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"Au contraire, BBVA: Banks will never become software companies"

kantox interviews erik brieva

It is becoming an increasingly difficult task – verging on mission impossible – to find original viewpoints inside a Fintech landscape that is getting more and more crowded. Fortunately, Kantox had the opportunity to interview Strands CEO Erik Brieva, a leading voice at one of the firms with the most potential in this ecosystem.

Of particular interest are his vision on the future of Fintech-bank partnerships and his opinions on how banks find themselves stuck in a "sandwich", threatened by both these new actors, on the one hand, and tech giants such as Google and Amazon on the other.

In your Twitter bio, Strands is defined as "The Fintech partner for banks". It seems times are changing for this young industry.

That's right. It's true that the majority of today's most successful firms were born with the aim of competing directly with banks for the same segment of clients – especially B2B companies – through the creation of new products and the improvement of current products' features. Nonetheless we are already seeing some cases of partnerships between new and old players, so I think there's a very good chance many Fintech firms' positioning will move in that direction.

However, we position ourselves directly as a fintech ally for banks, mainly due to the nature of the products we offer. In other words, we specialise not in competing with banks, but in helping them to make a qualitative leap in their technological base, facilitating the business model transformation demanded by the market.

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I guess then that such a technological “qualitative leap” goes far beyond mere improvements to the digital front end and the user experience (UX) of their financial products.

Sure. Our core product is money management technology built around Big Data and Machine Learning. Our main goal is to study, understand and segment bank product consumers through: 1) the management of transactional Big Data that banks gather and 2) the application of machine learning techniques to process the data and provide better products and services.

This is a win-win for both banks and end consumers. The latter are provided with a more transparent and sophisticated service, which helps them to have a better understanding of their monetary attitudes, in turn helping them to take financial decisions more independently, optimizing their purchasing power. Banks gain a better knowledge of their clients, so they can offer a much more personalized service, which helps to convert them into loyal customers and ultimately has an impact on their business.

Do you consider it a threat that the so-called challenger banks – e.g. Monzo, Atom and Starling Bank, etc. – are doing in-house development?

In my experience, although many of these new players – including some of the above-mentioned firms – may have the bulk of their development in-house (particularly the product management), they also outsource part of their technology. In fact, Strands is working for some of the above-mentioned entities. After all, that's what happens today at many traditional banks and has historically been the case, i.e. a mix of in-house product management and integration with standardised and packaged solutions purchased from software providers.

So you don't think the trend will be banks beefing up their IT departments in order to develop all their own technologies?

Not long ago I heard BBVA's CEO publicly announcing that in the future his bank would be a software company. I couldn't disagree more. I think this is more a marketing strategy than a real ambition. I say this because banks' development teams have neither the methodology nor the dynamics of a software company. In other words, for their departments to mimic the modus operandi of a software company, banks would have to buy one or several software companies. 

We all know examples of big companies such as systems integrator firms and consultancies, with hundreds of brilliant engineers – with great ideas in mind – that failed when trying to develop software that could be operated in a standard manner, These firms largely failed to keep up and evolve with the fast-pace of the market. This is what pure software manufacturers like Strands do really well. 

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How feasible do you find the idea of partnerships between banks and Fintechs – which currently compete for the same client segments – becoming the new normal, in both the B2B and the B2C spaces?

This is a reality for Strands. But more than maintaining a simple client-provider relationship, we have established a link as a partners of the banks. The bank is interested both in improving and innovating through the quick acquisition of a technology that stands out in the market – whose development would be too costly in terms of time, money and efforts. This technology evolves at the pace of the market since it can improve as the banks and players adopt it. Besides, in this way, the new Fintech do not compete with the bank, but help them in such competition.

On the other hand, Fintech has the technology and the business model, but lack of cash, and therefore they need channels to arrive to new markets and clients. And that’s what the banks provide them with. I think this is a logical symbiosis. 

Do you think that the kind of relationship you have with banks could be extrapolated to other Fintech firms, then?

Banks consider B2B companies with our profile to be white label technology providers – software companies that work for them. Since we aren't in direct competition with banks, we can maintain certain independence with our partnerships, and being associated with different financial firms can be seen as a positive value for them, in terms of having more experience, different perspectives, and the required technological evolution and innovation.

On the other hand, for Fintech B2C that compete with banks for the same end-consumer, either individual or business, it would be more difficult to establish a partnership model with banks. For example, I would not be surprised to see that for B2C partnerships, banks would put limitations on a Fintech firm's capacity to partner with other competitors. 

In summary, I think that in order to reach a partnership, this is not a matter of technology or service, but of business model

Kantox CEO Philippe Gelis argued in a recent article that banks should allow prospective customers to test their products before deciding whether they want to become clients. Do you think that this scenario is feasible anytime soon? 

I think that this is an idea with great potential that banks are not using. On occasions we have proposed that our partners provide our standard products to their clients in demo mode – before exploring a deeper, more personalized and seamless integration with their current services – so they can learn from the feedback. 

In the end, it all boils down to using the lean methodology (see lean startup), i.e. not making huge development effort from the beginning, but putting a minimum viable product in users' hands, testing on the go and seeing how they use it and learning from them. Based on these takeaways, you can decide whether you want to add new functionalities or scale to higher levels of integration. It would make sense to apply this same concept to bank products.

The nature of your product suggests that you expect user interaction to become wholly digital. However, do you think that physical branches will still play a relevant role? 

Honestly, I don't see any future for them the same way I don’t see a future for cash, i.e. bills and coins. Think that, however complex the product might be, the user experience is destined to become easier and easier. Current robo-advisors are a great example. At Strands, we are working on something similar to such technology, breaking down all the information to make it easy for users to make financial decisions. What does this translate into? For example, we give users the chance to simulate several scenarios related to their investment portfolio, so they can make decisions much more independently.

Focusing on the evolution of the Fintech industry, we've seen tech giants like Apple, Google, Facebook and Amazon getting more and more traction, especially in the payments sphere. Do you think they will end up competing in other financial areas?

Definitely, even providing the whole range of financial services that banks offer nowadays. Indeed, this is nothing new. See the example of Wells Fargo, a firm that delivered packages all around the US that now has become the world's biggest bank by market cap.

This is a natural progression for firms like these with a huge client base. Amazon is another example of these companies that keep adding products to their offering so they keep the client more and more captive. But this goes beyond the financial world. Again, Amazon not only sells products: it is a shop of shops too, and it is also one of the most important technology providers in the world. In fact, it recently beat off IBM to win a public tender to manage the CIA's IT. That's some book store! 

Going back to the banking sector, some months ago I wrote an article called Banking Sandwich explaining how traditional banks are threatened by the Fintech industry on one side and by the tech giants on the other. Financial institutions face an enormous challenge today which only the smartest players will be able to turn into an opportunity either by transforming their outmoded business models to become multisectoral tech giants themselves, by becoming big retailers, not only for financial products or by carrying out a vertical integration in some specific sector.

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Topics: Digital Transformation, digital money management, Financial services, FinTech Race

Author: Nicole Harper, Content Manager on Sep 8, 2016

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