Editor at Large

For the past five years, BBVA Compass has been a poster child for modern technology and innovation.

It spent an estimated $400 million implementing Accenture's Alnova, a modern, real-time core banking system. It created a well-regarded mobile app. It bought the neobank Simple. It partnered with Dwolla to be the first U.S. bank to offer real-time payments to businesses. It partnered with FutureAdvisor to build a customized robo-adviser for clients. It's building a marketplace for third parties to build innovative products and services through its application program interfaces.

Yet, in a course of events you could categorize as "no good deed goes unpunished," the results have been disappointing. The bank's return on assets and return on equity have hovered below average. Its net income for the first nine months of 2016 was $282 million, down 32.2% from a year earlier.

The bank announced last week that its CEO of the past eight years, Manolo Sanchez, will shift to a new role of nonexecutive chairman. Taking his place will be Onur Genc, deputy CEO of Garanti Bank, a Turkish bank BBVA partially owns.

It is not clear what role — if any — the company's performance played in the executive shuffle. The company declined to make Sanchez, Genc or any other executive available to comment on this story. In a press release, the company referred to the moves as strengthening the management structure in the U.S. operations.

Still, the moves raise questions about the value of innovation in the U.S. Also, will Genc be able bring innovation and performance in lockstep?

New CEO's Road Ahead

The clearest challenge for the incoming CEO is to find a reward for the bank's many technology investments while continuing the innovation mandate.

Garanti, under the partial direction of Genc, seemed to do well in this arena. In the press release announcing his appointment to BBVA Compass, the company referred to the Turkish bank as its most advanced franchise in digital sales. For the past five years, its return on assets has exceeded 1.5% and return on equity has exceeded 12%.

Genc also led several digital projects at Garanti. In one, Garanti partnered with the design firm Fjord to create a mobile app that customers can use to manage their credit cards, savings, loans and offers. It lets users send payments to friends through Facebook, it facilitates cardless ATM transactions, and it's integrated with Nuance's Nina virtual assistant so customers can bank by voice.

"After success and traction with Garanti, they want to apply [Genc's] experience and learnings and double down with BBVA Compass, to get it to the next level," said an executive at a competing bank who did not want to be quoted. 

BBVA Compass will need to focus on revenue-based innovation, said David Kucera, who previously was director of business innovation for BBVA Compass. He is currently a managing director at FinTech Forge, a managed service provider to banks.

"There have been so many years of, how do we cut, cut, cut, how do we reduce this, we want to streamline the back office, we want to reduce expenses here with a technology solution, and we haven't had a breakout of a revenue-focused product," he said. "We haven't seen the emergence of any truly new banking product in quite some time."

Why Didn't Innovation Translate into Results?

The question is — and it's relevant to any bank investing in technology improvements and innovative offerings — why haven't the investments BBVA Compass made in its core infrastructure and innovation showed up on the bottom line?

One answer is that modern technology can be hard to sell. Despite the hundreds of millions invested in it, the average customer may not understand or feel the difference between real-time and batch processing of transactions. It's hard to get them to care.

"Most customers will say, 'My money is real time — when I make a deposit it shows up in my account,' " Kucera said.

Francisco Gonzalez Rodriguez has been declaring in speeches for years that BBVA is more a technology company than a bank. But again, that message doesn't seem to resonate with customers.

"If I'm an oil and gas borrower, I don't know that I care that you think you're an IT company," said Rick Claypoole, senior principal of Vertical Views Consulting in Birmingham, Ala. and a former BBVA Compass executive vice president in retail banking. He left the bank in 2011. "If I'm a third grade school teacher, I don't think I care. Because I'm not going to you for IT services, I'm going to you for banking services."

Even the technology that customers see the most — its mobile app — has failed to drive hordes of new customers.

"The mobile banking app is great, it's won a number of awards," Kucera said. "But how far can you advance on just having an awesome mobile app? I think BBVA is realizing not nearly as far as expected."

BBVA Compass suffers from a "peloton problem," said Mark Schwanhausser, director of omnichannel financial Services at Javelin Strategy & Research. It can't break free from the pack despite its diligent efforts to be innovative, partly because consumers tend to figure one bank is the same as another.

Schwanhausser noted that BBVA Compass consistently scores well in Javelin's online and mobile scorecards as measured by features related to ease of use, money movement, customer service, financial fitness and security empowerment.

"But when it comes to customer satisfaction in those categories, BBVA Compass customers tend to grade the bank with satisfaction scores that hover right at the industry average," he said.

The bank also needs to improve its share of wallet. BBVA Compass has one of the highest rates of "silent churn" because customers say it's their primary financial institution, but actually buy most of their financial products from secondary financial institutions, according to Javelin's research.

"Genc's mission should be to change that so that BBVA will be first in line when customers shop for financial products," Schwanhausser said.

Also, technology investments can take a long time to pay off. Bank of America CEO Brian Moynihan said at a recent conference organized by The Clearing House that it may be more than a decade before banks see substantial benefits from investments they are now making in new payments technologies. Moynihan drew a parallel to ATMs, noting that it took decades for consumers to adapt to the technology, and for banks to begin collecting a "meaningful" volume of deposits at the machines.

"This may take us 10 or 15 years to actually get the transformation, where the real, hard benefits come through," Moynihan said.

Bad Timing and Headwinds

At 51, Manolo Sanchez would not be considered of retirement age by American banking standards. But he has been with the bank for 25 years and in the Spanish culture, people tend to retire around 50. An exception is Francisco Gonzalez Rodriguez, who is 72 and has been BBVA Group's chairman and CEO for 16 years.

There's a recent precedent: in 2015, BBVA Group replaced its president and COO, 53-year-old Angel Cano, with its head of digital banking, 49-year-old Carlos Torres Vila.

"It is common to put folks out to pasture in their mid-50s and get some new blood in," Kucera said. "It's a natural changing of the guard."

Despite the bank's ambition to be an innovator, BBVA Compass and Sanchez have faced multiple challenges in the U.S. since the Spanish bank bought Compass Bank six months before the U.S. financial crisis hit. It's possible that no amount of innovation could have outweighed the economic and financial difficulties the bank has faced.

For starters, at $9.1 billion, or more than three times Compass' book value, BBVA bought at the top of the market.

"No one could have gotten the cash out of that enterprise that they paid for it," Claypoole said. "Everything changed: the regulatory environment changed, the economic environment changed."

The low interest rate environment in particular has been a headwind.

"With a fairly balanced loan portfolio, a commercial loan portfolio, a great mortgage portfolio, in that low interest rate environment you just can't make revenue," Kucera said.

The bank's energy loan portfolio has been another problem as the price of crude oil has fluctuated wildly over the past 18 months.

Energy troubles have also depressed some of the Southern region in which BBVA Compass operates, affecting people's ability to make their mortgage and credit card payments.

The bank also struggles with a challenge shared by most large banks — being a heavily matrixed organization in which every decision has to be approved by dozens of people.

"There were so many opportunities, but it's a slow-moving organization, like any large bank," Kucera said.

On top of all this, the entire BBVA organization is controlled out of Spain. Decisions and direction are handed down from headquarters.

"When we were doing the Dwolla deal, I had to present to Carlos Torres Vila," Kucera recalled. "I was grilled on all the what-ifs. It was crazy how long it took. That still exists. Manolo was never able to eliminate or reduce the impact of the Spanish culture on the U.S. businesses."

Still, several observers referred to Sanchez's new role as a plum assignment, rather than a rebuke of the company's performance.

"If he wants, Manolo has a great career ahead of him," Kucera said. "He's a brilliant guy."

Kristin Broughton contributed to this article.

Editor at Large Penny Crosman welcomes feedback at penny.crosman@sourcemedia.com.