A short presentation, with the speakers notes, on unbundling banking and innovation partnerships that I delivered in Johannesburg, South Africa in early July 2016. All content reflects my personal opinions.

1. Unbundling Banking & Innovation Partnerships
by Daniel Hartwright

2. In 1975 Steve Sasson, an engineer at Kodak invented the worlds first digital camera - thats Steve with the first digital camera there.
At this point, Kodak dominated the camera and film industry in America.
90% of film market
85% of the camera market
They were one of the top 5 most powerful and recognised brands in the world.
Management said to Steve ‘thats nice, but don't tell anyone about it or it might affect film sales’
You see, Kodak operated with whats known as the ‘razors and razorblades’ business model:
Cameras are sold cheap, and then they make the profits on film.
It worked, and it worked well.

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So 6 years later in 1981, having done nothing further with the technology, and with record revenues of $10 billion dollars for the first time, Sony caught up with Kodak and
publicly demonstrated the technology for a digital camera.
Kodak senior management were concerned, and rightly so, so they commissioned some in depth and serious research into digital cameras and the future of the market.
The research showed that the technology was 10 years away from making a viable digital camera, so about 1991, and according to Moores Law, about 20 years away
from being mass market, about 2001.
So they had loads of time.
Five years later 1986 Kodak Labs developed the first megapixel camera, this was a significant milestone on the path to a useful digital camera. They duly recorded the
patents, as they had done for the first digital camera back in 1975.
But they continued to resist where the market was going; they were a company that made its money from Film, and thats where they continued to exert all their effort
from R&D to Marketing.
But by the early 90s, viable digital cameras were turning up from Sony, just as Kodaks own research had predicted.
Kodaks response to this growing market trend was the Kodak Advantix.

4. A Digital camera that took film.
Im not joking.
They spent $500 million dollars developing and launching this instant flop in 1996.
Consumers, rightly, didn't see any value in a digital camera that still took film.
But none the less, by 1998 Kodak reported $16 Billion dollars of revenue and the company was worth $31 Billion Dollars.
They were firmly entrenched in the top 5 brands in the world, they were selling more film than ever before, and they had loads of cash so even this $500 million dollar hit
wasn't that painful.
5 years later, in 2001, Digital cameras go mass market. I know because thats also when I bought my first digital camera.

5. This is it - the Sony Mavica CD200. It was a 2 mega pixel camera that wrote (slowly) to 8cm CDs and cost far too much money.
But I love cameras, and I love gadgets so I couldn't resist.
At this point Kodak slipped to 2nd place for camera sales in America, behind Sony, for the first time ever.
Not too bad right?
Except they were losing $60 on every camera they sold to try and stay in the market.
But hey, they had loads of cash so they could afford to do this; they would recover this on film margins, right?
Things did not play out that way…

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Between 2003 and 2011 they got rid of 47,000 staff, 13 factories and 130 processing labs, and they were still making a loss each year and were in the process of selling
off their patents to raise capital.
By 2007 they slipped to 4th place for camera sales
By 2010 they were in 7th place for camera sales
All this happened as their own research predicted, incredibly accurately, 30 years before.
Despite inventing the digital camera, owning the patents, commissioning and owning the research showing them where the market was going, they still failed to survive.

7. In 2012 they filed for bankruptcy protection, a long way down from a market value of $31 billion dollars.
But why did this happen?
To paraphrase Leon Megginson - “its not the strongest or the fittest who survive, it is the one most adaptable to change that survives”.
They did not adapt to the advent of the Digital Camera, which was a Disruptive Innovation. It eventually supplanted the film camera as the dominant product in the
camera market, making Kodaks offerings irrelevant.
Whenever I tell the Kodak story the response I get from many people, regardless of industry, is “well that wont happen to us”
Familiar right?
well you tell that to the telephone utilities - “it wont happen to us”
the stock brokers - “it wont happen to us”
the record companies
book stores
travel agents
high street retailers
even the camera companies themselves are now being disrupted as most cameras sold now are on smart phones and tablets!

8. This shows some of the various companies muscling in on what banks consider their traditional markets at the start of 2016.
Bill Gates coined the phrase ‘People need banking, they don't need banks’ and this shows how astute his observation was.
Its been called the Uberization of Banking, or the Unbundling of Banking. FinTech is deconstructing Financial Services into its basic elements, whether it is in the front,
middle or back office.
To be clear - this is not something that is happening ‘over there’ in America or Europe or Asia.
This is a global shift that not only includes Africa, but in some cases is being led by Africa.
I hold bank accounts with most of the banks I consult for, I find the easiest way to understand the customer experience: is to be a customer. We all profess to wanting to
be customer centric organisations, and this is a really simple way get a feel for customer experience.
At the moment I am working with some banks in Tanzania so I have an account there. I wanted to transfer a thousand dollars to the UK a few months ago, to my family.
I contacted the bank and sure enough I followed the traditional experience of filling in forms, paying fees etc. It takes 5 working days and cost me $75 in various
charges.
Quite disappointed with this experience I went home, vowing that the next time I wanted to send funds I would try something else. So after a quick search on google I

9. For example BitPesa is a FinTech startup in Nairobi that allows people to send money to Kenya from overseas, almost instantly, from anywhere in the world online, using
bitcoin, and it is paid out locally in cash, for 3%. Thats a third of the price of western union.
Now BitPesa is working on a mobile money integration with Mpesa, the mobile money service in East Africa, which will allow funds to be delivered directly to the end
users mobile wallet, and they have launched in Tanzania and are planning to launch in more countries in the region.
The telco’s themselves are now allowing cross border payments between Tanzania and Kenya, mobile wallet to mobile wallet bypassing the financial institutions. You can
see where a partnership with BitPesa or equivalent could benefit the telco as well.

10. BitPesa
BitSoko
SimbaPay
BitHub
MFS Africa
MTI
Kitiwa
Kipochi
Remit
Mama Money
You can see there are lots and lots of local alternatives just in Africa, and more and more appearing all the time.
BitPesa
BitSoko
SimbaPay
BitHub
MFS Africa
MTI
Kitiwa
Kipochi
Remit
Mama Money
I could go on, but this is beyond just remittances, which is seeing innovations in the process and product space.
One of my favourite innovations, m-shwari, is actually built on top of a mobile money transfer service.

11. Of the estimated 5 billion people in the world who are unbanked the majority are in Africa.
At last count more than 40 countries in Africa had at least one form of mobile money, and in 2013 approximately 100 million people in Africa had mobile money accounts,
in some countries thats more than 10 times the number of bank accounts.
Some estimates indicate more people have access to a mobile phone, than have access to electricity in Africa.
In 2011 Safaricom partnered with CBA Bank, created a subsidiary, and in an impressive 6 months, developed and launched M-Shwari. It was a basic bank account, cash
in and cash out of the account only via mobile money, and access to micro finance based on your deposit history and mobile money usage history.
In 2011 CBA only had 35,000 accounts. Now they are now the biggest bank in Kenya with over 10 million customers. 1 in 5 Kenyans adults is a customer.
They process more than 30,000 loans a day, entirely automated. The bank operated with about 24 staff last time I visited. You would need 100 times more staff to run a
traditional bank that size in Kenya. Minimum.
Yes Vodacom failed to adapt mpesa for the South African market, and there is plenty of analysis on why, but the key point for me, and many others, is that this is the
most important type of innovation - a business model innovation - arguably a disruptive innovation, rather than the traditional experience and process of banking now in a
digital wrapper.
Also importantly; it is a partnership, here between bank and a telco, and now increasingly insurance companies and even NGOs and Government are getting involved.

12. Mobile as a platform is the future of banking.
Studies show 82% of ‘Millenials’ consider mobile banking essential, and more than a quarter of them rely solely on mobile banking. Behind mobile banking is the 100%
reliance on communications technology - not just you being connected all the time, but the importance of everyone being connected all the time. With the development
of the Internet of Things expectations are that ‘everything’ not just ‘everyone’ will be connected all the time. So expectations for availability of cheap and fast connectivity
are higher than ever.
Mobile is the new face of banking, and how customers are choosing to interact.
This is actually a convergence of the two areas I am very passionate about in Africa: Banking the Unbanked, and Connecting the Unconnected. So I am very excited to
see this, and to be part of it.
FinTech really took off at the beginning of the decade.
Between 2010 and 2014 FinTech mostly focused on payments technology and peer to peer lending. They were small startups and the banks were the big dominant
players.
In 2015 and 2016 we have seen some big players emerging from FinTech itself, and the forward thinking banks are seeing the value in co-operation and collaboration
with these FinTech startups.
As such we are seeing innovation labs, incubators, accelerators and hackathons from some of the big banks such as Barclays, Citi, DBS and so on, but its still at arms
length from their core businesses.

13. Well if we reflect then this should be expected: disruption can be understood as discomfort and innovation can be understood as change.
Humans are not very good with discomfort or change: we are biologically and sociologically programmed and conditioned to strive towards restoring our comfort and
safety. So when banks think of digital disruption they tend to quickly focus on Technology as there is a box in their head called Technology, and a department in their
office called Technology, and staff who work in Technology, and if they can make it slot nicely into this existing framework its not so daunting, it is easier to understand.
In doing so though, many miss the big picture:
Digital isn't technology, or an app, its the human experience re-immagined.
Digital disruption challenges banks at a very fundamental level as most try and wrap their traditional analogue experiences in a digital package, preserving their existing
business models. Remember the Kodak Advantix? A digital camera that took film! Digital disruption requires a more fundamental change than simply digitising existing
processes.
This is why I do not like the term ‘Digital Channels’ as its really just sticking something new on top of a legacy system. What we are seeing is an awkward middle ground
where existing banks have enormous costs in maintaining legacy systems, and fintech startups have to wrap around this legacy to interoperate. Both parties are trying to
compete in the same space with different handicaps.

14. “The Battle Is For The Customer Interface”
- Tom Goodwin (TechCrunch)
In fact, as Tom Goodwin said - ‘the battle is for the customer interface’
Uber, the world’s largest taxi company, owns no cars.
Facebook, the world’s most popular media owner, creates no content.
Alibaba, the most valuable retailer, has no inventory.
Airbnb, the world’s largest accommodation provider, owns no accommodation.
Something very interesting is happening.
The Interface Owners - This new type of company, are the fastest-growing in history. Uber, Alibaba, Airbnb, Twitter, WhatsApp, Facebook, Google: These companies are
extremely thin layers that sit on top of very large supply systems (which is where where the costs are) and interface with a huge number of people (where the money is).
They are building seamless experiences, as a result of a customer centric design.
Lets look at Yellow Pages as an example. The idea used to be that, to make a restaurant reservation, we would search through a book of phone numbers, that was
delivered every year through the post and kept next to a landline telephone in your house, and make a phone call. But the entire point was really to go for dinner!
The digitisation of the experience didn’t recreate the process, it solved for the original need: People went from searching for the phone number and then calling the
restaurant from a different device, their landline, to directly dialling it from the same device, a smartphone, to actually making a reservation without speaking to a human
through a website or app, often platform agnostic. That’s a seamless experience, but not the sort of seamless experience you could (or would) imagine if you worked for
Yellow Pages. So when Yellow Pages finally digitised itself, it completely missed the point that it was an enabler in a process from another time.

15. For instance; Fidor Bank from Germany won last years Banking Innovation Awards top spot at the BAI Retail Delivery Show.
They offer a free bank account, to anyone in Europe, and have no branches. Its all online or over the phone. But what really sets them apart is their business model.
They built FidorOS. Remind anyone of iOS on Apple devices? Well its not a bad comparison!

16. This API driven banking platform allows third parties to build integrations very, very easily.
Think of it as ‘banking as a service’ or ‘plug and play banking’.
Don't like their mobile banking app? Build another one.
Want to link facial recognition to bank transfers (for whatever reason)? Build an app.
What to use physical location via GPS to reward behaviour? Build an app.
Feel like offering a new type of p2p mortgage? Build an app.
Just like Apple has its own apps - like Mail - on its iOS devices, you don't have to use it - you can use Inbox by Google for instance.
The bank holds the deposits, the licence, the compliance, the KYC and owns the customer, but the third party integrations are where the other services come from -
loans, payments, mortgages, foreign exchange, insurance and so on.
The potential is nearly limitless. They are not keeping innovation separate, or at arms length, they are allowing Partners to innovate on their platform. They are not trying
to do it all themselves. They realised that they are not going to build the best mobile banking app. They need partners as they need diversity for innovation, and they
need partners for the Big Data, for the comprehensive analytics that allow for new and better products and new and better models, better understanding of your
customers allows for better customer centric design, and allows products and services to be tailored and more relevant.
They are allowing their partners to develop these new innovations, rather that attempting to do everything themselves, and they make a % on the partner revenues.

17. These progressive companies all have a Culture of Innovation.
We have all heard it; - “Go and innovate.” says the strategy, says the bosses, says the innovation agenda circular email.
And most employees responses, in my experience, are: What? How? When?
Innovation is needed, we can all agree, but unlike every other area of business where we have policies, procedures, methods, governance, metrics, case studies, teams,
accountability, executives and the like, for some reason when it comes to Innovation, in most large companies, it is as if different rules, or no rules, apply. As a result
there is a lot of confusion about how we deliver against the inevitable ‘innovation agenda’.
Do you have one an Innovation Culture in your company? Well here’s what people might be thinking in a non-innovative environment:
"Our company is too big to waste time on small ideas."
"We want new ideas, but I’m paid to make my numbers on existing business."
"I can’t remember operations and marketing ever talking about anything."
"We’re doing fine; let’s let our existing line peak before we try something new."
"People are going to get cynical about all these change initiatives.”
And, my two favourites:

18. Too Busy.
Do your staff have performance metrics that support or reward innovation?
Is their a policy, a time and place for innovation, is there a method, a process?
Reward and recognition are often short term focused and encourage zero tolerance to failure and accurate and rapid repetition of existing process.
Do this process 100 times. Don't think about the process though. You need to meet your numbers, or SLAs or what other metric is used.

19. Too Risky.
Many organisations are great at thinking innovation but build enormous obstacles to stop execution innovation as they see change as threatening.
This can be at a personal level; am I going to lose my job, or am I going to have to work harder?
Or at a organisational level; we cant afford to fail, we might lose money / have to spend money.
But what is an Innovation Culture anyway? Why is it important? There is a famous quote about Culture:

20. “Culture eats Strategy for breakfast”
Often in organisations i get the feeling that a discussion of vision, mission and values was just that: talk. They did not live these things, it wasn't personal to them.
But what is important to understand about an organisations culture is that this is the way it operationalise its values; Organisational Culture is the ‘way we do things’.
Culture guides employee decisions about both technical and business issues, how they interact with others internally and externally, and it is also how you build and
execute your strategy.
Organisational Culture happens whether you like it or not. So you can either define it, lead it and live it, or leave it up to chance what kind of organisational culture you
get.
As leaders it is up to us to define and build a positive culture, and a culture of innovation is a positive culture that is shared by all great companies.

21. Innovation
Culture
Leadership Process
Failure Diversity
For every organization, it starts with the right leadership mindset—the unexpected must be expected.
Who would have thought cell phones would become cameras and music players?
This mindset must begin at the top of the organization and permeate every level. And I mean every level. Most importantly, as I have said, it includes the intangibles of
culture: the beliefs, expectations, and sense of purpose of those in the organization.
Then comes Process
It is essential to ensure innovation is formalised into a process that can be repeated, and understood, measured and rewarded. We have to have process like any other
area of our business.
Failure, an uncomfortable item for most to discuss.
We need to stop demonising failure. We dream of being as innovative as Google X, or other Silicon Valley entities. Do you know how they measure performance at
Google X? By the ‘rate of failure’. Simply put the faster you fail the better.
Sebastian Thrun (Founder of Google X, Inventor of the self driving car, the Google Glass, etc) said
“It's not failure that makes us special; it's our ability to iterate quickly. It's fast failure.”

22. Partners, not vendors.
Always, where possible, choose Partners, not Vendors. Liquid Telecom, for example have provided me with innovative solutions to regional problems that not only
resolved the issue, but provided a new model, a new method. Recently, in one proposed solution, we have a 30% cost saving as a bonus by solving a problem with a
new approach.
But you know what? I didn't come up with the idea - Liquid Telecom, a partner did. They listened to my problems, asked questions and then said hey - why not do this.
It wasn't even the problem I had in mind when I started the conversation with them.
Another partner came up with a method to define and deliver some fundamental technology change across multiple countries, in parallel. Not only would this effort be
logistically near impossible without a partner, but the proposed solutions were far more innovative, and, far cheaper than anything I would have done in house.
In the end we should not be surprised: - these partners both have experience with numerous business, not just banking, and therefore have seen numerous ways of
dealing with the same problem and therefore have some pretty good ideas! In fact; they may even know of problems you have, that you didn't know you have!

23. Innovation is a Social Process
Collaborate
Innovation is a Social Process, and that must encompass your entire organisation and extend beyond your organisational borders, rather than be something that a
specific unit or department does.
Your partners and your customers should be part of that Social Process of innovation.
Find Partners to work with for mutual gain. Build your innovation culture with them, extend your innovation ecosystem to include them, collaborate and co-operate. Adapt
to the changes that are coming.
When I look at the emerging innovations and trends in banking alone, and I see AI, machine learning, algorithms, big data, analytics, blockchain, crypto currencies,
maybe a ‘bankchain’ and a future with truly 1 to 1 banking.
The banks that will survive, or emerge, will be those that could innovate and adapt to change. Those that build innovation cultures and are passionate about their living
their values. Those companies that partnered well to build new value chains, new markets and new models.
There is no time like today to begin.

24. No one wants to be the next Kodak after all.
Thank you for listening.