Entrevista original publicada por The Business Year.
Lectura en inglés.
TBY talks to Francesc Noguera, Director General of Banco Sabadell, about novel revenue streams, regulatory changes, and the expected recovery of the economy.
Why did you decide to launch a business line for banking as a service?
We decided to launch this business line at the end of 2018 because we wanted to access the retail banking segments, especially for individuals and SMEs. Banking as a service is a business model that runs on open banking. Open banking is just a technology and a capability to offer data to customers so that they can use it on other platforms and other players. We saw an opportunity to monetize open banking and built a business model that runs as a service that makes money out of open banking.
How has the market reacted to your banking-as-a-service approach?
There is a large appetite for this business model. First, it is a way to gain a new revenue stream. The other driver is that banking products are extremely engaging; if they have the capability to offer banking products to their customers, banks know they can engage their customers even more. The third one is data; banks will be able to gather data on their customers. For example, for other players such as e-commerce, that is perhaps not that relevant. However, for other players that are more traditional or transactional and do not know their customers that much, it is a great opportunity for them to gather data on their customers. In 2019, we developed our systems and opened our IT architecture with a layer of API so we could connect our back end, where the banking products are, with the front end of these partners. We also developed the products because we did not have them: an additional banking account, additional credit and debit cards, physical, digital, and so on. In 2020, we signed our first partnerships and are now launching them. This is a strategic bet. The pandemic is accelerating this trend significantly; this business model that two years ago was some an early discovery for us is now a reality. It is a reality that is gaining momentum worldwide so we are extremely pleased to have the opportunity to develop banking as a service in Mexico.
In what ways did you have to adapt the business model of Banco Sabadell to adapt to the pandemic?
In our case, we were extremely fortunate because this pandemic is accelerating the digital appetite of customers, and, therefore, we do not see the need to have branches. Our customers are demanding more digital banking products. We had some challenges in the past, such as regulatory obstacles. The pandemic is accelerating a change here, and regulatory changes now allow the digital onboarding of all banking products. That is a game changer for us, because we can now plan to expand to the whole country without needing a branch network.
What are your expectations of the financial results of Banco Sabadell in 2020 in comparison to 2019?
There is less activity, and we are heavily focused on business banking. Businesses in the country are reluctant to invest during the crisis. They are applying for banking credit less than before. General activity is lower than 2019 or even 2018. We are processing fewer operations, and that means fewer fees. There has been a reduction in the fees that we earn every year. The official interest rate has also been lowered because Banco de México needs to engage in a monetary expansion policy, and that will also have an impact on the P&L of banks. In the case of the quality of our credit portfolio, as a bank we have lent mainly to medium and large companies in Mexico. We have no exposure to SMEs and to individuals who are the most vulnerable segments of the population during this crisis. Our credit portfolio is currently performing well, and we have the lowest impermanent credit index in the country. The interest rate fall will have an impact on our P&L as well.
What are the main priorities for Banco Sabadell in Mexico for the rest of the year and 2021?
Our priorities are to be close to the economy, understand the trends and what the market is doing, and preserve a large portion of our liquidity and our solvency, which is subject to paramount metrics for a bank. We will also take care of the continuity of the operations, and that has to do with protecting the health of our employees. Our employees will remain at home at least until the end of the year. We will be preserving the quality of our portfolio; at the same time, we will expand our banking-as-a-service business model, sign more partnerships, and start the production of the ones that we have already signed. In 2021, I expect a recovery, though I do not know if it will be a full recovery. I expect a pretty clear recovery of the economy, and we will take advantage of that recovery.
What is the profile of the companies you are looking to create partnerships with?
We are looking mainly at retailers, both e-commerce and traditional; telcos, as they are interesting players; insurance companies; and last-mile companies as well. In the beginning, we thought fintechs did not make sense because they were small compared to other players in terms of customer base and they are competing with us. Still, we have since realized they are eager to offer products that only a bank can offer, and the only way for them to do so is through a banking-as-a-service partnership. We are also signing partnerships with fintechs. There is only one condition: a minimum customer base, which is extremely important because if they are tiny, it does not make sense for us to sign a partnership. The other condition is that they need to have certain capabilities online. For example, if they are a traditional retailer, they must have some digital capability, such as a wallet or an app. They know this is something they need to deploy even further.