Fintech | 30 October, 2017

The future of banking

Alejandro Moreno Gestor de Clientes

Let us introduce you to the thrilling race between the banking industry and technological enterprises for the future

If we asked someone aged 40 to 50 which technological changes had marked their childhood and youth, they would say the arrival of colour TV, the Walkman and later on CD’s were the great changes. These changes seem distant; what is more, a person from another generation would not even know what we are talking about, but these were the early days of digitisation.

Today it is unthinkable for us not to have our mobile in our hand, but older generations solved problems with landline calls or by knocking on doors.

 

In the height of the technology revolution, the proliferation of start-ups offering state-of-the-art transformation products and services is never-ending and the universe is enormous. It is growing in all directions and penetrating all activity sectors. How disruptive it can be is evidenced by companies like Uber, which is revolutionising passenger transport or iRobot, which offers completely autonomous robots to clean the home.

These companies have emerged in the banking sector in several different ways. With e-Commerce over the Internet came Paypal as a secure payment tool versus the traditional use of credit cards, which enabled users to revert payment in the event of a failed transaction.

Likewise, although later on, social media like Facebook or Google+ have taken advantage of the huge number of service users they have and the information they obtain about them, creating virtual wallets and obtaining banking licenses, thus encouraging financial transactions carried out through their platforms. Recently, many applications have been launched that help us to monitor and optimise our personal spending.

In short, they have sought to innovate against traditional banking, focussing on the user experience so that they will use said platforms rather than tools provided by banks.

CHALLENGES FACING THE TECHNOLOGY COMPANIES FROM THE BANKING SECTOR

These technology companies, however, do not have the image of security that financial entities still retain today. There have been several cases of global computer hacking that have managed to steal thousands of users’ personal data on different platforms.

Cases of password theft from one of the world’s largest e-mail service providers this year, or the theft of accounts from online platforms are everyday events.

Despite the banking sector having suffered important leaks, it has been able to react protecting confidentiality and minimising their impact. Furthermore, these entities have a long-standing tradition in banking services that technology companies do not, which reduces the public’s willingness to deposit their savings in these companies.

If we concentrate on Private Banking, we must understand that while it is a sector largely directed at older clients less eager about new technological developments, immediacy is achieved with a simple phone call, a personalised visit from their Advisor and a team standing by to give an excellent service.

The question being asked here is to learn whether technology companies could bridge the gap of personal relations forged between a bank and its clients and foster loyalty amongst the same, harnessing their custom for continuous periods of 10 to 30 years as happens today.

Another key factor is the banking sector’s capacity to adapt to the new environment and its investment in RDI to achieve this in leaps and bounds, managing, at the very least, to compete with technology companies by acquiring start-ups and developing their own new technologies.

CHALLENGES FACING THE BANKING SECTOR FROM TECHNOLOGY COMPANIES

As far as the financial sector is concerned and vis-à-vis the end-customer, there are three branches of activity in which technology companies are bursting on the scene with force: Means of payment, loans and investments.

These new platforms are offering new solutions in these three traditional business lines. Banking institutions must, however, drive the development of said solutions through their own platforms. They would hence halt the proliferation of these start-ups and protect their own goodwill.

To do so, the challenge facing the banking sector is to identify the major trends arising in the technology industry in order to swiftly implement them in their own environment and fill the gaps threatening their activity. If we can access Spotify or Netflix by telephone, computer or TV, why can’t we do the same with our bank account or investment portfolio?

Likewise, being a change driver is a responsibility banking has towards its sector and offering accessibility to its services from any platform is something that should come into being in the near future, together with redirecting its offering towards other services customers may require.

With this transformation, the banking sector is also seeking a more efficient corporate structure, automated processes and a more competitive position, all in a historically low-rate environment which does nothing to help raising margins and where cost optimisation is a key factor for survival.

THE OUTLOOK FOR THE SECTOR’S FUTURE

Our imagination always sees the future as wholly dominated by screens, machines and robots in which human interaction is excluded from day-to-day relations between company and client; this change is unstoppable. However, in order to view the future of banking, we have to understand what this sector is doing to defend its activity.

Web platforms and banking entity apps are key for them to remain competitive, enabling transactions, loans, credit facilities and investments to be processed through these tools. Nevertheless, there are voices forecasting a future without a banking sector and dominated by technology companies. But nothing could be further from the truth!

Entities like BBVA are prioritising the constant evolution and development of new technologies applicable to the Group and extendible to many other sectors. They are driving the accessibility, security and diversity of all their existing services as well as creating new ones.

Furthermore, the transformation and implementation of technology solutions is also ongoing in their internal processes which, although not in full view to the industry, will also be decisive in the medium and long term for their competitiveness and leadership in different markets.

Sectorwise, many entities are also opting for growth by diversifying into sectors not pertaining to banking per se and are working to set up platforms that provide many products other than banking products and services, such as helping to manage our personal or household economy or access to platforms that are of interest to us.

It is evident that we are in the throes of a banking revolution, a historic time for the sector and an industry that at some time in the future could be where we resort to in our daily activities for finding anything we need, from doing the shopping to connecting up to videogame platforms.