Committees Can Foster Innovation: Here’s How

innovation-7-3-15.pngBoston-based Eastern Bank Corp. has quickly ramped up its ability to invest in and deliver innovative products and services. The $9.7 billion asset mutual holding company started changing its culture in 2014, through the creation of its innovation lab. In June, the bank began using voice biometrics in its call center, so customers now can access accounts using just the sound of their voice.

This year, Eastern dedicated $4 million to research & development—1 percent of its annual revenue, says Bob Rivers, Eastern’s president. The additional investment meant that Eastern’s board needed to increase its involvement and oversight, so Eastern created an innovation advisory committee to guide and support the bank’s innovation investment. The committee is staffed by four board members and four members of Eastern’s management team, and meets quarterly to discuss innovation within the company. “It’s really to give the board visibility and oversight with respect to that investment and focus,” says Rivers.

Financial institutions today are increasingly reliant on technology and the delivery of innovative products and services to drive organic growth. Boards must be ready and willing to engage in discussions on innovation and technology. An advisory board can be a great way to drive innovative thinking, but the board may instead focus on innovation within a board-level committee.

Innovation comes from diverse perspectives, ages, experiences and cultures—not just from individuals with a technology background, says Edward Stautberg, managing director at PartnerCom, a New York-based board advisory firm that helps corporations create advisory boards. Advisory boards have their benefits. They can be comprised of businessmen who may not be a good fit for the board but may have the right expertise to advise the bank, and directors and executives can take their input with a grain of salt. Food and beverage conglomerate PepsiCo Inc.’s ethnic advisory boards are tasked to create products for the company’s diverse worldwide customer base. According to Stautberg, one of these boards came up with the idea to add chili and lime flavors to some product lines, such as Lay’s potato chips and Doritos tortilla chips. “That was a direct result of a diversity in thinking,” he says. Digital advisory boards are a growing trend for Fortune 500 companies such as Target Corp. and General Electric Co., reports The Wall Street Journal.

But banks can choose to focus on innovation in a board-level committee, which sends a message throughout the organization that the board is truly dedicated to the issue. “It shows that you’re actively discussing innovation at the board level and that it is something that the board is engaged on,” says Stautberg.

Huntington Bancshares Inc., the $68 billion asset bank holding company headquartered in Columbus, Ohio, founded its board-level technology committee in 2014. Among the many technology-related duties listed in its charter, the committee oversees whether the bank has the technology in place to push innovation, and monitors innovation trends that impact Huntington’s strategic plan. Peter Kight chairs the committee, which he says was created to address two of the board’s biggest concerns: Cybersecurity and digital delivery. “A financial services [company] is an information based business, and information is digital today, which means our business is a digital services business,” he says. “Are we going to be able to innovate fast enough to be able to be one of the survivors, and in fact one of the winners?”

At its most recent board meeting, Huntington’s technology committee brought in a venture capitalist who focuses on financial technology. The discussion provided the board with direction about which startup companies they might want to work with, and helped identify threats in the financial technology marketplace. Trends in digital lending were also discussed.

The technology committee isn’t staffed with technology experts. While Kight has a background in financial technology—he was the founder and chief executive officer of CheckFree, and after its 2007 acquisition by technology services provider FiServ, he served on FiServ’s board for five years—he doesn’t believe a technology background is necessary. “Who’s really driven to want to learn in this space?” says Kight. “What we need are people who understand the need to look for this innovation and drive it within our culture and to drive it within our strategy, both in management and at the board.”

Huntington doesn’t lack for board members committed to innovation. Finding four board members to staff the bank’s technology committee wasn’t a challenge, because every board member wanted to join. Not only did the focus sound “cool,” Kight says, but the board believes innovation is critical to the success of the company. 

“If we keep thinking like bankers, in five years, we won’t be bankers, because banking isn’t going to be done in the same way,” says Kight. “We absolutely cannot continue to run the bank the way we have run it in the past, which means we have to, at a strategic level, drive for innovation.”

Voice Authentication Takes Hold

voice-authentication.pngThe joint regulatory body known as the Federal Financial Institutions Examination Council has not updated its guidelines for authentication security since 2011, so it’s not regulatory pressure that’s causing so many forward-thinking banks to adopt voice biometrics. Nor is fraud prevention the big reason even though the technology’s primary function is to confirm identities.

The main push behind today’s voice efforts is to improve upon verification routines that have not evolved since the late 1990s. The simple act of accessing an account has turned into a potentially painful and frustrating event, with customers confronted by passwords and challenge questions they have likely forgotten. “At Barclays we called them ‘miserable moments,’” says Iain Hanlon, head of change delivery at the $2.5-trillion asset London-based institution.

Barclays knew from ongoing surveys that customers were dissatisfied with the way their identities were verified when calling into the call center. Though in line with industry standards, customers found the procedures time-consuming, unfriendly and cumbersome. “We found that we were depersonalizing our relationships,” Hanlon says.

Voice biometrics, which Barclays rolled out to its high net-worth clients in 2012, has changed the experience entirely. Now customers engage in natural conversation with agents, during which time their voice is matched against a stored voiceprint in a process that takes eight to ten seconds. Creating the initial print takes about 45 seconds. Ninety-seven percent of customers who have called in have agreed to enroll in what Barclays calls its “voice security” program once agents explain it to them.

Since the rollout, dissatisfaction with authentication routines has dissipated. Seventy-five percent of high net-worth clients say they would recommend the bank to others, up from around 40 percent before the bank began using voice authentication. In a first for a technology implementation, clients have pushed the bank to expand voice authentication beyond the call center, for example, to the relationship managers and private bankers whom they also occasionally call. “It’s been a transformational implementation,” Hanlon says.

An improved customer experience is also a primary driver for Toronto-based Tangerine Bank, formerly ING Direct Canada and now a subsidiary of $410-billion asset Scotiabank, which is currently conducting a pilot of voice authentication for its mobile banking customers. As voice authentication begins to get rolled out over the next year or so, customers won’t have to input passwords on the small screens of their devices, sometimes a tricky proposition for glove-wearing customers trying to beat Canada’s cold. “It may sound small, but these small things add up,” says Charaka Kithulegoda, the bank’s chief information officer.

Despite all the focus on user experience, security is not a secondary consideration. Bankers agree that voice biometrics offers greater security than traditional methods, although they did not share metrics on fraud reduction. “We are very comfortable in saying that this is much stronger than using a password and much more difficult to break,” Kithulegoda says.

Beyond improved security and a better user experience, many banks are finding they can greatly reduce call times through voice authentication. On a five-minute call, eliminating the minute of time typically spent on passwords and challenge questions can save $1, estimates Tamar Sharir, director of fraud and real time authentication at Nice Systems, an Israeli provider of compliance and security systems, with offices worldwide.

Voice biometrics’ three-pronged business case, combined with advancements in the technology, is leading to a spurt of investment. Opus Research, an advisory firm based in San Francisco, estimates spending on voice biometrics increased 74 percent between 2011 and 2012, and will continue to expand at a compound annual rate of 35 percent over the next five years. It helps that the technology has matured. A high rate of false positives in its early days was a negative, according to Julie Conroy, research director at Boston-based Aite Group. The ubiquity of smart phones provides another spark, she says, making it possible for customers to perform voice authentications anytime, anywhere. “Voice, without question, is here to stay,” Conroy says.

Nuance Communications, a Boston-based provider of voice software, sells its software for a one-time fee (ranging from $1 to $2 per customer) or on a pay-as-you-go basis (on the order of pennies per authentication). So, a large bank with millions of customers opting for the one-time fee will be looking at a multi-million dollar investment. Despite the potential expenditure, all of Nuance’s banking customers have realized cost savings within the first year of deployment, says Brett Beranek, solutions marketing manager at Nuance.

Regulators may not be pushing voice biometrics as an added layer of security, but it seems customers are. “It’s become a very seamless interaction,” Tangerine’s Kithulegoda says. “The big advantage is giving our customers choice and making the whole banking experience simpler and more relevant.”