Talk to Chuck

Many would say that "innovation in financial services" is a contradiction in terms. The key elements of all financial products have been around for centuries. These are a play on time (as in a loan), a play on contingency (as in financial futures and options), and a play on liquidity (as in all standardised trading both on and off exchanges). However, there have been a number of large episodic, ground-breaking innovations. Often, these are linked to external events like changes in regulation, technology or customer preferences.

I will use the example of Charles Schwab to illustrate some of the points; starting with changes in the SEC regulations in the 70's, the changes in the Glass-Steagall Act in the 80s, together with waves of technology-led innovation in the 80s and 90s, with a return to customer in the mid 2000s.

1. The role of the regulators.

In 1974, the SEC (Securities Exchange Commission) allows deregulation of certain brokerage transactions. Charles Schwab takes this opportunity to launch a discounted brokerage with vastly reduced fees and commissions and high street branches.

The regulatory two-step is an intricate dance in financial services. At each turn the regulators, in trying to reduce the political fall out of the profit maximising strategies of clients and firms, provide a spring-board for even more opportunities to make money. This creates an ever changing environment to which firms have to adapt.

2. Technology's powerful fly-wheel.

In waves of technology driven innovations using, successively, basic computing, call centres, home based PCs, the Internet and social media, Schwab grows into a huge financial services operation, as some of the points below illustrate.

• 1979: Automated transaction and record keeping: Client accounts 84,000


• 1980: 24 hour quotation system: Client accounts 147,000


• 1982; 24 hour order entry system: Client accounts 374,000


• 1984: PC-based on-line investment system: Client accounts 903,000


• 1985: Over 1.2 million client accounts with $7.6 billion under management


• 1986: Using existing capabilities to have mutual funds quoting and trading 24/7: Client assets $11.3 bn


• 1989: Automated telephone brokerage: Client assets 25.3 bn


• 1991: First network TV advertising campaign launches: Client assets $47.5 bn


• 1995: schwab.com launched (see the WayBack Machine record for January 16, 1999): Client assets $181.7 bn


• 1996: Web trading introduced: Client assets $253 bn


• 1997: Registers 1 million online accounts: Client assets $437 bn


• 2002: Launches an advisor-branded website and hosting service for independent investment advisers: Client assets $657 bn

At this point the dot com boom is gone and the world is grappling with the after effects of 9/11, prompting Schwab to look at refocusing on customer needs at a more fundamental level.

3. Listen to the voice of the customer

Many of Schwab's biggest innovations arise through asking customers a few key questions:

• What can we do better?


• How can we make your life easier?


• What new service or product would you like to see us offering?

This is illustrated in some detail in the Ogilvy case study on Schwab's "Talk to Chuck" campaign.

In 2006, after extensive analysis that included ethnographic and qualitative research, Ogilvy identified "When it comes to my investment firm, I’m just a small fish.” as a real customer 'pain point'. The business response to this was to ensure that "... all clients have easy access to the best of [Schwab's] insights into financial markets & investments". Finally this was executed in the following range of commercials, where the innovation is in the manga-style execution of the television ads.

This article highlights many features of entrenched corporate innovation. To me these can be summed up in a sound bite. Schwab have become well skilled at responding to the shifting competitive landscape using whatever is at their disposal in order to remain relevant. Of course, it was still necessary to understand the extent of what is at their disposal and how to use it, and more importantly to understand that being relevant means being relevant to customers.