8. Innovation and Technology

8.1 Information technologies and Digital transformation

In 2014, the Innovation and Technology (I&T) area has structured its activity around six main lines of action:

• Infrastructure
• Core banking
• SMAC Technologies
• Operating model transformation
• New ways of working
• Operations control and Information Security

8.1.1. Infrastructure

The increasing use of digital channels by customers has exponentially increased technological infrastructure processing needs. With increasing levels of customer digitization the use of channels has become more intense. This results in the need for an infrastructure with greater processing capacity.

In 2014 BBVA continued to make progress in its plan to construct a network of four new next-generation data centers, two in Madrid and two in Mexico, which will operate in a crossed Business Recovery Services (BRS) model. The first Data Processing Center (DPC) is already operational in Madrid and in 2015 the first will enter service in Mexico. Specifically, in 2014 BBVA became the first bank in Europe to achieve the Tier IV Gold certification for its BBVA DPC in Tres Cantos (CPD TC 2), granted by the Uptime Institute for classifying operational sustainability.

With the aim of achieving greater efficiency, BBVA has reached new agreements this year with telecommunications providers such as Telefónica, Verizon, Vodafone, Telmex, etc. At the same time it has renewed the Group's biggest software agreement with IBM with the firm aim of providing greater flexibility and boosting mobile channels. It has also closed an agreement with BMC to establish platforms for managing IT, automation and analytics software, which will speed up the transformation of digital banking in BBVA.

With respect to South America, in 2014 there has been a significant renewal in the park of self-service banking devices. Many of the new models provide new functionalities such as allowing customers to make cash deposits without the need for subsequent manual counting. There has also been investment in customer biometric authentication systems in branches for identification purposes.

8.1.2. Core Banking

Part of the technological transformation project begun by BBVA in 2007 has consisted in optimizing core banking in each of the geographical areas (Spain and Portugal, Mexico, the United States, South America and the Corporate & Investment Banking business area at global level), with the aim of having modular technological platforms available with a customer-centric vision.

Along these lines, in Spain a new global supply model was implemented during the year to standardize and simplify processes, while improving the reporting functions offered by the information platform, with dashboards are available on mobile devices. The Advanced Version Financial Services Architecture has also been put into production. This element makes it easier to develop the omni-channel strategy as it integrates, provides a service and assists the development of different channels through which the Bank provides a service. Another milestone has been the renewal of the Group's service-level agreements (SLAs) with the different providers to adapt them to the reduced current service needs following implementation of the new platform.

In Mexico the three-layer service architecture has been implemented in Bancomer.com, providing a better prepared platform for the development of the new digital products and services.

In 2014, the CIB technology in the BBVA Group has evolved through a variety of projects: the implementation of a new back-office tool for the management and administration of fixed-income operations in Mexico; the integration of the Global Lending loan applications with systems for BBVA corporate consolidation, accounting and reporting; and a tool for the process of effective equity trading in international markets.

8.1.3. SMAC Technologies

BBVA is putting particular emphasis on the Social, Mobile, Analytics and Cloud (SMAC) technologies. At BBVA we are developing projects using all the above trends, in order to generate the necessary infrastructure capacities and to create value from them, basically by the development of new digital content.

Big Data

The Group has already been working for some time on its commitment to big data and data analytics solutions. In 2014 big data tools were incorporated to help our customers search recent activity via our online banking application. Thanks to the use of big data, customers have a much more powerful and quicker activity search engine available, while BBVA has reduced costs and freed the host from millions of monthly transactions involved in account activity searches.

During the year new big data capabilities have been applied in the area of Commercial Intelligence, allowing calculations to be made within hours, rather than in weeks as before. This gives BBVA earlier information about customer needs with immediate data such as the use of channels, digital behavior, etc.

Mobility technologies

In line with BBVA's commitment to SMAC technologies in 2014, there have been a number of milestones in the area of mobile technologies, supporting the development of the Group's omni-channel strategy, designed to create an experience through which customers can interact with BBVA through any channel, anytime and anyplace.

The initiatives developed include defining the strategy for reaching the channels according to the device (native, web-responsive or hybrid apps, etc.) in order to offer the same customer experience across all the Group's channels. A number of initiatives have also been developed to generate new digital content, such as the incorporation of new functionalities for contracting products in the digital channels and the creation of initiatives that cut across all the channels, such as the application of gaming mechanics to non-gaming environments (gamification)

The Group has made significant progress in implementing new models of relations such as BBVA Contigo, an alternative model of customer relations launched in Spain aimed at people who are looking for a more remote relation with BBVA. In the United States, the Group launched Banker Link at the end of 2014. This is a new drive-through banking service that combines personal service from a branch manager with the self-service functionalities of an ATM. The Group has also launched a similar service in Mexico and the Group's other geographical areas as part of this strategy.

In addition, BBVA has launched and developed various digital products and services and is working on new developments. One example of this type of initiative is BBVA Wallet, the mobile application launched by BBVA at the close of 2013. It has consolidated its position as the most popular mobile banking payment application, with more than 400,000 downloads at the close of 2014. BBVA Wallet users have a number of functionalities available, such as management of their card transactions quickly and securely through their cell phones, payments through cell phones and financing payments made with BBVA credit cards. In May BBVA Wallet received an award at the CMA Contactless & Mobile Awards 2014 for the best mobile payment solution in Europe. With Wallet, BBVA has become the first financial group in the world to launch a mobile NFC payment solution⁽²⁾ that uses the Visa cloud-based specification. The system allows BBVA customers with Android NFC-equipped terminals to make contactless purchases by simply downloading the app.

(2) Near Field Communication

8.1.4. Operational model transformation

Throughout 2014, BBVA has continued to make progress in its operational transformation plan, whose aim is to carry out operations offering an optimum level of quality at the lowest possible unit cost, while reducing risk via a flexible, global model. This transforms all the front office operations, i.e. those that are generated in the channels (where there is direct interaction with customers), as well as the middle and back office.

The Group has begun to implement the new Operational Industrialization model, with digitization of the first business operations processes. At the same time, major projects have been implemented, such as the adaptation of operations to the SEPA European standard.

In 2014 deployment also began on the new Contact Centers platform. This has been an important step in strengthening BBVA's omni-channel strategy. BBVA has a contact center network through which customers can interact with the Bank in all the countries where the Group operates. Recently, a plan has been implemented to adapt the service provided by these centers in order to bring them into line with the new omni-channel environment and boost their role as a hub between the physical and digital world. The project is already underway in Spain and Venezuela, and in 2015 it will be launched in Mexico and Peru.

In South America a procurement hub has been created located in Chile, with the main aim of achieving synergies in the main categories of products purchased.

With respect to the Group's outsourcing operations, during the year the global and local outsourcing management function has been consolidated to ensure the management of the flow of all the new contracts and their renewals, as well as the maintenance of an updated stock of contracts. In addition, this year a new corporate outsourcing management regulation has been published and implemented in each geographical area, adapted to local regulatory requirements.

8.1.5. New ways of working

Several projects have been developed with respect to new forms of working in the Group, with special emphasis in two areas: improvement in the technological experience of the spaces called "BBVA Cities"; and the collaborative environment, an omni-channel web desktop that provides the Group's employees in all the geographical areas with a set of functionalities designed to simplify and optimize ways of working.

In 2014 a new version of the collaborative environment has been deployed, which develops and extends it to the mobile environment. It also includes new functionalities, more collaboration and more personalization. The Group's collaborators have also received a new Directory and the logistical courier service in Spain has been optimized with the aim of providing a better quality service, improving user experience and reducing costs.

8.1.6. Operations Control and Information Security

In 2014 significant progress has been made in consolidating the specialist Operational Control function within the Group's Operational Risk Model, as well as its model of governance. The design of a standard control model has also been completed with a focus on the most critical business processes. Implementation has begun in all the Group's banks and business areas.

Since 2007 the BBVA Group has had a Technological Risk model in place based on three pillars: information security; management of technological fraud; and IT risk management, aimed at managing fraud and technological risk. The sole aim is to protect the information of our customers and collaborators and to prevent cyberattacks and threats. It is a pioneering model that combines both classic techniques and the most advanced security techniques.

Throughout the year more emphasis has been placed on the development of this technological risk model with a series of milestones, such as the start of the implementation of a new technological risk management model common to all the countries, based on the international Cobit 5.0 standard; and the implementation in Mexico of the Lynx card fraud monitoring system to improve the level of detection of fraudulent operations.

Also of note is the launch of an update of the Master Information Security Plan 4.0, its multi-year cybersecurity and technological risk program with the aim of being better prepared to respond to increased and more powerful attacks and changes in the environment.

In addition, the Business Continuity initiatives incorporate a set of procedures to deal with scenarios where people, centers or suppliers become unavailable. To this end, efforts have been made in order to fully implement and update 136 continuity plans in 24 countries. Some of them have been fully or partially activated over the year, as in the case of the winter storm in Alabama (United States); the category 2 hurricane Odile that affected the area of La Paz and Los Cabos in the north-east of Mexico; and the earthquake in Chile, whose impact was focused in the north of the country.

8.2 Model of open innovation

As part of its digital strategy, the BBVA Group has developed an open innovation model with the innovation and entrepreneurship community through a variety of internal and external initiatives.

Through the BBVA Ventures fund, located in Silicon Valley, the Bank invests in disruptive startups in the area of innovation and financial services. At the close of 2014, BBVA announced investment in the startups Taulia, DocuSign and Personal Capital, which were added to the investments the Group already had in its portfolio.

BBVA also aims to acquire digital companies from which it can learn and that reinforce the Group's digital transformation strategy. An example of this is the Group's announcement in February 2014 that it had acquired Simple, a company based in Portland, Oregon (U.S.), which combines innovative technology, outstanding customer experience and behavioral economics experience to help its customers spend more intelligently and save more. At the close of the year, BBVA also acquired Madiva Soluciones, a Spanish startup specializing in services based on Big Data processing and Cloud Computing.

Based on talent and internal resources, the Group also aims to act as a seed incubator for innovation products and new business models that are disruptive and independent of the traditional banking business. Wizzo, the first native digital product launched in Spain, is an example of the initiatives that the Bank aims to promote. Launched at the close of 2013, it is a web and mobile app available for iOS and Android that makes payments between individuals easier, allows users to pool money and makes it possible to take money out of an ATM without a card. In addition, Wizzo users can ask for a physical or contactless card with which to make payments via a cell phone.

Finally, through the BBVA Innovation Centers, the group aims to forge a significant presence in the innovation and entrepreneurship community and consolidate its open innovation model. In 2014, the Innovation Center has continued to expand its global footprint: In March of last year BBVA opened the Innovation Center in Bogota (Colombia), and the Innovation Center in Houston (USA) opened its doors in June. Over 100 events and thousands of visitors in 2014 are proof that the Innovation Center has consolidated its position as a meeting point for the innovation and entrepreneurial community.

In 2014, a space was opened designed to turn the Innovation Center into a stage for real interaction with users, called the Living Lab. This environment replicates the spaces where people normally interact with BBVA and allows us to better observe and study their preferences and listen to their feedback in order to improve the products and services we will offer them in the future.

Also in 2014, we held the first hackathon Innova Challenge, a competition for the development of applications using transaction data that BBVA shared with the developer community. A total of 144 eligible projects from 19 countries were submitted, and nine applications were rewarded with €90,000 in prizes. This activity has already demonstrated the enormous talent and large number of ideas that can arise out of open innovation, with applications currently under analysis by the Group to enrich our value proposition for the market.