The financial services of the future will be open source and real-time

"Many (banking) executives haven’t quite realized how crucial digital is to their institutions and talk about an evolution, when, in reality, what we are facing is a revolution," warned Chris Skinner, one of fintech's leading global experts, during the last day of cl@b 2017.

But the warning went far beyond that. With figures in hand, Skinner stated that only 6% of the members of a board of directors (in banking) have sound technological understanding and that four out of every five institutions only have one person with that knowledge. Financial institutions need teams that think digital, he added. "A board of directors does not have to be completely technology-savvy. Board diversity is the best way to understand the world in which we live."

For Skinner, the digital transformation that is sweeping through the banking industry —and other sectors— will affect the whole world and is not restricted to specific groups. By way of example, he mentioned some countries in Africa where one in three people are already using basic mobile phone —not 'smartphones'— to make transfers.

On a larger scale, this transformation is also the best example of a new era of financial inclusion: Ant Financial, the Chinese giant, already has 450 million customers in its home country and seeks to reach 2.5 billion people in 2025 through international expansion. Skinner pointed out that apps like Alipay and Wechat in China already move about $5.5 trillion per year, compared to the $110 billion in activity with cards in the U.S. "China did not have any bank cards and now, with a QR code, Ant Financial has turned into a marketplace that is driving the economy,” he said.

In this sense, the expert insisted that banks can no longer keep relying on the legacy structures inherited from the industrial era to manage their activity. "Many institutions that try to push products and services" through their channels, without ever wondering whether customers have asked for or need them, he argued. "The digital age requires abandoning and/or transforming" any financial products and services that fail to make the technological leap. A good example is the use of checks, an expensive and slow product for the current era.

Collaboration, collaboration, collaboration

According to Skinner, the key difference between financial institutions and fintech startups is that the latter are very good at one specific thing (for example, payments, KYC, etc.), while banks try to do many things well, but in none of them do they manage to achieve the level of excellence that fintech startups do.

The digital age is not about adapting traditional products to new channels, but about revolutionizing current products and services, harnessing the possibilities that technology enables. Fintech startups have revolutionized the customer experience (UX), offering previously unknown levels of simplification and customization," he recalled.

Therefore, collaboration with fintech startups needs to be at the heart of financial institutions’ activities, he says. "Fintech affects all financial areas. Good APIs developed by others need to be integrated into the business, thus providing better and faster services. Banks no longer have to develop everything," he said.  If you don't understand, then you will be left outside the digital revolution, a young revolution, that started just 10-15 years ago, he added.

Skinner said that "digital is rebuilding into an open source, connected world" and in this environment, platforms and marketplaces will be the bases on which banking service users will operate, just as Airbnb or Uber currently do. The financial services of the future will be 'open source' and real-time or will not be at all, he predicts. In this way, financial institutions will act as "curators" (as in a museum) of the different partners operating in a marketplace. The bank will spot products on different platforms and will offer them to the customer. The role of institutions will be to support those structures for others to use. The challenge for banks will be developing the APIs to be part of this new reality.

A matter of trust

Skinner noted that large institutions have millions of customers and manage billions because of the trust people deposit in them and because they are properly regulated. "It is proven that customers don’t change that fast and only will if they perceive a value in it," he said.

This same trust, he stressed, is crucial for virtual currencies. For a currency to work and be accepted by all, it must be backed by a government. "Virtual currencies may evolve and revolutionize, but first they must minimize the risks and defend themselves against cybercriminals," he predicted. Skinner, however, predicted a much more uncertain future for cash. "I believe it will disappear. Cash is extremely hard to trace. Many countries are already aiming at living without cash, including Turkey in 2023 and some estimates speak of a cashless society by 2040. Money has gradually become an invisible object, that can’t be seen, and in the end what we will exchange will be data," he said.

'The Past, Present, and Future of Money, Banking and Finance' is the title of the chapter Chris Skinner wrote for the book 'The Next Step: Exponential Life', which can be downloaded at no charge on BBVA’s website for the OpenMind project.