The concept of financial digitisation speaks of the complexity of the subject, on the one hand, digitisation, a technical concept, on the other hand, financial digitisation, a very important business sector in Spain.
In Physics there are many analogue and digital processes, in mechanics, electronics... they indicate continuous (analogue) or discontinuous (digital) processes, which occur or cease to occur at certain values, a light switch is a digital element, in one position there is no light, off, in another there is, on.
But for us in this context, it is more of a marketing term, indicating technology, it doesn't matter if it has analogue or digital components, because what matters is the use that we as users of a product are going to give it. Nor does it matter whether it is logical (software, a new program, an appl...) or physical (hardware, a PC, a tablet...).
Two of the great digital technological events that are changing the world are the internet and mobile phones. This change has not only affected the financial system, but also all other industries, businesses and services.
The most frequently performed transaction in any bank is the consultation of current account movements. In the past, there were two ways of finding out the information, either by going to a branch of the bank with which we had the account or by waiting for the post office to receive a note of the movement.
Since the advent of the internet, when anyone connects to their bank, the first thing that appears is to check their transactions, but the same thing will happen from any mobile phone. This has meant that visits to bank branches have been reduced to a minimum, and in many cases they are not even visited if it is not to sign a document. Cash withdrawals are usually made from ATMs.
The role of technology giants
There are two concepts that are affected, firstly, proximity banking, which in addition to the large banks, was previously represented by savings banks, but now there is no need, we have the bank on our laptop, PC, tablet or mobile phone. Secondly, Spain is the country in Europe with the most bank branches per person and nowadays there is no need for so many.
This has meant a huge investment by banks in "digital" processes to bring the bank to their customers and plans to close branches that are not so necessary, but it is not all good news, according to BdE (Bank of Spain) in September 2019 there were 25,037 branches, assuming an average of 5 employees, it would mean that there would be about 125,000 people possibly affected by these closures, although they do not affect all, the number is huge and will mean a drama.
But it doesn't end there. The banking sector is one of the most supervised sectors and in order to reduce costs and protect users, banks have to comply with various regulations, including MIFID, PSD2 and GDPR. In the case of the 2nd payment regulation PSD2, banks have to
the obligation, with the authorisation of users, to share their payment data, which has led to the emergence of small Fintech financial institutions, Neobanks, Openbancos... or that the large American technology corporations Google, Apple, Amazon and Facebook (GAFA) or the Chinese Baidu, Alibaba and Tencent (BAT) are interested in part of the business that banks have been doing until now.
This is undoubtedly good news for any user, but it puts banks under additional pressure. Banks are absorbing some of the technology offered by Fintechs either by buying them or by entering into agreements with them, generally small companies that are small in size compared to banks.
But the technology giants GAFA or BAT are another matter, they are very powerful companies that can make very large investments and are not resident in the country. For the moment, it seems that they are only entering the world of means of payment, in the future there will be no cards, it will be mobile phones, but if we have any doubts or mishaps with the banking services that Alibaba is already offering in China, who will we complain to? Who is going to supervise these mega-companies?
This very week the news has appeared that El Corte Inglés and Telefónica have applied to the BdE for authorisation to offer banking services. Competition is increasing.
One last point, a third affected party is society, banks are companies that contribute enormously to the Treasury, which will be affected if the banking business as we know it today disappears.
Manuel García Ramírez
Director at MGR IT and Security Consultants