Finterview: MB Financial's John Piazza

John Piazza leads digital innovation at Chicago-based MB Financial. He chats with Plaid's Dan Kahn about SMB lending, payments innovation, and build vs. buy strategy.

MB Financial Bank was acquired by Fifth Third Bank on March 22, 2019. John now focuses on delivering new capabilities through strategic investments and fintech partnerships.

John Piazza is passionate about using technology to improve people’s financial lives.

Based in Chicago, he leads digital innovation at MB Financial, a regional bank with $20 billion in assets. He focuses on new product development, digital strategy, and strategic investments. He also served on the Federal Reserve's Faster Payment Task Force, where he helped develop a framework for a directory model for real-time payments in the US. (article continues below)

diagram courtesy of John Piazza

John takes an active role in mentoring company founders in Chicago through Chicago’s startup incubator 1871. In his free time, he enjoys biking, cooking, and photography.

Dan Kahn leads the Bank Integrations team at Plaid, where he helps financial institutions power data access and open banking initiatives.

Digital transformation.

Dan Kahn: Talk to me about your role at MB Financial. What do you do?

John Piazza: I am focused on digital transformation. That means building new products, establishing partnerships, evaluating strategic investments, and keeping current on ideas that are getting traction in the market. That way I can work with business and product teams to determine what might affect their business in the future—and what we do about it.

Partnering with business units is the most important—and the most effective—way to bring meaningful and sustainable progress to our organization. That approach has worked especially well with our retail bank and payments groups, in part because these are two of the areas in our industry that are changing the fastest.

"Historically, you’ve had corporate banking on one hand and consumer banking on the other. Small- to medium-sized businesses get stuck in the middle with a service that is an amalgam of the two—and usually far inferior."

DK: We've seen a lot of innovation on the consumer side of fintech. What have you seen on the business side?

JP: People are hungry for new financial solutions across all segments. But as far as smaller businesses are concerned, they’re stuck in this strange limbo.

Historically, you’ve had corporate banking on one hand and consumer banking on the other. Small- to medium-sized businesses get stuck in the middle with a service that is an amalgam of the two—and usually far inferior. An exaggerated reason often given for this is that “it takes just as much to underwrite a $5,000 loan as a $5 million loan.” That isn’t quite true, but for years, it has been an industry challenge in serving the SMB community profitably.

Fortunately, given technology’s ability to streamline processes, reduce operating costs, and underwrite risk in novel ways, banks and fintechs have finally started to build solutions tailored specifically to SMBs.

As far as favorite products, there are a few that stick out in my mind as clear leaders. Gusto for payroll. What Xero has done on the marketplace side—especially enabling payments and lending through their software—is terrific. Square for radically cutting complexity and for taking a holistic approach to the market. (article continues below)

diagram courtesy of John Piazza

Competing with megabanks.

DK: As a smaller bank, you’re not just competing with fintechs. You’re also competing with megabanks who have thousands more branches and multi-billion-dollar technology budgets. How do you win in that marketplace?

JP: It starts with partnering in an intelligent way—and building very selectively. Often you can win by being more responsive to your customers. The things you end up discovering when you actually spend time with customers is remarkable. But for some reason, many companies, banks included, skip that step.

"I use a simple framework. First, do your customers demand it—or will they soon? Second, can you drive enough value from it to justify the investment?"

DK: In a very practical sense, how do you make that happen? What are some of your favorite tools, techniques, approaches?

JP: It’s two things. One is getting on a regular cadence of speaking with your customers, everything from ethnographic research to customer advisory panels. Two is reviewing their input with business unit leaders and integrating it into your business in a tangible way.

That process is especially important for product development, but all of your teams can benefit by becoming more customer-centric. Regarding particular techniques, one that we’ve found quite useful in product development is the jobs-to-be-done approach.

DK: What’s your approach to buy vs. build?

JP: We have a framework that’s always evolving; frankly, it’s situation-dependent. But generally speaking, you build when you want to own the IP, and you build when the solution leads to a competitive advantage—when it differentiates you from others in your space and creates or reinforces a moat.

In many situations—I would argue in most situations—it makes sense for a medium-sized bank to buy or partner.

Partnering frequently gets confused with vendor relationships. Don’t make that mistake. Successful partnerships are different in that both sides must bring something unique to the table that the other party can benefit from. Just bringing money to the table isn’t usually enough to make a partnership successful. As a bank, two areas you probably can bring to the table are operational expertise and distribution—start there.

"You build when you want to own the IP. You build when the solution leads to a competitive advantage—when it differentiates you from others in your space and creates or reinforces a moat."

The new world of payments.

DK: What’s new in the world of payments?

JP: What isn’t new with payments?

I think of the opportunities presented by real-time payments, especially their ability to serve as an alternative settlement mechanism to the slow and costly alternatives currently available. Look at how many small businesses and consumers have cash-flow challenges. There’s no silver bullet to solving these issues, but the ability to instantly receive funds will help tremendously.

I also think of the ability to add services around the payment, as payment products themselves are frequently commoditized. A bank like MB Financial probably shouldn’t compete on price, nor should most other mid-market institution. The largest banks have us beat on economies of scale. So for us, it’s all about what we can deliver around the payment—things like invoicing that works the way it should or payment reconciliation that doesn’t take days.

DK: I saw on your LinkedIn that you worked with the Federal Reserve Faster Payments Task Force. What did you learn there?

JP: First, there’s a big advantage to having government-mandated improvements to payments infrastructure—namely speed. After convening the entire industry four years ago and collectively spending 120,000 hours on consensus-building, the Fed is just now embarking on a formal exploration of building a real-time gross settlement payment system.

Second, the whole industry gets flack for not being customer-centric enough. But when you convene the leaders from across the industry, it’s readily apparent that they are actually, genuinely interested in driving change and solving problems for the individuals and businesses in America.

It’s a really tough job: trying to convene an entire industry and gain consensus on a single solution. The Federal Reserve has done an impressive job facilitating the conversations, bringing widespread awareness of the issues, and creating momentum in an industry known for moving slowly.

"At the end of the day, innovation by newcomers pushes incumbents to deliver better solutions and access to capital by thinking outside of the boundaries of traditional banking. That’s good for the industry, and it’s great for the end-user."

DK: If these newer payment rails are going to be built by larger consortiums or dominant market players, how does a smaller institution decide whether they should get on board?

JP: I use a simple framework. First, do your customers demand it—or will they soon? Second, can you drive enough value from it to justify the investment? Third, are you going to have enough input to effect change in the system if it’s needed?

The reality is, smaller institutions rarely set the standard for an industry. So, if the large banks do it and start setting the expectation for customers, the small banks will feel pressure to get on board in order to meet customer expectations. Zelle is a good example.

In a perfect world, all real-time payment systems would be interoperable, so it wouldn’t matter which basket you put your eggs in. In reality, that’s technically quite difficult. Other countries around the world have struggled with this, including those who are further along on their real time payment journey than we are. And so, it’s likely that smaller institutions will have to get on board with every new payment rail that becomes mainstream.

The impact of fintech.

DK: You’ve had broad experience in the industry. Where do you see fintech making the biggest impacts in people's lives?

JP: There are a few areas I’m particularly impressed with. Let’s start with companies that have removed the barriers to building short-term and retirement savings. We have a big savings problem in the US, so companies like Stash and Acorns who are helping to solve that by leveraging the best of behavioral economics are terrific to see.

Another area where we’ve seen substantial innovation is access to credit. Take Even and PayActiv, who are providing access to earned funds and helping users avoid payday loans. Or Nova Credit, which is helping immigrants export their home-country’s credit history to the US so they don’t have to start from scratch.

"Smaller banks, especially, have a lot to think about as fintechs raise the standard for customer experience and technology delivery. At a small scale, it’s difficult to match what they’re offering."

DK: How do you see the competitive landscape of fintech evolving over time?

JP: I think there's room for a lot of players. Winner-take-all markets are typically driven by network effects, and financial services has few of those.

At the end of the day, innovation by newcomers pushes incumbents to deliver better solutions and access to capital by thinking outside of the boundaries of traditional banking. That’s good for the industry, and it’s great for the end-user, who benefits from lower prices, better services, and access to capital.

The dialogue around fintech firms and competition shifts every couple of years. Now it’s all about partnerships. Partnerships are valuable today, and they’ll continue to be valuable in the future. But it’s naïve to think that many fintech companies aren’t direct competitors.

Smaller banks, especially, have a lot to think about as fintechs raise the standard for customer experience and technology delivery. At a small scale, it’s difficult to match what they’re offering. Banks, ultimately, do have some regulatory advantages that fintechs can’t compete with, but it’s not a competitive moat wide enough to survive on.

The bank of the future.

DK: What do you think the bank (or fintech) of the future looks like?

JP: Generally speaking, I think there will be far fewer banking providers in the US. And many of those who survive probably won’t serve all categories. There will be strong niche players who offer compelling solutions to specific markets and there will be the megabanks who have enough scale to be “everything to everyone” players.

For all but the biggest players (who have the scale to manage and build everything themselves), it won’t make sense to offer solutions in every category. Many have tried, and we’ve seen that it quickly becomes unwieldy or uncompetitive.

"For all but the biggest players, it won’t make sense to offer solutions in every category. Many have tried, and we’ve seen that it quickly becomes unwieldy or uncompetitive."

DK: You’re based in Chicago. What’s that like?

JP: It’s awesome. I’m not from Chicago, but I’ve lived here for a few years now. And I really appreciate the Midwestern mindset of humility and hard work. Even though it’s the third-largest city in the nation, it feels much smaller; that’s because people are so willing to help each other out.

Financial innovation is alive and well here, but it tends to be focused in a few areas. For financial services, we are arguably the hub of unsecured consumer lending (think Avant, Enova, Discover) and one of the best cities in the world for trading (think CBOE, CME, Citadel, DRW). We also have a lot of blockchain-focused companies, and the city is making a push to be a center of blockchain development.

Why, are you guys thinking of opening a Chicago office?

DK: You never know.

JP: Well, we’d love to have you. If you’re looking for intellectual capital, we have three of the best universities in the nation: Northwestern, the University of Chicago, and the University of Illinois. Not to mention, Chicago is the largest talent magnet in the Midwest, so it pulls students from Michigan, Wisconsin, Purdue, and Notre Dame—just to name a few.

And it’s more affordable, which means that startups can thrive here, and residents can enjoy a very comfortable standard of living.

Mr. Piazza’s views are his own and do not necessarily represent the point of view of Fifth Third Bank.

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