A Spanish bank’s purchase of an American start-up raises big questions; Francisco Gonzalez, chairman of Spain’s second-largest bank BBVA and former computer programmer, loves to talk about technology

A Spanish bank’s purchase of an American start-up raises big questions

Mar 1st 2014 | From the print edition

FRANCISCO GONZÁLEZ, the chairman of Spain’s second-largest bank, BBVA, loves to talk about technology. Even as the financial crisis raged, the former computer programmer has talked up the importance of upgrading the bank’s systems. On February 20th, BBVA bought Simple, an American online-banking platform, for $117m, in a deal that hints at the potential for innovators to shake up retail banking.

BBVA, with €607 billion in assets and 50m customers, believes that traditional banks will soon lose their monopoly on banking. In an opinion piece in the Financial Times last year, Mr González warned that banks faced certain death unless they took on the likes of Amazon or Google. New entrants will not have the legacy costs of banks and can tempt clients with convenient mobile apps. He predicts mobile services could even triple the number of bank customers worldwide in the next decade.

Internet banking has had false starts before and thus far big tech companies have not really ventured into the low-margin, highly regulated and capital-intensive world of retail banking. True, non-banks have had some success in places like Kenya, which lacks an adequate banking network. And niche players like PayPal are thriving in payments. But their impact has been limited. “I am dying to fund a disruptive bank,” Marc Andreessen, a venture capitalist, recently tweeted.

Banks have several lines of defence, says Jason Napier, an analyst at Deutsche Bank. They have millions of customers who tend to stay put. What is more, barriers to replicating technology are relatively low: cool new apps developed in Silicon Valley can be quickly copied by banks.

Still, he says a revolution is afoot, if not perceptible. As consumers do more banking on their mobile phones, visits to branches are falling. Simple says its clients login 2.4 times a day, on average. That compares with the mere handful of interactions most customers have with bank branches in a year. Its app allows users to work out how much it is “safe to spend” instead of simply providing a current balance. And it allows them to extract complex information easily by asking, for instance, how much they had spent on coffee and taxis in New York over the past month. Simple’s base of young customers has grown by 330% in a year to 100,000.

If technology barriers are low, why didn’t BBVA simply develop its own app? Time may be one factor. Another may be culture. Carlos Torres, head of BBVA’s strategy and corporate development, says it is hard for a large organisation to replicate the entrepreneurial talent of an upstart. The Simple deal also suggests new entrants might still need banks. Simple itself is not regulated as a bank. Instead it places customers’ funds with the Bancorp, which provides banking services to other firms. BBVA plans to move these funds to Compass, its American subsidiary.

The challenge for BBVA is to make Simple profitable. It plans to roll out new products, such as mortgages, in addition to the checking account that Simple currently offers. BBVA’s focus will be on America where its retail business is still sub-scale. In time it hopes to introduce Simple in BBVA’s core markets, including Spain and Mexico. It is not clear whether BBVA will eventually adopt Simple’s technology for its own clients, or keep it independent.

For other lenders, upgrading creaky infrastructure to allow zippy functions along the lines of Simple’s may be costly, but savings will come from fewer branches. And they still have the heft to buy pesky upstarts that threaten to disrupt them.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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