BBVA, a Spanish bank, reinvents itself as a digital business

OUTSIDE, a patch of grass affording a spectacular view of the Sierra de Guadarrama is littered with cartridge casings. Inside the Club de Tiro de Madrid (Madrid Shooting Club), on the city’s northern edge, over 400 people are fixing their sights for the next three months. Their business is not shooting but banking. Teams sit at 27 tables working on specific projects—to improve the global mobile platform, say, or to share information about job applicants. At another 12 tables are data specialists, in-house lawyers and others whose expertise the teams will need. The targets are on the walls: white boards that are soon covered in yellow and pink Post-it notes, listing tasks for the weeks ahead.

BBVA, Spain’s second-largest bank, began quarterly planning sessions like this three years ago, in its Mexican subsidiary. This is the fourth global gathering. The idea, explains Derek White, head of global customer solutions, is to replicate the nimbleness of financial-technology startups (“fintechs”) at large scale. When a project is conceived, a small group is assembled to work on it within three days. A prototype is created in six weeks. The finished article should be “en las manos de los clientes”—in customers’ hands—within nine months. The quarterly cycle starts with a planning session to thrash out priorities. It ends with a demo day, startup-style.

Western banks have so far proved largely resilient to the digital disruption that has upended retailing, the taxi and hotel trades, and more. But they know they cannot be complacent. They are spending billions on technology, and are both buying and allying with fintechs.

e-mortality

Francisco González, BBVA’s executive chairman since 2000, believes that sooner or later the giants of the internet—Amazon, Facebook, Google—will be his main rivals. Because “the digital world doesn’t allow many competitors”, in 20 years the ranks of banks worldwide could be thinned from thousands to dozens, which will need scale to survive. Wariness of regulation may delay the e-behemoths, but not for ever. “If you are not prepared for this precise moment, and you are not as efficient as they are, you are dead.”

Under Mr González—who began his career as a computer programmer and says “I do not see myself as a banker”—BBVA started early. It began overhauling its computing systems in around 2007, a six-year task Mr González says he would rather have undertaken sooner. Now the bank is focusing on what customers see “above the glass” of their smartphones and on the internal processes below it. “At the end of the day, we won’t be a bank any more,” he says, but a “digital house”.

The planning sessions help to share ideas and cost-savings across BBVA’s subsidiaries in different countries. BBVA also looks outside for expertise. In the past few years, it has bought Madiva, a big-data company, Spring Studio, a digital-design specialist, digital banks in America and Finland, and 29.5% of Atom, a British online bank. Through Propel, a venture-capital firm, it invests in young fintechs. As if to infuse the place with the startup spirit, at BBVA’s headquarters in Madrid only Mr González has his own office.

Carlos Torres Vila, the chief executive—an engineer by training, promoted by Mr González from running digital operations in 2015—tracks the take-up of technology obsessively. In Spain digital sales (eg, loans, mortgage or insurance policies arranged online) made up 26.3% of the total, by volume, in the first eight months of 2017, up from 17.1% in 2016 and just 8.8% in 2015. The number using the app as their main link to services has risen by 40% in the past 12 months.

The top brass believes that BBVA’s growing wealth of information about its customers, plus the trust that comes from tending their money, gives it an advantage over the tech giants. Even if people rarely visit branches, they interact with the bank more often on smartphones, says Mr White. Therein lies a chance to become an online marketplace for financial services, including those of third parties—and perhaps non-financial services too. Next year the EU’s new Payment Services Directive, known as PSD2, will open up customer data, exposing banks to competition from each other and from outsiders; BBVA’s bosses insist that, for their bank, PSD2 is more opportunity than threat.

Valora, BBVA’s app for Spanish homebuyers, indicates the bank’s direction. It tells you the likely price of the house you fancy, how much others nearby were sold for and what your own might fetch—all data pulled in from elsewhere. It assesses the damage to your monthly budget and of course steers you to BBVA for a mortgage. People using BBVA’s mortgage simulator are twice as likely to take out a loan if they go through Valora.

Other ideas are popping up. Tuyyo, an app for sending remittances between America and Mexico, is due to appear on October 16th—and other products, such as insurance, could one day be added to it. For a few cents Colombian customers taking out cash can buy insurance against being robbed during the next few hours, by pressing a button on the automated teller machine; 250,000 did so in July and over 350,000 in August.

So far, however, the grand vision has yielded more promise than profit. Granted, there is much to admire. BBVA’s return on tangible equity in the second quarter, at 10.5%, was healthy by Europe’s modest standards and 1.6 percentage points higher than a year earlier. Its Mexican bank, BBVA Bancomer, the country’s largest, boasts hefty margins and is the biggest contributor to group profit. BBVA’s stake of just under half in Garanti, Turkey’s second-biggest bank, looks like a good bet on a young, tech-hungry country, despite political turmoil there.

But few clear signs suggest the technological transformation is yet yielding much revenue. Analysts praise BBVA’s plans and its early start, but also speak highly of ING, of the Netherlands, Germany’s Commerzbank and others. They complain that Mr Torres Vila’s indicators of digital progress lack long-term financial targets (except for the ratio of equity to risk-weighted assets, at 11%; it beats that). The stockmarket is not very impressed. Over the past five years, little distinguishes BBVA’s share price from those of Santander and CaixaBank, which rank first and third in Spain (see chart). In recent days all three have been dented by the crisis in Catalonia.

“It takes four or five years to have a substantially different business,” Mr Torres Vila says. A good flow of digital products will take time to show a return. By then, Mr González will be gone. He is 72 and the bank’s rules say he must go at 75. If he is right, the tech giants may by then be parked on BBVA’s lawn. At least it will be expecting them.