Google's Larry Page buys a 'major global bank'

Can you imagine the reaction of a bank employee if one morning he reads this headline? 

In the spring of 2010 I polled the students of the Master of Finance about how many of them would rather work for Google instead of a bank. Survey results: 5%. Last Friday I have made the same question for the current group. Survey results: 96%.

Despite the efforts to adapt traditional business to the rapidly changing world, the truth of the matter is that dominant players today are mostly new ones: Apple and Spotify control the music distribution versus Sony and Virgin; Amazon Kindle and Apple iBooks control book distribution; Uber controls taxi industry; Skype and WeChat control phone calls market; Amazon and Alibaba control retail vs Walmart or Best Buy; WhatsApp controls messaging space vs AT&T or Telefonica. 

1. Can there really be a new dominant player in financial services?

Not so well-known as the above, Yu´e Bao, the money market fund of Alipay (Alibaba) is the largest fund (USD 100 billion approx) in its category in China vs Commercial Bank of China (ICBC), China Construction Bank or Bank of China. In fact, Yu´e Bao can be considered as the most successful mobile banking product in the world. There is no minimum amount, and customers can withdraw their cash anytime. Yu’e Bao now has more investors than China’s equity markets.

This is only the tip of the iceberg regarding changes in the financial services industry.

2. Why is so difficult for traditional business to make the transformation?

The hardest thing to change in a corporation is not the tech system but its culture. The technical side is relative easy to solve: hire a full Silicon Valley team and make it from scratch. But how easy it is to change the culture of +100k employees?

Executives underestimate how hard it can be to drive people out of their comfort zones.

The real issue is the status quo of the current employees. What does a successful digital banking transformation mean? It means that in two years you will not need 50-70% of the employees, nor todays countless committees. And what is the conclusion if you have an unsatisfactory digital banking transformation? Probably the bank will be closed in five-ten years and you will have to fire 90% of the employees. So, for the 50-70% of the current employees, the best option is the status quo, as probably they will maintain their comfort zone for their next working years. 

3. How does the culture need to change?

• Risk Building/ Failure tolerance.

• Pilot projects rather than large initiatives.

• Hire for culture fit ahead of tech fit.

• Drive scalable learning.

Citigroup has invested in Betterment, Santander in Ripple, BBVA in Simple, etc. In an acquisition the buyer transmits the culture to the acquired company. Even more when the buyer has +100k employees and the acquired has less than 300. If you want to take advantage of the fintech culture, you need a process to quickly infuse the culture of the acquired company into the main operation. If not, at the end of the day what will probably happen is that 300 employees adopt the bank culture, or end up leaving the company.

4. How to infuse the fintech culture into a major bank?

Basically there are three tools for the digital transformation: the People, the Strategy and the Execution.

4.1. People

• Adopt a talent replenishment model.
• Rethink traditional models of working (employee/employer models, more partners).
• Balance soft and tech skills in all company levels.
• Educate the ones that might be transformed. In my experience more than you think.
• Above of all you need transformative leaders.

It´s rare that originality comes from insiders, especially when they are as entrenched and comfortable as the financial services industry.

Just a reflection about how to attract talent at scale: Would you go to Silicon Valley? What is the replacement cost there competing with Google, Apple, etc.? What would be that cost in places like Mexico or Colombia? I can ensure that Mexican and Colombian engineers have the same or even better knowledge than their neighbors. Some tech funds are moving from India to Bogota! Yes you read correctly, Bogota! 

4.2. Strategy

Any of the employees should know to answer two simple questions: 

• Where does the company want to go with the digital transformation? Where do I want to go? (Objectives).
• How will I know I am getting there? (Key results to ensure progress is made).

4.3. Execution

First of all, you need to make everybody feel uncomfortable with the status quo. That does not mean a general employment reduction, nor to maintain every employee.

Success in your digital transformation requires addressing three areas:

• Diagnosis (Why?)
• What to do – initiatives in the short and long term-?
• How to do it? 

Then bring passion for execution for all the crew; this is a heroic trip, you will invent the future of banking. You and your team will not want to work in Google but become the “Google Bank”.

Banks can play a defensive or an attack digital transformation strategy. The ones that play a defensive game will be probably bid by Google´s Larry Page…at distressed levels…