In Spain, the digital economy accounts for around 20% of GDP, below the global average of 22%, and far from the 37% it contributes to the Gross Domestic Product of the United States. These figures clearly show that we have a major shortfall in this area, which is why digital development—an extraordinary lever that multiplies and accelerates economic growth—must become an urgent, top-priority task for our authorities and companies. Unfortunately, not everyone is aware of how pressing this transformation is. This is not the case for our banks, which for years have been investing vast financial and human resources in the digitalisation of financial activity. It is a project to which they are fully committed, and they know that their immediate future depends on it.
Why do we attach strategic importance to digital transformation? Mainly because it addresses two issues that are vital for banking: society’s perception of banking activity and the profitability of our institutions. Aware of this, our banks are making the right decisions to remain among the most efficient in the world and thus fulfil their essential role: financing businesses and households as effectively as possible.
As regards social perception, I mean how customers view banks, and that basically depends on the quality of the relationship between the two parties. These relationships must be transparent, balanced and economically useful, because without these premises, no acceptance can be built. To achieve this, it is essential that banks understand their customers’ real needs and know how to anticipate them with suitable products, through the channels customers prefer, quickly and easily. As you will see, digital transformation is key to how banks are already engaging with their customers and how they will do so in the future, thereby shaping, day by day, society’s perception of them.
However, digital transformation also has a great deal to do with how banks are addressing the profitability challenge, in an environment of low interest rates—which is here to stay—and growing competition from sector outsiders, coming both from the digital world and from what we have come to call shadow banking. In this context, the digitalisation of banking activity is a key factor in achieving new levels of efficiency and, consequently, profitability.
Allow me to share a couple of thoughts on this. In the digital sphere, there is a lack of greater clarity from European—and even global—authorities regarding this emerging area. On the one hand, regulators are opening the banking sector to competition from new operators coming from the digital world. They have done so with the second Payment Services Directive, known as PSD2. Interestingly, this regulation requires banks to open their payment services to third-party companies, the so-called third party payment service providers (TPPs), through the platforms that banks are obliged to create for this purpose (the now-famous APIs, or application programming interfaces). In this way, new entrants will have access to the data of bank customers who authorise it, without any reciprocity—that is, without banks being able to access the customer data of those TPPs. For this reason, banks are calling for permission to access the customer data of these new operators. This asymmetry is not acceptable and must be corrected by allowing banks access to that data. All companies, at least above a certain volume of operations, should be governed by the same rules. We are talking, of course, about the Open Data Economy.
This risk of a lack of regulatory clarity is particularly undeniable with regard to the financial activity that major technology operators—the big techs—have begun to roll out. Given their dominant position in the global market, they are already posing a serious competition problem, and not only for the financial industry. Competition must ensure equal opportunities for all companies, a variety of offerings, consumer data protection and, at the same time, limit the ability of large corporations to generate network economies. All of this is threatened by technology giants which, using the information they have about their customers, can enter any sector of the economy—particularly the most profitable segments of financial activity—without having to meet the regulatory requirements to which banks are subject. This type of regulatory arbitrage is especially concerning insofar as it can affect—and is already affecting—consumers, for example in terms of data protection. Every day, with growing alarm, we learn of news about blatant violations of consumers’ rights and privacy by major technology operators—practices that, of course, would not be tolerated in other sectors of the economy.
In other words, it would be a huge mistake to allow the uncontrolled development of e-finance at the expense of consumer protection. Or, put even more plainly, we do not accept that similar transactions with the same potential risks should be subject to lighter regulation when they are not carried out by banks. It is necessary for new players from the technology sector entering financial activity to do so under the same rules of the game and the same level of requirements as those demanded of banks. For this reason, at AEB we continue to insist that we must be guided by the principle of “same activity and same risks, same regulation and supervision”. Despite the soundness of this demand, little or nothing has progressed in this area. We remain subject to competition that, if not unfair, is certainly unequal, because there is no reciprocity of obligations and rights, as occurs—again, I insist—in the matter of access to customer data.
In short, we are concerned both about the current regulation, which cannot withstand the technological innovation in which we are immersed, and about the lack of adaptation by the authorities to this new context. We need flexible rules that encourage, or at least do not hinder, financial innovation. For this reason, AEB supports testing environments, or regulatory sandboxes, in which fintech companies could develop their technological projects in the field of finance in a controlled environment. The idea has been included in a draft Bill on Measures for the Digital Transformation of the Financial System, which we hope can be processed and approved swiftly in the next legislature.
In this new environment, it is necessary to rethink many of the current principles of regulation in areas such as the fight against money laundering or investor protection. For example, how should the customer due diligence principle, Know Your Client, be applied in a new digital environment where remote access is the norm? Or how should MiFID safeguards be applied in that new environment? Can, for example, a website engage in misselling? Finally, it is also worth asking whether the European Union’s not-very-agile regulatory system—with the Commission, the Council, the Parliament and the national transposition of Directives into Laws—is prepared to respond to such a dynamic and rapidly changing world.
Another area of concern relates to security. Greater availability and the expansion of access channels, together with the immediacy of transactions, expose banking activity to new threats and require new protection mechanisms that ensure adequate levels of security, without undermining the need for simplicity in user interaction. Consumers particularly value the security provided by their bank’s involvement in any transaction and the guarantee of confidentiality it offers. This factor of security and customer trust in their bank is a first-rate competitive advantage for banking institutions and to the detriment of new digital operators. It is in our DNA, and it is not so clear that it is in the DNA of the many technology operators whose main source of income is the commercialisation of data.
In addition, supervisory authorities are closely monitoring these risks and are asking institutions to improve their risk measurement systems and to work, individually and in a coordinated manner, to become resilient to cyberattacks. They are also emphasising the need to control services outsourced to third parties. Banks, in fact, have been investing vast sums of money for years. Moreover, banking institutions collaborate with one another and also with supervisors and law enforcement, which is enabling them to carry out joint learning in this area. This collective effort in favour of security must also include digital user literacy, since the first barrier to preventing fraud in digital channels is the consumer themselves, through their conscious and responsible use of them. In this regard, financial education is an essential factor in mitigating the risks arising from the immediacy and accessibility of transactions (you can transact anywhere and at any time of day) and also from security and confidentiality in the use of personal information. As I say, financial education will play an essential role in the responsible use of digital channels, but before or at the same time we must ensure that no one is left behind in the digitalisation process and the opportunities it opens up.
As far as security is concerned, I do not want to fail to mention the new world of cybercurrencies and, specifically, Facebook’s cryptocurrency, Libra, which has generated so much expectation. A recent article by Japan’s number two financial supervisor, Ryozo Himino, described Libra as an alarm clock that alerted central banks, regulators and digital operators to developments—to a new world—that we can no longer continue to ignore.
Undoubtedly, the project is of interest from many points of view, but it raises quite a few unknowns. To begin with, there is the threat to national sovereignty posed by the new currency, about which numerous authorities have warned, including France’s Minister of the Economy, Bruno Le Maire, among others. The risk to financial stability would be even greater in the case of emerging economies, since Libra’s configuration as a stable coin means it would be a formidable competitor to local currencies: we would move from talking about dollarisation to talking about “librarisation”. In any case, the challenges that a currency of this type would pose for transmitting monetary policy impulses are no longer hidden from the authorities, since a significant part of the global monetary base would escape the control of traditional currency issuers. The European Union has also warned about the possible restrictions on competition that its launch could entail, since its management would be in the hands of a single actor with more than 2 billion users worldwide. Finally, one could mention the gap it would open in the fight against money laundering, which represents a fundamental milestone both in the war against organised crime and in tax evasion.
Allow me to conclude. Paraphrasing Ryozo Himino, the alarm clock has rung, and we can no longer ignore for even a minute that digital transformation is completely revolutionising the foundations of the global economy. As I said at the beginning of my remarks, Spanish banks are aware of this and, in fact, are at the forefront of the industry worldwide. They have got to work so as not to be left behind by this gigantic disruptive change and thus seize the enormous opportunities offered by new technologies to provide better service to their customers and to society in general. For despite these major changes, our institutions remain faithful to the ultimate purpose and corporate object set out in their founding statutes—some of them several centuries old: to provide businesses and households with the financing they need, on the best possible terms and throughout the entire economic cycle.
José María Roldán, Chairman of the Spanish Banking Association
