The swirls of white smoke rising above the roof at Station F in Paris on 10 April, where the third annual France Fintech conference was taking place under the heading 'Fintech Revolution', seemed to suggest that the conclave of financial sector experts meeting there had reached a consensus: on the subject of data! Virtually all are agreed that banks are set to become data strategists, drawing on data and calling on the expertise and agility of Fintech companies in order to provide a first-rate customer experience. We took the opportunity of this event to ask Emmanuel Touboul, Head of Startup Acceleration Programmes at L'Atelier BNP Paribas, how he sees banks' strategies going forward. His position – with one foot in the world of traditional banking at the BNP Paribas Group and the other in the more agile startup ecosystem, orchestrating collaboration with the Bank's various business lines in order to meet the changing needs of customers – gives him a unique take on the evolving situation.
L'Atelier: Banks and Fintech companies now seem to have reached a 'truce'. Can you confirm the new trend towards collaboration, rather than disruption, in the banking industry?
Emmanuel Touboul : Yes, that is in fact what we're seeing these days. When we started up three years ago it was a real challenge to promote the idea of a bank hosting a Fintech accelerator! Over time, relations have become more peaceful and the number of startups applying to join the accelerator has shot up. This means that on the one hand startups are very keen to come and work with banks, and on the other that the Bank's various businesses have opened up to the idea of collaboration and Open Innovation. All the Group's business lines now have a startup relationship manager or the equivalent. It’s also a fact that working with Fintech firms has today become an integral part of the Bank's growth strategy and is no longer perceived as a threat but as an opportunity. Everyone says so, at all hierarchical levels, in particular when it comes to product development – which is where startups have the most to offer banks, given their agility and their ability to target a niche very precisely with the most suitable value proposition in terms of customer experience.
People are now saying that "data is the new oil". How realistic would you say that assertion is?
On the subject of data, I have a rather individual opinion. Yes, the industry is sitting on a gold mine, but the fact is that I currently see very few startups capable of exploiting the data assets, for a number of reasons. First because we're a bank, so the data is of course highly protected and we can't just do anything we like with it. Secondly, the number of services we could launch at this stage is still rather limited. Our imagination is necessarily constrained by regulation – which is a good thing as it's very important to us to protect our customers. But I'm afraid that today I don’t see a lot of startups with value propositions that really stand out when it comes to exploiting banking data.
If we make the parallel with medical data, we see the same thing. Everyone says that data is gold dust for pharmaceutical laboratories, which need good data in order to develop high quality products and target their markets more accurately. In reality however, it's difficult to use the data because it's protected and, once again, thank goodness it is! So I don't really see how data will help to produce new services. What is certain is that customer data includes a lot of very useful information which will help companies to improve their services, and that's what we need to work on. As far as I'm concerned, it's more of an internal issue than a startup issue because the data we have today should enable us to entirely adapt and personalize our customer service offering. If we knew a customer’s history, how s/he goes about things, and in addition we were able to correlate his/her profile with the way other customers do things, we'd be able to push the right service – improve our value proposition, basically. That's where some startups are now positioned, competing with the tech giants and consulting firms.
Is it true to say that the ultimate goal of a Fintech firm is either to become a unicorn or to be acquired by a bank?
If the Fintech company we're talking about is a startup which has a top-quality product, I think their aim would be to get taken over. Take neobanks, for instance. They perform extremely well in terms of customer experience so the prospects of being taken over are good. I'm thinking of N26, Shine and Qonto, for example. On the other hand, Margo Bank isn't a neobank and the company's target is clearly to become a unicorn. They're building a core banking business from scratch and they intend to obtain a banking licence so as to become a real bank. But as far as I know, that's the only Fintech company on the market with this aim.
Neobank, bank, or an updated traditional bank? What do you see as the model for banking going forward?
a bank built 'from scratch'
Today there are some fast-growing neobanks around but the real question we should ask is whether this much-touted growth is actually profitable and, if not, what are the drivers that will make it so? The neobanks need to broaden their range and offer value-added services. As a first step, I think the strategy for these scaleups will probably be to forge partnerships will other Fintech firms and then perhaps take them over in order to capture their profit margin. But there the road looks quite long. On the other hand, there are firms such as Margo Bank, which are building banks from scratch and will therefore basically be able to provide the range of services which a traditional incumbent bank can offer its customers, but with totally up-to-date, state-of-the-art information systems and core banking model – basically a bank without any legacy systems.
To go back to potential takeovers of startups by banks, there's still the timing question. I think that in the medium term we'll be able to offer the same type of experience as any neobank. Things are moving but I don't know how long it'll take. Lastly, there are also cases where Fintech companies are helping traditional banks to improve their services considerably, addressing the entire banking market. Those companies could become the unicorns of tomorrow – but as service providers to banks. I’m thinking of firms such as Fortia for example.
But aren't Fintech companies basically just banks' R&D units operating on the outside?
R&D or not R&D ?
No, they're clearly not banks' external R&D units because they don't belong to the banks. A startup is first and foremost all about an entrepreneur with a vision who comes up with a service to solve a particular problem. These are companies with their own business model, working in a given market with the aim of growing their turnover to the maximum by acquiring as many customers as possible with their value proposition. They're not R&D units, they're just more agile and innovative! If we take a bird's eye view of things, then the entire Fintech ecosystem at global level might be seen as an R&D unit serving the banks but that would mean making the acquisition approach a systematic, automatic step. Today there aren't as many Fintech acquisitions as that happening. I think that we'll get to that point the day major banking corporations are able to purchase startups at an early, pre-Venture Capital, stage – i.e. before the VC investors come in. So that could perhaps be an R&D set-up, but the approach would be more like that of a startup studio. Today we don't really see startups getting together in a community like that.
What are the priority areas that the banks of tomorrow should be working on?
The new technologies are only the means, tools that enable banks to attain their objectives. The traditional banking model needs a complete re-think in terms of its operational model – the way new offerings are brought to market. There is definitely a capability issue: what can a bank do with the legacy systems and procedures it has in place, plus the new technologies available today? So the first step is to adapt the legacy systems so as to become more agile. Only then will the bank be able to build something using the latest available technologies. These will enable the bank to create new services, enabling us to rival the kind of experience that startups are offering. The last key point, in my view, is that banks need to change the way they design their products and services.
What do you mean by "change the way they design their products and services"?
A VALUE PROPOSITION suited to each customer's need
An offering, a product, isn't just the sum of different ways of doing things that you put alongside each other. In my view the right approach is based on knowledge of the customer, which enables you to offer the service s/he needs just when s/he needs it without having to ask him or her directly what she needs. I also believe in a highly segmented product approach. It seems ridiculous to me for a 25-year-old user to be using exactly the same mobile app and the same services as a customer aged 50, just as it seems equally ridiculous that someone working as a freelance should have the same app on his device as an employee of a French Top-40 firm or the boss of a startup or SME. So should a bank therefore develop 25 different applications or just one that can be adjusted? I can't answer that question. But what is certain is that nowadays, every month, every year, new neobanks will show up and begin targeting such-and-such a market segment with a particular value proposition that fully meets customer needs. But we're still seeing products coming to market that are aimed at everyone right across the board.
So what balance can be found between a digital experience and human handholding?
As far as I'm concerned, the right model is the power of a traditional bank in terms of its ability to offer complex products that are technically difficult to deliver, coupled with a digital experience. As far as company targeting is concerned, there'll always be a need for an advisor. Nowadays there's a wide variety of banking offerings and everyone has several bank accounts. I obtain a loan here, deposit my cash-flow there, etc. If we want to bring all our clients' uses of the bank under one umbrella, we need to become the favorite bank of the CEO or the CFO. To get to be their favorite bank, it's all about creating loyalty, and the customer advisor has a very important role to play there. We should see him or her as a coach, someone who handholds customers, a real advisor in the primary sense of the word. On a wider front, I think that a modern bank basically has to be technologically advanced. There are real operational optimisation issues to be addressed and I think that those who come out on top will be the ones who have really grappled with these issues and developed high-performance operational models that are ten times more competitive that their rivals. There are two reasons why: firstly, because they'll be able to respond better and faster to their customers; and secondly, because they'll be able to attract and retain the most talented staff. Nowadays no-one wants to work in a place that’s lagging behind in terms of technology.