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Banking 12 May 2017

The banking industry: conquering a new digital culture

Experts in the banking industry and fintech discuss the changes facing the sector due to digitalization and the PSD2 directive entering into force at “Revolutionary Banking”.

“Until now, technology has permitted the banking industry to innovate. After the PSD2 directive enters into force [next year], the banking industry will be required to innovate”. Ben Robinson, of Temenos, a Swiss company specialized in software for the financial market, summarized how the two forces already transforming the banking industry are intertwined: technology and a new regulation that drastically expands the playing field.

“It is difficult to exaggerate the importance of this directive coming into effect,” Robinson said in one of the discussions at the Revolution Banking Seminar, held Thursday in Madrid. The impact of PSD2 was one of the most emphasized topics at the seminar, but there were also discussions about blockchain, artificial intelligence, fintech, and how technology is changing the banking industry in general.

A new playing field

PSD2 is changing the rules of the game, increasing the dynamism of the sector and the opportunities for fintechs, but also for companies already established that know how to play their cards right. There will be more competition, and also better services for citizens.

How should financial entities adapt to this new situation? Luis Calleja, of Holvi, a Finnish fintech acquired by BBVA last year, focused the discussion around corporate culture and client management: “PSD2 is not a technological revolution, but a change of the model of communicating with our clients. The banks that are capable of changing their form of communicating with clients will be those that survive.”

Changing the business culture is an enormous challenge, but for those who are able to do so, the future is promising. “One of the great advantages of the directive,” assured Philippe Gelis, of the fintech specialized in currency exchange, Kantox, “is that it is going to cause banks to lose the fear of using their clients’ data”.

When adequately anonymous, it’s very useful data, because it’s unique. Facebook and Google know everything about their users...except what they do with their money. That information, which banks do have, can be the engine driving new businesses, either directly through API’s or agreements with third parties.

“Banks have to be aggregators, but at the same time, they should take advantage of their advantages over the Facebooks and the Googles: especially their capital and regulatory compliance,” Robinson of Temenos affirmed.

According to Gelis, the most important thing is technology. Competing for a price is a weak position, but “if you have a different and unique technology, you don’t just set the price, but also the path forward.”

Springboard for innovation

Cognitive technologies are one of the main springboards for innovation, and even disruption, in financial services. As if it couldn’t be any other way, they also played an important role at Revolution Banking.

Speaking of artificial intelligence (AI), Pepper, a robot with large green eyes (or blue, depending on the consumer’s taste) and ability to understand emotions gave the seminar a colourful touch. It was in charge of introducing the speakers about artificial intelligence.

Pepper’s appearance in the auditorium can be interpreted as a metaphor of the state of these technologies. Robots with artificial intelligence are quite striking (the entire audience stood up when it passed by to take pictures of it, as it moved toward the stage), but during the presentation, its voice sounded like a canned recording, far from a natural or “intelligent” sound.

The high expectations for AI that science fiction has awakened inside of us are much lower when we witness the first applications of these technologies, which in reality, haven’t done anything more than take their first steps.

“Automation goes much beyond cost savings and finding more efficient processes,” said Pedro Suja, Manager of Artificial Intelligence Technologies at BBVA. “The application of algorithms, deep learning, etc. is going to allow us, for example, to develop personalized products and exponentially improve the client’s experiences. We’re going to do things we can’t even imagine now,” Suja affirmed.

“I prefer to talk about cognitive technologies that are capable of learning to do new things based on a vast amount of information, but we need to be prudent to see if they are intelligent,” pointed out Montse Guardia, Director of Digital Services Delivery of Banco de Sabadell. Guardia considers that inserting these technologies into financial services is translating into small innovations that entail improvements and greater efficiency, more than completely disruptive services.

Customer service is one of the fields for Caixabank that is going to be highly transformed in the near future by AI. “In a few months, we’re going to see many ‘bots’ from banks that resolve all sorts of issues,” added David Almendros, Director of Artificial Intelligence of Caixabank.

In cyber security, these technologies are also going to be able to help fight threats and prevent attacks, as indicated by Fernando Salazar, Manager of Cyber Security in Spain at BBVA: “We’re working on a system based on big data that can evaluate all types of data to try to prevent possible vulnerabilities in the systems.”

They didn’t forget to reflect on blockchain and its progressive implementation in the banking industry. Oliver Díaz, of BBVA, explained that “beyond the fads and media attention, it’s undeniable that the entire banking sector is going to gain simplicity and efficiency thanks to blockchain, which at the same time, opens up the door for disruptive business models. With blockchain, we’re headed in the right direction, but there’s still a lot left to do.”

As the experts confirmed at Revolution Banking, “This revolution is just getting started. If this were the French Revolution, Marie Antoinette would still be having pastries in Versailles.”