reinventing banking

REINVENTING BANKING: FROM THE GREAT RECESION TO THE DIGITAL DISRUPTION ADMISSION SPEECH - THE ROYAL ACADEMY OF MORAL AND POLITICAL SCIENCES MR. JOSÉ MANUEL GONZÁLEZ-PÁRAMO

14 June 2016, Madrid

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REINVENTING BANKING: FROM THE GREAT RECESION TO THE DIGITAL DISRUPTION

SUMMARY OF THE ADMISION SPEECH THE ADMISSION PAPER IS AVAILABLE AT THE FOLLOWING WEBSITE (ONLY IN SPANISH): http://www.racmyp.es/R/racmyp/docs/discursos/D.pdf

MR. JOSÉ MANUEL GONZÁLEZ-PÁRAMO

THE ROYAL ACADEMY OF MORAL AND POLITICAL SCIENCES

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José Manuel González-Páramo

Albeit perhaps largely unnoticed, a revolution in the world of financial services is unfolding before our very eyes, forcing us to reinvent banking and even to question whether it can survive as an institution. For more than five hundred years, and in many different forms depending on society’s demands at any given time, banks have acted as intermediaries, using savers’ resources to enable entrepreneurs to realise their projects. Now, however, banking as an institution is facing an existential crisis. A whole way of banking is now in crisis, following the shift in business model which started back in the 1980s, moving it away from customers and from prudent risk management, and the lasting consequences of the Great Recession. This is because these consequences - economic, financial, regulatory and reputational - have come together with the digital revolution that is taking place in our society to form a kind of perfect storm. The following reflections are aimed at exploring the scenarios that are opening up before us.

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From the Great Moderation to the Great Recession Let us start then with a question: Will there still be banks in the not too distant future? Bearing in mind that banks have not always existed, and that their function has constantly adapted to social, economic and technological changes, this is a legitimate question. The digital revolution and the preferences of the younger generations, most of whom are open to operating with nonbanking institutions, force us to think long and hard. It would of course be ingenuous to try to guess what will happen in the future. “Doubt,” said Voltaire, “is an uncomfortable condition, but certainty is a ridiculous one.” The answers are necessarily contingent, since the outcome depends on the forces of technology, the demands of society and the starting point. For that reason, I will start my analysis with a brief reference to the economy and finances of the past three decades. In the mid-1980s, after having digested the effects of the oil crisis and stagflation which had been with us for more than ten years, the economy and finances started to recover their dynamism. In banking there was a real revolution, reflected both in the functions performed and in customers’ and society’s perception of the nature of banking. In particular, such major drivers as i) the Great macroeconomic Moderation, ii) financial deregulation and iii) the large-scale incorporation of new technologies, profoundly transformed both the size and the complexity of financial institutions. I shall start by referring to the Great Moderation:

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Reinventing Banking: From the Great Recession to the Digital Disruption (Summary)

i. Globalisation and the Great Moderation Banking in the final years of the twentieth century was influenced by a special macroeconomic environment which brought about less risk-sensitive behaviour, not just by banks but also by their customers, regulators and the economic authorities. The reduction in volatility and uncertainty seen in macroeconomic variables as GDP growth and inflation, and the prevailing perception in some circles that this reduced volatility was mostly due to the expertise of the economic policy-makers, led to a drastic underestimate of risk. From among the structural factors behind this long phase of stability, I should like to highlight two. On the one hand, globalization. In the 1970s, major emerging countries such as China and India decided to liberalise their economies in order to achieve higher living standards by expanding the manufacturing sector and building up foreign currency reserves. These generated a surplus in global savings, which contributed to the downward pressure on interest rates. The second explanatory factor was the previously mentioned apparently better handling of monetary and fiscal policies, often based on simple rules. The belief that the functioning of the economy would always remain stable, and almost boundless faith in the ability to smooth out the economic cycle, led to a significant watering down of risk perception. The possibility of more adverse scenarios seemed to have passed into history. ii. The process of deregulation The role of the regulators was also crucial. Towards the end of the 1970s an intense process of deregulation got under way. It was a gradual process, starting in the United States, and subsequently was adopted by the world's major financial centres. The intense deregulation seen in the 1990s was mainly driven by the quest for greater efficiency in the financial sector and access to the benefits of risk diversification thanks to the development of innovative financial instruments. As markets became apparently more complete, the need for regulation seemed less, or even counter-productive. iii. Information and Communication Technologies (ICT) and the Internet The transformation and growth of the sector in the period prior to the crisis are only partly explained by the Great Moderation and deregulation. To them, we must add the acceleration in the adoption of ICT by the banking sector, which initially took advantage of the telecommunications infrastructure before going on gradually to incorporate digital technologies. Between 1992 and 2008, the technological transformation was centred on the development of new customer service channels, the “multichannel” approach. The Internet and the mobile phone were the two decisive technologies in this period. The rise of multichannel banking and the appearance of the first online banks called into question the traditional retail distribution banking model. At this point it seems appropriate to ask what characteristics of digital technology have made it so much part and parcel of the development of the modern financial system. There are basically

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three factors explaining its usefulness: • First, digital connectivity, which has boosted the speed and security of transmission of flows of information, essential features of network economies. • Computing capacity is the second defining feature of digital technology’s contribution to banking, since it has made it possible to manage the increasing complexity of the business and supervisors’ demands. • Lastly, the decreasing cost of digital solutions is also part of their great attraction.

From the Great Recession to the digital Revolution: the five “Rs” But before going into these matters in more depth, it is first necessary to explain why banking is going through an existential crisis. As already indicated, the Great Moderation had very significant effects on banking. Banks’ balance sheets and cross-border transactions both increased fivefold in barely twenty-five years; levels and composition of capital deteriorated while leverage soared; liquidity risk seemed not to exist; and with the large-scale adoption of securitisation, many institutions severed the ties with their customers and became in effect feebased placement agents. It only needed a shock, a change in expectations, for this model to start unravelling. The alarm would be sounded by the collapse of the US subprime market. The full impact of the global financial crisis on real activity in 2008 signalled the start of the Great Recession, the consequences of which, combined with the acceleration of the digital revolution, laid the bases for a profound revolution in the sector. Let me emphasise the forces of change that have been affecting banking for the past ten years, which I shall call the five “Rs” of the banking revolution: recession, returns (profitability), regulation, reputation and (digital) revolution. The first force of change is the recession experienced during the current financial crisis, the most severe phase of economic contraction since the beginning of the twentieth century. The Great Recession led to, in some cases, the disappearance of some institutions, and massive public assistance for others. Its direct effects were the contraction of credit, a reduction in the size of banks’ balance sheets and low growth in potential output and employment. And perhaps more importantly for the future of banking, the Great Recession unleashed powerful forces of change on three fronts: returns (profitability), regulation and reputation. The source of the sector’s reduced returns is twofold: lower revenues than in the past, and higher costs, with notable downward resistance. The flatness of revenues reflects firstly factors external to the sector such as: i) the increase in non-performing loans, ii) the effects of monetary policy, which has set interest rates at close to zero or even below and led to a flattening of yield curves and iii) the pile of regulations to which I shall refer later. The low profitability is also due to internal factors within the banking business, notably: i) the fierce competition in some products, leading some banks to offer loss-making prices, and ii) a cost structure of which its level and inertia are circumscribed by downward rigidities in the cost

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of deposits, the excessive size of the sector, bad debt provisions and wholesale funding costs. Thus the trends in profitability pose a serious challenge for banking. Is this a problem for society? We have to say yes, and a big one, because without adequate profits the banking business makes no sense. Without adequate profits, it will not be possible to remunerate shareholders appropriately, to attract new investment, to invest in innovation, to expand and improve customer service, or to work on financial inclusion. In other words, facing with a permanent negative mismatch between the return on capital and its cost, banks would languish and die, and so would its social function. The quest for returns may tap several sources. One path is diversification of revenues, monetising services of value, or by means of appropriate geographical diversification. Another way is conventional fixed cost reduction by means of efficiency gains or through consolidation of the sector. In the past, a combination of all these options might have been enough to ensure survival. But in the macroeconomic, regulatory and technological context now faced by banking, I do not believe all this is enough. Let us go on to the third “R”: regulation. The banking sector as a whole entered the Great Recession in 2007 with an inadequate level and inappropriate composition of capital, very high leverage, no liquidity reserves, with problems of governance and transparency and without any semblance of a structured framework for recovery and resolution. And in Europe, ten years on from the creation of the Monetary Union, there was no common regulation or supervision and no coordinated mechanism for the liquidation of institutions, let alone common schemes for the protection of depositors. Given this diagnosis, it is hardly surprising that there has been a true regulatory tsunami, coordinated internationally. In Europe, financial reform has combined the global regulatory tsunami with a demanding process of institutional reform, the aim of which is the construction of a Banking Union based on common standards, supervision, resolution and deposit protection. For the multiple new regulations to have the desired long-term positive effects on stability and growth, it is necessary to keep a close watch on their coordination and the consistency of their implementation, as well as exhaustively studying the cumulative effects, both desired and undesired. As former European Commissioner Jonathan Hill so aptly said, “we need stability, not rigor mortis”. The fourth “R” of the crisis in the banking model goes to the heart of the banking business: reputation. Reputation generates economic value, because there is a direct correlation between a good reputation and the desire to work for a company or a bank, to use its services and to recommend it to others, or to invest in it. In short, a good reputation makes the business sustainable, because stakeholder groups tend to favour companies they admire and trust, and this translates into more sales, more talent and more investment. And precisely the converse applies when reputation and trust are lost as a result of conduct that breaks the rules, violates ethical principles or is not transparent. Since 2007, the financial sector has been through a profound crisis of reputation and trust due to the revelations of deep-rooted patterns of conduct including conflicts of interest and misselling which have harmed customers, investors, shareholders, taxpayers, the economy in general and the sector as a whole, since

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society tends not to focus on the differences among institutions, although customers do so individually. At the same time, society has become more demanding as regards the ethical and responsible conduct of large companies and banks. All this reminds us that the sustainability of the banking business depends on putting people at the centre of its purpose, integrating the impact of its activity on people’s lives into its management, with clear language, sound practices, and a long-term approach. It is regrettable, that we would have needed the catalyst of the enormous reputational costs caused by a part of the sector during the boom years, which still weigh on the sector as a whole, to notice it. And so we come to the fifth “R” of the “banking revolution” that is under way: the digital revolution. It may seem surprising to talk of digitisation as one of the factors characterising the transition to twenty-first century banking, since banking was precisely the sector that invested most in technology in the twentieth century. Banking has always managed to take advantage of technology to improve its efficiency and the service provided to its customers, but it now faces new developments with much wider implications. So far I have talked of the five major levers of change in banking, past and present. What does all this mean for the future? Perhaps not paradoxically, the digital disruption may help the healthy part of the sector to survive the pressures of low growth, waning profitability and dense regulation and solidly re-establish its customers’ trust and its reputation with society. If banks can offer a better user experience, they will again come closer to what customers demand and need to satisfy their aspirations and take advantage of the opportunity of this new age, since they are already living exposed to the digital transformation in nearly all aspects of their lives. In order to properly understand the future scenarios for the banking sector, we need to place them in the context of the digital transformation that is taking place in the economy and in society. The rest of this presentation will be devoted to these matters.

The digital transformation of the economy and society We “digital immigrants” -who have known a time in which there was no Internet, smartphones or tablets, in which the PC was a luxury and trips and leisure were planned with the help of printed guides and timetables- perhaps have a more informed viewpoint than the “millennials” from which to assess the implications of the digital revolution for personal relations, business organisations and the creation of economic value. Since their emergence at the end of the twentieth century, the digital technologies have achieved very rapid adoption in a very short space of time, leading to a process of transformation which is profoundly changing society and the economy. The number of connections, interactions and transmissions of information that we carry out using digital technology is growing exponentially, blurring physical barriers and reducing the cost of accessing information. Mobile technology, social networks, cloud computing and big data are the main exponential technologies to which companies have to adapt now. • Mobile technology: In the past ten years the use of mobile devices connected to the Internet has taken off, thanks to the roll-out of mobile broadband networks and the growing

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affordability of the devices. Their low price and ease of use have narrowed the digital divide, extending the benefits of digitisation to practically the whole world population. • Cloud Computing: Cloud computing is another of the great digital innovations, since it makes it possible to offer scalable and cost-efficient services worldwide. The digital companies that have emerged as leaders in the past few decades, known as “GAFA” (Google, Amazon, Facebook and Apple) were constructed on this kind of infrastructure, and even offer it to third parties to take advantage of their huge economies of scale. Based on their infrastructure, digital platforms models have been developed, where an agent offers its users products and services on the basis of content or applications produced by others. • Big Data: The increase in digital activity also leaves a trail of information which can be exploited in order to gain a better understanding of the behaviour of the various market agents. Big data analysis techniques are geared precisely to analysing and extracting value from large volumes of information at high speed. The types of data that can be processed now include not just structured information but also unstructured data in huge and exponentially growing quantities thanks to the hyperconnectivity among people and machines (the Internet of Things). While digitisation and hyperconnectivity pose new challenges for society - secure authentication, cybersecurity, inter-jurisdictional coordination, ethical standards, etc. - its effects on the economy are drastic, on many fronts. Take for example the pricing of products and services based on information. Some of the most popular services of the information society are completely free, including searches, the social networks and even many of the applications we find on the main mobile platforms. What business model is this that makes it possible to make money by offering something free? Its basis is the distinction between user and customer. In many cases the model used in the world of digital platforms is the so-called “freemium”, based on a free basic service to the user and offering a paid alternative with improved service (fewer limitations, no advertising, etc.) or the placing of advertisements available only to customers. Users pay often, consciously or not, by granting access to their particulars. Hence the growing relevance of disciplines such as that of data scientist, a key profile for being able to monetise information provided by users. Hence too, the growing interest of the authorities in ensuring adequate protection of personal data. The second thing deriving from the free offer of services is the ability to measure value created. Conventional metrics rely on the aggregate value after deducting production costs at market price. However, in the digital model described, this approach does not capture the value generated for the user of the services, giving a very unsatisfactory result. We are probably coming close to the point where we need profound changes in national accounting criteria. Another area in which the economy does not yet have appropriate tools to analyse its implications is the collaborative economy. Large-scale collaborative initiatives are already generating visible tensions in labour, tax and other public policy models such as those relating to the control of flows of tourists, urban passenger transport and the granting of business licences. In banking, crowdfunding and other P2P formulas provide an indication of its potential impact.

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The next technological frontier with a significant impact on the labour market, and which will be an essential part of this 4.0 industry, is that of artificial intelligence. This discipline is devoted to designing IT systems based on highly flexible algorithms with characteristics normally associated with human intelligence and behaviour, such as understanding language, learning, reaching own conclusions, etc. What does this imply for financial advisory services or asset management? In the medium term we shall most probably see the automation of certain activities, which will require the productive processes to be redefined so that humans continue to contribute value where they perform best. The advance of automation and artificial intelligence also raise certain ethical, political and legal dilemmas which have yet to be resolved. The large-scale replacement of the workforce that performs routine work will pose crucial challenges relating to social well-being, inequality and the stability of political systems. Moreover, it will be necessary to determine who is responsible for failings with serious consequences deriving from incorrect behaviour of a robotic system. It may even be that we have to limit robots’ autonomy, perhaps updating Asimov’s Three Laws of Robotics. In short, the trends in digital transformation will configure a very different future from the reality that we have known, and the financial sector will have to adapt to ensure its survival and, more importantly, its relevance to society. I now go on to offer a few thoughts on how digitisation might transform the nature and behaviour of financial institutions and the regulatory and organisational challenges that will have to be tackled.

The future of banking: Forces of change The pace at which the digital transformation of a given industry takes place is related firstly to the role played by information in that industry. For example it is easier to transform the media or the cultural industry sector than, say, the agro-food sector. Secondly, there is an aspect related to the barriers to entry existing in certain sectors, such as economies of scale, network effects or, more often, regulatory barriers. The financial sector is naturally placed among those with a high degree of informational content, since financial products and services, including customer deposits, are now managed as data. However, regulation has arisen as a barrier to entry. This is one of the reasons why the digital transformation of banking is proving more drawn out than that seen in sectors such as photography, newspapers, books or travel. What are the forces of change and the basic disruptive features of the transformation of oldstyle banking into new? And what profile will new-style banking have? In carrying out a forward-looking exercise on such a complex situation, a little humility is in order. Far-reaching transformations in any sector of the economy are difficult to anticipate, although we do have some elements to delimit the exercise: our five “Rs” and Bill Gates’ warning “We always... underestimate the change that will occur in the next ten [years]. Don’t let yourself be lulled into inaction.” While accepting that all this requires far-reaching changes in the sector, one could perhaps imagine the strongest banks surviving in some kind of scenario of broad continuity, were it not

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for the presence of a disruptive force: the digital revolution. The disruption characterising the transition in banking is reflected in irreversible changes in both the supply of and demand for financial services. On the demand side, we are already seeing radical changes in the patterns of consumption and savings behaviour of a whole generation. The millennials have started joining the labour force, and in the coming years they will become increasingly important customers not just of banking but of a whole range of sectors. In Spain, millennials currently represent 25% of the labour force and will gradually become the economic and social protagonists. In a context of increasing competition such as the current one, it is crucial to understand the services that are being and will be demanded by these younger generations and by older “non-native” generations which are rapidly digitalising. The millennials have grown up in an environment in which the offering of services provided online has defined the standard for the experience they expect when interacting with any kind of company. This digital generation is accustomed to handling the technologies with ease, and to rejecting providers that do not offer multichannel access and a simple, intuitive and reliable platform. This also characterises banking’s relationship with these new customers. Apart from this, their loyalty to banks is much less than that of previous generations. According to the experts, more than 70% of them would use a financial service offered by a company from outside the sector, compared with 50% of older customers. As for the disruptions seen in supply, the sector is facing greater competition and technological changes that will decisively affect the quantity, quality and price of financial services. As regards competition, over the past few years we have seen an increase in the number of new players coming from the digital world, the “fintechs”. Their objective is to concentrate on specific segments of the value chain (foreign exchange, payments, loans, trade, asset management or insurance, for example), unbundling or disaggregating the services previously originated and sold by the banking sector. These companies start without the burden of having to maintain a physical distribution network, the rigidities of corporate culture, the upkeep of obsolescent technological systems or the tough banking regulation. Also, the sector will have to compete not only with providers emerging in the financial sector, but also with those arriving from other areas. In particular, the major digital companies, Google, Apple, Facebook and Amazon, referred to using the acronym GAFA, could take advantage of their differential capabilities to gain market share. And to new competition will be added technological changes under way or yet to come. As we have seen, there are a number of exponential technologies interacting with other digital innovations, such as the large-scale use of big data, artificial intelligence, blockchain and cloud computing. All this will open the way to different ways of participating in the digital ecosystem, such as by acquiring or taking equity stakes in fintechs, developing internal capabilities or open innovation. In this context of disruptive change, two forces will be fundamental for determining the speed of change and the scenario towards which the sector will move. The first, which is of an internal nature, concerns banks’ vision of the future and their technological, financial and

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organisational capacity for self-transformation. The second one is the role of the regulators and supervisors as drivers of or brakes on the changes needed during the transition.

The future of banking: Scenarios Where will the complex interaction of the factors I have described so far take us? This is the question that reverberates constantly in the debate about the future of the banking sector. The real question is not whether banking will change radically, which it undoubtedly will, but rather whether banks will still play a significant role in the new financial ecosystem. While acknowledging that a fertile imagination can produce innumerable scenarios, they could probably all be classified as variants of one or other of two broad and polar categories. The first scenario, resulting from passive strategies, is one in which banks evolve towards merely providing infrastructure, leaving the high added value services to other players. This would not be difficult to achieve, since it is a scenario of inertia: it would simply require banks and regulators to carry on doing things as they have been doing so far. As already indicated, a lack of strategic vision and inability to undertake the investment and internal organizational changes demanded by the new environment would be enough to put many of today’s banks on the path to slow but sure extinction, in an environment of growing competition, low growth and diminished profitability. One thing that could help bring this about would be regulators’ maintaining inflexible positions. Concern for the stability of the financial system, the control over monetary policy, or consumer protection could be valid arguments from the traditional regulator’s point of view for endeavouring to keep a significant proportion of the institutions in operation, configured as public services or utilities. The second scenario that can be discerned, resulting from proactive strategies, is one in which growing competition among the various players leads to a substantial transformation of the sector, in which a few of today’s banks survive, undergoing a complete metamorphosis. These new banks would be highly competitive, and in direct competition with companies such as the “fintechs” and other major players such as the “GAFA”. Therefore banking would have to adapt its strategy radically in this second scenario to survive this unbridled competition from new entrants. Success will be determined by the ability to respond to three dimensions of demand from customers, who will benefit most from this new model: • In the first place, banks will have to make special efforts to take care of their main asset: the customer experience. They will have to show that they are capable of using their knowledge of the customer, improved technology and flexible organisation to offer families, businesses and the public sector competitive products that satisfy all their financial needs. A small number of banks, bigger and more flexible than the present ones, would continue to perform an essential role, in competition with a great variety of players. These banks will have to demonstrate their ability to “repackage” a broad offering of personalised services, since, assuming the experience is the same, customers will prefer to save the transaction

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costs associated with searching, comparing and contacting a multiplicity of providers. • Secondly, banks will only be able to regain people’s trust and re-establish their reputations by means of greater transparency and repositioning of help to customers in taking their financial decisions. • Finally, customers will have to be given an experience on a par with the expectations being generated by the digital native companies. This will have to be translated into keener prices, automation of processes so that customers can devote only the time they consider necessary to administering their finances and, lastly, access to advisory services, thanks to the application of robot-assisted recommendation algorithms (“roboadvisors”). During the next few years, banking will be able to use a broad range of strategies to win through, although possibly only a combination of them will ensure success: • A first strategy may be based on banking’s being selective and knowing how to exploit the advantages it still has over other players. This will require intensive use of banks’ knowledge of financial business and in particular of its customers. The challenge will be how to use these large databases to provide rapid, customised solutions. Scale will continue to be an advantage in offering competitive prices. • Apart from this, a complementary strategy to the first one would be to become third party integrators. Digital consumers will tend increasingly to demand centralisation of their purchases, and financial services will be no exception. Thus banks will have to find ways to develop platforms from which to sell a wide variety of services. It must be said that merely adopting innovations will not ensure survival. In the new digital world, banks will have to completely reformulate their business models. This redesign affects all areas: processes and transactions, organisational structures and professional skills such as those of cybersecurity experts, platform architects and data scientists. In short, this model requires profound changes of talent and culture within the organisation, which must evolve towards more agile and flexible, less hierarchical structures in more collaborative environments in which information can flow without unnecessary restrictions. The cultural change must favour the process of continuous innovation which values learning through success, and failure too providing this is controlled and quickly identified, and allows progress to be made with the realisation of the bank’s strategic vision. Thus it involves a transformation in three areas: technological, strategic and in terms of corporate culture and talent. It is, in short, a complete reinvention of the banking business. Which scenario will prevail? The two scenarios I have described represent possible future alternatives for the banking sector. But they are not mutually exclusive, and it may well be that we see a combination of both. Thus it now seems inevitable that there will be increased concentration in the sector aimed at generating synergies to make up for low profitability. Banks that bet on this classic consolidation model will have to make substantial cost reductions - on systems, branches and personnel - in order to maintain reasonable shareholder remuneration. Apart from this, regulation will continue pushing for greater competition and innovation in areas such as retail

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payments, forcing the remaining banks - fewer in number and bigger - to open up their infrastructure even more so that more nimble third parties can innovate on their product base. This phenomenon is already very visible, with initiatives such as the European Union’s recent payment directive (PSD 2), which makes it very difficult to derive profit from banking infrastructure and retain direct relations with the customer. Providing infrastructure and the traditional business of deposit taking would be the core of this utility or public service banking. Some players might nevertheless manage to achieve the best of both worlds, leveraging respected brands and flexible technological architecture to cement customer relations, generate value propositions based on large-scale intelligent data exploitation and grow in different geographical regions in competition with the “fintechs” and technology companies. This is the positioning that should be aspired to by those banks that are able to carry out the necessary organisational, cultural, technological and business transformation to qualify for this league. In the environment of constant change in which the various players in the sector are engaged to serve their customers better, the role of the regulator will be fundamental. Today’s financial regulators face a formidable challenge: to provide a regulatory framework that balances the promotion of the new digital value propositions with protection against the associated risks. Regulation will also have to seek a balance between financial stability and the development of new business models. Given the wide variety of providers ready to take part in this new ecosystem, it is necessary to create a competitive environment in which similar products and services are given analogous regulatory treatment. Possession of a banking licence should not be grounds for discrimination relative to other competitors as regards the provision of financial services. This risk-based approach must be consistent with the life cycle of the innovation, with appropriate experimental environments (sandboxes) being provided so that both traditional operators and new players can try out the new technologies and business models, which would facilitate fluid communication with the supervisor. Regulators and supervisors can decisively influence the configuration of the future of financial services when they define their principles of action in three major fields of the digital transformation. The first has to do with the so-called “digital facilitators”. Among the most salient examples are the framework for developing big data and the new analytical techniques, cybersecurity, digital identity and digital signature. The sector will also need to expand its current infrastructure in order to be able to increase the number of services offered. In the future there will be two technologies with the potential to alter the way in which the financial system can function: blockchain and cloud computing. And a third key area will be the regulatory framework of the financial services platforms, which is still in an early stage of development. In all of these areas, cooperation between regulators and banks must be close and effective, to ensure that the development of these business models reaches a high level of security and guarantees financial stability and consumer protection.

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