Standing At The Crossroads: Observations on Banking and Technology

“We are a technology firm. We are a platform.” 

-Lloyd Blankfein, CEO Goldman Sachs 2017

It’s coming up on two years since I joined Banco Santander as their Chief Platform Officer. After many years of being in software companies such as Google, SAP, BEA, and TIBCO etc. I took the plunge and walked into a global bank that serves 144M+ customers with a strong footprint in Europe and Latin America. With an ambition to serve billions, the bank needed to embrace a digital transformation platform to achieve that scale.  

Recently, I shared my personal journey and learnings in the Inspired Execution podcast series by DataStax. While doing that I shared a few nuggets of my current journey at Santander. The public and private feedback I received for this podcast has been heartwarming—thank you! Many of you have since asked me to elaborate on my experiences and observations about the differences in working for a bank vs. a software technology company. Of course the lines are blurring these days, as you can see from the Goldman CEO quote above that I agree with completely. I do believe strongly that the next financial services giant will be a financial platform company—one that is a combination of financial services, platforms and technology.

So here we go. I thought I'd share my observations from working in both a global bank and global technology companies prior to this. I hope to call out the subtle nuances and not-so-subtle differences I've seen in how banks and financial institutions differ from technology companies—in culture, processes and products.  

This gets even more interesting as each one is trying to embrace being the other, or at least offering similar services! These are my observations (in no particular order), and not those of my current or past employers, my family, my friends or my (virtual) dog. 

1. It's a matter of trust - Consumer data privacy and trust is king. Banks have a maniacal focus on customer data privacy and security. They have built trust over the years. Even today, it’s banks that people trust the most to keep their money. On the consumer front, tech companies have not had the same amount of time to build that trust even if they are always keen on doing the right thing. In addition, there is a negative perception they have to overcome: Many consumers suspect that they are just “selling their data”, so outside of immediate tech enthusiasts, the broader population is wary to adopt right away. On the business-to-business side, banks rely on their existing networks and relationships for establishing privacy and trust; tech companies have to find a way to insert themselves into the transaction flow and network.
2. The long and winding road - The journey from project to product to platform - Banks are on a digital transformation journey that will require them to get out of "project" mode, largely driven by IT, and transition to business-driven products that deliver customer needs through a planned and published roadmap—and then proceed on their journey to a platform orientation. In general, projects have an end date, while products have a lifecycle that continues to deliver capabilities well beyond the initial delivery. Projects typically perform only maintenance changes and don't evolve the product's capabilities. The product ethic is "standard issue" in software technology companies, many of which are already either operating as platforms (e.g., Google, AirBnB, Uber, etc.) or on the path to becoming one. The platform is a way to modularize products and combine them in different ways to meet customer requirements and business goals. Banks need to undertake this journey if they want to scale and benefit from powering an ecosystem that will help them generate incremental revenue with a very low capital outlay. Bottom line: To win, both banks and tech companies need a platform that powers both their products and their ecosystem. 
3. But they never told you the price you would pay - What about technical debt? It is a common misconception that only banks have technical debt. Technology companies, depending on their maturity, also have technical debt. The difference is how they fix it. Banks typically tend to simplify the technical debt discussion by transforming their core systems in one effort, then initiating a separate effort to deliver a modern platform for new initiatives and products. However, the transformation of the core and the ability to add new products both need to happen at the same time. Doing this is not trivial. It is a difficult dual task of reducing technical debt while simultaneously architecting and building a modern new core that is modular. This provides the ability to modernize legacy systems and foster 2 speed innovation for both legacy and new applications. Any deviation from the simultaneous efforts creates stovepipes and new technical debt. Committing to this goal is probably the hardest and most important decision for any bank to make. It requires vision, perseverance, passion, an eye on future growth and most importantly a strong yet nimble technical team to architect the strategy and be laser focused on execution. Tech companies, on the other hand, go through this process regularly every 5 years or so to renew their platform(s) and reduce technical debt as a result. However, tech companies sometimes do this to a fault—it's always the promise of the next ("to be") platform that will be the panacea for everything. These ongoing efforts can be a distraction for the current ("now") platform.
4. Get ready for the launch and Ship it Good - Launch and iterate (and try not to forget). Banks have traditionally built projects that are multiple years in the making. This is changing quickly as banks now adopt more of the launch-and-iterate approach that startups and tech companies use, delivering functionality in slices. It is incredibly important to ship a product early and get customer feedback to factor into the next releases. Perhaps the best example of this is General Magic, a technology company that had the early version of the iPhone (and employees who later went to design the iPhone, to build Android and to start eBay, amongst other things) but that they forgot the "Ship It" discipline. Instead they tried to keep improving the product in a controlled environment and ended up failing as a company. Tech companies have learnt this lesson to the point where they may now be considered the other extreme - almost too "launch focused." Modern software companies grade individual and team performance based on the ability to launch a product. While this is a decent way to measure tangible success, it leads to "launch and forget" behaviors that create constant churn on the product—and that tech companies can ill afford. Banks are beginning to adopt the smaller product releases ethic and are already on the launch-and-iterate path. They don't yet suffer the launch-and-forget syndrome that plagues tech companies that move fast on multiple priorities. So far, at least, banks seem much more measured—staying the course for the next few quarters and years and assuming ownership of certain key areas of financial services.  
5. Don't be afraid to try again - No one likes to fail, no matter what anyone says. Having said that, it is OK to fail. Learn your lessons and do it better the next time. At least, it’s OK in tech software companies. Banks are much more sensitive to failure. Tech companies are willing to take on more risk with the products they launch, whereas banks are very focused on brand reputation and are wary of releasing"incomplete" products that might put that reputation at risk. As banks and tech companies get closer to each other, they are going to have to find a new middle ground—uncomfortable for both.
6. I've got new rules - Yes it's all about rules and regulations. Banks have long-standing relationships with regulators. This is a very tough area for tech companies to navigate, so tech companies try to focus on areas that are not regulated—leaving the banks to work in regulated areas. However, banks are learning to package and monetize their regulatory assets and provide them as a service to those who do not want to directly deal with the regulation. "Banking as a service" software companies have been growing rapidly, but they cannot offer end-to-end digital banking unless they partner with a bank that has a banking charter. Also, regulations change often, and software companies that don't have the experience of working with regulators find themselves at a disadvantage when they do. As an example, Plaid is now working with the U.S. government to put a standard into place, and that effort is going to cost them more than if they had worked with regulators from the beginning. Plaid's counter argument could be that they would not have achieved the critical scale they needed if they had focused too early on regulations.
7. We're all in this together - Sharing is caring, breaking through silos. All large companies, whether banks or tech companies, end up having silos for business units, countries, or different groups or teams. In general, tech companies have a decent track record of collaboration internally and externally to drive new product use cases and ultimately product adoption. This makes it easier to deliver globally integrated products. Banks have recently recognized the importance of sharing across divisions and providing a real-time view across product lines. However, they have been reticent to do this because it’s hard to find tools that cross borders and enable sharing while staying within the regulatory constraints (for transferring data and/or technology with the right approvals). Of course it depends on the structure of the bank. Cross-border sharing is more challenging for banks with countries and businesses that have autonomous operations. It’s easier for banks with central command-and-control operations to implement sharing across the silos.  
8. Oh, I just can't wait to be king - And for that you need developers. Stephen O'Grady from the analyst firm Redmonk says, "Developers are the new kingmakers!" In the product-to-platform journey they can make (or break) your progress. Tech companies do a great job of giving internal developers mobility between products, and keeping their developers focused on individual education and self-sufficiency. Banks had traditionally been the place where the best developers went to work; Wall Street trading floors were packed with these developers. But in recent years the tech companies have managed to usurp this hegemony and reverse it. Today more traditional IT in banks, distinct from trading floors, is still coming to terms with the value internal developers bring, and how to harness, leverage and grow that expertise across teams/countries. The platform journey requires enabling internal and external developers to build and extend the platform and its capabilities, through self-service ecosystems that continuously provide value..

Of course, this list is far from complete. There are plenty of other differences between banks/financial institutions and technology companies, including in areas such as business models, funding models, operating margin, how customer data is handled etc. Will save these topics for a future blog.

Standing at the intersection of financial services, banking, platforms and modern technology is an exciting place to be. Now that I've shared my observations it would be great to hear from you about your observations and experiences. We're excited about what lies ahead and after all, we’ve only just begun!

Tags:

#banking #technology #fintech #digitaltransformation #bigtech #platforms #productmanagement #trust #developers #projecttoproduct #producttoplatform #financialservices #privacy #trust #technicaldebt #BancoSantander #Google #SAP #TIBCO #BEA #berkeleyhaas #almostlikeasong