The consultancy Accenture analyzes the inroads made by big tech in the financial sector and identifies five key steps banks need to take to create value in the face of advances made by fintech companies. BBVA’s focus on open banking and transformation in the digital era has been acknowledged by a number of institutions.
Tech giants or banks? Who will control the future of banking? This is the debate that is coming increasingly to the fore in the analysis of financial innovation and the shape banking services will take in the coming years. Will banks be able to innovate at the pace required by the sector? Do the big technological companies pose a serious threat. Or could it be the other way around?
Accenture offered some clues to this in a recent article. Looking at the future value of different companies in the financial and technological sectors using 2017 data, the consultancy found that fintechs and technological companies are ahead of banks in the race to assure themselves a place in the market. “Future value” is defined as the premium investors are willing to pay beyond the current operations of a company, and therefore represents its ability to adapt to a changing environment and offer new services and products.
In its study, the consultancy looked at the potential future value of the business models of different companies in the sector. While the “future value” of the GAFA companies (Google, Apple, Facebook y Amazon) accounts for 49% of its current total value, in the case of fintechs, the figure factored by the market is 40%.
In the case of banks betting heavily on digital transformation, future value represents 20% of total value. According to the author of the study, Cécile André Leruste, Managing Director for Accenture Banking in Europe, “banks seen as lagging in their digital transformation program saw a decrease of 11% in future value”. She says the creation of future value by banks is closely linked to innovation, but adds “banks cannot simply snap their fingers and magically transform themselves into innovators.”
The five key steps
What is the road banks need to take so as not to be left behind in the race to create value? According to Accenture, there are five key steps:
- Become a data-driven organization
- Create a culture that is both open and agile
- Align customer experience and user experience to principles established by the GAFA companies
- Drive innovation with an eye to attracting talent and reshaping roles (such as moving into new areas like artificial intelligence)
- Transform compliance requirements into business opportunities
"[Banks] should create an innovation architecture and work on getting the timing, scale and direction right, so that they can manage the investment process and the allocation of capital in both core and new businesses,” the consultant adds.
For BBVA, adapting the organization to the new environment is not only a priority but a basic pillar of its strategy. The consultancy 11:FS recently named BBVA as the best incumbent bank in the transformation process in the edition of its 11:FS Pulse Best of 2017 Awards.
Best app in the banking world
The focus on tailoring user experience to the new expectations of users as set by the services currently offered by the GAFAs and other digital companies such as Netflix and Spotify–, has also been a BBVA priority acknowledged by analysts. In 2017, Forrester named BBVA Spain’s app as the best in the world and its website as the best in Europe.
“Banks need to operate in ways that work best for their customers and clients – that use the digital platforms they want to use, that have the levels of user experience that big tech has championed, that are intuitive, adaptable, safe”, Derek White, Global Head of Customer Solutions at BBVA, recently said at the Money20/20 Asia event.
The process discussed by White also entails transforming the bank into a data-driven company in which the use of data shapes decision-making and the creation of better services for customers. BBVA focuses on creating increasingly more intelligent interaction based on the use of data as evidenced by BBVA Valora, which allows anyone to find the best price to buy or rent a house and Bconomy, which offers customers an analysis of their financial health and provides tailor-made plans to improve it.
The world of data and artificial intelligence is one of the areas where the commitment to talent is key in taking on the challenges facing banking today. “We need people who can extract value from data by asking the right questions and articulating their responses,” as explained in an article by Elena Alfaro, Global Head of Customer Solutions Analytics & Open Innovation at BBVA and Juan Murillo, Head of Analytics, Dissemination and Data for Social Good at BBVA Data & Analytics, the bank’s data center of excellence.
But technical expertise is not the only thing necessary to compete in the new digital environment. What is needed is a multi-discipline effort that also includes the availability of new technological platforms, a new organization, talent, processes and a new corporate culture. Agile methodologies and design are the basic pillars of the required organizational transformation. BBVA can already draw on 1,000 employees trained in design thinking as part of a program aimed at forming hybrid profiles in different areas of business of the organization at a global level.
Regulation as an opportunity
As pointed out by Accenture, the need to turn compliance and new regulations into opportunities has been one of the drivers of fundamental change for BBVA, which has been one of the most active banks in rolling out open banking with the introduction of the PSD2 directive.
Joy Macknight, the deputy editor of The Banker recently explained how the banking sector, which was initially slow to react to the possibilities offered by APIs, has over the past two years recovered the ground it lost. Many of the big players in the sector have undertaken initiatives to open their core platforms and services through open APIs. BBVA, as Macknight points out, has been one of the leading actors in this revolution.
The article in The Banker draws attention to BBVA’s commitment here, pointing to the commercial opening last year of the BBVA API_Market portal, which already offers 10 APIs in Spain, two in Mexico and the United States. Both startups and mature companies can launch new products and services for BBVA customers integrating their financial service applications on condition of approval. “Customers own their data,” BBVA API Market Spain explains to The Banker. With the customer’s consent, BBVA API can allow “third parties to add value to customers' lives in a way that we can't,”
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