“Data is the fuel of the new economy and big data is its engine”, said BBVA Executive Board Director José Manuel González-Páramo, during a talk at John Hopkins University in Washington, D.C. With these words, he summarized the impact of the Fourth Industrial Revolution, which is also causing a radical transformation of the financial sector. This revolution is causing us to “rethink traditional retail banking.”
During the conference at Johns Hopkins, entitled “The Fourth Industrial Revolution: Opportunities and Challenges,” the BBVA executive board director stressed two essential factors: the customer as the key to surviving in this new environment and the importance of international cooperation, due to the crossborder reach of digitization.
The digital transformation of the economy and society
At the start of his talk, José Manuel González-Páramo recalled that the power of the new technologies, and their rapid spread, is accelerating the transformation, not only of economy and finance, but of society as a whole. This has been made possible thanks to the combined effect of the three forces of transformation. The first of these is technology, where trends such as Interconnectivity stand out, thanks to mobile technology; the Internet of Things and big data; automation and artificial intelligence: and the new technological infrastructures, particularly cloud computing and blockchain.
The power of the new technologies, and their rapid spread, is accelerating the transformation, not only of economy and finance, but of society as a whole
Consumers are the second transformational force. We are witnessing radical changes in consumption patterns, marked by the millennial (between 19 and 35 years of age) and centennial generations (under 18 years of age). That brings us to the third force: the change in business models. Exponential technologies have facilitated the arrival of native digital competitors in practically all industries, whether they be large (the GAFAs: Google, Apple, Facebook and Amazon) or startups. In the finance sector, these startups are called fintechs and they seek to occupy a specific niche within the value chain, thus unbundling the financial services.
Opportunities and challenges
González-Páramo stressed that these changes “are rethinking traditional retail banking.”
Customers have more power than ever and, as always, are the key to survival in this new environment
Customers have more power than ever and, as always, are the key to survival in this new environment. For that reason, they should be at the center of any initiative, in order to improve their experience. In the new environment, technology is the essential tool to fulfill this task, since all products and services can be improved at different stages of design, production and distribution by adding “digital” characteristics that increase their perceived value for the customers.
In this way, a great opportunity arises to unlock value by driving digital adoption, scaling the business to millions of new customers by utilizing data and technology. But this doesn't end here; this revolution makes financial services more accessible to a large part of the population. It´s what we call “digital financial inclusion,” he said.
BBVA is relying on technology to drive revenues through customer experience, digital sales, and the advisory function (above the glass) and generating cost savings through changes in the distribution model, productivity improvements and the implementation of new technology platforms and agile methodologies (below the glass). - BBVA
As for the challenges, the BBVA executive board director underscored three main ones. The first is one that affects the safekeeping of customer data, which has become a new means of exchange and an asset that must be protected. Here, in his opinion, lies the key to trust: customers will hand over their data if they perceive that by trusting and accepting to make that transfer, they will receive more added value and better service.
The second of the challenges associated with this Fourth Revolution is cybersecurity. Since the majority of these cyber-risks are crossborder in nature, José Manuel González-Páramo believes that international cooperation among governments and private stakeholders is essential to effectively ensure security and safety in cyberspace. The third and last challenge is artificial intelligence, that will help to improve the interaction in areas like virtual assistants or automation through algorithms.
The digital transformation of the finance industry
The BBVA executive board director affirmed that the current context of low interest rates and growth leads to transformation processes that reduce costs and increase revenues. Added to this, he said, are the reputational problems associated with banks and the assimilation of what he termed the “regulatory tsunami.” But what is really transforming the financial industry is digital transformation.
In his opinion, “the real question is not whether banking will change radically, but rather whether banks will still play a significant role in the new financial ecosystem.” In order to do so, he said, banks will have to adapt their strategy to survive the competition from new entrants. Success will come from the ability to utilize their principal asset, the customer’s experience; from re-establishing their reputation; and finally, from achieving lower prices and automating processes so that customers can devote only the time they think necessary to the administration of their finances.
The real question is not whether banking will change radically, but rather whether banks will still play a significant role in the new financial ecosystem
This model, José Manuel González-Páramo explained, requires profound changes in talent and culture within the organisations, which themselves must evolve towards a greater agility and flexibility, with less hierarchical structures and more collaborative environments. It´s a transformation in three areas: technology, strategy and in terms of corporate culture and talent. It is, in short, a complete reinvention of the banking business.