If you really want to do open banking, you need open data
Ana Botín, executive chairman of Banco Santander, marvels at how the two basic inputs for banks – in her view, interest rates and information – have changed since the 1980s, when she started out at JPMorgan in New York.
Back then, even in a developed market like the US, central bank rates of 10% or more were normal, while now rates have been negative for half a decade in Europe. At the same time, the digital revolution has upended how banks interact with and get to know their customers. But information remains crucial for banks, not least as it allows them to identify the best borrowers.
“The value of Santander is data,” she says. “If you’re my customer, I know you. It’s the same as when you go to the local café and they know if you want a latte or a macchiato.”
However, while some parts of Santander’s business struggle with net interest margins in the low single digits, she points out how net operating margins at big tech firms can be closer to triple digits. Part of the reason, according to Botín, is “an uneven playing field”, especially on data.
People’s lives have changed quickly and fundamentally – try leaving home without your mobile phone – in a situation analogous to the industrial revolution.
“Society has a problem as it is regulated in a way appropriate for the analogue era,” she says. “The bigger issue for everyone, including banks, is how we evolve the rules for a market economy that’s digital – and the answer should be based on one principle: fair competition. We do not have fair competition on regulation, on taxes, on competition rules.”
Above all, transparency is vital.
“In a market economy, you need competition and competition needs transparency,” she says.
Banks have learnt the hard way that it is not enough to put the real economics of a commercial transaction in the small print.
This is partly why Botín thinks Silicon Valley, for all its success, can learn a lot from the struggles of banks about the dangers of pursuing profit without a deeper purpose. Like banks in the previous decade, big tech firms already face questions over how much tax they pay and where; the concentrations of wealth in particular cities; and the importance of sustaining trust.
The EU’s open banking framework is an example of how banks suffer more onerous rules than big tech, as they are now obliged to share client data with third parties (if the customer agrees). However, the big social media platforms are under no obligation to make their data available to other companies, including banks, which might be able to use it to improve their products.
Payments companies owned by big tech firms can also get away with being less open than banks, according to Botín, and they are relatively free of the profit-depleting capital requirements that come with taking deposits and making loans.
“Open banking is great as long as it’s fair,” she says. “If you really want to do open banking, you need open data.”
Bank-owned payment companies are relatively cheap for consumers, she argues, not just due to the fees but also because of what the big tech firms do with their payment clients’ data. If banks are forced out of this business, competition would go down and prices will go up even further for the end user.
Botín accepts the regulation on capital, loans and deposits, although she is more hostile to the requirement for such high capital buffers for the most systemic banks.
“We are not perfect; we make mistakes,” she admits. “But this is not an industry that’s uncompetitive or has high barriers to entry, except in loans and taking deposits, which is not very profitable in Europe.”
Technology, on the other hand, is increasingly uncompetitive, as the big firms swallow up-and-coming rivals or block them from their platforms, according to Botín.
“Innovation is coming down,” she complains.
The big tech firms’ gaming of fiscal competition in Europe further riles Botín.
“They pay too little tax and in the wrong place.”
According to her, Santander’s effective tax rate in Spain rose from 34% to 36% as the Spanish government shifted the burden of paying mortgage taxes onto the banks last year.
She speaks favourably of a destination tax-based framework, which would make it harder for firms to exploit tax havens, but says it is hard to realize as geopolitics gets entangled with the most powerful industry lobbies in the US and Europe to the detriment of Europe’s banks.
“Either they deregulate us, or they regulate them,” she urges.