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Digital banking Act. 04 Jul 2018

The future of banking: adapt or die

Over three days experts in finance, fintech and technology debated in Salzburg (Austria) the import of the challenge posed by technology for the economy and the financial sector. The disruption brought on by the massive adoption of new technologies has quickened the pace of change facing institutions. They also face the task of attracting customers in an environment in which there is much more supply.

Technological advances, particularly in mobility and hyperconnectivity, but also big data, artificial intelligence, the cloud and blockchain, have brought about a shift in consumer behavior and business models. The marriage of these three forces have given rise to the Fourth Revolution which has already left its transformational mark on the economy and society and will continue to do so in the future at an exponential speed without precedence.

This has unleashed an animated debate on the impact technological change will have on society, the economy and also the financial sector. What will happen in the future? Polar opposite standpoints have emerged on the extent of this impact. On the one hand, techno-pessimists predict the new technologies will have a negative impact on inequality, growth and productivity. On the other, the techno-optimists believe they will significantly enhance productivity and stimulate growth.

The debate extends to the impact of technological disruption on the future of employment. Some of the proposals put forward the idea of harnessing technologies such as artificial intelligence to automate processes of lower value-added while improving education to remove obstacles to entrepreneurship.

A paradigm shift for banking

One of the ideas that stood out during the conference is that opportunities will emerge with greater clarity as we get further into the digital era. Where are the opportunities for banking? Primarily in its relations with customers. In the opinion of speakers at the seminar, banks need to walk side by side with customers in their day-to-day life helping them to make the best financial decisions. This is a paradigm shift for banks, which now have to grasp that the customer does not want a mortgage per se but a means of being able to buy a house.

When it comes to disruptive change, there are two basic forces in determining the speed of change and the scenario this change leads to. One is internal and revolves around the vision one has of the future of banking and the scope of its technological, financial and organizational ability for self-transformation and the other external in the shape of the role of supervisors and regulators in catalyzing or reining in the changes required during this transition.

Some pointed out that regulation and supervision now face the challenge of providing a regulatory framework that balances new proposals of digital value against affording protection against accompanying risks.

José Manuel González-Páramo, BBVA Executive Board Member, Head of Global Economics, Regulation and Public Affairs.

Security, privacy and compliance: the strong points of banking

Although the debate focused particularly on opportunities, the experts did not ignore some of the risks implied by technology for the financial sector, above all in questions of privacy, cybernetic risks and financial crimes.

The message that is repeated in obtaining data, which has become the most value asset for companies, is the importance of winning the confidence of customers. In order to so, banks need to clearly explain to them why and to what end they need their data in such a way so as to create a virtuous cycle of trust. Hence the need to protect data against web crime has become more crucial than ever and as the experts pointed out security, privacy and compliance are banking’s strong points.

These were some of the conclusions that emerged from the Salzburg Global Seminar, which brought together a wide cast of representatives of the financial sector, regulators and academics. Among those taking part were José Manuel González-Páramo, Executive Member of the Board and Head of Global Economics, Regulation and Public Affairs at BBVA and Christopher Giancarlo, Chairman of the U.S. Commodity Futures Trading Commission.

*The seminar was held under the Chatham House Rule under which opinions expressed during the event may be reported but without identifying the source of those opinions.

Salzburg Global Seminar | Anniversary Video