Open banking has transformed the way customers see financial institutions
For the tenth edition of Fintech Chain Mail, our MBA team met with Carmela Gómez Castelao, Head of the Global Open Banking Program at BBVA. BBVA is one of the largest multinational financial institutions in the world and is headquartered in Spain.
BBVA has taken a proactive approach to open banking, having moved ahead of PSD2 regulations in Europe. What opportunities in open banking do you see for established banks such as BBVA?
In our view, open banking has transformed the way customers see financial institutions and this change has allowed us to get much closer to the innovation ecosystem, and to explore new business models.
For us, open banking is a strategic opportunity to, on the one hand, provide better digital experiences to our customers, and on the other hand to help organizations transform their digital processes.
There are two main reasons why I say the above. Firstly, open banking helps us improve on our customer acquisition and engagement. It naturally expands our distribution network and helps us reach more customers for our current services. It also allows us to discover new services that we can provide to our customers because we are learning a lot by interacting with the customers in their own environment.
Secondly, open banking allows us to significantly improve the user experience by enabling us to customise products and services to the client’s context. This change in philosophy helps us to accelerate our own transformation because this is not only about changing how you are offering your services but also how you digitize all your products and services, and that is a big challenge for banks.
We believe that open banking will provide both individuals and companies with better access to the products that they need.
With open banking, existing bank business models are likely to change. In this new world, who will own the end user relationship? Will it be Third Party Providers (TPPs) or will it be Banks?
In my view, it will be neither. Instead the customer will own their own data. What we need to do is to provide the customer with a guarantee that their data is protected and that their privacy and security is ensured. In Europe this is required by the PSD2 regulations, but we are applying it to the entire BBVA footprint.
We have built robust internal controls to ensure customers’ data security and to enable customers to share their data with those companies that add value to them.
We firmly believe that the best way to facilitate this kind of data sharing and control is through open banking through programming APIs.
Payments and account information sharing have been the focus for banks seeking to open APIs per PSD2 regulations. In addition to Regulatory API’s, BBVA offers Treasury Management APIs and Digital Ecosystems as well. How do the Treasury APIs help clients reduce costs and optimize processes? How does the digital ecosystems offer work?
This concept came out so much earlier than open banking. If you look at corporate or investment banking, the big corporations tend to integrate the payments, collections and cash management systems typically into their own systems when they set up their treasury management projects. They want a secure environment where they control access levels, and this is much easier to achieve when the banking systems are integrated with their own systems.
In a typical project like this, this integration is through a host-to-host connection. Developing this host-to-host connection is complex and takes a lot of time. Under open banking, these integrations are managed through APIs. With an API and by using a sandbox, the development and testing is much lighter and can be iterative. This provides efficiency for the customers and developers.
The digital ecosystems offering is based on the understanding that users have changed their consumption habits. The customer has become more demanding and now requires access to more personalized, more effective and more real-time services. This trend is marking the present and the future of banking. Take for instance the case where you are buying something on Amazon and you want to finance that purchase. It is unlikely that you will pause your purchase to go and look for finance from your bank. Instead you will want to avail the financing during the checkout process itself. This trend of having finance embedded into daily customer processes allows us to move into a digital ecosystem. Another example could be a company that has employees and suppliers. If you can embed any financing need that the vendors’ employees have, this will allow the company to provide a better ecosystem to its stakeholders. In fact, we can think of multi-company ecosystems as well. For example, many SMEs have a common need to pay tax or make payments with different banks. Under such circumstances, you can create an ecosystem to serve customers with common needs. A good example of this is Shopify.
Open Banking is often associated with TPPs benefiting from data held by banks – do you see banks benefiting from TPP data too?
Yes, of course. Becoming a part of a comprehensive ecosystem will allow us to understand where the customer stops during a process or where the friction in the process lies. This can help us improve our processes. Similarly, we can also gain some bital insights from the non-financial structures that form part of that ecosystem from which data were not previously available to us. For example, if we want to improve our risk process we need to better understand the client. Participating in this kind of an ecosystem may allow us access to that additional data to build better customer understanding.
Open banking is part of a greater movement towards “data sovereignty by data subjects”, what do you think the broader implications are for open finance and beyond?
I think it is the customer who owns their data and it is the responsibility of the bank to ensure that the data is safe and is shared only with entities that the customers wants to share their data with. Of course, this is governed by PSD2, but for BBVA it is more than that. Data sovereignty is the key pillar for us.
What is the role of the bank or license holder in banking as a service? Is the bank’s brand still important in ensuring customer trust?
In banking as a service, the bank provides the underlying banking service whereas the brand with which the customer has a good relationship is the one providing the service.
In some cases, that service can be co-branded, and the bank’s brand is obviously important then. In others, it is the third party that is ensuring the customer’s trust and hence it is their brand which is the most important.
Since banking is still a highly regulated business, the role of the bank here is to guarantee that the service is being provided while complying with all the rules and regulations and ensuring that the customer will not have any problems.
BBVA being an international bank, it also operates outside Europe. Given the open banking framework within Europe, how do you operate in other geographies where open banking is not required by regulation?
For us, there are two levels of regulation. One is internal regulation that applies to all countries equally. For example, customer data integrity and privacy policies will come from internal BBVA regulations. Then there are certain external regulations that are related to the country of operation.
These may be related to how we control access to a service, how we control the users, etc. It is not only regulation that is pushing the market towards open banking; changing customer behaviour is another important aspect forcing market participants to move towards open banking.
BBVA has launched a global portal containing all the Open Banking offering.
Interview conducted by Stephanie Hurry, Olabisi Ayodeji, Matteo Conti and Emon Goswami