During the past several years, BBVA has earned a reputation for being on the cutting edge when it comes to technology.
In 2011, it began a rip-and-replace of its core processing at a time when no other sizable U.S. banks were doing so. As a result, it was one of the first banks to offer real-time banking. It also was among the first to create a fintech venture capital arm, and has been on the vanguard of adopting open banking and banking-as-a-service.
New U.S. CEO Javier Rodriguez Soler says he wants to continue to push innovation, but he also sounded a note of caution.
“I’m a big believer in the value of technology," Rodriguez Soler said in his first on-the-record interview since taking the role in January. "But I want to reinforce the fact that everything we do in investments in technology — AI, cloud, open platform, whatever — should be for the benefit of clients. ... Investing in technology for the sake of technology is not a good idea."
In the interview, Soler also discussed why the bank has no immediate M&A plans, expanded on its effort to offer banking as a service and why it recently dropped "Compass" from its U.S. name.
Technology with a purpose
Like most sizable banks, BBVA invests in technology that streamlines operations, like robotics processing automation, in addition to products that help customers. But Rodriguez Soler stresses that tech has to be used with purpose.
“It's not using robots just because it's cool to use robots, but because for some tasks, robots are better than humans,” Rodriguez Soler said.
He sees AI as steadily gaining ground in much the way internet did as it rapidly became part of everyday life.
“It is already huge in every industry,” he said. “What is happening with artificial intelligence is that it's becoming more and more prevalent and people don't realize it. In most of the things we do — marketing, risk detection, advice, fraud, operations — we are using AI at different levels of sophistication.”
The bank has also been an early tester of blockchain technology, using it for
“Blockchain is more in an experimental phase,” Rodriguez Soler said. “We have high hopes that it will improve processes and companies and we are already experimenting with blockchain, but I think it's, it's more in an experimental phase of the value it can bring.”
BBVA has built an open platform through which it pushes the idea of banking as a service. This is a marketplace of application programming interfaces that corporate clients can use to offer banking services to their clients, with BBVA doing the work in the background. (Wells Fargo, Silicon Valley Bank and Citi have similar API marketplaces.) Simple and Digit both use BBVA's APIs.
Rodriguez Soler doesn’t get enthused about the concept of APIs, but sees them just as a way to connect to third parties. Letting corporate customers use BBVA’s core system to offer banking products is a way to serve them, and perhaps reach their customers, he said.
“In the near future, all companies will have an e-commerce part,” Rodriguez Soler said. “Those corporate customers will be better served by us, not only through our traditional banking products, but also through the ability to connect with APIs to our systems and serve their retail customers. Those people may become customers of BBVA.”
Some banks worry about such a scenario, fearing losing the connection with the borrower. If Target, for example, were a BBVA customer, it might offer its customers loans at the point of purchase through a BBVA API. The customer may not know BBVA is in the background.
But Rodriguez Soler is not concerned.
“That is not so relevant,” he said. “As soon as this customer receives a good loan for whatever he needs and we are helping, I don't mind if he believes Target is giving the loan. As long as the customers are fine with that and happy, I'm fine with that as well.”
Target might end up asking the customer if they need a checking account or a home improvement loan, and might provide those with more BBVA APIs.
“The branding thing or the front end is blurring, but it's blurring in other industries, too,” Rodriguez Soler pointed out, noting that Apple doesn’t own all the apps in the App Store and Amazon doesn’t own all the products it sells through its marketplace.
In banking, who should control the marketplace?
“I hope the customer,” Rodriguez Soler said. Companies that win will be those that provide the products customers like best, he said.
Saying no to mergers; new brand
It would be easy to assume that Rodriguez Soler will be on an acquisition path, given that until recently he was in charge of mergers and acquisitions. But Soler emphatically rules that out.
“No. I'm the head of the U.S. business. I'm not the head of M&A anymore,” he said.
Rather, he hopes to grow every part of BBVA’s U.S. business organically. In the first quarter, BBVA's consumer loan portfolio grew by 6%, led by a jump in direct consumer lending (which increased 36%), credit cards (27%) and indirect auto lending (14%). Total loans for the first quarter were $65 billion, up 4% from the same point a year earlier.
But the bank is also increasing its allowance for loan loses, which rose to 1.52%, up from 1.34% a year earlier. Rodriguez Soler said concern about losses stems from the bank's short-term Express Loans program. These are loans that can be quickly funded - potentially the same day as application - for people who need access to funds or to consolidate high-interest credit cards. The bank uses risk-based pricing to set the interest rates.
"In the U.S. economy, people consume and they sometimes do not have enough money in their paycheck,” Rodriguez Soler said. Some people turn to high-interest credit cards to fill this gap. Others turn to payday loans.
It "is more appropriate that established and regulated banks with proper funding give these loans rather than others,” Rodriguez Soler said. Banks also have more data and better processes to do this, he noted.
BBVA is still refining the Express Loan product and a related credit card.
“We have identified what doesn't work,” Rodriguez Soler said. “We have learned a lot and we're fixing it, but we've had some losses.”
The most recent change for BBVA in the U.S. is it’s dropping of the name Compass. BBVA is now emphasizing that it’s a global company. Rodriguez Soler doesn’t worry about customers missing the “Compass” from the name.
In media coverage, U.S. publications have been dropping the name Compass for years. When the bank announced the name change, some media outlets were surprised to find it hadn’t already happened.
There’s a technology angle to this brand unification: There is now one global software development team that creates the bank’s tech. Products can be developed once for global deployment and each country can then modify as needed for their local reality.
Soler’s overall mantra is he wants to ensure customers are pleased with the bank so that they continue to do business with the firm. For example, he wants to increase transparency and explore better alternatives to overdraft fees.
“When you don't have money in your account, you don’t have money in your account,” he said. “But you have to purchase gasoline. The fastest, most expensive and riskiest way of lending someone money is through their checking account, a form of lending called an overdraft.”
BBVA has been working on other ways to lend customers money in extreme situations.
“It's about alerting them when it's happening,” Rodriguez Soler said. “It is about giving them pre-approved credit lines and better interest rates and it is about giving them insurance. We are developing solutions that you could argue in the short term we are going to be making less money on than these overdraft fees, but almost immediately, we will be making more, because happier customers means more customers and more business with us.”
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