There's been a lot of tweeting of a few lines in an interview that I gave recently in Spain for BBVA's innovation centre. As a result, I thought I would post the interview here and will reveal the line that gets all the tweets in the next week or so.
Chris Skinner, a British expert on financial issues, was in Madrid on September 18 to take part in Innomoney, an event organized by Adigital on Fintech and the financial technology revolution. It was a whirlwind visit, during which the financial advisor and authority on payment method innovation cautioned that digital transformation is the only sure path to survival in the banking market. He also found time to give this interview with the BBVA Innovation Center.
Are traditional banks aware of the threat posed by fintech banking?
The banks that I speak to increasingly have the issue on their radar. I think Jamie Dimon, CEO of JP Morgan Chase, illustrated it best when he highlighted the issue in a letter to shareholders during the first quarter of this year. Since then everyone has been aware of it. I think the problem that most banks have is that they don't know how to deal with the threat.
What should banks do?
As I said in my speech [Chris Skinner had given a conference at Innomoney some hours before], traditional banks face the challenge, and it's an enormous one, of changing from physical infrastructure based on paper distribution to a digital infrastructure based on data distribution. This means changing the banking business model from the top down, as the Internet now supports financial operations, and that is what Fintech is all about. Traditional banks have branches and employees that will have to be relocated to other services or roles.
Is it a challenge?
Absolutely. The challenge facing traditional banks is to make progress towards digital structures, and to do this they need to rethink the current model. A good indication that change is needed can be found just by booking at the majority of bank executives, in particular CEOs, who tackle financial tasks such as risk management and regulations based on accounting backgrounds; but they have no grasp of, or training in, technology. The exception to the rule is Francisco González, Chairman of BBVA, who began his career as an IT programmer and understands the important role that technology plays in operations. I think this is why we are seeing other Spanish banks, such as Santander and Sabadell, moving more rapidly toward digital structure, while in the UK, in contrast, we find no executive or leader with a tech background.
Will technology bring savings for banks?
Just imagine! If people connect directly via software or a server, the spread between a person who has money and someone who needs it is 50 bps, while if we factor in human resources, buildings, branches, risk management, all the paper forms, controls and verifications… then said cost is statistically 200 bps or more. In short, the new players are offering and making money at half the cost of traditional players.
Should we fear the financial revolution?
I hold that the business model followed by traditional banks must change. And that doesn't mean people losing their jobs, as branch staff can provide just as good customer service on Facebook. It's not about them being laid off. As was said this week on the BBC in a program about artificial intelligence, more jobs have been created over the last 50 years thanks to technology than have been destroyed.
The concern is not the loss of jobs. We need to understand what new role people will have to play and the infrastructure that is required in a technological world. Traditional banks, and a good example is MetroBank in the United Kingdom, need to integrate their value systems. When there are hundreds of technological parts, banks need to develop both internal and external controls and bring the parts together in order to further drive progress.