Much has been written about the challenges Big Tech players are bringing into the coffers of traditional banks, but far too little has been said about the opportunities it has opened up for these institutions. Fintech may be changing the way banks operate today, but technological advancement is yet to erode the value of these institutions.
“I will not go as far as to say that the banking system is perfect,” says the global head of customer and client solutions at BBVA, Derek White. Bilbao Vizcaya Argentaria (BBVA) is a multinational Spanish banking group and is the second largest bank in Spain. “But there is no contending the fact that it has and continues to add value to the lives of millions of people,” he adds.
White digs into data to extrapolate his point:
“Nearly 18 million people are directly employed in the financial services sector across the world,” he says. “This, if extended to an average family size, means that banking supports the livelihoods of more than 100 million people,” he adds.
White further goes on to add that 52 trillion dollars flow in and out of banks each year and that, it helps by lending to people who want to start, grow or consolidate businesses around the world.
So, are banks failing society? Big Tech versus Banking – which is best positioned to help people
White shapes his hypothesis on three core ideas: NTS, I2O and Trust.
NTS – Needs, time & stress
According to White, the future of financial services is anchored around three indicators – needs, time and stress. He feels that together they are critical to understanding how banks and Big Tech aim to serve people.
Affection, freedom, participation, creation, identity, leisure, protection, subsistence and understanding.
These are the nine basic needs people have as per Chilean economist Manfred Max Neef. “They are interrelated and operate as a system,” says White. “In order to understand how people interact with money, we must first know their needs, many of which are directly or indirectly met by money,” he adds.
As we understand people’s needs, we look at how they spend their time.
“Studies show that a day can be divided into three slots of 8 hours,” says White. “The second slot is where we earn our money and the third is where we figure out what to do with that money. And it is during that period of time that we spend nearly 1.5 hours on social media,” he adds.
What does this mean in the way of stress?
According to White, money is the greatest stress in people’s lives.
“Needs, time and stress make up the backbone of where Big Tech and banking are starting to encroach on each other’s territory,” he says. “We are all called into an ecosystem where social media, e-commerce, gaming, etc. are on one platform and the goal of each of these platforms is to drive up network,” he adds.
This would invariably scale users and from that, it is about creating time.
How does one spend more time on a platform? “The bridge in and out of these ecosystems starts with payments,” says White.
I2O – Interactions to opportunities
According to White, the real battleground between Big Tech and banking sits in I2O, which is about how people interact with their money and how these are translated into opportunities.
“Big Tech has, on a minimum, 2000 interactions per customer per year,” states White. “Banking, on the other hand, has 200 interactions. That is, Big Tech creates high frequency of interactions, with a high volume of data sets, but with low value; as opposed to banks’ model which is low frequency, low volume and high value,” he adds.
In other words, that is 10:1 on volume of interactions, but does that translate into an equivalent 10:1 of value? White challenges that.
“Despite more interactions, customers liking a social media post on Facebook or searching for a product on Google adds relatively low value data since it cannot be monetized much,” he argues. “On the other hand, even if banking gets fewer interactions, all these are high value ones from a monetary point of view.
According to him, the real questions are not the volume of interactions or its frequency. “The question of the future in this battleground between big tech and banking is how smart these interactions are.”
Interaction with money creates thousands of data points, each of which throws light on the needs, time and stress that people have. It also throws light on the trust built by customers through these interactions.
“And each interaction is an opportunity to build or destroy trust,” White adds.
According to him, 3.3 billion people around the world trust the banking system with the thing that they work the hardest for – their money.
“There is a backlash against the way these companies monetize customer data without sharing its true value with them – this is where banking differs greatly from Big Tech,” he explains. “Moreover, if banking customers trust these institutions with some of their spending data, and in turn, get their needs met, save time, which in turn helps reduce stress, it paves way for more data to come in and the cycle continues. If customers trust us with their data, we will be able to help them more,” he adds.
So, can banks be a threat to big tech?
“Banks will have to expand products and services and internalize new technologies, stepping into the areas where Big Tech wants to grow,” says White. “That, then, is the threat,” he says.