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Financial technology puts banks in check, which could not or knew how to develop more quickly and efficiently
Imagine for a moment a daily situation of the future, ask our virtual assistant (call it Siri, Alexa, Google Now or Cortana) to carry out an online auction of a second-hand motorcycle (or any other product or service) and, a Once you have it, hold a second auction for a loan to finance it. Both operations will be done in seconds, with different offers adjusted to the profile of the person who gives the order (which the virtual assistant will know perfectly). There would be many other examples such as “I want to lower the cost of my cards”, “I want to change my car insurance”, or “I want to modify the profile of my stock portfolio”. Being a reality already today, the key is how long it will take for it to be usual.
In this scenario, banks and other conventional financial providers would participate merely by offering their standardized products to that platform, with the consequent loss of a good part of the relationship with the client and the income associated with it. This “how much” is a time trial for the financial sector that, in addition to the short-term challenges (impact of the covid) and long-term (negative or ultra-low interest rates environment), needs to respond to the great capabilities of artificial intelligence and experience of bigtech user.
These companies until recently could not know our financial data or if we had stopped paying a mortgage bill. Everything changed with the arrival of the Payment Services Directive known as PSD2, by which we can authorize our bank to provide our information to other providers, including fintech and bigtech. Financial institutions may be losing the great informational advantage that they held and that perhaps they were not able or knew how to develop more quickly and efficiently, due to their model more based on face-to-face relationships and due to restructuring and regulatory efforts after the financial crisis.
Be that as it may, large technology companies today capture a lot of data (geolocation, searches, social relationships) and they also already have access to financial ones thanks to PSD2. Combination that gives them a great competitive advantage and puts them in a position to offer products that are more tailored to our preferences. Banking is trying to counteract with its greater skills in financial management and with growing artificial intelligence capabilities. In this area, a recent success story is Bizum, a payment “technology” product.
Finance will experience the paradox of being more tailored and yet with less human contact. Traditional banks face horizontal competition (between traditional operators) and vertical competition from other sectors (technology, communication). The playing field is not yet defined or balanced. There are no clear regulatory protocols for bigtechs to share their data, something necessary to guarantee the competitive fight in information-based activities, such as finance. The referees are adjusting the rules as the game is played. Security – risks and financial stability – depends on new factors such as privacy and data protection. Everyone has their skills, but the only thing that seems clear is that the future of banking is uncertain.
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