we’ve got a demographic bulge right around the corner.  The innovation focus in the media has been on the aging population, but there has not been quite as much focus on the demographic bulge of the 18 to 28 year olds that are coming up, those who are set to inherit the wealth.   And they have a completely different set of expectations. Their habits are very different. They are a generation that really values word of mouth versus word of ad; social [media] is a huge part of what you would call their social currency.


Then there are powerful online communities, not just within that demographic group, that are forces to be reckoned with. All organizations, including the financial industry, need to be aware of that change. We also need to rebuild trust. In Canada, I think the trust in our banks held up well through the recent financial crisis but we did feel the effects.  Certainly there has been a crisis of trust globally, and it obviously crosses over into the Occupy movement. No financial institution is untouched in terms of that.


Arcus: Following on your comment about social media and its importance to the 18 – 28 year old market, how is the financial industry preparing for that change?  Will cultural or technological innovation be the biggest driver?


Mr. Zimakas: We already have huge penetration of online banking and e-commerce globally, but especially within Canada. According to the Canadian Bankers Association, 63 per cent report using online banking in the last year and nearly half (45 per cent) today use the Internet as their main means of banking.  We are also one of the biggest Facebook users in the world. Then if you look at smartphone usage, in the last year it has increased significantly from one-third of Canadian users to nearly half (48 per cent) [source: Canadian Wireless Telecommunications Association]. Market penetration is almost a third of the market and smartphone adoption is particularly high among Canadians aged 18 to 34 (69 per cent).


Arcus: Do you think today’s major players will still dominate ten years from now?


Mr. Zimakas:  In a recent study, 71 per cent of Canadians claimed that they would be comfortable with never handling cash again [PayPal Canada Survey, June 2012].  It may be overstated but it’s an attitudinal measure and I think it’s significant. Forty-three per cent of Canadians already claim that they don’t carry cash.  So whether that means they don’t carry it often, not at all or very little, certainly cashless banking is here.


“Despite our regulatory environment, there seems to be an appetite for the blurring of channels.” 


Another area to consider is the blurring of lines amongst financial service providers. On one hand, you have traditional banks and on the other are telco’s and tech companies, such as Google and PayPal preparing to enter the financial services business.


So despite our regulatory environment, which is becoming more defined, there seems to be an appetite for the blurring of channels.  I think consumers are at the point now where they value service and they value trusted brands. The 18 to 28 year old segment is much more open to trusted brands delivering certain services that are outside the realm of that particular brand’s original product/service focus.


Arcus:  I guess, there’s fragmentation around what’s driving innovation. Consumer behaviour is changing and I guess banking could be redefined completely due to social media and other emerging technologies and a blurring of how banking is done.


Mr. Zimakas: I absolutely agree and think that what it comes down to is consumers are not just looking at banking needs first. They’re looking for benefits that go beyond that and ladder up to things like, how we are meeting their security needs, their needs around mobility and seamless transacting.  It’s not yet clear that traditional financial institutions are in fact in the best position to deliver on those needs.


ING DIRECT is well positioned, certainly within the Canadian landscape, to capitalize on these social and technology trends.  Perhaps the biggest shift we have taken over the past year has been to create an articulated vision and a “why” statement for our organization. We realize that banking, and financial services in general, are a key part of Canadians’ lives and we have shifted our vision to focus on helping Canadians live better lives. The “how”, is by changing the conversation about money.


The first way we do that is through the right products that deliver value, simplicity and save you time. Consider our THRiVE no-fee daily chequing account, which we launched over a year ago through a crowd sourcing approach. We provided a preview for about 10,000 clients to help us develop and shape the product. We launched it nationally a few months later.  In addition to being a no-fee chequing account, THRiVE Chequing pays interest and has no minimum balance requirements.  Add to that intuitive features like email alerts, and there is a real client experience focus.


From a channel perspective, social channel integration, including mobile, chat and e-services is also a key enabler to changing the conversation about money. Our Cafés, which are essentially like 3D interactive billboards for us, also allow people to experience ING DIRECT and develop a human connection with the brand.  We want to develop social communities where clients and prospective clients can interact and fulfill this notion of changing the conversation about money. We want to enable our clients to improve and manage their own financial lives.

 “Another aspect of social media is the movement to social business.”


Another aspect of social media is the movement to social business and we are among the companies spearheading this initiative. For us that means  leveraging social media for the benefit of our clients, not just for them to develop a stronger brand attachment but to allow us to help them in an even more direct capacity.  It means having the right governance and the right tools to bring that to bear throughout the organization.  We’re also looking at more internally focused social platforms for collaboration, whether it’s around innovation or operations.


When talking about changing the conversation about money, many people think about the government sponsored notion of financial literacy, which is centered primarily on education.  But we’d like to go beyond literacy and focus on behaviour change.  The initiative we are undertaking to tackle that is called the Money Movement, a multi-dimensional approach to education but also motivation and behaviour change.  Our new, innovative children’s platform, Lil’ Savers Moneyland, is part of this overall initiative.


Arcus: You talked about changing the conversation about money. I have a good sense of where it needs to go through some of the strategies that you talked about, but what is the conversation like today?


Mr. Zimakas: In our view, the conversation today is not focused enough on ensuring that the lower end of the financial pyramid is really solid. This comes back to the fundamentals our brand has always been rooted in: saving money and ensuring that you pay yourself first.


For ING DIRECT, a conversation about money means helping people realize that it’s actually not as complicated as the financial services industry often portrays.  People should feel empowered and confident about being engaged in their financial wellbeing as opposed to either ignoring it completely or abdicating it to an advisor.  For example, we make sure that the conversation around investing also includes fee management and things that we can actually control, such as asset allocation based upon risk tolerance and time horizon.


At the highest level, there is a self-actualization element to this, i.e. what role does money play in my life and what role should it play in my life and what does it actually mean? We try to keep it in that context so that clients are able to manage their personal finances properly and can comfortably achieve the financial health and wellbeing that they want.  Right now, these conversations are not happening and people are ignoring their financial situations.


Arcus:  One of the things I picked up from that is how you talked about culture and core values.  I wonder if the broader strategy of innovation is about changing the culture around dealing with money?


Mr. Zimakas: One way to look at it is that we are not in the banking business, we’re in the motivation business. People tend to look to their peer groups to better understand where they stand in terms of spending and savings. It gives a point of reference and provides motivation and engagement.  We know that when people state their goals and share their goals socially on an ongoing basis (which we can facilitate by cleverly leveraging social media), they are more likely to stick to their savings resolutions. Take this a step further with a mobile banking app that provides someone, who is about to make an unnecessary purchase, with immediate insight into how that purchase will impact their debt or savings level. This is what I mean about being in the motivation business and helping Canadians live better lives.


“For ING, this is all about driving towards being seen as an everyday bank for Canadians.”


This is reflected in the recent launch of our new brand idea, which is articulated externally as forward banking, and links directly to our ‘why’. It further establishes our focus on providing Canadians with a bank that suits modern living, one that provides a truly innovative experience and seeks to partner with clients in their financial journeys.


Arcus: This reminds me of a speech given in New York by Arkadi Kuhlman, the founder of ING DIRECT Canada.  He talked about creating a culture of continuous innovation; we call it a drip strategy.  Too much of strategy today is about seismic change, silver bullets and dramatic shifts.  There is little patience for incremental change.  Our research shows that even with marketing strategy, incremental shifts lead to dramatic outcomes over shorter periods of time.  One of the takeaways from ING DIRECT’s strategy seems to be about the big insight of changing clients’ mindsets from “money is complex and I am not in control” to “money is simple and I now feel empowered to do more or control my destiny”.  Would that be a fair assessment?


Mr. Zimakas: That’s bang on. And that ladders emotionally to confidence and the feeling of wellbeing that you touched on.


Arcus: So that talks to changing the conversation, where others talk about everything being complex and that’s why you need an expert advisor versus ING DIRECT saying this is really simple and you are smart enough to do some of this yourself instead of using the pricey folks who borrow your watch to tell you the time.


Mr. Zimakas: Yes. But people don’t have to go it alone. In the case of ING DIRECT, consistent with our forward banking brand promise, our direct associates are always willing to help out and offer support. There is also something we call the “Orange Movement”, which is essentially a movement of Canadians who embrace our values, are engaged with us and can act as brand ambassadors.


We have a strong Facebook and Twitter following of clients who typically answer other client queries even before we can get to them and often address what they view as unfair commentary towards the bank.  We want to make sure that we treat them well but at the same time ensure that they’re engaged by their own volition and support for the brand.


From a new client standpoint, our “Refer a friend” program, which has been operating for a long time, has provided us with a big proportion of our client base.  We are now thinking about extending this program further to include a charitable and/or fundraising component.


“We certainly are still an innovative bank and an advocate for Canadians, but we want to be seen more broadly.”


Arcus: Looking to the future, 5 to 10 years down the line, can you visualize for me what some of these scenarios could look like in terms of what is the future like for ING DIRECT in Canada?  How will banking change in the future based on some of these investments in innovation that are occurring today?


Mr. Zimakas: For ING DIRECT, this is all about driving towards being seen as an everyday bank for Canadians. When we launched 15 years ago, we were disruptive. A lot of Canadians saw high fees and low interest as an injustice – and still do. There was no existing focus on savings, where there should be, and that’s where we built our brand equity.  There is an opportunity for us to extend beyond that now and to move towards being seen as an everyday bank. We certainly are still an innovative bank and an advocate for Canadians, but we want to be seen more broadly.


We also imagine a time where channels are extremely seamless. From service and transactional channels to more experiential channels, we expect to see our clients interacting with the web through a number of devices in a seamless way.  Possibly even using technology like Skype to deliver a more personal interaction. We’d like to see clients getting more involved in developing and optimizing products with us, so crowd sourcing approaches could be used for a broader array of products in the future.


Arcus: How do you expect the definition of banking to change in the future? What would be the trajectory, the vectors of growth, from a business standpoint that could be leveraged by this broader strategy of addressing changing the conversation?  Banking is obviously a core service for ING DIRECT, you’ve had investment products like mutual funds for a few years now.  Are credit products in the pipeline?


Mr. Zimakas: We started with a high interest savings account when we launched 15 years ago and since then have introduced a number of other savings products. Soon after we launched in Canada, we began to offer a unique mortgage product called the unmortgage, which really focuses on the flexibility to pay off your mortgage sooner. We have expanded our lending portfolio as well, including the recent launch of a home equity line of credit. Most credit products offered in the market are focused on keeping people in debt as long as possible; that is how profitability is achieved by the provider.  In our case, we encourage people to actually set up a fixed payment.  We ensure that the limits that are given out aren’t onerous and we coach people to see a definitive end to their line of credit. They can even reduce their credit limits on their own.


We launched our Streetwise Mutual Funds a few years ago and they are going to continue to be a focus as well.  They are portfolio funds with low management expense ratio.  They passively track indexes based on a certain allocation of equities and fixed income, but we also rebalance automatically so there isn’t a requirement for our clients to rebalance on their own.  We have also announced publicly that we want to innovate around payments, including a credit card in the future.


With regards to innovation at the cafés, we’re redefining what physical space means in banking.  If you visit our flagship café at Yonge and Shuter Street in downtown Toronto, we’ve got great traction within the surrounding community. Beyond that, it engages clients differently, it gives them that comfort and confidence that we are real and there is a human aspect to what we do.


We actually see space innovation as being a very interesting area, because, of course, our business model is predicated on having a low cost infrastructure. Not having a branch network and the overhead that goes along with that allows us to pass that savings to our clients in the form of better rates and not charging fees.  We’re not interested in replicating a branch network but do see our Cafés as playing an important, strategic role and being a key component of this seamless multi-channel experience we talked about earlier.


Arcus: We should probably stop there.  I think this has been an excellent interview and I greatly thank you for sharing your time and your insights.  Did you have any other comments?


Mr. Zimakas: There’s one more area I would like to touch on.  I didn’t get specifically into what we are doing from a marketing agenda standpoint.  We have something called the Marketing Ambition that was created a couple of years ago and that is our guiding principle and focus area.  We have been undergoing a shift from a product centric to a client centric approach, really focusing on needs and developing and enabling technology platforms to really serve clients well.


To give you one final example, you referenced continuous innovation and the notion of drip strategy or incremental innovation.  One of the tools that has been really helpful to us is called the Orange Spark, which Arkadi may have discussed. It provides the ability for everyone across the organization to submit ideas that get posted on our intranet site, the Orange Grove.  People vote, provide comment and the originator of the idea gets recognized in different ways. Those ideas are also evaluated and ultimately put in action. So it’s a very inclusive, engaging approach to broad based innovation.  While most innovation is incremental, the throughput and the volume make a big difference.



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