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Central banks 07 Nov 2017

“The competition with fintech companies makes us better and stronger”

The finance industry will survive the disruption in the sector, but only a few banks will be able to offer the best customer experience, adapt to the new ecosystem and successfully achieve their digital transformation. “Competition with the fintech companies makes us better and stronger,” said José Manuel González-Páramo, BBVA’s Executive Member of the Board, Head of Global Economics, Regulation and Public Affairs, during the European Central Bank´s Forum on Banking Supervision.

At the meeting in Frankfurt,  José Manuel González-Páramo participated in a roundtable on “Technology and banking,” with Dirk Vater, a partner in the consultancy Bain & Company, and Martin Ford, author of ‘The rise of the Robots.’ This second edition of the ECB´s twice-yearly Forum on Banking Supervision was opened by Mario Draghi, the institution´s president. Other speakers included Danièle Nouy, president of the Supervisory Council of the Single Supervisory Mechanism and Chair of the Supervisory Board of the ECB; and José María Roldán, president of the Spanish Banking Association.

Asked about the future of the industry, González-Páramo recognized the fact that the finance sector finds itself at a crucial juncture, with its profitability restricted by low interest rates and a regulatory “tsunami” to contend with. However, it has the capability to embrace technological change, in order to outlive the new digital competitors. “Digital (banking) may be seen as a threat, but it is also a way to be closer to the customer, 24 hours a day, seven days a week” he said.

Digital (banking) may be seen as a threat, but it is also a way to be closer to the customer, 24 hours a day, seven days a week”

ECB President Mario Draghi and BBVA Executive Member of the Board, Head of Global Economics, Regulation and Public Affairs José Manuel González-Páramo - ECB

In González-Páramo´s view, the success or failure of financial institutions will be determined by their ability to care for their principal asset – that is, their customers – through the user experience.  “Banks must understand that their customers are changing radically,” he said. Ultimately, Gonzalez-Páramo explained, financial institutions will have to undertake a profound transformation in three areas: technology, strategy and corporate culture.

A new standard in customer experience

In his opinion, the most important thing is to maintain the trust of the customer. Trust enables the creation of a “virtuous circle,” in which customers give the bank permission to use their data and the bank helps them to take better financial decisions.

The key, therefore, lies in data, which is “what makes this revolution different. It must be understood that contemporary banking involves making everything related to finance accessible and simple.” To reach that goal, the BBVA Executive Member of the Board said, big data along with artificial intelligence and blockchain, constitute the group of technologies that allow banks to adapt themselves to changes in customers’ habits, which are especially visible in the young generations (the millennials and centennials).

The new business models that emerge from this disruption allow institutions to face up to new challengers, which can be big players or fintech startups. González-Páramo recalled that BBVA has adopted a collaborative approach, through a multi-faceted strategy that combines mergers and acquisitions, partnerships and creating startup incubators.

BBVA Executive Member of the Board, Head of Global Economics, Regulation and Public Affairs José Manuel González-Páramo during the ECB forum on Banking Supervision - ECB

A level playing field for everyone

José Manuel González-Páramo also called for a “level playing field for all participants of this ecosystem.” In other words, regulation that ensures equal conditions for banks, startups and other fintech players. Additionally, he noted that technological change poses a real challenge for regulators, who can end up being positive or negative catalysts of the digital revolution.

Regulators and supervisors need to strike the right balance when deciding on the intensity of regulatory developments, to avoid hindering innovation while ensuring that all participants of the fintech ecosystem are equally monitored. For this reason, he believes authorities must launch initiatives to promote digital financial ecosystems, through innovation hubs and regulatory sandboxes. Regulators must invest in developing the skills that will make them able to understand the current environment and develop a new, innovative and collaborative mindset.

Regulators must invest in developing the skills that will make them able to understand the current environment and develop a new, innovative and collaborative mindset”

For his part, ECB President Mario Draghi, during his inaugural speech, reviewed some of the supervisory milestones achieved over the last three years. “The single supervisory mechanism has in many ways lived up to the high expectations that accompanied its founding,” he said.  In his opinion, the banking sector is now stronger and more resilient.  This achievement has been a crucial complement to the ECB’s monetary policy, as banks are the main channel of financial intermediation in the euro area. In short, “European supervision and European monetary policy have proven to complement each other well.”

José Manuel González-Páramo - ECB forum on Banking Supervision

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