Data is going to play a central role in the financial services revolution. This was the key topic debated at the latest Fintech Revolution event, hosted by France Fintech – a representative organisation whose mission is to foster excellence in the FinTech sector in France – on 10 March in Paris. The recently-adopted European Union directives in this field have opened the way for the use of data and now all minds in the financial ecosystem are firmly focused on the question of how to collect and use data. So what will be the right strategy for a bank that wants to win out in the financial services market? And who will they be up against? Yesterday’s foes – FinTech companies – have become today’s friends as a huge threat looms from the tech giants of the West and the Far East, whom the philosopher Gaspard Koenig – who is President of the GenerationLibre think-tank – describes as 'the barons of the 21st century', with the rest of us as 'digital serfs'.
Basically, banking needs to reinvent itself, by focusing hard on the Customer Experience, just as the retail sector has had to do. Banks will have to make a shift from security-centred businesses to ‘customer data management’ businesses, while at the same time preserving their most precious asset – trust.
This is the future that Aurélie Jean, a scientist who has spent some time in the prestigious halls of MIT and who is familiar with both the banking world and the data-driven culture of the tech world, sees for banking. She shared her views in a recent interview with L'Atelier.
Banks are becoming increasingly 'techy'. So will the term 'FinTech' eventually disappear?
I worked in finance and economics at Bloomberg for two years, so I know a bit about the sector. The financial industry tends to be very heavy-footed, extremely conservative. The FinTech phenomenon emerged through startups and small companies but it has now arrived at major firms in the financial sector. The term ‘FinTech’ might well disappear because all banks are going to become tech businesses. But let’s be clear: they’ll need to do so in an intelligent way.
Goldman Sachs wants to become the Google of Wall Street. What do you think of their strategy?
GOLDMAN SACHS’ data lake
These days digital technology is the way to go if you want to innovate and reinvent the market. The recent move by Goldman Sachs, which has taken a particularly sharp turn, is the most extreme example. It’s an extremely interesting example to observe because it’s the first time that a bank has made this kind of change. They’ve fired a lot of financial people and instead have taken on engineers, data scientists and software developers, who have become a sort of 'gold standard'. They've developed digital tools to automate the detection of deliberate fraud and other financial crimes, to make stock market predictions and to spot the best investment opportunities. They've created a ‘Data Lake’ designed to gather in one spot information on deals and markets, plus information drawn from emails, instant messaging services and phone calls, which are then all fed into a machine learning system.
Is this a desirable future for banking?
In the case of Goldman Sachs it was a very sharp change of direction and I'm not sure it was done in a very sensible way. I think it's dangerous to stray so far from your core business. And the business is very important. Finance is a business. At Bloomberg I worked with the 'business' people, i.e. people coming mainly from finance, because I couldn't develop a tool all by myself without understanding the business. That's why I don’t think it's a good example to follow. In any case I'm going to keep a close eye on what they're doing because I'm very curious to see what will happen next. But I don’t believe they’ve gone about it in the right way.
Becoming a tech firm: is that what the future holds for the banks?
I think so but it has to be done in a sensible way. Yes, banks will become tech firms because they'll incorporate ever more technical skillsets. This doesn't mean that there will only be technical people working there, not at all. It means that they'll use digital technology in order to innovate. The means, the tools they use will be increasingly tech-based but the core business is still there and will remain there. They'll need to find the right balance and I think this will happen over time.
A colossal cultural shift is needed in order to transform successfully, wouldn't you say?
DIGITAL TRANSFORMATION IS A CULTURAL CHALLENGE
For the first time we're seeing software developers and scientists arriving at companies where they weren’t to be seen before. So now people don't always know how to work with each other, how to communicate. When one set of people don't understand the others' business, this can lead to clashes.
There's a huge cultural challenge that needs to be met if banks are going to embrace digital technology successfully. Changing the corporate culture is 50% of the job! The task will be to train bankers to think 'tech' and 'data' and for 'tech' people to understand more about the finance business so that both sides can communicate with each other. I learned about the world of banking at Bloomberg. How can you hope to talk with finance people if you don't speak their language? I worked for a year and a half with stocks and shares and I had to learn the business.
What do you think of the 'bank as a platform' approach?
There are two things here. You have to see a platform as complementary to people. For example, as far as I'm concerned, there are many things that I no longer go and see my advisor at the bank about. I do everything online and that suits me just fine. Except if I need a loan or help with my finances, but then we’re really getting into financial advice. I see real value added in banking perhaps in retail banking when it comes to loans, but first and foremost in investment banking, in the financial markets, because there the human factor still plays a huge role.
But the real asset that banks have, vis-à-vis platforms such as WeChat, is trust. Banks can differentiate themselves from platform businesses that are popping up almost everywhere by saying: we’re really vigilant when it comes to data protection, we ensure the security and confidentiality of your data.
Companies collect data in order to improve the way they work, but the data isn't necessarily linked to an entity, it can be anonymous. Banks have a trump card to play there. They can play the ethics card and reassure their customers. So it's in their interests to work hand-in-hand with European governments and EU bodies that wish to see more transparency in the financial sector. I think that's where banks will be able to reassure their customers. So they should capitalise on the trust factor.
So transparency is key?
Well, I'm very familiar with transparency. It’s Bloomberg's hallmark. Why did Bloomberg create Bloomberg? To make finance more transparent and promote regulatory compliance. Go and see what’s happening on the markets, follow financial information in real time, try to make financial markets as streamlined and transparent as possible, so that everyone, any time and anywhere in the world will be able to obtain the relevant financial information, thus helping to do away with insider trading. The General Data Protection Regulation (GDPR) was much discussed at the France Fintech event and transparency is one of its three main pillars. Transparency in all the tools we use. Transparency in finance is something that will become ever more critical.
Predictive analysis will enable consumers to manage their finances proactively. What's your view of these predictive techniques?
WHAT'S THE RELATIONSHIP BETWEEN ICE-CREAM AND STREET CRIME?
First of all, we should point out that banking has already become very innovative. Maybe we don't see it so much in retail banking, though we do now have an increasing number of apps. But a lot has been done in investment banking and merchant banking. We're moving more and more towards customization but you still need to understand how to customize. We need to be careful with the tools and with the data we correlate so as to avoid bias in our algorithms. Correlating data means putting together data which basically might have nothing to do with each other. This is used a lot in economics but we need to be careful. There’s a book entitled Spin-Free Economics that came out ten years ago, which I really dislike because I find the basic economics in it very weak. However, there is one amusing instance of correlation that's explained in the book. The test took place in Chicago. When correlating data, they became aware that rising street crime rates were following the same curve as the increase in sales of ice-cream. Ice-cream sales were directly correlated with street crime. One might therefore draw the conclusion that if we put a stop to the selling of ice-cream there would no longer be any street crime. What in fact was the correlation due to? Street crime usually takes place when the weather is good because then people are moving around outside. And ice-cream is sold mainly in the street, from refrigerated vans, when the weather's good. This example shows that when you put data together that basically have nothing to do with each other, it can be very interesting because it helps you to understand what's going on, but you also have to keep a critical eye on any decision you take as a result of a correlation. I don't like the expression 'decision-making' here because this approach is disengaged from a person who takes the decision. I would call this a mathematical analytical basis, a basis for decision-making. It isn't a decision in itself. Decisions are taken by people.
Customer Experience will be key to banking in the future. What parallels would you draw with retailing?
Everybody used to say that e-commerce would kill in-store shopping. But that hasn't come true. As far as I'm concerned, there are certain products for which I can get a 30% reduction on the Internet, and yet I still prefer to go into a store because I get service from a real person, which I don’t online. On the other hand, there are also a lot of things that I buy online because I don't feel very welcome in a shop. It's the same with banking. You seek out an advisor who will handhold you through one of life’s major events, who will help you take the right decisions. Meanwhile, automating some tasks using AI, for example, means freeing up time for the human brain. I don't go and see someone at a bank to make a payment transfer, but my grandmother does. And sure enough, the job of counter assistant at banks will disappear or be transformed. Those staff will have to be trained up to become financial advisors: how to manage your portfolio, handle your money, and so on. No-one really knows how to manage their own money, we all need a financial advisor. And the day you have a financial advisor you start to understand how to manage your money. I’m learning bit by bit how to manage my money because I have a company and an accountant who brings me to order when I don’t do things properly and explains how to manage my money. It’s difficult to manage a budget, there are things you ought to know, and that’s what I want to learn from my bank advisor, not to get him to make me sign a piece of paper when I want to make a transfer.
So service quality and customer experience are of prime importance?
There are people who understand how to take care of customers. They welcome you, they get to know you, they understand your tastes, they guide you! The future of retail businesses lies in service! You’ll no longer be going to Guerlain to buy eye-cream, you’ll be going to buy eye-cream and get some advice, forge a relationship, interact. In the financial world, there’s one bank that has really grasped this: Capital One. It has created its own chain of cafés – Capital One Café – and people go there instead of Starbucks. It’s insane! What’s good about it? Well, the coffee’s good, the welcome’s warm, the style is friendly, the music’s nice – they host classical music concerts every Friday evening!
I haven’t got a bank account with them, but I nevertheless speak highly of them because I’ve had a super experience in their cafes. In terms of branding and publicity this is huge. They really ‘get it’. A lot of people have laughed at them, saying that banking isn’t their business, that’s exactly what’s so interesting about it: combine jobs. It was a really daring thing to do. And this disruptive idea hasn’t come from a startup, which goes to show that large companies can also have good ideas.
In parallel, Capital One has launched an enormous data research laboratory. And it’s interesting to see that there are now large companies setting up research labs because they know they need their own dedicated research labs, where they employ people with highly technical, almost academic, backgrounds, working on very precise issues but at the same time linking up with the banking staff. Once again, it’s the same challenge: getting people from a variety of backgrounds to work together.