THE FRITZ REPORT

43,252,003,274,489,856,000

August 25, 2020

The title—what's with that? It's the total number of possible combinations for a Rubik's cube. A 3x3 cube with six different colors. If you are like me, you feel good if you can solve one, and occasionally two, sides of this world-famous puzzle.

There have been many scientific papers written on the Rubik's cube—maybe because it is one of the most widely-known "toys" in the world. According to my highly expert internet research, over 350 million Rubik's cubes have sold since they first appeared in Budapest around 1970. How's that for entrepreneurship in a communist country? I know McDonald's talks about its billions sold, but 350 million plastic mind-tormentors? Wow.

Take another look at the number that is my title: it's 20 digits long and over 40 quintillion (I got that from, you guessed it, the internet). Bigger than the national debt (for now). But I learned about a different named number during my research into this diabolical puzzle—a number colloquially called "God's Number" among cube enthusiasts. This is the proven minimum number of moves it takes to solve any Rubik's cube starting point, and it took mathematicians over thirty years to crack it, and declare that it's 20. Think about that for a second: Any Rubik's cube starting position can be solved in 20 moves. We can move from a position that is 1/43,252,003,274,489,856,000 to a solution in no more than 20 iterations! The number's name comes from the notion that only a mind vastly more powerful than a human's could look at a cube and know the solution.

I reached out to my firm's analytics team to ask if we could develop some kind of AI that powerful. To my disappointment—or maybe relief—Eric Brown told me "not a chance." But then he offered an observation even more useful:

"There are world record holders in solving these things—and they don't have God's mind. They don't see all gazillion combos and pick the right one. They use a methodology that takes work to learn, and brains and effort to execute. But some folks who have subjected themselves to this discipline can do amazing things."

First, I got Eric to admit that he has never been patient enough to complete even one side of a Rubik's cube. Then I looked into these record holders.

This is Yusheng Du. In 2018, he set the current record for solving a cube at a brisk 3.47 seconds. I'm sure he's very smart but more importantly, he learned a skill, albeit a very complex one, and employed that skill with excellence.

My son has gotten his Rubik's cube skill down to the point that he can usually solve one in about 45 seconds. As I said, I'm still lucky to complete a single side.

Ok, time for my world-famous pivot (see what I did there?) where I connect this to the world of community banking.

The key to the (standard 3x3) Rubik's cube is that the middle square on each face cannot move and does not change. Think about that for a minute. The middle is fixed in place. That sounds to me like banking for the longest time, maybe the entire twentieth century. For decades, the fundamentals never really changed much. The center held. We could pay 2% on our deposits, lending out at 6%, and be on the golf course by 4:00 in the afternoon.

My son is Gen Z, and he's decided that the plain old 3x3 Rubik's cube is too simple. He can solve it now, basically without thinking, just by applying a well-learned method of certain moves. So, he has moved on to the 4x4 cube, called the Rubik's Master Cube.

This is a totally different game! Now the center CAN change. The four squares in the middle of each face need to be established before moving on to the rest of the solution. Nothing is fixed. So he has had to put in the work—learning from video teachers, studying his notes, practicing his moves—to learn to work this puzzle. He can now usually finish the Rubik's Master Cube in about an hour. It is no longer too simple.

This is what banking looks like today: no longer simple.

In fact, maybe banking is becoming more like the 5x5 Rubik's Professor's Cube. Believe it or not, the record for the 5x5 cube is still less than a minute. However, the patterns, techniques, and methodology that the solvers must go through are much more difficult. The competitors at this level have special, lubricated, and well-worn cubes they use because physical dexterity and choreography are a part of doing it that fast.

Check out Feliks Zemdegs setting the world record on the Professor Cube in 2017. It takes him 38.52 seconds. Watch the video here.

Back to the banking problem. We have entered a new era of banking where our "center" has moved. Our industry is no longer in a "3x3" world. I'm not saying banking was easy the past several years, just as for someone like me, even a 3x3 Rubik's isn't close to being easy. Plenty of folks have had difficulty putting all the parts of excellent banking together even in easier times. But many learned the methods and eventually put all "6 sides" of their puzzle into place.

But that has changed, almost certainly forever. The center is no longer fixed.

Now, we can all pretend that we still live in a 3x3 world, at least until Chase, Bank of America, and Wells Fargo take over everything, or we can learn to become more like Feliks mastering the 5x5 in 38.52 seconds. It's a stark reality. We need to get better, faster, and smarter. Ignoring technological advances is just simply not an option. Even if we don't think the big money center banks can ever completely take over, we still have to contend with the fintechs jumping up around every corner.

My son the Gen-Z-er, has also opened a Robinhood account to trade partial shares of the stocks he likes, including Adobe, Amazon, and Apple. You recognize all the names. He's not alone. All of his friends are doing this, too. They all trade and they compare their performance. Admittedly, the dollar amounts are small, but they want to play the game. I imagine they aren't particularly interested in CDs at 0.05%.

These are your core customers in 10 years. To bank them, you need to be 5x5 proficient—maybe 6x6.

We can master this puzzle. We can win. But the center has moved and will keep on moving. We need new institutional capabilities. We cannot look at fintech or other new services and think we don't have to match, and often beat them. But like my son and his 4x4, or Felix and his 5x5—learning, effort, and practice will be required, and we'd better get started!

To my mind, the single statistic parameters that we have always used, like yield and duration, are the equivalent of executing a 3x3 cube. Yes, they may have sometimes worked ok in the past, but they are literally the road to failure in a 5x5 world. You cannot rely on that level of "technique" if you want to compete in this new era of banking. Please hear me. They are not good enough.

Yusheng Du is ranked #1 in the world at 3x3 Rubik's. You know who is ranked second? Feliks Zemdegs of 5x5 fame. Do you wonder where Yusheng Du is ranked on the 5x5 board? He's 66th. Feliks is also ranked #2 on the 7x7 Dayan cube. Yusheng doesn't break the top 100. Still impressive, but notice the asymmetry of skillsets? We need to be aiming at Feliks-like outcomes.

Hopefully, we'll never see banking like this: 33x33.

Final, final thought: It might be impossible to beat a really good fish taco. Seriously.

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