The future of the digital economy: (co-)creating a framework in which all companies can compete
The European Banking Federation recently organized a conference on innovation and cybersecurity where the role of banks in the digital economy and platform economy was discussed, among other topics. According to BBVA, the key to ensuring that financial services benefit from this economy is the creation of a framework for the different types of participating companies to compete fairly.
The event became a loudspeaker for representatives of banks, regulators like the EBA, and experts in digital finances. Most of these voices took advantage of the opportunity to demonstrate that the increase in digital finances from the COVID-19 crisis has also elevated the relevance of the platform economy sector.
The concept of platform or platform economy is a term we are hearing more frequently. However, it can refer to different things. On the one hand, to frameworks or technological environments within which the different companies can build new features that are generally accessed through APIs and which, in the case of finance, give rise to concepts like “banking as a service”. On the other, from a business model perspective, the platforms are “meeting points” that connect different users to each other and create value by putting into contact the supply and demand for different products and services.
“Both types of platforms are crucial in the digital economy and are transforming financial services,” stressed Pablo Urbiola, the Head of Digital Regulation at BBVA. In his opinion, the platforms are changing “the way new financial products are created (and co-created), as well as the way to distribute them and reach customers.”
In 2017, BBVA launched its API Market, making it one of the first large banks in the world to bet on open banking. Available in Mexico, the U.S. and Spain, BBVA’s API Market allows companies, startups and developers to launch new products and services, accessing and integrating banking services into their own environments.
Banks’ role in the platform economy
“The key question for any company is what role it wants to play in the platform economy and that is a very strategic question,” Urbiola explained. The implications this role has for a company, and specifically for a bank, are very relevant. It affects the potential to reach and attract customers, customers’ level of connection to the bank, and also the ability to learn from key members of other sectors.
Obviously, each bank is different in terms of technological capabilities, knowledge and capacity to operate in open ecosystems, innovative spirit, market position, etc. This explains the different strategies we can observe in the market. “Another important factor that conditions the integration of banks in the platform economy is the regulatory framework,” Urbiola said.
Thus, “banks face certain restrictions when it comes to developing non-financial activities, which they sometimes need to do through separate franchises and this can complicate the integration of financial and non-financial services,” he noted. Furthermore, banks “have the additional burden of regulation and supervision of the consolidated application of the prudential framework.” This means that financial groups must apply banking level controls to most franchises, including activities that are not related to deposit taking or financial intermediation. “This increases the time and cost of innovating and puts banks at a disadvantage against non-bank actors that are only subject to the specific regulations of their activity,” Urbiola explained.
A "fair competition framework” requires clear rules ex-ante so that the platforms have a role as “gatekeepers” or “entry points” to the digital economy. This is precisely what the European Commission intends to do with the future Digital Markets Act.
Therefore, “a level playing field is essential so that banks get more actively involved and find success in the platform economy,” he concluded.
Pablo Urbiola shared the discussion forum with Teunis Brosens, Lead Economist in Digital Finance and Regulation at ING; Elisabeth Noble, Senior Policy Advisor at the European Banking Authority; and Jan Boehm, Vice President of the European FinTech Association.