As Head of Investments at Banco Sabadell’s digital innovation hub InnoCells, Paula Blazquez Solano understands that banking’s role has fundamentally changed… her job is to make the most of that opportunity. Open banking is redefining the role of institutional banks and, with it, comes the realisation that they can no longer automatically control the end-to-end customer journey. Sometimes they can only hope to be a cog in the system.
Accepting that is core to Banco Sabadell’s attitude to digital innovation, says Paula Blazquez Solano, head of investments at its corporate venture arm and digital innovation hub, InnoCells.
Tasked with leading the bank’s strategic digital agenda, it invests in startups related to its core business. And, as elsewhere in the financial services sector, open banking and the EU’s revised Payment Services Directive (PSD2) have been key drivers of change and innovation at Banco Sabadell. But how they are leveraged varies between partnerships, says Blazquez, and the role the bank plays in the customer-facing relationship is no longer guaranteed to be the main component.
“You stay ahead of the curve by staying relevant to your clients, and you have to understand you’re just a piece within the user experience or the customer journey,” she says. “Sometimes you’ll be an important piece, sometimes you’ll be just a smaller one. But you have to make sure that you stay greased and engaged with the other pieces, that you function within that customer experience, and you match or exceed expectations in order not to be replaced.”
Among InnoCells’ recent launches is Nomo, a financial management tool aimed at freelancers that enables them to digitise and manage expenses and sales, create and send invoices, and has recently added an invoice financing service using a third party to alleviate cash flow problems through the pandemic. Since the end of 2018, Nomo has gained some 60,000 users – 40,000 of them over the past eight months – as freelancers continued to pay their bills and meet tax obligations during the crisis.
While Nomo was born and developed at InnoCells’ innovation hub, it operates as an autonomous subsidiary, targeting its own users as well as being promoted as a tool through the bank’s website Nomo is 100 per cent owned by the bank, but in the past year InnoCells has invested in, among others, the Singapore-based artificial intelligence (AI) fintech Active.Ai, which has developed a sophisticated conversational AI platform, and Kovrr, an Israel-based cyber risk modelling company.
Blazquez says that every six months or so InnoCells works out the verticals of interest for the bank. It then goes to the market to understand what’s going on
in terms of trends, and to the business units within Banco Sabadell to understand their needs. InnoCells then also considers short-term and long-term demands before scouting appropriate startups.
Commenting on the changing role of the bank in the customer relationship, Blazquez says: “People see their financial service provider as part of a solution to achieve their goals. These could be material ones – such as buying a house, a car, a TV – or non-material ones, such as financial stability, which goes along with pension plans or investment solutions, things of that sort.”
However, thanks to the potential disintermediation caused by open banking, the problem a bank can be left with is that it remains relevant on the backend, or manufacturing side, but loses interaction with the end client, precisely the type of engagement that most challengers to incumbent banks champion.
Blazquez says it’s not a case of open banking narrowing a bank’s options, but rather broadening them – so long as the institution builds out its platform.
“You have the option to just purely comply [with the regulations] or [you can] build products and services alongside the new regulation and with a new strategy and data positioning, which gives you access to aggregation, data enrichment techniques and customer personalisation – and therefore a more enriched kind of experience with the client,” she says.
In other words, banks can decide on what grade of openness they want to adopt, says Blazquez ‘from a platform-based approach to distributor, or even just as a provider of services’. In scouting for innovation – be it for Banco Sabadell’s corporate or retail business – InnoCells has to work out if the bank wants to be a cog or the engine driving any particular process.
“There are times when it would make more sense to partner with a startup or with a technological corporation that is already developing the product, or where you have access to specific information, or where they have already built that interaction with the client. This gives you a better or more agile time to market,” says Blazquez.
“There will be other situations where there is a more interesting build approach and you can do it through partnering with a startup, or on your own.
“But you definitely have to do it on a squad basis, so having teams in place that have the knowledge – both from the business side and also from a tech perspective – and are able to understand where the client is coming from,” she adds. The result, says Blazquez, is building a product offering that is client-centric and is able to be tested within the market, in an agile way. “It’s a lot about speed,” she adds.
Deciding on what strategic position a bank takes has, in her view, much to do with the internal culture of the organisation – how upper management can seize an opportunity and is able to transfer that knowledge into mid-management, so they can propose use cases, product offerings or partner with startups to create them.
“Then, there is also a big question around being able to develop a strategy that allows for collaboration with startups, but also with other big techs or corporations,” says Blazquez. “Open banking allows for that because you can have access to the data pools that are sitting within other corporations or big techs.”
InnoCells does have a natural bias towards geographies in which it operates – such as Spain, the UK and Mexico – but it collaborates with startups the world over.
Going forward, open banking regulations will allow for different kinds of revenue for a bank, Blazquez believes, but it needs to have a strategy in place to launch the resulting products. Again, this means institutions need to decide where they want to be in the value chain – at the anonymous backend is not sustainable for every bank.
“I think, in general, financial institutions will evolve towards a more platform-based model, with revenue-sharing propositions – a lot of them through collaboration and a partnerships approach,” she predicts. “In terms of the drivers, what we’re seeing is the financial services industry turning its focus towards a more innovation-led approach, mainly driven by technology.”
Chief among those, InnoCells predicts, will be increased use of AI and robotics in order to lower costs and increase margins, and blockchain, to speed up underlying processes through smart contracts. By facilitating the creation of an end-to-end customer journey – at times created through or with other products and services – Blazquez agrees that open banking will undoubtedly help improve customers’ financial health.
“Personalisation through data aggregation and enrichment techniques allows for more tailored products and services, which can be even less costly for clients and more intelligently made for them,” she says, adding that the focus on customer experience will benefit enterprise and retail clients alike.
However, one thing Blazquez would like to see is the creation of an equivalent of open banking regulation for big techs, which would force them, like banks, to share the vast amount of data they hold on customers if those customers give them permission. While the Googles and Apples of this world have stressed they are more likely to partner with banks than challenge them directly, she feels there needs to be more of a two-way street from which everyone could benefit.
“I think there is a need for a level playing field, yes, but there is also a need to access and aggregate the data, so that analysis of the client is even more extensive and therefore the customisation and relationship are even better.
“That’s for everyone – banks, corporations, big tech, but, most importantly, for the client themselves.”