Who's afraid of big tech? The banks, that's?who

In a move that can only be described as alarmist, the Bank of Spain warns of systemic risks if the big technology companies enter the country’s banking sector (link in Spanish). Spain’s banks are clearly ill-equipped to take on companies like Facebook and Amazon, and have continued to run their business as they have for decades, if not centuries.

The use of fear, invoking nothing less than systemic risk, which has been described as: “financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries” and that Spain’s central bank compares to “the events experienced at the outbreak of the financial crisis” is nothing less than embarrassing panic mongering. One thing is to reject Facebook’s bid to create a cryptocurrency and have an irresponsible company privatizing money, as France has done, but it is something very different attempt to warn against companies that are better capitalized than Spain’s banks, which have superior customer service, and a proven ability to manage transactional businesses optimally.

I don’t doubt that many Spaniards, given the possibility of carrying out their banking operations partially or totally with a technology company, would prefer to continue with a traditional bank. I’ve written about this some time ago, and I stand by what I said: banking services nowadays are a commodity, something that practically anyone can carry out, where the best thing a user can do is to disaggregate the added value parts and put them in the hands of fintech companies. When you want to withdraw money from an ATM, transfer it from your mobile phone in real time from your traditional bank to your Revolut account or to a similar service and use that card instead of your bank account at the ATM, and you will save the commission they’ll charge you for accessing your own money. Do you want to make money on your investments? Invest in an automated index, rather than allowing traditional banks suck any profit out of your savings with their commissions.

In banking, everything that can be automated is being automated, and with very good results. This creates a scenario in which the traditional banks only need 20% of their workforce, and they want you to pay the wages of the remaining 80%; secondly, they are now having to learn from scratch how to improve the customer experience based on a completely different scenario, leading them in a race to the bottom that anybody who has had the misfortune to have to go into a bank will verify. A traditional bank today is an entity whose objective is to seek opportunities to charge you a commission at any time for any excuse, precisely the opposite to what happens with fintechs. Banks should have been learning from these fintech companies for a long time, instead of resorting to unsuccessfully trying to evoke fear to avoid losing customers.

Customers should be doing backflips at the prospect of the technology companies entering the banking business. Will be regulation be needed? Sure, this will lead to very interesting discussions about privacy and other aspects, but as users, we would benefit, because the traditional banks themselves are not exactly saints in that regard either. The arrival of these companies would force a much-needed rethink, injecting dynamism and sparking a crisis in what is largely an outdated sector. It’s not good news for the banks, but then the role of a central bank and a regulator is not to defend them, but consumers.

The Bank of Spain’s comments mirror its commitment to defending the interests of a sector that has not exactly won the hearts and minds of Spaniards, and is resorting to the kind of demonization of big tech that, while justified in some ways, ignores the likely benefits to consumers. With PSD 2, the EU has clearly positioned itself in favor of disruption in the banking sector, something that the Bank of Spain seems to ignore or even contravene with its recent statements and alarmism. But then what else were we to expect…

(En espa?ol, aquí)

?