Banks and banking have had a difficult time in the recent global economic crisis. It is not just that some closed shop and others had to be bailed out by governments; their image has also taken a bad beating. This will have serious consequences in the long term, many analysts say. It won’t be easy regaining the confidence of society. The side effect is that talent is now looking twice at banking as a career option. This is unfortunate as any economy needs good bankers.
But new technology – particularly in mobile space – is coming to banking. It will encourage more transactions and reduce costs. If the system does manage to become more transparent, there could be good days ahead.
The way forward is to empower the bank customer, involving him in certain resource allocation and pricing processes. Make him a citizen of the organization, says Enrique Goni, CEO of Caja Navarra, a savings bank in Spain. It has worked for Caja Navarra, adds Goni, who is also responsible for industrial investments at Caixa Bank, one of the largest savings banks in Europe. Goni discusses these issues in this conversation with Mauro F. Guillen, a Wharton management professor.
An edited transcript of the conversation follows.
Mauro Guillen: Given your long experience of the banking sector in a key European economy, I would like to begin by asking you a very general question: What are the main challenges that the banking sector is facing nowadays?
Enrique Goni: The first [challenge] is getting more capital — raising capital. Second, from my point of view, is how to finance technology and innovation. And third, from the psychological point of view, is how to get the confidence between banks and society back again.
Guillen: Putting aside the need for more capital, you [said] the second big challenge is finding the resources to invest in technology and innovation. Which specific areas do you think banks need to invest in over the next three-five years?
Goni: Mobile banking. Outsourcing. But, first of all, to compete better in the market.
Guillen: Looking at the European and the Spanish situation, what new models or new experiences would you say are the most important right now in mobile banking?
Goni: Well, emigration from cards to cell [phones]. We have some beautiful examples [of innovation] worldwide and in European banking.
Guillen: So it's replacing old forms of payment.
Goni: That's right.
Guillen: Do you think that the digital social networks – the people — are increasingly using their mobile phones [for interaction]? Can banks benefit from this new social technology and the way in which people's behavior is being affected by what their connected others are doing?
Goni: From the point of view of banking activity, from the point of view of bankers, using the mobile instead of conventional payment models has high potential for efficiency. Second, experience shows us that the customer uses the mobile 20% more [often] than, say, the credit card. So it is more business and less expense.
Guillen: So mobile banking is going to make banks more profitable?
Goni: Of course.
Guillen: Which countries do you think are more advanced in terms of implementation of mobile banking?
Goni: We have two clear examples. One is Japan. Japan is the pilot or the model and is showing us great examples of [achieving] efficiency and how people are increasing their [banking] operations. In another geography, it could be Kenya.
Guillen: At your own bank, what has been the most significant challenge in terms of using these new mobile technologies?
Goni: Two challenges. One is not dramatic. It's how to train your organization or how to train the people, the customers. I think this is going to be easy. Second is how to deal with the technology, how to deal with the IT (information technology) companies. There is a lot of business to share.
Guillen: Are you suggesting that the big benefits or profits you were referring to may not go only to the banks? They may also go to the IT providers or maybe the telecom companies?
Goni: They are going to get a real part of the profit. So [the challenge is] how to manage this and how to negotiate that. What part of this is going to be supported by banking and what by the IT or telecom companies.
Guillen: What do you think banks should do to ensure that they get sufficient share of the profits created by mobile banking?
Goni: [We need to tell them] you are going to be a telecom company and not a bank. We are going to be the bank. We are going to build something together that will receive 70% of worldwide transactions. Second, [it will depend on] who puts in the money.
Guillen: Do you think banks should establish relationships with several telecom operators or providers? Or should they focus on just one?
Goni: For a long-term relationship, the second. But it's a world that is open. So everybody is going to talk with everybody. But you can be more competitive through a good marriage instead of having several relationships.
Guillen: You mentioned that there is a third very important challenge facing banks today — the loss of confidence on the part of customers and regulators and, more broadly, society as a whole. Banks have lost quite a bit of face. They have lost trust. They have a big deficit not just in terms of capital but also in terms of confidence. What do you think banks should do over the next two-five years to rebuild that confidence?
Goni: There can be many responses. Having achieved full transparency, we must consider the customer something like a citizen. The crisis of confidence is a crisis of transparency. It is very difficult to rebuild transparency if there is no participation. You have to promote the real interest of the customers in the bank. People don't want to feel like subjects. They want to feel they have something relevant to say and something relevant to share with the shareholders.
Guillen: In the past I have heard you say that you think the clever companies of the future should be like republics with citizens and these citizens include not only customers but also suppliers. They have rights. Could you explain how you think these models should work?
Goni: Look at history. We have the example of the Roman republic. The Romans had a lot of troubles; they made mistakes. But they built something that was relevant during the 20th century. What was the beginning? The beginning was created from something like a very old coalition of citizens. This is an example. Put it into companies, into a bank. How do we design a bank that is going to be loved by customers? The only way is if they are very close in [the process of making] the key decisions. They want to know and they want to participate. What is the pricing policy? How can they get more products at a low rate? There are many ways to put your interest close to the interest of the bank or the company.
From my point of view, the key question is how to open the ownership or the property rights and share this with the customer. In the middle of this, you can put the new formulae like social marketing and CSR (corporate social responsibility).
Guillen: Why do you think shareholders of a bank would want to support this kind of comprehensive relationship?
Goni: Shareholders want to increase their capital gains. If this works, shareholders will be happy.
Guillen: Are you essentially predicting that banks or other types of companies that succeed in implementing a model such as this will gain a competitive advantage over others?
Goni: Yes, I think so. Not for the banking industry alone; this is a method of the new time. The new time is citizens. The new time is full information through technology.
Guillen: In your own savings bank Caja Navarra, you have implemented a model that follows these principles. Can you explain so that we can see the relationship between the third challenge – confidence — and the second challenge — technology? What role does technology play in your bank when it comes to helping customers participate?
Goni: You need a strong data warehouse and special techniques and abilities for data mining. You have personal compatibility with every customer; you know how much you're earning with a customer.
Guillen: Do you need to be able to communicate [this] to each customer?
Goni: Of course. We did it.
Guillen: In your system, what is the customer supposed to do with that information? Can the customer take [any] action?
Goni: The reason for sending this information is that we are recognizing the customer’s right to know how much the bank is earning from his mortgage or his credit card. We allocate a part of these earnings to the CSR [program] he wants.
Guillen: In other words, instead of the bank taking the decision as to what CSR activity to undertake, you are delegating that to the customer. In your experience, do customers who are given these rights – who are empowered — stay longer with the bank? Do they increase their loyalty to the bank?
Goni: Yes, of course.
Guillen: How does the system work? Do customers determine how much money executives like you make?
Goni: Yes. We did a very big, random survey of 40,000 customers asking them questions like do you think we are with you only in bad moments or in good ones too? Are we managing in a language you can understand or are we using jargon? Please rank us from zero to 10 every year. For example, we need a seven. During two years, we got a seven. But one year, it was 6.3 and I lost 30% of my bonus.
Guillen: So customer ratings determine the bonuses of executives at the bank?
Goni: Yes. Why not? And it's good for the shareholders too.
Guillen: What are the implications of this model of the bank as a republic for the employees of the bank?
Goni: First of all, employees didn't believe this could be true. But [after that] they felt we were going to do good business by doing good things. This is an opportunity to be not only a banker but also feel much more of the fabric of a company. You are a promoter of a new model of society where companies are real citizens and they promote a new kind of citizenship.
Guillen: I think the past five years of this crisis have been very challenging, not just for banks but also for those of us who teach about banks and banking. I am absolutely convinced that we need banks. If banks don't work well, the economy cannot work well. That’s one part of the equation. The other part is that it has become very difficult, especially with young people, to continue justifying the need for good banks in the way we did prior to the crisis. In other words, as a professor, I've had to look for new arguments, for new ways of telling our young students, "Look, banks are important." It has been a challenge to continue persuading younger people in the classroom that no economy can work without banks and what we need to do is be very smart about redesigning the banking system and regulation.
Goni: Are the students talking about how the banks have to be?
Guillen: I think students have mixed feelings about the banks and careers in banking. Some feel they have bright new ideas, many of them around technology. So they think they can change banks. They can make banks better, more efficient, more open, more transparent and all that. So they're eager to pursue a career in banking for that reason. But there is also a very large proportion — perhaps the majority — who don't want to go into banking. They tell me they would much rather pursue a career in private equity or in venture capital or in something else related to finance.
Goni: How do you solve this?
Guillen: I tell them that there are opportunities in private equity, in corporate development offices or departments at major non-bank corporations. But we still need new talent going to the banks. But a lot of students believe they will be better off pursuing a career in another part of the financial world. I don't think that's good for society or good for the economy.
Goni: I hope we can change their opinion by [presenting the] facts.
Guillen: Right. That's why we need people like you to promote and to implement new models of banking that will hopefully appeal to the younger generation.