On a mission to find an answer and fresh perspective to these topics, we invited for an interview Filip Genov, the CEO of F27, an innovative digital development, and transformation alliance, that designs platforms, driving growth in digital transformation. Software Group is a strategic partner of F27 supporting its vision to make finance more entrepreneurial and closer to human interaction.
Mr. Genov has over 25 years of experience in banking, innovations, and technology. He has served as a non-institutional special adviser to the President of Bulgaria on financial technologies, banking, and innovations. During his professional experience, Mr. Genov has created and managed three 500+ million-euro financial businesses. Among his achievements include being a Founder & MD of Sophia Lab, the leading digital transformation and acceleration think tank in Southeast Europe, and a Founder & MD of the first banking and FinTech VC operation in the region.
Mr. Genov, thank you for accepting our invitation for an interview. Let's start with some of the hot trends in digital banking in Europe for 2020 and beyond.
Thank you for having me.
Let me point at immediately the hottest trend of the day – the ongoing Coronavirus crisis, which, apart from its terrible social cost, is bringing even more demand for the distant and mobile financial services, interactions, and business exchanges. Apparently, at this very moment, Amazon Prime is the most trusted and used business provider in Northern Italy. At the same time, most of the other corporates are purely stunned to basic survival and even worse – with diminishing appetite for investments, changes, and innovations. This effect is the worst danger for any financial institution now – to answer with passive conservatism the even more increased market need for digitalization and new business models.
As for the more “normal” hot topics, I would highlight two major ones. First is the entrance of GAFA (the big four – Google, Apple, Facebook, and Amazon) in the digital banking space in Europe. Google announced its banking plans in November last year, and Facebook is coming fast and strong on the mobile payments arena as well. Amazon and Apple are already very familiar with their digital banking initiatives. Further to this, one of the trends will be offering more sophisticated products and services to consumers via non-banks.
The second most important trend is related to adapting digital and new mobile technologies in supply chain finance in terms of transactions and payments for SMEs and corporations. This is crucial, as, on the one hand, the B2B Fintech still lags, and the possibilities to digitalize, go mobile, and improve efficiencies are yet to be explored. On the other hand – this is where the largest transactional volumes occur. Looking at how the new digital attacker banks are winning the heart and the (mobile) wallets of the retail clientele – even in the mid-term it will be extremely difficult for the incumbent banks to keep their positions in the mass market if any at all.
We will witness some critical transformations. What is your vision for the future of banking?
The critical transformations time is already here, bringing a dividing point for most of the retail banks – will they be able to reposition themselves as trustees of the entrepreneurs and family-offices, or will they master the technology game and return the heat back to the BigTechs and the NewTechs.
We, at F27, do believe that banks will have number of transformation possibilities centered around three major roles. The mostly passive banks take the first role that is now especially common to continental Europe. They are playing the waiting game to see what will happen next. Here, we also include the so-called “eternal transformation organizations”. These are the banks that do so many things, that in the end, they happen to do nothing. They struggle to produce a sound focus or a consistent digital strategy.
The second role, which quite a lot of banks are looking at, is the role of “digital champions”. Some banks find it very trendy to announce that they are acting like a technology company with a banking license. To what extent this is true, it is yet to be seen. And some financial institutions are clearly leading the way, such as Barclays, BBVA, Santander, etc. But this is going to be the most fiercely competitive position because the big technology companies are also aiming to reach there. No surprise.
This leads us to the least populated, but I believe strategically, the most exciting position for a bank. The category includes going back to the basics and becoming a “human bank”. This means getting out of the comfort zone of collateral lending, going into a family-office concept, entrepreneurial approach, open to partnerships with private equity and venture capital funds, partnering on equal terms with smaller ecosystem players, reinvention of the wealth management business, centering on the clusters of agents, etc. Although human banking is the most profitable and strategically most exciting category, it requires the most significant change. It is much easier if you adopt the technology and try to put your business around it. The difference comes when you see the technology as a tool, and you are centered around entrepreneurs, ecosystems, families, and … human beings.
There is a risk for sure – as with any new model, it still needs its visionaries, leaders, and champions, it still needs its market adoption. That makes the incumbents so hesitant to venture there. But then again – those who lose the chance to be such visionaries, leaders, and champions will need to lead, envision, and champion against N26, Revolut, Facebook, Amazon, Apple, and Google. Good luck with that too!
How close are European banks to Open Banking and “Everyday Banking”?
Many things are still required in this direction. From the regulatory and obligatory point of view, most banks are ready for Open Banking and “Everyday Banking.” They have ticked and checked the PSD2 box, which means that they have the technical capabilities.
However, the gap between having the capabilities and using them is yet to be closed. It is still not visible how banks are enabling their clients through open banking. There is no evidence on how fintech companies deliver revolutionary products and services through open banking. We will witness these changes, but it is still the beginning.
On the positive side, Bulgarian banks are not shy to innovate. For example, UBB was the 1st in the Balkans to lead the way by allowing its clients to see their positions with other banks and TBI championed in the entire CEE becoming the 1st to go with the instant SEPA payments.
At the same time, we see several fintech companies that are getting there as well, including A1’s push to become the mobile wallet standard on the market.
Yet again – these efforts are just the tip of the iceberg, and the sector is still a white page to be written.
Can you give us an example of a successful banking ecosystem?
We can talk about several examples like that, but firstly, we need to define what an ecosystem really is. The “romantic” belief that a bank can own its ecosystem is coming to an end because it is not happening anymore. We can talk about banks that are participating or belonging to an ecosystem, not the other way around. Overall, Lithuania and the Baltics are the European regions where the ecosystems are mostly integrated.
If we consider Revolut as a bank, this is the most successful example of a virtual cooperation society that is mobilized in a wallet. If we take Revolut as a service, most of their ingredients are outsourced to their ecosystem partners. Talking about the traditional banks, we are yet to see an institution that can channel 30-40% of their services through partners.
Mobile wallets are one of the trendiest topics in the digital finance space as well. How do you see the future of this technology?
The future of the mobile wallet is going into several directions. The first direction is becoming much more an enabler rather than a wallet itself. In this domain, the most successful players will be not those who are buying the best software, but the ones who are able to mirror this software with an ecosystem. If you already have a mobile banking application, it is better to invest in improving it, not to spend a lot of money additionally for a wallet.
On the other hand, if you are willing to have a mobile wallet, you should start investing immediately, considering the other value partners with whom you will be populating this wallet. This can be insurance, leasing, trading, etc.
We come back to the technology. It is an enabler, but if your time to market in upgrading the wallet, putting new products and services is more than 3 to 6 months, then it will not be worth wasting time and energy on that. Leading providers can put new services in a couple of weeks, so half a year for this activity will be out of the question.
The last ingredient which is crucial to the mobile wallet further to changing the technology and the ecosystem is changing the organization internally. You need to be able to implement new products and services fast and relatively easy.
More and more, we are speaking about AI revolution. How does it look in the banking sector?
AI revolution in banking is something that most of the bankers shy away to discuss because of the threat most of the banking jobs to become redundant. But this is not adequately understood because there will be other job openings in the banks. I believe that especially for the banks that will be going into entrepreneurial banking, it is excellent news.
They will be able to automate and digitalize their processes and services that are now performed by humans. And humans will have the responsibility to interact with other humans.
It is relatively bad news for those banks that will be competing with Google, Apple, Amazon, and Facebook, because they will be in a tough position and will have to run the extra mile much faster than the technological companies.
AI will be terrible news for those banks that are commodity providers because this will mean a 70-80% reduction in human capital, 70-80% reduction of branch network, etc. They will have the opportunity to survive as a commodity provider, but it will be very tough for them.
What are the goals of F27, and how do you plan to achieve them?
F27 is a digital transformation alliance, including technology companies and financial institutions that look in the direction to digitize, make finance more entrepreneurial, and closer to human interaction. Hence, our products are precisely in the direction of transforming supply chain finance, transactional banking, and wealth management. On the service side – we are also helping our clients to transform by providing the entire innovations execution support, down to project management and turn-key delivery.
We see ourselves mainly as a collaborative player who is helping the world of finance to evolve faster and more efficiently.