It’s the banking culture, stupid. Fintech’s people and product problem.

Deloitte Bank Survey 2013

Scientists at the University of Zurich in Switzerland have some bad news for banks and their staff.  Simply working for a bank makes the average employee more dishonest than they would otherwise be.  That’s right, while banks themselves may not set out to employ dishonest people, a study released in esteemed science journal Nature has uncovered that today’s banking culture primes otherwise ‘honest’ people to behave disproportionately more dishonestly.

Why does this not really surprise us?  Well, it might have something to do with the litany of banking PR nightmares that have emerged for some of Australia’s biggest banks in the past 12 months.  These include:

  • Macquarie bank being ordered by ASIC to contact 160,000 customers who may have lost money as a result of poor advice
  • A Senate inquiry that found financial planners within Commonwealth Bank had lost millions of dollars of customers money by placing their hard earned savings in high risk investments without their consent
  • The removal of over 31 financial planners at NAB due to “conflicts of interest, inappropriate advice, inappropriate practices or serious repeat compliance breaches”
  • ANZ’s Timbercorp Finance scandal, the major bank being accused by investors of bankrolling the insolvent finance company and allowing it to continue to sell shoddy investment products that would soon be worthless.

The only major bank not to feature in this financial shame list is Westpac.  But is it really just a matter of time before they do?  One can only imagine executives over at Westpac sweating over the potential skeletons in their banking closet yet to surface.  So while the coalition has so far blocked the creation of a royal commission into the sorry state of financial planning advice at Commonwealth Bank, one thing is startlingly obvious – royal commission or no royal commission, bank culture is breeding dishonesty.

A report into banking culture released in November 2014 by the Cass Business School in London, the result of industry analysis and interviews with 57 senior bank executives, policy makers, regulators, investors, consumer advocates and employee representatives, has estimated that it will take a decade to turn around the cultural issues at British banks.  One could imagine given the current sorry state of affairs the same will be true for their Australian counterparts.

So why does fintech need to care about this legacy cultural problem?  Well, primarily because many fintech firms will be, and possibly already are staffed by former bankers.  If people are able to transmit ‘cultural diseases’ from one workplace to another, how can we prevent banking culture from infecting fintech culture?  Is it even possible?

When it comes to answering that question, the Cass Business School report certainly provides us with some insights that fintech founders and leaders should be paying close attention to.  I’ve hand picked some of these insights below in italics, along with my own experiences and views from working within a tech-first fintech company.

Know your culture and hire based on your culture

[Survey participants demonstrated a] Fuzzy understanding of culture. Throughout our interviews, we were struck by the many different things ‘culture’ was used to refer to…

It’s no secret that today, bleeding edge, top performing tech companies care more about how a new recruit’s personal values align with their company values than whether said recruit can perform a vlookup in an Excel spreadsheet.  Skills can be taught, values cannot.  Take high growth Kiwi startup Vend as a prime example.  Looking to avoid the feared culture dilution as they embark on an aggressive hiring campain, they’ve developed a  24 point employee culture quiz as a tool to help them identify the best value based hires possible.  At Tyro, value based hiring is the modus operandi across our entire organisation.  Having been the interviewer a number of times, I can testify to the fact that this approach works.  It can also lead to some great conversations and learnings for both us and our candidates.  Sometimes by the end of the interview both parties have come to the conclusion that neither is right for the other, in a totally unacrimonious and refreshingly honest way.  Has it improved our hiring? Absolutely.  Do we get it right all the time?  No, not always, but certainly more often than not.

Change the rules of the sales game

[Survey results indicated] An aggressive sales culture was a major driver of bank failure. There is significant evidence of a wide spread ‘sales culture’ which rewarded staff for aggressively promoting financial products, irrespective of risk and customer needs…

Around a year and a half ago, Tyro moved from a monthly commission based sales structure to a flat salary for all our sales team, junior to senior.  Have sales suffered as a result?  Not in the slightest.  In fact we’re on track to achieve another year of 30% growth.  Removing commissions doesn’t mean we remove KPIs, it just means we remove unnecessary short term financial pressures from our staff that could cause them to act in ways we’d prefer them not to.  As a sales person myself, I don’t believe financial incentives as a whole result in a team full of bad eggs.  But it’s hard to look past the mounting industry data that tells us the bad egg count creeps up in highly aggressive sales environments.  Long term financial incentives, employee share option plans and recognition schemes are more powerful than quick kick backs.  So if your staff are in it for short term gains over long term wins, then you may have a legacy ‘bank culture’ hiring problem on your hands that you need to stopper fast.

Don’t put off till tomorrow what you can do today

[Report results indicate] Improving culture will take a generation. Our over-arching conclusion is that it will take a generation to create a new culture in UK retail banks… 

Tyro has now been operational for over 10 years.  We’re hardly a start-up, yet weirdly we still feel like one.  And that’s probably because for the most part, we work hard to keep it that way, every day.  Our monthly, all hands staff meeting gives everyone in the business a crystal clear view of the company’s financials, our wins and our mistakes, and an open floor for questions to senior management from across the business.  Some of the questions asked are trivial, some are serious – but all are valid.  There’s no censorship, no recriminations and no stigma for speaking up.  Instead there is a conversation and a robust discussion.  In ten years we’ve laid the foundations and groundwork for the next 20, 30 and beyond.  We certainly didn’t wait to reach a customer milestone or to become profitable to start that journey, and neither should other fintechs.

So while quick wins and quick profits are nice, profits made at the expense of ethical behaviour and what’s right for customers should not be fintech’s ballywick.  In fact, it looks more and more like this legacy behaviour, despite best intentions by banks to want to change, will be their achilles heel.  Opportunity has already presented itself to the fintech space through the ability to leverage technology to deliver faster and better banking services.  But great products are only one layer to a successful business.  Ultimately people are at the core of everything you do.  So get the people right and the rest will follow.  It’s the culture, stupid.


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