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In the next presentation we're going to hear about an approach to segmenting
customers and offering services that really is based on vision and value.
And I'm very pleased to introduce to you Bruce Cahan who is a visiting researcher
an associate researcher in the Civil Environmental Engineering Department.
I think we've heard from communications, psychology, sociology civil and
environmental engineering, computer science tonight in
the various disciplines at Stanford that are contributing to these new studies.
And I'm very happy to introduce Bruce.
>> Thank you Martha.
And thanks for serving wine earlier, then, that really does help at, at this hour.
So I am a recovering Wall Street lawyer a Hong Kong merchant banker,
a 9/11 responder, a geospacial technologist, and
a fellow, and a visiting scholar at Stanford.
And so probably six brains are up there trying to
figure out what the next sentence is.
But let, let me start with a summary of what I'm going to tell you.
We've been working on a theory of banking called sustainable banking.
And we think that, that can align what people and their purpose, and
their money do in ways that we've not seen before.
Market segmentation, some of which you've already heard about,
tends to disrupt what people in their shared interest would want to do.
It manipulates people to do what the marketer wants them to do.
We're going to talk a little about taboo,
because it's hard to talk about money without talking about taboo.
And the taboo that, that I'll enforce on you tonight is that banks have money.
No, they actually don't.
They have data.
Big data, and internet of things is going to mean a different form of banking.
A much more shared, do it yourself,
create the bank that you want to relate to banking.
And I'm going to talk to you about personality types.
And some of you from psychology will tell me I don't know enough, but you'll,
you'll get the hang of how banks have preyed and
played with people's psychological foibles.
And ultimately I'll convince you, I hope, that sustainable banks are safer
and create safe, safer lifestyles for their, their customers.
Why do I focus on banking?
I focus on banking because when you look at the entire global gross domestic
product, you see that banks are about 88% of that.
Just for comparison, you may hear about impact investing, and related technique.
That is a dot of 0.0012% on this chart.
So, we're talking about the elephant in the room, not the fly on the elephant.
And what do I define this sustainable banking?
Three characteristics think of it like a DNA strand.
A sustainable bank is safe, safe in the regulatory sense.
Safe in the sense that you can get through a recession without the bank collapsing.
Fair and trustworthy, meaning doesn't take advantage unduly of its customers.
In fact, serves its customers needs.
And impactful positively so as to create new quality of life enhancements.
We, we are thinking of this as science based banking,
because science knows how to measure impacts.
That's what campuses like Stanford do.
People measure impacts all day long.
We're trying to create a bridge between what science knows is important enough to
measure and what banks and
financial markets think are important enough to fund.
And this is our mental model of how simple most customers, whether it's an individual
or a small business, a non-profit, a small government, what they do with their money.
In the short term on the left, they are saving and spending.
In the longer term, they're investing and borrowing over a year or
three-year tenure.
And in, in a known time frame, they are insuring and donating.
And if you bought insurance on your car and you didn't make a claim on
that insurance last year, you donate it to somebody who did.
And so it's a semantic not an economic definition of what your money is.
And what we, we think can happen is that we can wrap all six of
your functions in an intentionality envelope.
We can show you the effect of all six of the ways you're handling money.
Not just buying Tom's shoes or Whole Foods, or whatever.
Keep spending, spending, spending, which of course is the metaphor of the web, but
these other forms of handling money how you save, how you invest, how you insure.
Have you ever thought to ask your insurer,
what do you do with my premium when you're not paying out claims?
You enormous power that you've never asked or been thought to, to ask about.
So, so, we think that,
that wealth solves some of the problems that current bank paradigm has.
And when we look at what a bank really is, it,
it brings out, this is the entire banking system, right here.
Okay?
It takes money in from people called depositors and it owes them some safety.
It puts that money into magical pieces of paper increasingly
PDF pieces of paper, loans, investments leases.
Somehow the money gets from the magical pieces of paper into real assets, for
people their homes, for businesses, for cities.
To the extent we don't really trust banks,
we ask them keep some not invested as reserves.
And, and what makes these real assets
is the impacts created by the people, the businesses, the cities.
This impact layer in our banking system, for the most part, does not exist today.
And we're suggesting that if you look at what banks do, they live on the spread
between what investments pay them and, and what they pay their depositors.
And we think we can have the bankers lose less money by knowing
the impacts of the assets that they hold, the loans that they hold, such as houses.
And this is an additional feedback who are banks that they
really have not used to, to great advantage.
They constantly do due diligence before they make a loan, but
they don't reuse that intelligence as effectively as they could.
If they did what we're suggesting I think trust in the banks would go up.
You'd have rating services validate that the impacts are adding to quality of life.
And so, that brings us to the topic of the day, which has been market segmentation.
So I have to, in order to, to meet the, the charge that Martha's given me,
I have to take you to a very special place in banking.
We are entering the village of boring,
when we talk about market segmentation in banking.
And in that village, you have these wonderful charts, about income and
age, and you know, all kinds of demographics.
And in the income, in, in, in this village,
we talk about steps up the ladder of life, and, and
life cycle that your needs for banking will change as you get older.
And then to, to make sure the bank is really, really listening to you,
they're really listening to how do they customize and
derive a premium spread from you when they do customize.
Well, thankfully I'm going to have us leave the village of boring right now,
because that was traditional banking over there.
But I have to take you into the, the Hamlet of taboo.
And in banking is partly taboo.
Name another industry where government keeps the industries safety a secret.
If the drug industry, had a bad drug,
you would expect the government to tell you not to take the bad drug.
Where executives sp, spend 85% of their time, is what they tell me,
answering regulatory requests instead of planning the innovations that'll move them
to the next generation.
and, and so, money is, is totally full of taboo.
We grew up in different tran, traditions.
Different family circumstances, where taboo of our fathers and our mothers, and
our grandparents were totally passed on.
The literacy and financial literacy about how to
handle our money was a sacred taboo at the dinner table.
You were not supposed to ask about money,
if you wanted to get to your room without being sent there.
So these taboos don't work.
And one of the biggest taboos in banking is, and
you're looking at a bank vault that's been converted to a restaurant, a very nice
restaurant actually is that a bank vault has money, it actually has data.
The modern bank is full of data, data about who has the money,
who owes the money, where the money is, where's the money going to have to be,
how much money do we need.
Well, actually, this is pretty good news,
because in the world of big data analytics,.
Were you to want to run a safer bank, you're going to have the technology and
the data scientists to do that.
Were you to want to run a more predatory bank, you will also have that too.
As you can see from the industry folks who sell data analytics.
They're looking at ranking and
securities as a huge opportunity to sell big data services.
The internet of things is coming, this is not news to folks in this room.
The banks don't have a style of underwriting,
by which they can use the data coming off the internet of things.
We've heard some amazing work being done by Ron at
Stanford Precourt Energy and June, and many others in this room.
How will a banker give you a different interest rate based on, you were
more responsible choices in an internet of things since the developed world.
Well, some of that's going to depend on how the personality types present to
the bankers.
And just to review really quickly you know of the Myers Briggs personality wheel.
Well, this is the normal distribution, in the population of the different,
16 different personality types.
We don't have as many inventors as we do protectors.
Well, bankers are not normal personality types.
They just aren't.
Okay, so you're expecting bankers to
give you products that they think they would use when you're different, okay.
And that means that they watch people navigate their life-cycle challenges.
And they rely on fear as collateral, and they seem to
make the same mistakes as other people had made, and they take advantage.
And life throws us arabic cubes,
it makes us step up to challenges we didn't know we'd have to.
And the banks add layers of complexity on top of those challenges.
And we are not all rugged individualist to overcome those challenges.
I wish we were.
We're not Django.
We're not all Angelina.
We're just not, and we don't have to be.
Because if it turns out that one of us has figured out how to
make fire on a desert island.
The bank could be a knowledge transfer hub, or a KTH, is what I call it.
Where someone who has a great idea for overcoming a life cha,
cycle challenge, shares it and gets credit with the bank for
reducing the default rate of their neighbor, even if it's anonymous.
The shared knowledge is real collateral to the bank,
because it doesn't write off as many bad loans.
And we're seeing some evidence, and
we, because of the lateness of the hour and the time pressure, I'm not going to
show you our work looking at correlating this kind of behavior to bank safety.
But there's some indication that these tools, and
this approach to banking will make banks safer.
We the one thing that I wanted to, to share with you is two more things.
One is the, the end result of all of this is creating story telling money.
The depositor says in, I want to aim my intention at certain goals.
Reducing poverty red, mitigating climate change.
And the bank listens to borrowers' stories all day long.
This is what the business will do.
It will also reduce poverty, it will also feed the poor, et cetera.
The bank puts those stories together.
Offers the transparency to see the impacts.
And we're developing a periodic table of quality of life to be able to
map those impacts regionally so that we can make sense of those stories.
And have those stories be anchored in the reality of the places that they effect.
And that's all I have time for.
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