The banking sector is currently going through one of the most fundamental changes since the creation of the internet. With more competition from emerging fintech players and new technology such as mobile and artificial intelligence demanding banks rethink how they deliver services to consumers, some companies are now looking to question how banks should define themselves in today’s market.
Changing the way banks think
For some, the answer is that in the coming years, banks need to see themselves not solely as financial services providers, but also fully-fledged technology companies.
One financial services provider that has been strongly focusing on this area is Spain’s BBVA. Its executive chairman Francisco Gonzalez has been a strong advocate of the concept of the bank as a technology company – perhaps unsurprisingly given his background as a computer programmer and the fact he says he does not consider himself a banker.
He recently told the Economist that efforts by the likes of Facebook, Amazon and Google to move more into the financial services market will be one of the biggest threats to the established banking sector. And because historically, the digital world “doesn’t allow many competitors”, legacy banks will be forced to evolve their strategies to meet these challenges.
“If you are not prepared for this precise moment, and you are not as efficient as they are, you are dead,” Mr Gonzalez said.
Therefore, BBVA has sought to guard against this threat by transforming its operations to be more technology-focused, both by improving the internal products and services it offers to customers and by bringing in outside expertise. For example, it has bought a big data company, Madiva, and digital design specialist Spring Studio in the last few years, as well as taking stakes in digital banks in the US, the UK and Finland. The bank also invests in new fintechs through its venture capital firm.
What do banks need to be effective?
One consequence of BBVA’s efforts is that it has greatly increased the amount of information it has on its customers, something that will likely be essential for any bank that is looking to compete with major technology players. The vast amounts of data the likes of Facebook hold are often seen as their biggest advantage over legacy players in this market, so taking steps to close this gap and enhance their capabilities in this area will be essential.
Should banks be successful in this, they are likely to be in a much better position to survive the disruption created by dedicated technology players – plus they will have a trust advantage that competing firms can’t match. Indeed, recent figures from Accenture found the majority of people in the UK would not trust an online platform or social media provider to initiate a payment on their behalf, while 93 percent are reluctant to share financial information with social media companies.
Being able to integrate customer data with innovative new digital services will also be essential. For example, one of BBVA’s efforts is Valora, an app for prospective home buyers in Spain that can use external information to determine the likely price of the house a buyer is interested in, how much others nearby were sold for and an estimated value of their current property. It can then provide an estimate of monthly mortgage costs and the impact this will have on their overall finances and recommend BBVA products.
This is just one example of how banks should take a more holistic approach to technology to succeed in tomorrow’s world. The ability to gather data from multiple sources, interpret it and present in to customers in an easily-understandable way are tasks that are usually the domain of tech companies – and this is what banks may have to become if they are to remain relevant.