Following our regular weekly interview, the Finanser talks this week with Guga Stocco, Head of Strategy and Innovation, Banco Original, Brazil, and Co-Founder of Koolen&Partners Venture Capital.
A pure digital bank in Brazil, Banco Original is launched by the largest meat processing firm in the world, J&F. Guga Stocco was brought into the business as an internet visionary, to shape up the bank's vision and shake up the market.
Can you tell me a bit about your background and how you came to work for the bank?
Sure. I was working for an internet company called Buscapé, which is one of the largest internet firms in Brazil.
Buscapé is an online price comparison website in Brazil and, after several acquisitions, they hired me from Microsoft to run their acquisitions businesses professionally. I ended up acquiring more than 15 companies between 2011 and 2014. So I was involved with acquisitions and building products. It was a great learning experience to develop a product, then work with the production process itself, and then later do the marketing of it. During this period I was involved with all these new theories of business in a lean startup. We’re involved in new design thinking, new design businesses, new users experiences and more.
I was involved with the theory but I was also doing the practice in a very fast way, and me with my team soon developed our own methodology. That’s when I was able to envision whether to build, buy or partner. We needed to grow and we were competing with big guys like Google. This means you need to ask: can we build it? If yes, let’s do it. If we cannot build, can we acquire a company to do this? If we cannot acquire, then you have to partner. This is a simple “ABC” of what building the business means.
In Buscapé’s case, everything was done to try to block Google. We did not want Google to get into our market because we were really trying to win in the price comparison ‘fight arena’, and all the commerce needed to do that. It was pretty successful, what we did, because we became the biggest internet company in Brazil.
After four to five years of doing this, I decided to leave the company to open a venture capital fund together with one of the founders of Buscapé and with Kees Koolen, who was one of the founders of booking.com.
So Kees became the main linchpin of our fund and we started acquiring some companies here in Brazil. I’m still with the fund, acquiring and selling some companies on the internet, and then in the middle of all of this, the bank called me.
This is part of J&F, who owns one of the largest meat processing firms in the world and they called me and said: “Hey, we want to open a new digital bank in Brazil”. I told him: “I cannot go there because I have the fund, but explain me a little bit more because I’m quite intrigued to understand what is a digital bank here in Brazil”. They explained me what they wanted to do, and then I looked and said: “That’s not quite a digital bank. That’s kind of a traditional bank with digital channels. A digital bank’s something different in my opinion.” I then showed them what Tencent was doing with Wechat, and how Wechat became a banking service through their messaging platform. I started showing examples of other things from all over the digital world, such as what Starbucks is doing with mobile payments. Then, I told them about all of the new Fintech companies starting up.
It was soon clear that they wanted me to join the bank and I said: “No, I can’t. I have the fund, I cannot leave it”. Then I had a meeting with Henrique Meirelles, the CEO of the bank and the former Central Bank President of Brazil and he said: “do whatever you want, but tomorrow you are here”, and it’s pretty difficult to say no to a guy like him. He’s one of the finance masters in Brazil and very well-respected, so I said: “OK, let’s go and see what happens”.
And how is it going?
When I first joined, I began making some lectures to everybody at the bank to explain my vision, how digital works work and where we needed to get to. The executive team then said to me: “if you want to stay here at the bank, what do you need?” and I said: “I need to create my own department”. As a result, we created the Digital Vision Innovation and Strategy Department to address the challenges at the bank, and to use all the knowledge I gained from 15 years working and making acquisitions on the internet.
I created this department that focuses upon all aspects of innovation because, when we speak about innovation, we’re not just speaking about technology. Many of the greatest innovations are not technology innovations. They are business innovations. It’s very important to understand that you have a business piece in the middle of all that technology that changes everything. Technology alone is only a tool for you to get there, but the strategy has to be different.
So I created this department and, within the department, I also created the Build, Buy and Partner team. It’s a multidisciplinary team, which I call the ‘Two Pizza Team’. I call it the Two Pizza Team because, if you have a team who’s going to build some products, their size should be no more than the number of people who you can feed with two pizzas. That’s why it’s called ‚Two Pizza Team’. If you need more than two pizzas, it means that the team is too big and you will lose the momentum.
This ‚Two Pizza’ Team is multidisciplinary and behaves exactly like a startup within the bank. If you go to a startup, you have a tech guy, a design guy, the marketing guy and so on. This is like the FinTech companies and like Instagram, Facebook, WhatsApp and all those guys became like a ‘Pizza Team’. This term was created by Jeff Bezos on Amazon and is working very well in the digital world.
We have this multidisciplinary team focused upon back-end and front-end design, the user experience with growth hacking in mind. A few people know what a growth hacker was, but a growth hacker is the marketer of the future. He’s the guy who does marketing without spending money on marketing; he builds the community, instead. They have a lot of different skills.
I created this team, the first of its kind within the bank, and then we started working upon our corporate venture, and recognized that we needed to acquire some FinTech companies for the business development side.
The first thing that we did was build a matrix to understand what is a bank from the beginning to the end? We looked at all the pieces from the bank and particularly from the user. We had to focus upon the user and what the user does on banking from the beginning to the end. We developed this matrix to understand what bank we currently had and what aspects of the bank we didn’t have. When you launch a bank, you need to know how they’re going to be competitive. This is a key question, because when you launch a big innovation, a new digital bank, you need to know how the competitors will respond. They’re firstly going to try to copy us. This means that the only way for us to compete was with innovation. We could not create one innovation but we had to be innovating every month and If they started copying, no problem. They could copy one, two or three times but if they copy the forth, they were going to became a follower and they were not going to be a leader. That was our objective: to make all the banks followers, and for us to gain this competitive advantage.
If they could not copy us then they were going to do something else and the most likely response would have been to go on the media and try to destroy us. We also needed to be prepared for that and the best way to prepare for that was through innovation and leadership.
This is all part of the reasons why we needed to be fast. We needed to prototype and deploy fast. We needed to fail fast and fail cheap, and make sure that we do not see failure as failure. Failure was learning. If it was fast and cheap, it was good, as we were learning and going to the next stage.
So having that in mind, we started building some products that were not related to the bank. They were related to banking but not bank products. We were going to go live with these products, and we were also going to acquire companies who were building products that were relevant. This way we were gaining customers and users and bringing these customers to the bank. The key was to decide when the right time to do that was.
But you’re still at the bank?
People don’t need banks but people need banking, and that’s where we focus upon how we’re going to do that. I’m following what the other guys are doing, but not the banks. I’m following what Wechat is doing in China. They just launched WeBank, because they were pretty successful in their banking activities inside Wechat. WhatsApp and Facebook are going to follow what Wechat is doing. Google is doing something similar, as well as Apple and PayPal. Samsung recently acquired Loop Payments and they’re heading the same way.
The key thing to understand here is that the side payment is the beginning for the internet companies to do banking. That is why I’m really looking at what they’re doing and trying to replicate a big part of their strategy in a different way.
In other words, how a brand new innovation department can we be successful in banking without knowing anything about banking? This is important because the real focus is upon the users, how the user needs to do things online, and how the user works. We look to the user so that we can understand, for example, the difference in needs between doing banking on a computer versus a mobile. That’s quite an easy answer, but one that most banks do not understand because they do not think this way. You only need to look at the graph and understand how people are using the internet, they’re now on the mobile internet, not on the computer because they’re not going to have computers. They’re going to use computers at work, but in their homes, they use tablets or cell phones.
Are there any other things feeding into your business model, like gamification?
Yes absolutely. For example, just look at a company like Foldit. This company, what they do, is to develop science games. They’ve developed a game that connects different proteins and the impact different proteins connections make to our bodies. One of the big problems is that you have these proteins changing every time and scientists had spent ten years trying to understand how these proteins work. Foldit’s created a game where you can combine the proteins and, when they launched the game, all the gamers started playing and they solved the problem that the scientists had spent ten years trying to solve in just three weeks.
The games are more intelligent than science? No, but with a strategy like that you put the right people with the right skills in the right place with the right tools. If you do that you can be much faster and stronger.
For some problems that I’m doing here I’m still using some of the young guys like gamers, because to engage people I need to do gamification. Who are the best to do some gamification strategies for us? Our gamers of course.
In a similar way, when we look at social networking, how are we going to be googled in a social network? Who are going to use social networks in our behalf? So we use young guys who have used social networks since they were born to be our social network designers. As with Foldit, I just need to put the right people in the right place and then we can have this kind of disruption. Similar to Foldit, we can solve problems in weeks that used to take years to be solved.
In the end of that, we really need to be very open minded to work out how the problem works, and that’s something that I’m doing. The other thing that I’m lucky to be able to do, is that the bank has allowed me to do that. Sometimes they don’t understand what I’m doing, but they said, “Okay, do it, let’s see what happens. If you make us more competitive and bring us more business as a result, then good for us.”
I believe you are using data analytics and bringing in social data, combining it with financial data and using that to assist in getting better deals for the customer.
Yes, that’s very important because the data is there. Why not use it? Why are you not going to use it? I might not get access to social data or feel that it would give me access to too much information about the user. We know exactly what the user wants, so let me give you an example. We’re creating a new technology to allow our users to place all of their personal financial objectives inside of the bank. That’s extremely powerful. Imagine, if I have 10,000 people who have given you access to their personal financial aspirations. That’s so powerful, but most of the financial people don’t understand how powerful it is. Let me show one example:
Imagine if we have 10,000 people that 3,000 want to buy a car. Now I have access to this financial information and I know that they want to buy a car, son I can act on that. I can go and negotiate a deal for them with a car dealer? If I’m going to buy 3,000 cars, I can get a massive discount. Then I can run the credit score on these guys and, the next time that you open our app, we can offer you the possibility pay just $500 per month to get this brand new car, it can be preapproved. It is this kind of action that you can take if you can use a lot of social data. You can use a lot of that to understand how things behave.
Is this part of what you mentioned as a ‘concierge’?
On the concierge, if I go onto your Facebook profile and know all the content that you like, then I know the places that you like already and I can personalize things for you. I gave you this example with the car that we’re selling as well as financing. In this example, I’m able to understand what you need and I’m going to source it, and save money on your behalf and then offer a very easy user tool so that you can just click and buy on your phone at any time. When I’m combining all of that, I have a powerful thing.
So, social data is important for your bank?
Absolutely. Another example: I want to know if you are really you. If I go to your LinkedIn profile and you have a profile that is only one year old, then I can check facts you provide. If you say: “I’ve worked five years in a certain company” and you don’t have any contacts in that company then maybe you are not you. On the other hand, if you’ve had your LinkedIn profile for ten years and you said that you’ve worked for five years in a certain company, and you have 300 contacts from that company, and you say that you are the director of that company, then probably you are you. It’s going to be very hard for you to commit a fraud on that because, to create that fraud, you need to think ten years beforehand that you are going to create this fraud. This is why we believe social data is important, and we’re going to use that as one of the parts of onboarding customers. When we have all of that, that’s pretty powerful and why not use it?
Why don’t other banks do this?
I can tell you why the banks do not use this data, it’s because the banks are managed by bankers. People that have stayed there for 10-20 years manage them and they just don’t know this technology, because they don’t use this technology on a daily basis. I can tell you that you need to have a different mix of people. Again, you need to go to the multidisciplinary teams and you need to be very open minded for the people to start building products and solving problems. You need to open up your organization to use everything that’s new, and it’s going to be very hard for the banks to do that. That brings us to a different thing that is culture.
The first step for banks to be able to compete in this new era is that they need to change their culture, and that’s extremely hard. Changing culture means changing how the people behave, how the bank behaves for their employees and how they (the employees) behave for their clients. It’s a very difficult thing to do. The ones who do that well are going to succeed, even if they don’t have the right technology in place. If they have the right behavior, they’re going to succeed.
Do you think traditional banks will survive this digital mobile future change?
When people say Are banks going to die? the answer is yes. The traditional bank is going to die. If its users are all going to use the mobile first and the bank has not changed it, they will die. Some of the banks are adapting and making big bets to succeed in the future. For example, BBVA acquired Simple. Some banks are building a new bank. A completely new digital mobile bank, with a different name. They are then migrating all their clients to this new bank and in the end, as soon as they migrate everybody there, the old bank is going to be turned off with all of its legacy and everything.
You are not going to be able to compete if you have legacy left behind you, because the people who don’t have legacy are going to be faster than you. This means that the big banks have three to five years to change completely. Forget the way that you’re doing things today, create the new things and get in the game philosophically.
This means that the banks who will fail, who will disappear, are the banks who will fail to face the change. You need to embrace the change and that’s because people who used to do banking, who used to go to the branch, believe that customers will stay in the branch, or keep using the old ways to do banking. That’s how they used to do things but, in ten years, they’re going to do banking on the mobile and banking on the mobile means extreme simplicity. It should be extremely simple and direct. You should solve 99% of the problems using technology, machine learning and social data. You use these tools to truly understand the user’s needs digitally, and that’s a different company. That’s a different way. You need different people to develop software. You need different people to solve the problems. You need different strategies. It’s a different way to do marketing, as you need to be delivering deep data analytics in seconds, not on a daily basis. You need to be real-time because things change all the time, and they’re changing in real-time according to the user’s access. This means the bank is no longer in the branch but it is software in the Cloud, as that is the only way you can change whatever you want to change at any time you want in seconds.
You need to be testing all the time. You launch your product, you understand if that works and then you scale that product. Then it becomes a lot of work and then we change that again, and then we scale that again to become a different product. This means the new competitive battle is to be very agile and very fast. So the new banks are different companies. They need different skills. Can the existing banks create this?
Another thing is that when you try to create these digital skills in the same culture, it’s going to be very hard because you need to be two banks at the same time. Old bank and new bank.
WeBank in China is not a mobile first. It’s a mobile only bank. If they have $10 million to invest they’re going to invest millions to solve problems on the cell phone. They don’t even have a website because they want to address the people who are going to be doing banking in the future, not the people who are doing banking today. So they want to create the bank of the future and the bank of the future is going to be only a mobile bank. The web is going to be a secondary thing, something that you need to have but is more related to business, trading and other kinds of things.
About Banco Original
Banco Original is the first full bank 100% digital in Brazil and as such has innovation at its core. Born with state of the art systems infrastructure and no legacy, the bank offers a customer centered experience for all services of a traditional bank with transparency and simplicity. Its Open Banking® platform allows FinTech companies to access APIs and datasets easily exploring the Brazilian Market.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...