“The future of banking lies in financing the future.” With this phrase Carlos Torres Vila summed up his breakfast presentation, part of the “Finance and its challenges” series organized by the Deusto Business School in Madrid. According to BBVA’s executive chairman, social and environmental sustainability and the battle over customer data are the principle medium and long-term challenges facing the financial sector. "These challenges bring opportunities. Technology promises a bright future, and we have to seize the opportunities that come with it,” he maintained.
Carlos Torres Vila focused his presentation on the medium and long-term challenges facing banking. "There are intrinsic challenges to our business model, in an environment with low interest rates and greater capital requirements, but there are even more challenges stemming from digital transformation and the new competitive entrants, who increasingly compete among themselves. All of this while data assumes a central role. Undoubtedly, social and environmental challenges take on even greater importance for governments, businesses, and society as a whole. These challenges open the door to new opportunities in an ever-changing world.”
A complex macroeconomic landscape
“First of all,” he pointed out, “we are facing a complex macroeconomic landscape with significant challenges for the future. The world is facing a serious downturn. In 2018, despite prevailing uncertainty, economic growth was a significant 3.7 percent globally. In 2019, according to data from BBVA Research, a drop to 3.1 percent is forecast. It is a somewhat troubling trend, given the lack of sufficient demand to keep up with supply.”
BBVA’s executive chairman believes there is a set of uncertainties that impact this equation. Principally, commercial tensions.
In Torres Vila's opinion, these are not the only uncertainties. In Europe, he pointed to Brexit, the situation in Italy for the past few years, and Spain, which is facing its fourth presidential election in four years.
An environment of negative interest rates
One of the major — and enduring — challenges for the financial sector has been to cope with the effect of low interest rates in the United States and negative interest rates in the eurozone.
In this context, and with the view that that the situation will be much the same in coming years, banks must be more efficient, and that is where — as Carlos Torres Vila stressed — “Technology helps us redefine our processes. We have seen the huge impact digitization has had on our relationship with our customers. Specifically at BBVA, more than half our business now comes via digital channels. The trend line hasn’t wavered: next year digital sales will represent more than 50 percent of the total. The way customers interact with the bank is changing, and this makes us more efficient."
He is also betting on change. "The world is changing at full speed; we have to change with it. We have to change our way of working, to a more flexible, dynamic approach. At the bank, we’ve adopted the agile methodology. Thirty three thousand employees are creating quarterly plans with more clarity about priorities, thus eliminating tasks that eat into the value add,” he said.
The sustainability challenge
BBVA’s executive chairman is confident that “technology contributes to an age of opportunities and challenges, where banks can have a bright future, seizing the opportunities.”
First of all, social challenges: according to Carlos Torres Vila, “attaining inclusive economic growth, reducing inequalities, ensuring access to quality education, and in general, improving everyone’s level of well-being are necessary” in this age of technology and increasing robotization and automation. Secondly, the climate emergency provokes considerable environmental challenges. "It is a time that demands maximum responsibility, with global challenges that require a global agenda and the participation of every segment of society: government authorities, the general public, and businesses," he said.
"With this as an objective, we agreed to six Principles for Responsible Banking,” an initiative kicked-off last year with the commitment from a dozen banks, which had risen to 130 as of last September. "This is of paramount importance to us, because the future of banking lies in financing the Future" he stressed.
The digital transformation challenge
Carlos Torres Vila believes that banks, as a result of digitization, should change their value proposition. "Previously, banks have been suppliers of an infrastructure for handling money. Now, we can exploit technology to support our customers — both in their personal lives and in their businesses — in a much more far-reaching way than the traditional finance industry.”
For BBVA's executive chairman, putting opportunities within customer reach simply means helping people make decisions: "We anticipate their problems, simplify money management, help them reach their personal and professional goals." For three consecutive years, the BBVA mobile application has been rated the best in the world for functionality and usability by the consulting firm, Forrester. With the app, customers can see and control the future: upcoming transactions, configuring accounts, and defining transaction rules. “Finance is going the way of automation. It’s a great opportunity to transform traditional banking’s value proposition,” Torres Vila affirmed.
“Technology contributes to an age of opportunities and challenges, where banks can have a bright future, seizing the opportunities”
On the other hand, he referenced “the emergence of new operators who accompany digitization. By specializing in a specific financial product or service, these fintech companies have disaggregated the banking industry’s value chain. In the new landscape, banks and new competitors compete on individual elements of the value chain and at the same time increasingly collaborate on others,” he explained.
The data revolution
BBVA’s executive chairman believes the great change of the future is the data revolution. “Everything we do is logged, the processing technology and computing power make it possible to extract knowledge and relevant information from the massive volumes of data now available. This represents limitless opportunities for all businesses.”
To demonstrate this theory, Carlos Torres Vila made an interesting comparison: “Data is a peculiar asset. Saying that data is the oil of the 21st century is correct as it relates to its worth, but oil is consumed once and data can be used multiple times. Data can be reused; it can be stored; its value can be extended to the extent that it is shared with more companies, even more so at a time when the lines between industries, the borders between countries are blurring.”
BBVA's executive chairman closed his presentation with this appeal: “It is essential that businesses recognize that data belongs to the customer and not to the entity that collects it; it is the customers who should have control over their data and who should provide the consent that will let day flow between different sectors. Data is the key to creating opportunities: gaining insights, drawing conclusions, anticipating problems, making better recommendations, and ultimately adding value.”