In the following 5 years banks may lose 50% of their business.

I don’t think I’m exaggerating when I say in 5 years banks will lose 50% of their business. I am pretty sure that the major banks handle this scenario. If not, why announce so insistently their strategy to shift to a digital transformation?

In a low interest rate scenario, with low margins and high regulation there were only two ways to go: Technology innovation or market expansion where margins were still high (such as Africa which was very risky and non competitive for banks such as BBVA or Banco Santander).

It seems that digital transformation is the correct approach. But now they have to start. Entrepreneurs who believe that the idea is worth something, I'm sorry to disappoint you:  the idea has a value of 1%, the execution has 99%.

But how do you transform a traditional bank into a digital bank? There are three ways you can follow or rather a combination of these:

a. Purchasing and integrating existing companies.

b. Develop projects internally.

c. Creating a platform where others offer their fintech products and the bank become a middleman of the generated value. A financial iTunes.

10 variables to be analyzed in the digital transformation

After studying many cases and opinions by hundred business leaders from business schools around the world[i], I’ll analyze the 10 variables that can determine who will win between BBVA and Banco Santander in the digital transformation.

1. ENTREPRENEURIAL CULTURE. Having a very disciplined culture is a handicap for any innovation transformation. The employees must challenge the obvious, question and debate everything, innovate. Even ask themselves why you're my boss? Why am I not your boss?

Can you imagine a bank manager persuading customers not to buy bank shares because the crash of their values in the last five years (-40% BBVA and -60% Banco Santander)? I mean, can you imagine it without his name being mentioned on the next employment reduction list?

2. CULTURAL CHANGE. The hardest thing to change in an institution is its culture. Both banks exceed the one hundred thousand employees (BBVA 135,000 and Banco Santander  193,000 approximately); Employees used to traditional banking culture. How many of these will serve to implement the digital strategy? I don’t think more than 5%.

Banks are making great digital campaigns on their digital tools. For example BBVA Wallet. But if you go to a branch and ask employees if anyone knows how it works, no one will know exactly. It's not what you say you are, but is how the rest perceive you!

3. ATTRACTING TALENT. Is not only that they have more than enough personnel, but is possible they may need 5-6 thousand digital employees who now work for Google and other similar companies that have no intention to change to BBVA or Banco Santander.

10 years ago the brightest students of business schools ended up working for banks. Today the brightest students want to start their own fintech or work for companies like Google, Apple, etc.

4. STRUCTURE TRANSFORMATION. They should flat the organization to boost improvisation. It is true that both institutions have announced in press releases this kind of restructuring. But, "the words do not tell you anything, the facts will."

Anyone that has had to negotiate with a bank can see that each time the deal maker is newer and with less rank than the previous one.

5. IMPLEMENTATION CAPACITY. A project that takes too long to start can only show you what can go wrong, not what it can be transformative and impactful.

Both in USA and the UK and even in Spain, there has been successful robo-advisor developed in just 12 months. None of the surveyed had heard of a BBVA or Banco Santander’s robo-advisor, even after 10 years announcing leading digital transformation!

6. CHAOS  vs ORDER. In the recent entrepreneurial culture of innovation is often put as an example of success the case of Israel. Among other reasons it is often argued that the military training of Israeli society has been one of the pillars of this entrepreneurial culture. This training is characterized by certain "chaos" versus the typical military order of other nations. "Challenging the boss" is one of the commands for all young Israeli soldiers. Any technology that reaches the army of Israel from the USA, is in five minutes modified to find another use of it.

Both banks are using their platforms for different tasks such as risk management, internal training or products assessment. These platforms were bought many years ago and are not flexible to allow any modification by the employee. However, in the market these systems have been improved substantially in the last 3-4 years and most of them use now open sources. Being "managed" by closed and obsolete systems prevents that the innovation process exists.

7. EMPLOYEE PROFILE. Following our example of Israel. One of the successes of Israel in terms of innovation is based on the large number of engineers and doctors that came from the Soviet Union. If a bank wants to innovate, it would be logical to think that they should have a high percentage of highly qualified engineers and doctors.

Silicon Valley companies hire the best engineers and doctors even if they don’t need them. Having them is the best barrier to prevent the competition of qualified personnel. And is not only capturing them but keeping them and create a network-effect that lures those professionals to working with them today.

8. PROCEDURES. When I see all the procedures that today bank employees must follow, I wonder how the hell they will innovate something? How many times will you know what a competitor or a customer plan? It's like saying in the trade stocks market you’ll buy shares regardless what happens because it’s in the procedure.

I recently attended a conference in which three responsible for innovation of BBVA, Banco Santander and Bankia participated. Almost the three of them said the same of how they were going to innovate the financial sector, which surprise me. The three mentioned the importance of procedures in their institutions. I wonder, can they really invent the future of banking following a procedure and also all the same one?

9. ABILITY TO BUY AND INTEGRATION. Is not only buying innovative companies. It is integrating  them into the bank. To succeed in the transformation via purhasing you should be able to buy the best and especially to integrate the projects.

In recent years I have met four entrepreneurs which BBVA bought their innovative companies and incorporated them. None of the four lasted more than 24 months in the bank. Moreover it strikes me that they all had the same reason to leave the bank, "before I used to innovate, since I entered the bank I can’t make any kind of innovation." In the case of Banco Santander I haven’t had a chance to meet entrepreneurs who had integrated to the bank. However I've met at least three ex-Santander that left the bank and have been quite successful creating digital businesses.

10. DISRUPTIVE MENTALITY. To create a style of iTunes platform you have to accept disruptive ideas. At MIT they use two very appropriate concepts to innovate. One is "Irreverent Creativity ". The other is the GSD ("Get this shit done"). But above all, any entrepreneur has forbidden to say "this is impossible". If banks want to innovate they should start by banning from their managers "this is impossible".

How can they deal with "Google Bank"?

At least one of these three things they must do better than "Google Bank": either buy or develop or be disruptive in the platform. Google bought Android for approximately US 50MM, a ridiculous amount compared to what BBVA or Banco Santander are spending on recent acquisitions. Google has been able to integrate and reach 82% of the smartphone global market creating also a totally disruptive platform.

Maybe my initial idea of a 50% business loss for traditional banks in 5 years is a bit short.

[i] This article is based on the opinions of 100 leaders with the following profile:

• Entrepreneurs, suppliers and customers of BBVA and Banco Santander, colleagues from Harvard Business School and the MIT.
• Master’s IEB students, from the UNED, Finance Business School and the Tecnológico de Monterrey.
• Countries: USA, México, Colombia, Chile, Brazil, Peru, UK and Spain.
• None of them work for the BBVA or Banco Santander.