Can a bank become a tech company?
Certain banks are growing more ambitious in their future plans. But can they shed their staid reputations to join the ranks of the top tech companies?
Last week, Sberbank boldly announced their intention to become a tech giant, seeking to join the rarefied GAFAM (Google, Apple, Facebook, Alibaba, Microsoft) air.With the launch of a slew of new devices and a marketplace it hopes will rival Apple’s App Store, the bank is setting out to reinvent itself as a tech company first, bank second. The bank is even dropping the word “bank” from its name, rebranding itself as Sber. In case this seems like just another big digital innovation push by a large financial services provider, the bank’s executives are explicit about the nature of this new goal. “We’ve always had a chip on our shoulder, we believe we are a technology company with a banking license,” Sberbank’s Chief Technology Officer David Rafalovsky said.
“A technology company with a banking license” is an audacious statement from a banking executive. While it wouldn’t be out of place for a fintech and digital bank executive to utter such a statement, it rings differently coming from an executive of Russia’s biggest bank, 179-year old institution with over 100 million customers. Sberbank’s grand ambitions are not the first of their kind in the banking world. Over a decade ago, DBS in Singapore embarked on a similar journey. The bank wanted to become a 28,000-person startup, putting digital innovation at the heart of everything it did. The plan at DBS was not some mere digital transformation strategy. Take it from Bidyut Dumra, Head of innovation at the bank: “At the beginning of our digital transformation journey in 2009, we recognized that if we wanted to be digital to the core and act like a tech company, we needed to learn from the best in the business. These were Google, Apple, Netflix, Amazon, LinkedIn and Facebook. Our mission was to become the ‘D’ in GANDALF.” We have an upcoming report that profiles DBS’ decade-long journey to becoming a tech company.
It is part of a broader battle of brands. Companies want to be known as the primary brand that a person interacts with on a daily basis. If banks don’t adapt, they risk becoming the anonymous financial plumbing, languishing in the background while star brands are the direct points of contact and reference in a customer’s life. Some banks are happy to take this route, such as Green Dot Bank, Axos Bank, or Stride Bank in the US. These are lesser known brands in America but play a crucial role for their digitally-focused partners such as Uber, N26, and Chime. Users of these tech-first companies may not realize that their money is actually stored with a different, FDIC-insured bank in the background.
The DBS and Sberbank head-on approach to the threat of big tech is not the industry standard. Many other financial institutions are opting for the “If you can’t beat ‘em, join ‘em” approach. With smartphone adoption and consumers spending their lives online, tech companies have created ecosystems and a suite of products that were traditionally reserved for banks. As a result, we see partnerships like that of Citigroup and Google teaming up to offer current accounts. “The data that Big Tech holds on customers, their interactions, and their transactions, can transform essential bank operations, such as credit decisioning, pricing insurance policies, or regulatory compliance,” writes Matt Locsin, Global Head of Innovation, Publicis Sapient.
Banks are trying to navigate a world now dominated and driven by big tech companies. Banks have a core competency of being trusted institutions for handling peoples’ primary financial needs – current accounts, savings accounts, loans, payments, mortgages. But banks are largely not considered tech or digital powerhouses. Given persistently low interest rates around the globe, it is understandable that banks are seeking out new areas of business. Traditional banking business models aren’t leading to the growth and returns of yesteryear. However, financial institutions must be wary of the risk of brand overextension. I have written previously about banks and their attempts to create super apps for their customers. There is a fine line between transforming one’s institution for the future and straying too far into areas far afield from core competencies.
Can Sber join the pantheon of big tech companies? Will GAFAM become GANDALFS? While certainly possible, I am skeptical. Any transformation of this magnitude is a massive undertaking. The tech giants have a significant head start on any would-be competitors. They have also constructed major moats around their businesses. It is incredibly difficult for any company, whether it be a bank or startup, to compete with these massive companies, given their already outsized scale and acquisitions, not to mention their political power. That being said, it will be fascinating to follow the “technology company with a banking license” as they attempt to become the next big tech giant.