This is part II of the interview with Hugo Nájera. If you missed, part I, you can find it here.
Hugo Nájera Alva is head of digital banking at BBVA Bancomer. He is in charge of multichannel technology, digital channels, financial inclusion, new digital business, virtual payment systems and digital marketing. Previously, he was chief innovation officer at BBVA Group (Spain) where he drove innovation within BBVA and thought leadership for the financial industry’s transformation.
Leo: According to a three-year study by Viacom, traditional financial institutions face the greatest risk in the Millennial movement. The
study finds that:
a. 53% of Millennials don’t think their bank offers anything different from other banks
b. 33% are open to switching banks in the next 90 days
c. 73% would be more excited about a new financial services offering from Google, Amazon, Apple, PayPal, or Square than their own bank. Do you believe this is a real threat and if so, what should the industry be doing to address this issue?
Hugo: No doubt it is a threat. At BBVA, we’ve been aware for several years that the real competition, medium and long term, is in these big companies you mention. That’s why the industry must be prepared to deal with this new reality.
Developing solutions to “connect” with intraday needs, simple solutions “a click away,” products and services at the appropriate time and in the right channel, e-wallets, bank access channels through social networks, P2P money transfers from the contact list of the phone, are just a few examples of what we should do.
And based on these two basic premises: mobile solutions and “approaching” financial services exploiting the potential and expertise of startups and developers who have designed solutions that are present at all times in the life of people.
Leo: Many industries have introduced traceability in their products as a way of winning the consumer’s preference (we can now track where and how the apple in our apple juice was grown and we even get to see if the cotton in our clothes comes from fair trade). There has been some academic and practical research on how transparency can help banks to overcome some of the challenges the industry is facing. (Bruce Cahan @ Stanford has been leading some of this work and you can find his postulates here)
Do you think the banking industry will adopt similar practices? Should it?
Hugo: Surely this is a practice that financial companies should adopt. While there is no physical product against which to follow a route, it is possible to know the traceability of the customer to offer a financial product or service at the exact time the person requires. In terms of transparency of information, the use of digital and social media, can convey this openness in information to the customer.
Leo: The financial industry has historically not been innovative and banks typically attribute this issue to the strong regulatory framework in which they operate. What do you think about the balance between regulation and innovation? What should the role of regulators be in the age of self-driving cars and 3D printers?
Hugo: The rigid regulatory framework has been an inhibitor from my point of view, because it limits and standardizes the financial scope.
I´m sure the regulators are doing their best. The error that regulators make is not devoting more time to “design” solutions than monitor and protect financial users. For those who are working on digitizing their current offers and building digital native solutions, authority becomes an obstacle to overcome. It even limits the design process.
Financial institutions must break the paradigm that the law cannot be flexible and instead of thinking how to comply with the law, fight authority transparently and work together to ensure the rights of banking users to promote more appropriate policies for financial inclusion.
Leo: Various companies have been trying peer-to-peer lending models, in December Lending Club went public on the NYSE. Do you think this validates that P2P lending is really taking off? Or just another fad?
Hugo: The different business models that exist around the P2P lending are yet to be validated, but it’s a fact that individuals and small businesses need to access alternative sources of financing, different than traditional banking and on the other hand, investors’ appetite for higher yields, assuming greater risks. This point cannot be underestimated.
The banking industry should quickly establish a position in this regard, to know whether to participate in the P2P lending business, or leave it open to others with the clear disadvantages that may involve.
Leo: Stored value solutions (with Safaricom’s MPesa perhaps the best-known example) have worked in emerging markets but not developed ones. Why is that and will it change? Will we ever see a real mobile wallet in the developed world?
Hugo: In certain emerging markets where the financial infrastructure is extremely underdeveloped, the emergence of mobile payments solutions has been disruptive for millions of people that did not have access to a formal financial system for simple transactions (e.g., domestic remittances). In more developed financial systems, the huge variety of payments mechanisms and infrastructure makes it much more difficult for new value propositions to compete with established payment alternatives.
Nevertheless, we are seeing with great enthusiasm the creation of mobile solutions that will enhance the payment experience of clients in developed markets. BBVA will be taking the lead in the creation of wallets and other apps to simplify the way in which banking and payments will be executed.
Leo: Payday lending and their business practices fill a void left by large financial institutions, but there have been recent debates whether this industry should be regulated. Payday lenders argue that it’s better to have expensive credit than no credit. Do you think that the retail banking industry will engage in the payday market and will it self-regulate due to market forces, or will the “rules of engagement” come from regulators?
Hugo: We are confident that the credit products that BBVA and other banks are creating using new mechanisms to evaluate the capacity and willingness of payment with non-traditional variables will, little by little, increase our market share in the low-income segment thanks to more simple products offered through a ubiquitous infrastructure.
Leo: Academics track the history of money to the Yap islands in Micronesia, which started as a substitution for the barter system and evolved to become the ultimate stored value tool. What is the future of money and the perception of value…how will a hyper-connected world and real-time information exchange change money?
Hugo: In modern history, there have been changes in what people use as money but the important thing is that in every occasion there is some kind of economic value behind every monetary instrument. Electronic money will not be an exception in this regard.
We believe that physical money as we know it will not disappear. However, we’ll see an extended use of electronic money transactions due to its convenience as a medium of exchange. Electronic money transactions seem to be the future for the majority of the base of pyramid’s daily purchases, considering its facility and low cost of the channels to transact. These type of electronic transactions have been used since the last half of the past century, but they were previously restricted to corporations, banks or wealthy families. Technology is allowing the massive use of electronic money transactions within reach of every person via an electronic device.
Leo: Today, almost 50% of the world’s population has in their hands approximately 50X the computing power than the Apollo missions that sent a man to the moon. There’s no question that smartphones are having a profound impact on how we consume information and interact with each other. What do you think will be the next killer app that will revolutionize the industry and change the world?
Hugo: Generally speaking, the higher intuitiveness and greater anticipation of the needs of people, the killer app will be that achieved in a very simple way, anticipating the needs of the person.
Speaking of financial services, the killer app will be the one that anticipates the financial needs of clients, both from the point of view of investment or savings, as the credit, plus investments in securities, trusts, insurance, etc. Something simple and smart.
Hugo, thanks so much for sharing your thoughts with Latam Entrepreneurs!
Latam Entrepreneurs 