Julián Colombo, from N5 Now: “The digital banks that are turning towards the human are the ones that have the best chance of making a profit”

Although fintechs have taught that the financial industry can be friendly to consumers, the CEO of the consulting firm N5 Now assures that traditional banking still faces challenges to improve customer retention, such as the short-term vision pursued by utility and the objection of the majority investors.

The trend of adopting conversational software, better known as chatbots, was on the rise, but the “digital first” approach with customers really took off with the start of the confinement measures. In 2020, the global chatbot market was valued at $17.17 billion, according to market research firm Mordor Intelligence, and this number is expected to increase to $102 billion by 2026. And banking was one of the industries that most adopted technology, due to their need for speed, trust and communication. And it seems that these technologies are paying off. According to MIT Technology Review and customer experience firm Genesys, approximately 90% of business executives surveyed have reported improvements in the speed of complaint resolution. But, Julián Colombo, CEO of the digital transformation consultancy for banking N5 Now, tells AméricaEconomía in this interview that “this logic is a sophism: most customers get so frustrated with the chatbot that they leave the conversation in the middle and that the system analyzes as a positive”, he adds. – Now that digital transformation and artificial intelligence are in fashion, the first thing that companies tell me is that “we put a chatbot”, but you tell me that it doesn’t work like that. – Artificial intelligence is useful from defining the price of credit to knowing what the biggest bottlenecks are. But these things are difficult for banks to understand. What is easy to understand is: if today I have 7,000 people in my call center and I put a chatbot, I will have less. And they begin to experiment by developing chatbots that are a tree of information: “you want to know about this product, mark one, about this product mark two.” It is almost insulting to the user because nobody wants to know the life insurance offer in such detail. , but wants to know: “I had an account with my wife and I got divorced. Who has the account? This type of conversation only has a chance of success when the system is extraordinarily intelligent or it is a human who has access to information, a 360 view of the situation and a certain empowerment to make decisions. The banking movement is a corollary of the above. If four years ago banking and fintech went through a process of digitization and the end of humans, today, those digital banks that have the best chance of profitability are those that are turning towards the human, where they are not only there to listen a request, but they are also empowered to make a decision. – We are not talking about the technology itself, but about the bureaucracy behind the banks. How are the traditional banks doing in Latin America, or, once again, are they behind the fintechs? – The point has a lot of nuances. The first thing to know is that broadly speaking there are 750 neobanks in the world, only 13 make money and 12 are in Asia, one in England and there is none in Latin America, but only some isolated cases such as Mercado Pago, which is part of of a macro platform. The point I want to emphasize is what do we talk about when we talk about success? Whether it’s customer satisfaction or growth, fintechs make a huge difference to banks. But if we talk about profits, banks are much better than fintechs. No one asks Ualá or Nubank to earn money. Nubank is the star of Latin America and lost US$66 million in one quarter. But if a big bank lost US$66 million, they would hang the president in the main square. So, only in the long term will we know what the correct strategy has been. – Amazon has sacrificed years of usefulness to improve customer service and finally dominated the market. Maybe in the long run the only fintech will win and traditional banks will be left behind? – The difference is that there is no regulator for supermarkets, but there is a very important regulator for the financial industry. This is because the concentration of the financial industry is clearly harmful to the interests of an economy. So is probably an Amazon, but when a country’s largest supermarket goes bankrupt, things go on. When the financial system goes bankrupt, the government that is there doesn’t follow. Although the natural tendency is for a disruptive player with very good customer service and low costs to win the entire market, it is more difficult for this to happen in banking. And beware, I was a client of digital banks since 2006 in Europe, but they failed to make a profit, much less eat up the market, and they disappeared. – In the end, is customer satisfaction and profit compatible or not? – The value of a financial asset is the future flow of discounted funds. That is to say, its value is the sum of the future flows of its clients and it is like a rectangle: how much the client leaves is the height and the width is how long it will be. And this is very sensitive: if I make the client angry, instead of staying for eight years he stays for four, then it is worth half even if nothing has changed in profitability today. Therefore, it seems that the value of a bank depends absolutely on customer satisfaction, but the financial industry has a lot of complexities and imperfections that make the primary analyzes unverified in reality. First, banks have very high exit barriers. Even if the customer is angry, he has to think about what to do with all the payments, the investments or the cashier he gets along with. So, satisfaction has a technical imperfection. The other component has to do with the structure of the income statement of a bank versus a fintech. Today, most fintechs are single-product, with person-to-person payments, payments and collections, and a few other value-added services. But a bank has all the profitable business, such as investments, loans and insurance. It is as if on one side there is a McDonald’s and, on the other, another company sells Coca-Cola much colder, at a better price and with the best service, but nobody is going to go there.

Open finance – I would like to rescue what you told me at the beginning, the high exit barrier of the bank. It seems to me a market error, because if the client wanted to change, he should. For example, this is what happens with telephone agencies: in Chile there is the interoperability law and I can change from one to another quickly. – One of the biggest asymmetries in banking was the following: the price of credit, which is the most important and least transparent data. The algorithm for defining your price has such a level of complexity because there are literally more than 8,000 variables at work: your balance evolution over time, your age, which side of the street you live on… All this logic made the bank that has you as a client had a level of information infinitely higher than that of its competitor. And the competitor operates risk averse. So, if I don’t know something about Sol, I assume the worst. In the world of open finance, you simply enter the BCI bank and say “I authorize to request my data from Santander” and Santander has the obligation to transfer 100% of your existing data, including the potential need to erase, pass and delete them. Therefore, the new bank knows exactly what rate it can give you and the competition is enormous. Now I charge you two dollars less than there and the bank is losing it. For him, selling cheap is still a good business because he didn’t have the client yet, but the bank that loses loses a profitable client and I need to retain it. This process, which is called open finance and has open banking, open insurance and open investing, is already in force in Brazil and of course it is much more mature in Europe. – Maybe we can’t blame the banks so much for their poor customer service because there is a technology limit and there are no regulations that allow the flow of data. – There is a very important percentage of the responsibility of the banks. It especially has to do with this confusion of short-term customer outcome versus value. All accounting and management systems of a bank are short-term. If you ask the president of Banco Santander de Chile or BCI, how much did you earn this month? or how much do you have in deposit?, knows the answer. But you have no idea what your customer’s value is over time. If they knew that, due to a problem that happened, like a data leak, the average expected time of duration of the clients dropped 17 days and represents US$ 600 million, it would be a scandal. But they don’t see it, so they don’t manage it. The other fundamental concept is who owns the world’s banks: the old retired Europeans and Americans, who have 80% of the world’s silver. As old people die fast, they can’t be speculating too much but only invest in triple A funds, which don’t have much variation in results, which are the banks. So, this investor is not interested in extending the life of the clients, charging little to earn more than 28 years from now, because in 28 years he will be dead. – Do we have hope that the quality will improve? – Yeah, the world’s net promoter score (NPS) is up like seven points since the start of the pandemic, which should have been the biggest jump since 2006 or 2007. So yeah, the trend is that the banks are improving, a bit persecuted by the fintechs and a bit by the improvement of technologies.