Topaz explained that regulators around the world have a huge impact on the financial system and on the quality of services and value that each citizen receives. He estimates that Israeli residents receive service and value at a much lower level than citizens in other countries, and conference attendees who heard Topaz were surprised to learn just how much.
To better understand why we are getting less and what needs to be done to get additional services, Topaz agreed to share with Jerusalem Post readers the global view of innovation in the financial arena, and why he is embarrassed when he meet his counterparts, bank executives from around the world.“If we look at the significant areas of our lives,” says Topaz, “we see dramatic changes. In the communications sector, there has been a significant shift from print to digital. In the area of music and content, in the past people purchased a CD, and today we consume music and content tailored for our specific desires via Spotify or YouTube. Today, 74% of consumers purchase airline tickets via the internet, without a travel agent.
What has changed in the banking world in the face of the huge changes we see in consumer culture? From the point of view of the consumer, unfortunately, very little. Israeli regulators are so busy with the question of “competitiveness” that they forgot to look at what the consumer receives in the end.
Where, for example?
“The financial system in Israel changed with the transition to digital and the separation of centers of power like some of the credit card companies and the separation of long-term savings plan (Kupot Gemel) funds. Yet, the perception of the system so far has been to ask “how can we best distribute our products” – to locate the best consumers for our products and offer them in a variety of different distribution channels. Today, this concept is changing to “the consumer is at the center,” which is different from the concept of “the customer is at the center.” The bank has to adapt to the needs of the consumer. The primary difference is that the consumer may use traditional banking products very little, or sometimes not at all.
The change in customer perception towards the consumer is already felt in various parts of the world and will be more significant in the near future.
What strategy have banks prepared for the changing reality?
“I still remember a time, not long ago, where the discussions of the banks’ strategic plans revolved around the five banking groups in Israel. If we were to have strategic discussions about banks today, we would speak about Google, Facebook, Amazon, Apple, Bitcoin and so on.”
What is the significance of these new players in the banking arena?
“Very significant things are happening in the financial world and they are driving a change that will eventually come to the bank's existing business models.”
“On my last trip with my wife to Italy, we were in Verona and a florist approached us and placed a rose on the table, which was very appropriate to us in the context of the moment – I was spending a romantic dinner with my dear wife. A few minutes later, my phone rang, and the bank was offering me a loan. Why was I offered a loan? Because my name appeared in financial models that I would most likely be able to pay it back. The conversation caught me in the wrong place and at the wrong time. Today, as consumers in other areas, we are used to receiving the products and services in the right context. That’s how we want the bank to treat us.”
What will happen in this area in the future?
“The trend in the world may be explained by 1.7 billion people who do not have a bank account, but they do financial operations. Africa has a technology called ‘M-PESA’ (a mobile money transfer service) that enables financial operations through mobile devices. In many places, there is no physical bank branch within tens of kilometers, and yet, with this technology and the regulatory adjustments that make it possible, one can pay, receive money, and so on. In China as well, there are many people who walk around without a wallet.
What is the significance of these 1.7 billion people who don’t have a bank account?
“From their perspective, today financial activity does not require a bank. They can perform financial operations such as paying, buying, receiving money, and receiving loans without being bank customers. They don't even understand why anyone needs a bank. The question of the relevance of a bank – why it exists, and the value that it provides – is now coming up for discussion here and it’s something that hasn’t been discussed before. "
How does the global system respond to these changes?
"There are different platforms in Asia. As an example, we can mention Jack Ma, founder of Alibaba who takes a very simple approach. No one gets up in the morning and asks ‘what shall I do today? Maybe I'll take a loan.’ The answers to the question of ‘What do I want to do today’ are, ‘Today, I will buy flowers for my wife, book a vacation, purchase a bicycle for my child, or perhaps pamper myself with something.’ Our lives revolve around real needs, around consumption and doing – and this is all contained within the solution offered by Alibaba and other platforms – ‘Come to me and you’ll get a solution for everything you need.’ It is through collaboration with fintechs – the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers, who operate together with banks, or independently.
This all happens behind the scenes when the consumer stays within the consumer platform and does not move to the bank's site.”
All this in the Far East - and what's going on in the West?
“Western banking differs from Asian banking in the perception of what the bank is for the client. In the West, the bank is seen as the heart of its financial activity. But, even in the West, they are beginning to understand that cooperative agreements are the way banks are working to adapt to changing realities. The key question today is what the client needs and how I can provide added value. In most places, collaborations are needed to maximize the value proposition for the customer. The real question that banks should ask is ‘What do the consumers whom I serve want, and how can I, as a bank, leverage my financial abilities, my business relationships, and information analysis capabilities to create collaboration that will make life much more comfortable for my customers, and will provide value that they cannot receive on their own.’”
Topaz provides two examples of this; the first – a Spanish initiative called ‘Valora’ by BBVA, a Spanish bank, that developed a banking app that allows the client to locate apartments, get information and details about the property, about the community and the environment, medical services, shops, parks, and its other suitable assets, as well as the financial status of the client and his ability to purchase the apartment.
The second is BBVA's collaboration with a startup that focuses on the freelance population and provides a job search engine that includes professional tips, savings coupons and inflow solutions tailored to this population. The bank has succeeded by presenting its customers with a professional value proposition in one of their most significant areas of life – their livelihood. Customers receive the bank’s assistance and reach financial success, and the bank, in addition to the transactions themselves, enjoys a strong and meaningful relationship with its customers.
How do we summarize the future of banking?
As I said at the outset, it is of great importance to take regulatory measures that will move the Israeli economy forward and enable the fintechs to integrate into the financial arena to create value for customers. It’s revealing to see that among the hundreds of fintechs operating in Israel, only a small number are trying to integrate into the local market, partly because of the size of the market, but also because of regulatory difficulties. Another change that is needed is major investments by banks in technology, something which can already be seen in almost all banks.
In addition, a significant change in the traditional organizational culture of the banks is required. A bank is a conservative body where some of its products have not changed in hundreds of years and a change is required whereby all bank employees, at all levels, will begin to look at things in an innovative, flexible and agile manner, and retain an openness to change. The last and most significant layer is the need to establish collaborations between the banks and various business entities that together can create value for customers that currently each entity individually fails to produce.