BBVA API Market
The banks are in danger of failing to win over the millennial and Z generations. According to Scracht’s Millennial Disruption Index, 53% of these young people cannot see any difference between their bank and the competition, and one out of three would therefore be willing to switch banks in the next 90 days. What’s more, three out of four millennials claim they would be more interested in an offer of new services from the GAFAs (Google, Amazon, Facebook, Apple) than from their own bank.
So what are millennials looking for financially? Something very specific and diverse. They are the first generation to have used mobile phones to research, experiment and acquire. The only thing needed to reach the heart of what is also known as the DIY generation is to give them the tools to create.
“Anyone in the near future will be able to build their own bank through apps, APIs and analytics”. This is the forecast of Cris Skinner, the guru of Banking as a Service (BaaS), one of the most authoritative voices making predictions about the future of banking, and another expert who once again places customers at the epicenter of the business, treating them as equals and allowing them to develop their own products.
The incorporation of fintechs to the sector has meant that banks are pulling out all the stops to seduce the millennials. At the same time, and as explained in The future of banking as a service, Baas (Unnax), regulation (PSD2 in the case of the European Union and the Open Banking Standard in the United Kingdom) and advertising campaigns by governments to bring consumers up to speed are finally orienting customers to what they want from their providers. “And above all, to what they no longer want. And we already know that demand is the best stimulus for competition”, it continues. With so much power in their hands, do customers know what they want? “There’s no doubt that they will be the ones who decide the future of Banking as a Service”, says Unnax in its ebook.
According to Cris Skinner, the first time he mentioned BaaS was in a blog post in 2008. Seven years later he recalled that first entry in which he predicted that everyone would be able to build their own bank thanks to BaaS platforms.
Last October, BBVA launched BBVA Open Platform. From this vantage point it can offer a wide range of BaaS products and services through APIs for companies who wish to offer their customers financial products without directly entering the banking business. It works like a fully integrated development platform, and allows interested companies to build banking solutions for their customers in a flexible way, offering scalable infrastructures for financial technology and e-commerce.
If you think about it, banks operate as a relationship between two parties. People maintain a stable link with one or more banks, which provide them with certain services, often in an almost exclusive regime. As none of them offers personalized products, customers have little incentive to change banks or seek out alternatives. Technology, and particularly PSD2, can transform this paradigm, as it allows third parties to offer banking products and services to consumers without the intermediation of the banks.
So “building your own bank”, explains Julián Díaz-Santos, co-founder of Unnax, takes on a very interesting double meaning: on the one hand, “consumers can access banking services from different providers and create their own private banking ecosystem which provides them with everything they currently receive from a bank in a more modular and flexible way”; and on the other, “we may see the emergence of services for building generic personal banks based on the new technologies, PSD2 and the open banking paradigm”.
It is common practice in the fintech world for the first users in any business to collaborate in developing the customer experience. One case worth highlighting is the community organized by BNext around its business, and its made-for-millennials product package offering customer focused-financial services instead of within the service itself. Another example is Bnc10, Barcelona’s new neo-bank. “Its focus is 100% user-centric”, it explains, “and its future users have significant input in the characteristics of the products”.
It is not enough simply to have the best investment or financial analysis team: banks also need to create software, use data analysis, incorporate automatic learning and generate other transformative experiences. In short, they need to ride the wave.
The idea, according to Pablo Blasco, head of Fintech Spain, is that thanks to artificial intelligence we can now build certain increasingly personalized products using data analysis, although actual co-design in this area is still fairly remote. “I believe it is more interesting to work on the customer experience and to give them facilities”, he says.
This new empowerment of the consumer will raise the category of BaaS, which until recently was almost incidental, and encourage both new and traditional providers to seek strategies to entice younger customers. “Thanks to BaaS, consumers will use banking services in the same way they now use smartphones”, explains Díaz-Santos at Unnax. They will be able to download the services they like or which interest them most from each bank. For example, they can download the cash flow manager from bank A, they’ll have financing with bank B, a credit card with bank C and vehicle leasing with bank D. All managed from their own phone. “100% capacity to design their own financial products”, on a model that seems to fit the millennial generation like a glove.
According to the head of Fintech Spain, the most famous example of this DIY approach thanks to Baas is in the segment involving marketplace lending for companies, in which non-professional investments contribute to financing small and medium companies around the world.
Baas has brought about a necessary change in the relationship between banks and their customers. Driven by reduced dependence on branches and the widespread adoption of digital and mobile capabilities, banks are focusing on creating solutions that provide valuable experiences in an effortless way and that are trustworthy and personalized to their customers.
If they do this alone, they run a greater risk of failing. What’s more, the efficient use of a BaaS structure frees the service provider from having to develop all the necessary peripheral services, including authentication and security. By working in alignment with the customer, the chances of success increase exponentially.
In this new way of doing things, millennials will notice that their relationship with the financial service providers is increasingly one of equals; quite the reverse of what happened in the closed banking environment of the past.
Open banking has changed the financial paradigm as we have known it so far. The widespread use of new digital platforms, connected devices and technology consumers has led to a boom in business opportunities for every company, many of which are already leveraging their benefits as much as possible.
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In just one year, the second European Payment Services Directive—or PSD2 as it is better known—has created a new scenario combining innovation and security, in which banks have been progressively opening up access to their infrastructure to third parties.