In our second article in series of how the fintech industry is being covered at Davos 2017, Francisco Gonzalez, Group Executive Chairman at Banco Bilbao Vizcaya Argentaria and Cecilia Skingsley, Deputy Governor of the Swedish Central Bank, discuss how payment innovations are affecting the fintech sector
Francisco, in running an 160 year old bank, when you see what’s happening with PayPal and Alipay and the other innovations: are you terrified, or excited? Do you feel that they are complementary to you or a threat? How do you adapt as such an old company?
Francisco Gonzalez: I’m excited, frankly. We tried and are in the process of being so agile and as efficient as the new commerce. It’s not easy and it takes time but we started this process 10 years ago. Those guys are part of the value chain of payments for example, and financial products are spreading, and we are a full universal bank. We provide areas of service for everything. Our relationship with our customers is bold, it’s truly very important.
Today we can say that we have deployed our platforms on the cloud. We created a first generation platform in the banking system, which is totally customer-orientated, real time and integrated. We’re in the second generation of that platform, because we are migrating to the cloud which will leave is with just one platform in the world. We’re creating a new breed of professionals, blending good bankers and good digitals, and creating a completely new way of running the banking systems.
Net Promoter is a metric in the banking system which measures customer satisfaction; our value now as a bank is 19, but our banking app value is 63. This means, as soon as we turn our customers into digital customers, they become extremely happy. The loyalty of customers is then higher, and we are also cutting back on costs dramatically. The problem is that we are now in the middle of the process because we have to run legacies, and at the same time we are creating a new entity. But the future is bright.
I think the banking system is going to be completely overhauled. There are 20,000 banks in the world, and the number will be cut back dramatically over the next five to 15 years. The regulators have to understand that the upcoming process is going to be painful for many banks. Consolidation is not going to be the full solution. The solution is to master the technologies, such as the cloud, AI, blockchain – everything.
My view is that there will be a new league of competitors, made up of Paypal, Alipay definitely, and some physical banks which were able to turn into a real digital house. We will be a data-driven bank, and data will allow us to make decisions. My vision is very upbeat, but the process will be very painful for many banks.
Cecilia, given the pace of technology innovation, sometimes the adoption and usage runs way ahead of what traditional firms can adapt to, especially when they’re struggling to make sure they’re in compliance to your rules. How do you view the innovation and some of the new technologies as a regulator? How do you balance the desire to move as fast as the technology is moving?
Cecilia Skingsley: It’s about striking the right balance. As a central banker I’m fond of innovation; it's very important for growth and the central banking is all about giving our best. In the Swedish Central Bank we try to walk the talk on this, supporting innovation in the sense that we have deliberately stopped subsiding the use of notes and coins, our own product. So we closed down all the vaults in Sweden except for one, leaving it to the private sector of banks and shops to both organise and share the costs of handling cash back and forth.
This, in combination with the fact that Swedish people are happy to adopt a new technology, has meant that we’ve reached a sort of breaking point in Sweden where most people are very happy to use cards or mobile phone apps. We are supporting that as well.
A couple of years back, there was a very successful real time payment app between individuals called Swish, which all the big banks are connected to. As long as you have a bank account you can connect your mobile to it and then people to people can do real time payments between each other. The reason why this works 24/7, although banks are closed and our computer system is closed, is that we provide the payments system in Sweden with a credit and central bank money. So we try to not only talk about the need for innovation in this area, but to also support it.
I think it’s important that we have the legal obligation to maintain a safe and efficient payments system. It’s important to distinguish between payments methods and money in itself. There are two versions of money in a society; the version that most people think about is cash, and it’s the safest thing in liquid asset you can carry around, at least in Sweden. People in Sweden have turned away from it, but it's still very accessible and still very useful. But more and more people have realised that you can be very happy walking around with a card, or a debit card, or use this instant payments system on your app.
Is this a problem? We don’t know yet. We’re neutral whether people want to use our kind of money, or the commercial bank version of money. However the pace of change is accelerating rapidly in Sweden. I see the Central Bank version of money as a kind of money that has special contents; it’s the safest thing you can carry.
What we’re doing now in Sweden is looking into whether we should modernise our offer to the Swedish society, coming out with a digital version of our currency for those who want to use that instead of the commercial bank alternative. This is the idea, that private money and Central Bank money can continue to work side by side, to also keep up the competition when it comes to payment systems efficiency.
Francisco Gonzalez and Cecilia Skingsley were speaking at The Global Fintech Revolution conference at Davos 2017
Read part one of our coverage from Davos here.