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Innovation Starts By Deciding What Not To Do

Meet Dan Frechtling, SVP of Marketing & Chief Product Officer at G2 Web Services. According to Frechtling, the hardest part of innovation isn’t deciding what to do, it’s deciding what not to. And for a business that’s all about helping banks and their partners stay compliant and manage risk effectively, knowing where to draw that line is critical.

In the latest installment of PYMNTS.com’s Commanders In Chief Series, Frechtling gives us insight into why staying abreast on the ever-changing payment risk landscape is necessary in order to strike the right risk management balance.

 

PYMNTS: What does a day in the life of a Chief Product Officer look like?

DF: Each day at G2 is different because it brings a mix of deadlines and opportunities.

There are a few things that make my group distinctive. First, my teams are responsible for marketing and data science as well as product. Second, G2 isn’t just technology; G2’s core assets are data, technology and our expertise. Third, we’re a global business.

Marketing generates leads and addresses friction points for our sales and solutions teams. Message is key. It must be crisp and differentiated. We’re fortunate since we think that G2 has a unique set of services that other providers can’t offer.

Data science is regularly experimenting with new approaches, building new models, then training and improving those models. A constant area of attention is testing new experiments to improve our ability to identify hidden fraud and predict which merchants are most likely to violate compliance rules.

The product teams work on both product development and product delivery. Our roadmap is always influenced by new customer needs and new technology applications. Yet we try to find a straight line to the deliverables committed during our annual planning process. It’s the combination of deliberate and emergent strategic planning that makes product strategy so fun. As for delivery, we’re building and testing products that are primarily first-to-market. This means the delivery teams constantly face new use cases and new branches in the “red path,” requiring them to improvise.

In my role, I need to stay close enough to the activity to take the full-company view, prioritize and course correct, yet stay out of the way so the talented leaders of each function can progress without overhead.

 

PYMNTS: What is the most difficult part of your job and why?

DF: The hardest part is deciding what not to do. We are fortunate to have a creative and motivated group of product managers, data scientists and marketers who are regularly discovering new features and applications for our technologies and know-how. We are also fortunate to have an agile process that can pivot quickly. But the hard part is when we have to say no.

We don’t always build comprehensive business cases, but we always scrutinize and debate the pros and cons. What happens if we shuffle the backlog to accommodate a new feature? Or shift the roadmap to make room for a new offering? When teams look at accounting costs AND opportunity costs, their perspective becomes clearer and saying no becomes more practical.

In my job, it’s also unnatural for me to say no. I see in payments risk and compliance a lot has yet to be invented to help our clients. But our resources are, like everyone’s, finite. So my team and I have to pick our winners.

 

PYMNTS: How do you trade off getting products in market quickly with getting all of the details perfected, including checking all of the compliance and regulatory boxes?

DF: This trade-off is the quintessential question of new product development. All new products ship with some flaws, and product teams balance time to market with notions of minimal viability to strike the right balance.

G2 is fortunate because of our talented analysts. This means we can deliver certain features manually while we evaluate the cost-benefit of automating them. We can test the demand waters, so to speak, and choose to invest engineering cycles once we see enough clients willing to purchase them. In addition, our analysts complement our algorithms because only human intuition can account for biases; machine learning can’t do that. Adding automation to analysts helps us scale faster and reduce cost once the revenue opportunity is proven.

The second part of your question is especially important for G2 given our customer base (banks and their partners) and our business (helping clients manage business customer risk). Compliance and regulatory requirements are not really trade-offs for us. They are mandatory.

However, there are always choices around the level of sensitivity of our tools, since our clients have different risk threshold and compliance requirements can vary around the globe. If thresholds are set too low, clients may get too many hits. If thresholds are too high, they can miss new threats.

We try to strike the right balance and offer our clients some ability to customize risk thresholds. We keep pace with constantly changing payment risk – in ways to shop, products to buy, ways to buy, fraud trends – so we can help our clients comply with regulatory requirements and manage positive risk for positive growth.

 

PYMNTS: What does innovation mean to you?

DF: Innovation means solving a client’s problem in a new way. Sometimes these are new problems, such as new regulatory standards. These may be solved by “looking” for new signals, enabled by crawling and processing data. Sometimes these are old problems, such as deciding which business customers are too risky to onboard. These may be solved by new applications of big data and machine learning.

You must start with areas of friction for clients. Don’t start with technology. Starting with technology equates to inside-out thinking, which can “outthink” the customer. Starting with friction equates to inside-out thinking, and spares you a lot of dead-ends and blind alleys.

If you spend enough time with clients and listen carefully, you distinguish problems that are acute and pervasive. For example, G2 began spending more time with commercial banks in addition to our legacy acquiring banks. Through this we learned of the frustration they had with KYCC, or knowing the customer’s customer. Third-party payment processors (TPPPs) or third-party senders (TPSs) don’t always reveal detail about their underlying customers. This creates a huge liability for banks, because examiners will spot-check information about underlying customers.

The problem began with a single customer, whose problem was so acute that it was willing to take our monitoring product developed for credit card transactions and apply it to ACH. The problem extended to many more banks with TPPPs and TPSs, which led us to conclude it was pervasive enough to develop a distinct product suite serving this very important customer segment.

 

PYMNTS: What trends and changes are you watching that are affecting the industry and your role?

DF: Our clients in risk and compliance increasingly feel like law enforcement as they strive to meet expectations from regulators. Accordingly, G2 is watching the changing regulator interpretations of AML, BSA, KYC, PSD2 and many other acronyms!

Sometimes the positions are aligned, such as the desire by U.S. and U.K. regulators to peek into beneficial ownership. A beneficial owner owns or controls an account or company operation. Regulators care about beneficial owners because they can be obfuscated by nominees and complex corporate structures to hide who is pulling the strings and reaping the rewards of commerce. This is an active area of regulation, as government bodies request new beneficial owner reporting from banks.

Sometimes the positions are misaligned. Take the issue of derisking. This is otherwise known as exiting or scaling back service to business categories deemed unsavory, such as firearms, payday lenders, online gambling, money service businesses and marijuana dispensaries. In the U.S., many banks undergo derisking because they think they need to oblige regulators. In the U.K., banks have been called upon NOT to derisk to oblige the FCA.

 

PYMNTS: Any recent success stories you would like to share with us?

DF: Two recent launches worth sharing are our Know Your Customer (KYC) and Transaction Laundering Detection services. Both businesses represent application of G2 data, technology, and know-how. The leaders who brought these to market produced tremendous growth this year.

G2 KYC services have helped commercial banks overcome poor audits and earn (rare) favorable remarks from examiners. These includes our Compass Score®, which quantifies risk instantly. These also include Reputation Monitoring and Business Classification, so clients know what adverse businesses are hiding in their portfolios. Nearly all of the U.S. regulators, from the CFPB to FinCEN to the OCC and FDIC, are taking a harder look at underlying business customer portfolios.

Our acquirer clients are now better able to top unknown illicit businesses processing payments through known merchants. This is a growing type of fraud called transaction laundering. G2 Transaction Laundering Detection helps risk managers spot laundering “suspects,” and prove the illegal activity with “smoking guns.” These techniques helped clients terminate marijuana processing through a T-shirt merchant, stop prohibited injectable hormones sold through a vitamin site, and eliminate violent exploitative content processing through a video site, among other fraudulent activities.

I couldn’t be prouder of our teams behind these launches, who helped G2 become a finalist in the Global Payments Awards by Mobile Money and Digital Payments and a Top 10 Payment and Card Solutions vendor by Banking CIO Outlook magazine.

 

Dan Frechtling
SVP of Marketing & Chief Product Officer, G2 Web Services 

Dan Frechtling oversees marketing, product management and innovation for diligence and monitoring solutions serving the US, Europe, Middle East/Africa and Asia.

Previously, Dan was Vice President of Global Website Products for hibu, where he grew an auxiliary add-on product into a $100 million Web Presence business serving merchants in the US, Europe, and Latin America. Prior to that, he was Vice President Marketing and Client Solutions for DS-IQ’s Walmart Smart Network and re-launched DS-IQ’s digital couponing products for SUPERVALU.

Earlier, he ran DVD games and youth electronics as Director of Worldwide Marketing for Mattel, where he licensed a start-up game called Scene-It? and grew it to over $100 million in revenue worldwide. At Stamps.com he helped launch the first server-based web postage technology, which remains the leading solution today. At McKinsey & Company he led engagements for consumer and technology clients.

Dan earned his MBA with distinction from Harvard Business School, his BS in Journalism/Economics with High Honors from Northwestern University, and studied at Nankai University in Tianjin, China.

 

To get a glimpse into the minds of other C-suite players and get a sense of their roles, click here.

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