With our Spinnaker Sit-Down interview, we give you VIP access to industry influencers, thought leaders, and movers-and-shakers who share their unique insights and perspectives on industry issues, trends, and questions. This month we sat down with fintech thought leader Michelle Katics, CEO and Co-Founder of BankersLab and PortfolioQuest, the SaaS training platform “flight simulators” for bankers. A seasoned fintech leader, she’ll reveal the “hot topic” in fintech/credit risk right now, the industry’s biggest challenge, and what the industry will look like 10 years from now.
A thought leader in the fintech revolution, Michelle champions talent transformation and innovation. With experience at the Federal Reserve Bank of Chicago, International Monetary Fund (IMF), Fair Isaac (FICO), and Standard Chartered Bank, she has worked with financial institutions in more than 30 countries. She has been recognized with several industry awards, including most recently: NextMoney FF18 Finalist, Monetary Authority of Singapore (MAS) 2017 FinTech Award Finalist, Women in FinTech Power List 2017, one of 52 “FinTechnopreneurs” profiled to commemorate the 52ndbirthday of Singapore, and Female Leaders in Singapore from the Tech Startup Community.
SPINNAKER: How would you compare the maturity of the fintech industry abroad versus here in the U.S.?
KATICS: The U.S. fintech industry has focused on specific commercial offerings that represent market gaps or inefficiencies. You might characterize the U.S. strategy as “product-first,” where you start with one product and then move outward. Many fintechs started out as monoline products — like SoFi and LendingClub, who now expand to multiple product verticals. Since the U.S. is a massive market, these opportunities are sufficiently large without a major paradigm shift. Due to the regulatory patchwork in the U.S., this has been able to pay off as a smart money play.
Outside the U.S., we see more “platform first” strategies. For example, China has led the charge in a fundamental re-think of the financial relationship, which now offers point-of-sale lending authenticated through a QR code, and WeChat Loan through Tencent’s WeChat. A second example is KakaoBank in Korea, which was first a chat app, then a gaming and social platform, and only then a bank.
KATICS: In short, no. To be fair, neither has the incumbent banking sector. We’re seeing consumer debt levels nearing pre-crisis levels in many countries.
In the U.S. market, after the financial crisis we saw quite a bit of consumers derisking both unsecured and mortgage exposure. But with the expanded use of alternate data and big data to expand reach to those who are underbanked, debt continues to creep back up. So the concern is that, in a slowdown, you have a large number of new borrowers and newly banked customers whose behaviors may be difficult to predict. The industry may not be ready to effectively manage that sector.
Adding complexity is the expansion of financial literacy apps that were launched to help people understand their finances but have turned into lending vehicles themselves. It has turned financial literacy on its head, because those apps may now encourage taking on additional debt — which further fuels debt back to pre-crisis levels.
In a slowdown, the way borrowers begin to default will look different, because they are themselves different, and because today there are so many more avenues to quick, easy, unsecured loans. Until recently, the nature of default behaviors was fairly well known and understood. Now that we’ve fundamentally changed the way people take on debt — with new product types and new ways of packaging them — it also changes what we know about default behavior. Are the predictors still the same? It will require more analysis to understand all the data profiles, their behaviors, and what triggers them to default in a downturn. The industry will have to work much harder to stay abreast of shifts with its customers, and to attempt to predict customer behavior in a slowdown so they can appropriately prepare and respond.
SPINNAKER: What’s one thing people should know about fintech and credit risk?
KATICS: The best credit risk mitigation is to optimize your customer sourcing. It’s your secret weapon!
The idea is to leverage machine learning and big data to figure out how to find people who qualify at the top tiers — not to change your underwriting criteria. It’s more about finding customers than using data to approve them. Once you find them, you have to figure out how to target them in the tech channel. You maximize your user interface, you repackage products, you test what works, and you create high-value customers. There’s no single right answer, because everyone’s dream segment is different.
Think about it like this: If you’re a bar owner who wants to prevent bar fights, you can hire more bouncers, and bigger bouncers, to mitigate that risk. But there’s another way. You can make sure you have the right people in your bar, who aren’t prone to fights, and therefore reduce or eliminate the need for bouncers at all. In the past, the industry has definitely been more defensive — focused on hiring those bouncers. But we need to be more offensive going forward, and attract the right customers, so we don’t need the bouncers.
How do you attract the right customers? With smart, precision-oriented strategies like microtargeted marketing to specific customer groups. Marketing is a huge lever for mitigating risk!
SPINNAKER: What’s the “hot topic” right now in fintech/credit risk, and what do you think about it?
KATICS: Big data and machine learning are the hot topics. The incumbent sector continues to have a lack of imagination with the new data sources. For example, we often still think of marketing in batches and campaigns rather than as real-time and contextualized marketing.
SPINNAKER: What’s the biggest challenge in fintech/credit risk right now?
KATICS: The biggest challenge is monetizing the data lake. Many institutions have been investing in data lakes, data warehouses, and data marts, but as of yet have been unable to monetize the data.
Monzo bank in the U.K. is an example of successfully monetizing the data lake. They looked at things from the perspective of their customer, identified a pain point, and created a problem statement around it — then they applied big data to solve it. Monzo tapped in to the expensive, confusing public transportation purchases its customers found frustrating, then used its customers’ purchase history data to create a new solution. Now when customers use Monzo to make their transportation purchases, Monzo helps make it easier and ensures they’re buying the right thing —which, in turn, saves their customers money. Monzo solved a big problem for customers with a very simple machine learning process. Now, Monzo has satisfied customers who will continue to use their product for transportation purchases — and others as well. The capability also attracts new customers who want the same benefit. It’s about customer acquisition through innovation, and customer retention through creating customer loyalty and stickiness.
Bank of America’s BankAmeriDeals® is another good example of strategically using data to boost loyalty and engagement. They do it by leveraging data to fuel personalized offers based on consumer spending.
The message is that successfully montetizing data doesn’t require a big, complex algorithm. And it’s not witchcraft! It doesn’t have to be super-sexy, but if you effectively leverage your data, even with simple offerings, you will increase customer loyalty and spending. While fintechs have been leveraging data to drive customer loyalty for a while, banks are really just getting started — they just haven’t been as quick out of the gate. Today’s consumers expect a higher level of service and, frankly, if you’re not delivering, you won’t survive.
SPINNAKER: What changes are on the horizon for fintech/credit risk in the next year, and how will you adapt?
KATICS: We’re in the business of equipping the humans to use all the new tools in the machine learning toolkit. However, as the world gets more complex, attention spans are becoming shorter. It’s ironic that as the complexity of what people need to learn increases, we’re seeing decreasing attention spans! We’ve seen a rapid deterioration in the tolerance for old-fashioned training methods, which plays to our strengths. People want their short attention spans to be catered to, and they want to be entertained. But they also need to understand these tools aren’t about pushing a button to make everything happen.
Boeing recently announced it’s rethinking the cockpit, because pilots’ jobs have fundamentally changed with advances in automation. The same is true in other industries. The same phenomenon is happening in other industries — for us, the cockpit of today’s portfolio managers needs to change in order for them to be able to successfully do their jobs.
We will continue to push the envelope with both new training delivery formats and new topics in the areas of machine learning and big data to stay at the forefront of our industry. When it comes to solving this challenge, we will leave no stone unturned!
SPINNAKER: How different will fintech/credit risk be 10 years from now? What will change and why?
KATICS: It will become invisible. Through biometrics and identity management, identity as a service, etcetera, consumers will not even realize they were onboarded for a new credit product. For example, when purchasing your airline ticket, one of the payment buttons is a small personal loan. Further, once this is driven from voice-activated and iOT devices, the process becomes even more seamless. Everything is “straight-through processing” and invisible to the user.
SPINNAKER: What about your work is most rewarding?
KATICS: Creating and building.
SPINNAKER: What do you most enjoy about your industry?
KATICS: I really enjoy change. Prior to the financial crisis, I was quite bored with our industry. I didn’t detect much change except to keep taking on more risk and watch customers get more indebted. It’s really exciting see the products improving and the landscape changing.
SPINNAKER: What swings your feet out of bed in the morning?
KATICS: Change! We work to stay at the forefront of the industry — which is a great place to be.
SPINNAKER: What’s your greatest professional achievement?
KATICS: Anytime someone says “It can’t be done,” it’s like waving a red flag in front of a bull — yes, I’m the bull! A number of projects fell into that category. Back in 1993 at the IMF we forecast the sovereign debt crisis. At FICO, our team built the first mortgage credit scoring models for Fannie Mae. At Standard Chartered, our team built the first IRB models resulting in our successful IRB waiver application.
SPINNAKER: What do you think makes a good leader?
KATICS: A good leader reads and really listens. I do OK on the former. I’m always trying to improve on the latter.
SPINNAKER: What are your biggest opportunities as a leader?
KATICS: To influence people to “do the right thing,” and making good ideas “go viral” — whether it be using simulation to teach people to avoid overlending, or using it to teach financial inclusion.
SPINNAKER: What are leaders’ biggest challenges today?
KATICS: Large organizations can be soul-destroying and often cannot get out of their own way. How is a leader in a large organization to counteract this? That’s the biggest challenge.
More About Michelle Katics:
Idea hot spot: mountain, rice paddy, anyplace rural
Secret to success: I’ll let you know when I get there
My superpower is: connecting the dots
Must-use app: WhatsApp
Childhood career dream: drive an 18-wheeler — to my parents’ horror I hung onto this one for quite a while
First job ever: delivering newspapers
Reading right now: Last Boat Out of Shanghai
If I had an extra hour each day, I’d: read
Coolest travel experience: Preparing our Finovate demo while trekking toward Everest Base Camp. I could get a mobile data signal a few times of day and traded script drafts with our team during the trek. Startup life never stops — I went straight from Kathmandu to Finovate.
Brand crush: Nike, a brand built on taking stances. Like their stances or not, one admires the courage. Our industry could do with a bit more courage.