The digital transformation of banks has become an industrial challenge. How have you been preparing for this?
We did the groundwork between 2012 and 2016, and embarked on an industrial and commercial phase in 2017. We have decided to invest EUR2.7 billion by 2020 to ensure an accelerated digital transformation. It is only possible to plan developments or investments today if they are fundamentally linked to a purely digital customer experience. In the space of a few years, we have overhauled our universe completely. Our IT budget now exceeds EUR6 billion a year, which is considerable.
What have your broad technological guidelines been?
The client is at the centre of our set-up. He wants us to provide the most relevant data to guide him – be this for savings management, treasury, investment advice, new uses, and so on – through an increasingly complex world, quite rightly so given the vast amount of data around.
In this context, we need to be very agile, but also perfectly secure. There is a technological challenge to all this. We all know the ‘public cloud’, which is a very open model with data accessible by almost everyone. But, in the banking world, our clients' data is private, apart from any usage on our part to enable them to get better advice.
we need to be very agile, but also perfectly secure.
Cloud technologies in our sector are being built, but these are private-public or hybrid clouds. They will have the power of a public cloud, with the security of private infrastructure. We are one of the only banks in Europe that already have a private cloud, which we developed alone; we are now developing the future hybrid cloud in partnership with IBM.
How has this digitisation changed your business approach?
You need to be in an open universe in order to be attractive to clients. You cannot tell the customer ‘you are entering the BNP Paribas universe with the bank's offers alone, period.’ On the contrary, we must be able to bring interconnected service offers with other players. This is what we are doing with the LyfPay payment solution, which has been developed in conjunction with Crédit Mutuel and which will probably be developed tomorrow with other major European banks with whom talks have just begun. Customers from a number of retail banners are now equipped with this solution. It is entirely possible now to join forces to develop multi-bank, multi-brand and multi-service universes. This is the principle of the ‘merchant gallery’, via an app, with many brands that customers want to patronise.
Are these changes also rapidly affecting corporate clients?
Things are moving ahead much faster for corporate and institutional clients, as they are extremely familiar with these new technologies and uses. Over the past two years, we have witnessed a forced electronification of the entire capital markets universe. Trades are now processed, offered and activated through interfaces. Only products with very high added value require human intervention. All cash, swaps or currency flow businesses, notably, are automated. This transformation – together with the new rules introduced by MiFID 2, which more strictly regulate market trading activities – is changing the business profoundly. Against this backdrop, either we invest to achieve critical mass and thus be able to continue these business lines, or we haven’t done this early enough and will fall by the wayside. There will be increased selection between banks that have invested and those that have not.
What will the bank look like in 10 years' time?
We will be much more like a technology company, a FinTech as it were, than we are today. The services offer will become extensive, with a multitude of ideas that may interest to us. These will be complementary service offers, which will generate different forms of partnerships. We will have to pay close attention to this point: we must not just carry out a successful technological transition. Above all, we will have to be close to the entire ecosystem, with technology enabling us to revisit the way the bank is set up. If third parties can better provide some non-bank businesses than we do, we will not hesitate to invest in value added technologies, as we have done in recent years (Gambit, Nickel, etc.). Likewise, for capital market activities, banks can co-invest in platforms to provide equity funding for interesting ideas.
What are the consequences in human terms?
The bank's business lines will become even more technological, and we will require more digital marketing experts, data scientists, and, of course, always more sales advisors. The latter remain key to our business because, at the end of the day, the services with the most added value lie in the advisory field. This is just as true for retail clients, with home loans for example, as it is for corporates, for M&A transactions.
The bank's business lines will become even more technological.
What efforts will make to recruit talent in these jobs?
There are people you cannot bring into large organisations, as they are driven by an entrepreneurial spirit above all else. You have to work closely with the company they have created. Moreover, we are not there to onboard everyone. Our business is primarily to look at what’s happening outside, and if we see ideas that are successful in another ecosystem, we will forge the right partnerships with the entrepreneurs that have originated them.
What role will the branches play?
Branches are increasingly becoming a place to acquire new clients and to provide added value services.
Ten years ago, a client came to a branch ten or twelve times a year on average. Nowadays, he only comes to see us once a year. Branches are increasingly becoming a place to acquire new clients and to provide added value services. This adaptation is going smoothly, as we have always managed career and staff development by investing heavily in these retail banking businesses. And what is striking is that our teams have very solid assimilation skills, and great enthusiasm for all these technologies.
How far can you go in exploiting the data?
The bank is, above all, a culture of transparency. What is right in one place may be wrong elsewhere. It is very important to understand what clients expect from you. In Continental Europe, it is clear that the data is personal. They cannot be used in any way we want, and they cannot be lost. We have always viewed our clients' data in the same manner as their savings, in other words, as their property. And we have never considered that we can use any of it for our own purposes, except as a means to guide them better. The customer expects a banking institution to offer products linked to his or her universe, such as savings or wet leases. Our offers are admissible and expected in these related universes. On the other hand, if we were to embark on a business that had nothing to do with the one we are in, we would not be legitimate. I doubt very much whether a bank would be successful in large-scale retail.
Conversely, Apple, Amazon, and other such companies are entering your business...
Not in Europe, but in the US. And not in banking, but in the payment business. The rules, models, and ways of doing things are different. In addition, the banks’ performance in this digital space is already extremely strong. There are neobanks in Europe with many customers, but the key to this business is not just to have ‘numbers' of customers.
Do you think that European banking culture is ultimately a barrier to entry?
I don’t think that we are competing head-to-head as you might imagine. GAFA have huge playing fields, in retail in the broad sense, in means of payment, etc. Banking is another business entirely; it requires capital, it means complying with regulations that are extremely demanding. These are sectors where the probability of having as high a return as GAFA do is excessively low. Recent experience shows, moreover, that it is not simple for those who venture into banking from another sector.
But on the payment side alone, it is at least unpleasant?
We do not own our clients' payments, as you know. Our concern is that payments should be carried out by those who know how to do it the best. A contactless card is extremely efficient. Smartphone payments are extremely practical. It depends on the usage, the times of the day, and the commercial activity. The payments universe will become vaster and those who have invested in it will be able to gain market share. Ultimately, the real question is that of the demise of cash.
The payments universe will become vaster.
When a BNP Paribas client uses Apple Pay, do you lose out?
We live in an open world, so our clients expect to find a number of features in our mobile applications, including Apple Pay. It’s a bit like private banking, if you just offer your own products, this is not only prohibited, but more importantly your clients go elsewhere. That said, contactless payment is truly unbeatable today.
But what if, sooner or later, Apple Pay or other apps become the benchmark...
In the future, payments will make it possible to give merchants the real information, to bring added value, as the economic model for the transaction becomes commonplace and poorly remunerated. This value added payment is Lyf Pay. We will continue to develop such applications at the European level. European banks need to together propose solutions that make it possible to take full advantage of the best local infrastructures, such as the Carte Bancaire grouping in France.
Do you think that regulation needs to change?
As a matter of principle, the banking system must be divided among a number of players for obvious reasons of security, and for size and interconnection. We will see notions of systemic risk in payments one day, as is the case for banks at present. Payment players will be told: ‘You are so important that you must set aside some capital in case you lose an hour of transactions.’ If you are a bank, these flows represent operational risk and hence capital requirements. This will be the turn of others soon.
You have had recent IT failures. Is this part of the learning curve, or will the best and fail-safe systems be selected at some point?
Fail-safe systems do not exist. The best, I think, take turns. The reality is that there will be an ever-increasing offer of technology. Some will integrate it faster than others, as the technology becomes more widespread and accessible to all. When you reach a certain scale, you can go back to the heart of this technology.
We now have a cybersecurity budget of EUR400 million per year.
There are market shares that can be distributed or redistributed. But the technological world also has its vulnerabilities. We now have a cybersecurity budget of EUR400 million per year. Ten years ago, it was marginal. These new ecosystems require new approaches and new businesses to be created, and all of this is to be done as we go along, which means accidents are unavoidable from time to time.
Is the banking industry more exposed, with 1970s core systems still in operation?
I believe that the banking industry is extremely strong in information systems. How many companies have IT budgets running into billions of euros! We have numerous highly-skilled teams. Simply put, we are perhaps a little more aware than others of the need for security and data protection. Sometimes we do not run the risk of launching innovations. There are players that have gone too far in the public cloud. They will have problems, in my view, if future regulation asks them to secure the data. In any case, it is very expensive, and digital banking, contrary to what some believe, is a costly operation that requires real investment.
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