Big tech’s threat to banking is no longer a headline. It is close to consensus. China is the clearest example: Tencent and Ant Financial absorbing huge parts of the payments market, and a new league of competition is in the making.
Some investors are undervaluing banks and paying over the odds for shares in fintech companies that they think will supplant them. Dutch fintech group Adyen is due to float shortly at a price that would give it a valuation of up to €7.1bn. It posted net profits of €24.1m in the first quarter. By contrast, Spanish bank BBVA has a market capitalisation of €40bn and net profits in the first quarter of €1.3bn.
No doubt, the threat is out there. But at BBVA we have been trying to transform ourselves to meet the challenges of the digital age for more than a decade.
Along the way, we have realised that some of banking’s core strengths — security, privacy and compliance — are not easily replicable and are increasingly significant, as we all learnt from Facebook’s tribulations. At the same time, we have learnt how to use technology to improve customer experience.
So far, the big technology companies have largely escaped significant oversight, with the exception of the EU’s General Data Protection Regulations.
Banking creates fewer interactions than big tech, but typically each one is of higher value
But the need to protect all forms of data against everything from cyberterrorism to customer exploitation has never been more acute. We are also starting to understand that data are an essential input with an impact on competition, and I believe this will lead to a crackdown on monopolistic behaviours by the big search and social media groups.
A new regulatory model is needed, one that understands the complexities of data and balances privacy, security and competition across sectors. As we develop one, the playing field between lenders that have adapted to digital on the one hand and tech and fintech companies on the other will become more level.
Consumers will see the merit in having their data assets — whether financial or not — safeguarded within a trusted environment, but they will also benefit from a competitive and transparent market. Companies need to appreciate such changes.
Banks need to build on their core strengths and find a way to evolve so that, ultimately, they become more relevant and involved in people’s lives.
Big tech is extremely successful at building ecosystems: networks of interconnected products and services, and nodes that share data. They create huge volumes of interactions every year. Banking creates fewer interactions, but typically each one is of higher value. Making a transaction or buying a service is “worth” more than liking a friend’s photo or searching online.
Some banks that have invested in platforms and digital services will be able to build their own ecosystems, starting from financial services and expanding into other areas. With customer consent, banks have access to valuable data that can be used to help clients make better, more informed decisions about their finances. This, in turn, will encourage them to take on other services from the bank or a partner.
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This natural evolution into a marketplace transforms a bank’s role into that of a trusted adviser. But it only works if we create tailored offerings with the best suitable products and services wherever they are available.
This is what we call the circle of trust argument: if customers are willing to confide their data in us, we can use it to suggest money saving alternative investments. The exchange builds trust, leading to more data-sharing, better recommendations and data-driven sales of products and services.
The more we adapt to the digital age, the more clearly we see our opportunities. We have been preparing for more than a decade, making many mistakes but also learning from them. We are girding for the battle ahead: there is room for a reduced number of providers.
This is a paradigm shift for banking — but, at the same time, it is also the evolution of something we have been doing for many years. It is about finding a new way to support customers to increase their assets — to make their money, and now their data, work harder for them.
For too long banking has been seen as the underdog in the battle for online customers. Now, though, I believe we have what it takes to redesign banking and to bring about the next stage of this industry’s evolution.[“Source-ft”]