What can Silicon Valley learn from the banking industry (before it's too late)?

The terms "banking" and "responsible capitalism" have not made easy bedfellows since the global financial crisis began in 2007 and 2008.

Banks in particular, but also capitalism, have been subject to enormous criticism over the past decade. Irresponsible actions by a few led to economic trauma for many. And even as most economies have recovered, questions are still being asked of a system which has proved so volatile and which has a perception of being rigged or fundamentally unfair.

Meanwhile, Silicon Valley and the tech sector have been shining beacons in rough economic seas. One reflection of this is The Nasdaq Composite Index. It has more than quadrupled in value since the financial crisis lows of March 2009.

Artificial intelligence, blockchain, self-driving cars, personal assistants, only the latest products of Silicon Valley's inventiveness, are currently receiving much publicity. The phones in our pockets and the social networks, via which you no doubt discovered this article, have become an intimate part of our daily lives. But it's not only about the continual advances in technology that we now look to Silicon Valley, but also how it works: its values, and how it organises itself to achieve these incredible advances.

Being "agile", and having "sprints", is now part of the lexicon of many management and product development teams all over the world. Flat and leaner organisational structures are replacing lumbering hierarchies. "Failing fast" and "disruption" has become business and even government mantras. Incubators, seed funders, and venture capital firms are being set up in an attempt to copy Silicon Valley's capital's dynamism and profit. 

The Santander Group has "Digital Transformation" as one of its primary goals. My town halls with colleagues usually end with a request to find ways of accelerating our cultural transformation, to be more open and collaborative, to hire more digital savvy employees, and to meet customers' expectations by ramping up our digital user experience to ensure ease and convenience of banking.

 It's not just talk. We were early investors in Ripple. This spring, if nobody beats us to it, we will be the first large retail bank to do actual cross-border transactions at scale using blockchain technology. Our European Banks are on the brink of rolling out APIs which will allow start-ups to work with us to deliver our services in new and better ways for our customers. As important, it will allow us to connect our disparate infrastructure and systems in order to deliver new services faster and more efficiently.

We are becoming a platform. So, it's no secret, we have lots to learn from Silicon Valley, and we are copying its best practices.

But is there anything Silicon Valley can learn from us, the banking sector? This may sound an odd question to ask, given banking's challenges - but I think the answer is "yes".

Silicon Valley can learn from our mistakes. With hindsight, we can now see that before the financial crises, the banking sector suffered from all sorts of issues. "Groupthink": we told each other that the economic cycle had been broken. "Short-termism": too many people chased short-term profits, not long-term sustainable growth. "Myopia": we lost sight of our systemic significance and what would happen if we got it wrong. "Complexity": too many banks became so complicated, and dealt in such complex products, that their senior management could not predict outcomes. "Hubris": we convinced ourselves that we understood all the risks in banking and that they were all under control.

Santander survived the financial crisis without needing a bail-out. Our robust and diversified structure proved resilient. We came under pressure, like everyone, but did not break. Meanwhile, governments had to step in to save not only our industry but the global economy. This came at a high cost to societies. The banking sector failed to be faithful to the enormous responsibility it carries.

So, the first thing we in the banking sector had to do once the crisis was upon us was acknowledging these failings. This meant confronting the truth, however uncomfortable it was. And we had to remind ourselves of some basic principles. A healthy, profitable financial system, conscious of its social responsibility, creates jobs, opportunities, and economic growth. At its most basic, the responsibility of banks is to manage the financial plumbing of society. We ensure that money moves quickly, safely and efficiently, with as little friction as possible. We can allocate capital to people and businesses so that they can prosper and grow, so they can buy their first home or hire their first employee.

For Santander, this meant answering basic questions that every responsible business must answer. What is its purpose? For us, it is to help people and business prosper. Of course, we want to make a profit, but we want to do so that the wider community prospers with us. And to do things in a way that is Simple and Personal and Fair for all our stakeholders.

Now consider the power tech companies have. At the end of 2017, the five biggest global corporations by market value were Google, Apple, Amazon, Facebook and Microsoft. In many ways, 2017 was a watershed year. Polls show that the public still like the big tech platforms, but that something has changed in the last year or so. The public no longer trusts these platforms like before.

The public is increasingly recognising big tech's profiling of our lives is unlike anything we have ever seen. Opaque algorithms that control our feeds have us worried that our voices are stifled online. New advances in technology could make the problem of "fake" news far more corrosive. All this while experienced journalists worry about their jobs, the tech sector is taking ever more of the advertising pie.

Questions for the tech sector in other domains linger - and they are some of the same questions that we face in banking. Questions like the concentration of jobs and wealth in particular cities and regions, how much tax one pays where we pay it. These issues will become more pressing if not addressed. Perhaps none of them more politically explosive than the effect of automation. In a recent Pew study, 72 percent of Americans report feeling either worried or very worried about "a future where robots and computers can do many human jobs." Seventy-six percent of respondents are of the opinion that economic inequality will grow worse in such a future.

Students of history might point out, that in the past, new technologies produced more jobs than it destroyed. But as Rafael Reif, the head of MIT wrote recently in the Boston Globe "...many fear that this time the change may be so fast and so vast, and its impact so uneven and disruptive, that it may threaten not only individual livelihoods but the stability of society itself."

For me, one of the most surprising recent criticisms of big tech is that it is smothering the competitive economy and therefore growth itself. Why am I surprised? Innovation is at the core of the promise of Silicon Valley. It's why the Santander board are visiting San Francisco this week. Unfortunately, there are stats to back up this remarkable claim. Seed funding to startups is down 50% since 2015.

It is therefore very timely that we are now again discussing the merits of net neutrality regulations. The majority of the US public thinks that net neutrality regulation is good for the internet, good for innovation. The absence of these regulations could strangle the goose that was laying Silicon Valley's golden eggs.

Of course, all of us want economic prosperity. And that means growth. But not all growth is the same. In the long term, the right growth is "inclusive" growth. Growth that improves the lives of all. This inclusive growth is not only important because it is fair, but also important for growth's sake. Inclusivity creates trust, and trust is the oil that lubricates a society to function well and without friction. Conflict-ridden societies become low growth societies. Only this September, the IMF looked at data and concluded that "countries with higher levels of inequality, as measured by the Gini index, tend to have lower growth over time".

Business must play an active role in tackling these challenges. As I said, business should seek profit with a purpose. That is what I call responsible capitalism. Responsible capitalism means thinking medium and long-term as well as in the here and now. Responsible capitalism takes a wider view: It acts responsibly not only towards employees, shareholders, and customers but society as a whole - for example, at Santander, we're helping to tackle financial exclusion and support small business to create new jobs. It understands that disrupting things can have unintended consequences. It means it appreciates the uncomfortable truth that some of the costs of a great new business model may have been externalised and be borne by somebody else. It recognises that we need to reappraise the role of the state in the digital, networked economy: We need social policies for the digital age.

Once the banking sector realised all the toxic debt on its books, it was too late to fix the problem. At the height of the financial crisis, many people were understandably angry. They demanded stricter regulations and supervision of banks, and in many cases, they got them. Scars, suspicions and anxieties remain, and there is still work for all of us in the banking industry to do. Crucially, there is now a broader debate in many countries about the respective roles of markets and governments in society. In this debate, Silicon Valley is in an envious position. Criticism is far from turning into outright hostility. In this debate, Silicon Valley should proactively engage. My team and I are delighted to participate in that discussion, with words and action.