First, Fix Your Culture: Why Amazon And AI Will Disrupt Investment Banking in 2024
There are three cultural truths about innovation in finance that I learned during my nine years on Wall Street:
Wall Street executives spent their whole life trying to get their job.
Technologists are treated like hired help, even if they’re in the C-Suite, even if they make tons of money for their firm.
The titans of banking accept that they can get destroyed by market meltdowns, they can be acquired by rivals, but it has never crossed their mind that they might die because of disruption, where a new entrant using new technology steals all their customers. Primarily because it has never happened to a major bank before.
These three cultural truths eat tech strategy for breakfast at banks. They also drive all the innovators and technologists out of the business.
Elon Musk, Jeff Bezos, Mike Bloomberg, and Marty Chavez all quit or got fired from major banks.
Every billion-dollar AI pronouncement by every bank has to be presumed a cultural DOA until proven otherwise. Because underneath the 9-figure price-tags of AI rollouts by banks is a cultural statistic they don’t want you to see: the biggest banks have lost 5 AI people for every four that they have hired over the past two years. And when AI talent leaves a bank, they leave the industry for good. They join Amazon, Google or Microsoft rather than another bank. At a certain point, I believe Amazon will capitalize on its army of Wall Street AI talent and launch a challenger investment bank.
I was reminded of the cultural barriers to digital transformation in banks when I read a recent report by Evident AI which benchmarks the biggest banks in Europe and the US. The report is a valiant effort to shine some light into the black box of AI in banking. But it subscribes to banks’ AI strategies at face value, without placing enough weight on how culturally difficult it will be for banks to do what they say.
The report features quotes like this:
“More than 700 use cases have been rolled out with the intention to create significant value by 2025 of more than €500 million per year” from BNP Paribas
And this:
“We’re ahead of our plan to deliver on our commitment to deliver $1 billion in business value through AI” from JP Morgan
This reminds me of a moment in 2006 when I was a bank analyst and I asked Citigroup about their $300mn exposure to the subprime mortgage market. They responded by handing me a brochure about their $4million microcredit portfolio in Sub Saharan Africa. I was talking about the potential demise of the bank. They were talking about charitable donations.
I’m not convinced that banks are doing the real work to culturally transform so that AI talent doesn’t leave. It is a real possibility that the AI talent leaving banks to work for Amazon might build a new entrant that can disrupt the biggest banks.
Equally, I think banks have an opportunity to do the real work of cultural transformation that must precede any AI transformation. Here’s how:
Cultural Transformation Is A Necessary Precondition for Digital (and AI) Transformation In finance, tech leaders are often order takers not order makers. This is why so many of them leave. It is often their job to implement the strategy of other executives rather than to determine the strategy. But there have been exceptions.
One notable exception is Marty Chavez, who was the CFO of Goldman Sachs’ powerhouse equities division. Marty was a cultural outlier on Wall St, a Silicon Valley technologist who wasn't sequestered into a tech role. He eventually became the CFO, and above all was a magnet for Wall Street tech talent, who loved the flat, fast, innovation-forward culture that he nurtured. Banks should proactively develop tech leaders to lead the company beyond their tech silo as Goldman did with Marty Chavez.
Don’t settle for AI optics Banks are a technological mosaic. There are pockets of astounding tech excellence next door to armies of 27 year old MBA students who spend 90 hours a week copying data from pdf files into excel charts. Some banking divisions are asoundingly analog and inefficient. But all banks have labs, incubators, and VCs that celebrate AI. Within finance there is a tendency to engage in innovation theater with emerging technologies. These optics keep banks from doing the hard work that is necessary to implement meaningful change. And it deprives tech talent from the impact they know they could have, driving them to leave.
Assume the disruptive threat is real and be proactive There are four catalysts that spark serious transformation in a large company: a financial crisis, M&A, new activist investors, and technological disruption. Sometimes a visionary leader anticipates these crises and makes a compelling case to proactively change. Being that proactive leader is hard, and especially hard in industries which have never experienced disruption before.
Banks should assume the disruptive threat posed by AI is credible, even if it hasn’t materialized yet. Now is the time for a proactive leader to step forward and act.
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