A Banker's view on Fintech

Interview with Johan Kestens – CIO & Exco Member ING Belgium

What is your view on the impact of technology on Banking?

What the internet does is take away friction and reduce transaction costs dramatically by centralising everything through software. A number of industries are disrupted due to the lack of efficiency which existed before. Companies like Google, Amazon, Uber, AirBnB, etc offer a virtual marketplace where supply and demand find each other much more efficiently. What these organisations do is nothing more then being efficient dispatchers of digitised services. Also for the financial services sector: payments are mainly about dispatching messages.

What does this mean for financial services? There is an important difference between companies like Google, Facebook and banks. The digital services banks offer are not based on a “revenue by volume model”. If Google gets more searches/clicks or Facebook gets more members they will earn more money. They have a very scalable model and more volume means just adding extra servers. This is not the case for banks. As people’s lives increasingly digitise, they expect the same from their bank and banking services. The main difference is that for banks, people expect these new digital services but are not necessarily willing to pay for them. Although these are huge investments on our side.

You have to realize that there are at least 2 very different businesses in a bank. The first one is their main function: transforming deposits into loans and offering investment products. The second function is to build and manage a transactions platform. This transaction platform is now changing. The core process of this platform used to be: collect data during the day, process it at night and report it the day after. Now this has become a 24/7 business with a myriad of new services popping up every day. Again, we see a dramatic transformation of that business without a similar shift in the revenue model.

There is a lot of startup-activity in the financial services sector today. Do you consider these Fintech startups as a threat or an opportunity?

There is indeed a real frenzy activity of new startups in the financial services sector. They come in high numbers but many are too weak to survive on their own as a standalone business. They focus on transparency, customer centricity and better execution. For the traditional banks this is a problem as many of these startups form a layer between us banks and our customers.

We should not focus too much on what they are doing to us but on what we want to do with them. This is a big opportunity for us to innovate and serve our customers better. There are so many new start ups it is near impossible to monitor let alone compete with every new initiative out there. We start from our own vision on banking: being trusted coaches for our clients throughout their lives. And all options are open to further strengthen this proposition. If we better partner with a Fintech startup because they have a unique service that can help us with our proposition, we will consider it. If there are opportunities to collaborate with larger tech companies, we will consider it. If we need to co-create services together with our clients, we will consider it. We do not opt for a conflict model vis-à-vis these new startups. On the contrary. We will evaluate the partner-buy-compete options but always in light of how it can strengthen our proposition to our clients.

Is Fintech becoming a financial bubble?

That is always a risk. We should be aware that there is a lot of buzz at this moment on digitization and technology. And yes, the technological evolution is going fast and hard but we should always be cautious for the hype. Technology is disrupting many service industries like photography, advertising, book publishing, travel, etc. And there is a clear pattern these tech companies follow: they are focused, they are transparent and they deliver better execution. And they will try to do the same in the financial services sector. However, I am also convinced that this adoration of technology is like a pendulum and at a certain moment it will swing back the other way. Remember all the hype on Google Glass? We have to be very careful not to jump on every opportunity either. Some good ideas are just good ideas but not necessarily relevant for our clients. It is important to make a good selection on what to focus on. 

Will the bank of the future be a collection of different financial apps?

No, I do not believe in that model. The risk I see with all these startups is that we will end up with a patchwork of hyper-efficient solutions which are not integrated. Clients will start looking for aggregation and that is where we should step in again by offer a uniform, integrated and convenient financial services experience to our clients. That is something each of these startups cannot offer individually. What most clients really value is professional guidance and coaching with regards to their financial situation. Of course we need to sell good products at fair prices. But that is not sufficient. The extra value we can offer over a collection of hyper-efficient financial apps is to coach and guide them: understanding their borrowing needs, spending patterns, saving needs, retirement plans. Clients expect us to use our expertise to help them in their personal financial management. So yes, some of our processes may be a bit slower or less efficient than those of some startups, but we are catching up and more importantly, we can fulfil the role of a trusted financial coach with an integrated, convenient solution. That is our strength which we should focus on. It says so in our strategy: “Helping our customers to stay one step ahead in life and business”. Bankers are essentially coaches with a backpack filled with financial expertise.

Many of the new services these startups offer are based on contextualisation. Is this something you are also working on?

Yes, but again we always look at it from a client’s perspective. From a technology point of view it is of course amazing that we can target clients based on a number of real-time triggers like purchases, location etc. The technology offers a lot of opportunities. That is not the issue. The difficult part is understanding the fine line between being useful and relevant for a client and being intrusive or even harassing/scaring clients. Before we start deploying these new services we better know where that line is for clients. And it is not as if this is the same for every client. It differs. Our focus will always be on relevance. What is relevant and provides extra value for that specific client in that specific situation. If we cannot figure that out we will not do it. I really believe that relevance is key here. Let me give you an example. If your daughter is studying abroad and would like to buy a car there to drive to campus it shouldn’t take her months to get a loan at a foreign bank just because she has no credit file over there. If we are her bank we should make sure we have the technology and processes in place to serve her from a distance and pay the car dealer so she can drive home with her new car. Because that is in the end the only thing that matters for her. Were we able to help her? Were we relevant? Similarly, that if you wire the foreign university her tuition you do not get an angry letter from them to point out that the amount was not correct and later have to discover this is due to a correspondent bank’s fee. These kind of things make clients angry. If we can do these right we are relevant. That is what we should always have in mind in everything we do. And that is where I believe we as bankers will continue to make the difference. Digital technology will dramatically increase or change some basic, daily services. That is where we will see increased Fintech activity. But where we can make the difference with Fintech companies is on figuring out how we can be relevant throughout our clients’ lives. This requires a subtlety and know-how which cannot be replaced by technology.

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