The sign on the office building across the street from Nomis just south of San Francisco recently changed from Cisco to walmart.com. Microsoft has a long-established research center in Mountain View, in the heart of Silicon Valley. I just read that Ford is opening a Silicon Valley research center, to be led by a former Apple Engineer.
Why are these companies, who are all headquartered far from Northern California, opening research centers in Silicon Valley?
I suspect that it is more than just the great weather. I believe it is the fact that the valley attracts smart, energetic, and innovative people not just from across the country, but around the world. “Breaking the mold” and “disrupting current ways of doing business” are second nature here. “Innovation” is not just a buzzword—it is a way of life. I believe that Wal-Mart, Ford, Microsoft and others know this and that is why they choose to open research labs here despite the high cost of office space and living. They are betting that a research center in Silicon Valley will be able to develop and maintain a high-energy entrepreneurial cultural of innovation that might be impossible to sustain back in headquarters in Detroit or Fayettville.
Banks are looking to Silicon Valley for innovation, but they are doing so more via partnerships and vendor solutions. That was a major theme at the recent BAI banking innovation conference. Tesla notwithstanding, barriers to entry for an auto manufacturer are much higher than they are for financial services. Consider:
5 of the top 20 US banks didn’t exist in 2007
Innovators such as OnDeck, Lending Club, Prosper, Progreso Financiero, and Social Finance have grown from $1 billion in originations in 2010 to over $7 billion in 2014
Alternative banking models like these have attracted over $800 million in venture capital since 2013
Banks are certainly talking about the need to innovate. With partners like Nomis, they don’t need to make the dramatic move to the Bay Area to show that innovation is more than just a buzzword and that they recognize that the type of innovation that will be needed to meet the challenges of new upstarts. The core issue is recognizing that true innovation may be difficult to realize within the established, old-school management cultures that prevail at the headquarters of most financial institutions.