This article discusses information technology in the banking sector and the main directions of its development.
The widespread use of information technology has become an objective necessity. One of the areas where their importance is traditionally great is the financial sector. It is safe to say that the process of informatization of banking activities will continue in the future. In the banking sector in the near future, trends will prevail towards improving the quality and reliability of the products and services offered, increasing the speed of settlement transactions, and organizing electronic access for clients to banking products. This is due, first of all, to the desire of banks to achieve competitive advantages in financial markets.
Information banking technology is the process of transforming banking information based on methods of collecting, registering, transmitting, storing and processing data in order to ensure the preparation, adoption and implementation of management decisions using personal and computer equipment.
The use of modern information technologies radically influences and changes business processes in banks, bringing them to a fundamentally different level.
Banking technologies are inextricably linked with information technologies, which provide comprehensive business automation. Modern banking technologies as a tool for supporting and developing the banking business are created on the basis of a number of fundamental principles:
In the currently popular technology, three main areas of development can be distinguished: the Client-Bank system, Internet banking and mobile banking.
Using the “Client-Bank” system, bank clients can perform various operations from home or from the office: account management, obtaining information about the status of accounts and other banking information, making payments and paying for services from current and other accounts and from plastic cards, as well as carrying out other operations.
Mobile banking – receiving banking services directly using a mobile phone or laptop using wireless access technology. This technology allows you to transfer information from Internet sites to mobile phones with Internet access. This system provides even greater freedom of access. Among consumers of banking services using a mobile phone, the Scandinavian countries occupy the first place, and, according to experts, in the near future more than 40% of clients will switch to mobile servicing of their accounts.
The most promising direction in the development of banking information technologies is Internet banking. The development of remote service systems has led to the creation of systems of different volumes and forms of providing banking services: “Internet Bank”, “Internet Client”, home bank, telebank, mobile bank or WAP service. With the help of these systems, almost any requirements of bank clients, except for cash services, are fulfilled. Not only in the West, but also in Russia, more and more stock market participants (banks and brokerage companies) are mastering a new promising direction in the development of brokerage services, which consists in providing individuals with access to Russian and international currency and stock markets (Internet trading).
The modern e-commerce system includes two main areas: B2B (business-to-business), where banks work as the main performer and seller of financial services, and B2C (business-to-customer) - the sale of goods and services to individuals, where credit institutions act as a financial intermediary. With the help of the latest customer service technologies, one manager can actively work with a very large number of clients. The most important trend associated with the expansion of efficiency and versatility of credit institutions was the creation of budgeting systems and an integrated approach to the financial management of bank resources.
Undoubtedly, the formation of the Russian banking sector continues to this day. However, it is clear that the future of banking remains with information technology. In accordance with the natural laws of existence, the strongest survive. In modern economic conditions, those banks and financial institutions that are already widely developing and investing in their information technology activities are destined to survive and stay afloat. The Russian banking system is joining the global one, and the fight against Western competitors is unthinkable without relying on modern high-level information technologies.
Thus, new electronic technologies help banks change relationships with customers and find new means of generating profit. Banking computer systems are one of the fastest growing areas of network application software today.
During the first quarter of 2017, many new events took place in the field of banking technologies that are worth talking about.
Ilya Ilyinsky, a specialist at the analytical company Fintecho Analytics, has prepared an overview of the main trends that have emerged in the industry in the first quarter of this year.
So far, Royal Bank of Scotland plans to cut the largest number of offices - 158 branches and Wells Fargo, which has planned to close 400 offices.
So in February, Bank of America opened the first three offices without staff; in the next 2 years, the bank’s management plans to open another 50-60 such branches.
In March, several banks announced the opening of three new automatic branches, three automatic offices of the Greek Piraeus Bank began operating, VTB 24 Bank opened its first offices without cash registers in Russia, and Sberbank presented an automated “office of the future” in Kazakhstan.
1. In February, U.S. Bank spoke about its plans to switch to biometrics when authorizing a client.
Instead of the usual passwords, clients will be identified by voice, fingerprint and face, a complete transition from U.S. Bank for biometrics during authorization will happen before the end of 2017.
2. Indian DCB Bank plans to introduce retinal identification of clients in 2017.
The retinal scan will be performed in a bank using a special device and will take three to five seconds.
The system will then compare the resulting retinal sample with the sample in the Aadhaar database, the government's biometric identification system. In Russia, an analogue of Aadhaar is still being developed by regulatory authorities. While the project is being pilot tested in DCB Bank branches, the new identification method is being used when opening accounts.
3. The Austrian Erste Bank and Sparkasse are planning to launch remote video identification for their clients.
With the help of the new service, clients will be able to open bank accounts without leaving home. In accordance with the new decisions of the Austrian regulator, for identification it will be enough to upload an online photo of an identity document and contact a bank employee via video chat.
4. An interesting initiative on biometrics was expressed by German Gref in March.
Speaking at a lecture at the Moscow Institute of Physics and Technology, he spoke about Sberbank’s plans to develop a system for biometric identification of clients based on lip movements.
According to Gref, it will be impossible to fake muscle activity. People started talking about this type of biometrics in March, when information appeared about the development of a group of scientists from the Department of Computer Science at Hong Kong Baptist University, led by Professor Chong Yu Ming.
The success of the distributed registry Ripple, whose activity is not only at the testing stage, but also at the stage of implementation in the work of large Asian banks, is an important event for the banking industry.
The first quarter of 2017 confirmed the trend of recent years towards a gradual reduction in the number of branches. Judging by the plans announced by banks, hundreds of branches around the world will close in 2017.
At the same time, banks are increasingly making statements about the future automation of their work. The growing excitement around the introduction of new technologies will increase competition among both banks and fintech startups.
Due to growing competition in the fintech sector, banks will accelerate their plans to test and implement new technologies and make more than one loud announcement this year.
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APIs, artificial intelligence, more convenient mobile banking, new forms of secure authentication and the Internet of Things will help banks modernize technology.
While financial analysts debate whether Amazon will start providing banking services, it is clear that the banking market itself is in a state of uncertainty when it comes to technology.
Of course, mobile banking itself is not something completely new. But today this technology is a prerequisite for bank clients, primarily for the younger generation. This is the absolute minimum that all banks have to reckon with. Experts and analysts are unanimous in their opinion that banks that do not have a reliable mobile application are outsiders.
This will soon be the case for a host of new and emerging technologies, given how banks are eager to keep up with tech companies like Apple, which this month unveiled Apple Pay Cash, allowing users to send and receive money. funds through the Apple Pay mobile payment system.
“Decision makers are starting from the idea that mobile technology is gaining dominance and the market is in the grip of a digitalization trend,” says Chris George , Senior Vice President, responsible for the development of customer interaction strategy at NYMBUS, one of the key players in banking modernization.
Next year, the banking sector will be predominantly influenced by 5 technologies:
1. Banks will expand services with external APIs
Banks have been using application programming interfaces for many years, but APIs—software intermediaries that enable applications, including mobile ones, to connect and operate with back-end office systems—will increasingly be used to provide new services. As The Financial Brand notes, APIs “provide opportunities for innovative, contextual solutions that would have little chance without open banking.”
According to consulting company IDC, by the end of 2018, 50% of the world's tier 1 and 2 banks will offer at least five external APIs. Banks are increasingly partnering with fintech companies through open APIs. Part of this will be due to regulatory requirements.
“New banking regulations, such as PSD2, which require banks to provide access to customer data, also promote collaboration, especially through APIs, which are precisely used to provide access to such data,” note specialists from the consulting company Capgemini in the report. dedicated to trends in the banking industry in 2018. “Regulators welcome initiatives that ensure banks operate in an open format, and banks are forced to use APIs to open their systems to third parties, giving them access to account information and allowing them to initiate payments.”
Capgemini notes that banks “have a pressing need to embrace technology innovation as quickly as possible, but they have not been able to make great strides in digital innovation using only internal resources.”
The company's specialists note that banks and financial technology companies, enterprises looking for ways to introduce new types of technologies, need to cooperate to achieve their goals. Banks are looking for new approaches to digital innovation, while fintech companies need "capital, scale, data, customer trust and regulatory support."
Marc DeCastro , research director for financial analytics at IDC, argues that open APIs can help banks “deliver a more flexible and enhanced customer experience.”
Over the past five years, companies working in the field of financial technologies have gone from competitors to banks to their partners.
According to de Castro, banks are still looking to control customers' digital experiences, especially as part of protecting their brands. However, to control it, credit institutions will need to open access to their servers via API.
2. Mobile banking will become less of a hassle.
Mobile banking can no longer be considered a fundamentally new technology, but it will become easier to use and provide users with more functionality.
Kirk Borne
, a leading data scientist and executive consultant at Booz Allen Hamilton, told The Kirk Borne Financial Brand that consumers will increasingly choose mobile banking over standard banking as their digital, user and customer experiences become more perfect and information-rich. This includes seamless digital banking experiences between consumers and businesses, one-click consumer-to-consumer payments, new cryptocurrency capabilities, biometric authentication systems that don't require passwords, location-based services and offerings, and conversational interfaces.
According to George, the fact that Apple has begun providing direct peer-to-peer payment services will force banks to improve the quality and ease of use of their own mobile offerings. He believes banks need to keep up with others when it comes to mobile apps and services.
“Banking is what everyone is doing today,” George repeats a common phrase in the industry. “It’s no longer the end goal.”
Banks must offer apps and establish an online presence to compete with other players' easy-to-use offerings, he said. It’s no longer enough to offer run-of-the-mill applications.”
3. Artificial intelligence will improve customer experience
Artificial intelligence will help banks automate processes and improve the quality of customer service, says Mitch Siegel director of national financial services strategy and transformation, consulting firm KPMG, in an interview with American Banker.
“We're seeing organizations begin to significantly simplify processes through intelligent automation, which in turn helps showcase enterprise data that has traditionally been hidden in the depths of complex core systems,” says Siegel.
“Organizations have traditionally offered products and services to large groups of customers who were approached in the same way, but who actually had significantly different purchasing habits, motivators and satisfaction factors,” continues Siegel. “Thanks to data, it becomes possible to create services and experiences that take into account the characteristics and needs of each individual.”
According to de Castro, it will not be possible to completely replace humans, and we should not expect banking systems completely controlled by AI in the near future. However, AI will help automate similar processes and can improve customer service using chatbots.
Experts and Capgemini claim that robots are 50-90% cheaper than using full-time and freelance employees, and that banks will increasingly invest in AI in an attempt to improve their efficiency while maintaining a high quality customer service. “There is an increasing demand for lean operations while delivering exceptional levels of service at lower costs,” the company says.
George adds that in the next two or three years, banks will implement AI in their applications. In the near future, he says, when users wonder if they have enough money for a fancy dinner on Saturday night, these apps will be smart enough to know that the answer is yes, since on Fridays users get a certain portion of their salaries.
4. Biometric systems will improve security
Security has always been a concern for banks, and nothing will change significantly in 2018. Banks will be looking for ways to add new layers of security to their services.
IDC predicts that spending on next-generation authentication methods will increase by 20% in 2018. This is due to the desire of banks to gain the “digital trust” of their customers.
De Castro claims that customers have become more accepting of fingerprint authentication of payments on smartphones. Banks will promote the same attitude towards facial recognition and voice identification systems. With customers having to remember more and more passwords, biometric authentication systems will help simplify security procedures and provide more secure methods of identity verification.
“Banks will use anything that can help verify that I am who I say I am, as long as it's as simple as using fingerprints, facial recognition and voice-sample identification,” he says. de Castro.
5. Internet of Things will be used on a small scale
De Castro believes that in 2018, banks, as before, will be looking closely at the Internet of Things without much interest. Next year will see more proof-of-concept studies in which banks will test IoT technologies in a number of high-traffic branches. Banks need to see how customers respond to sensors in such branches, he says: “I think if done right, it will be an expansion of capabilities that can improve the overall customer experience.”
Nikolay Chumak, founder and strategic director of IDNT
Experts believe that in the coming years the role of bank branches located in Russia and a number of CIS countries will fundamentally change. And soon we will witness the transformation of branches from centers for conducting everyday banking transactions into centers for building relationships between banks and clients. The use of alternative channels, which are so beneficial for banks to optimize costs and business processes, leads to the fact that customers visit traditional branches less and less often. However, the client visit still remains the most important link in building the bank’s relationship with its client. Therefore, today banks have to find a balance between a sufficient number of points of contact between their brand and the client and the optimal organization of remote service. This is quite a serious job that requires banks to take innovative approaches when organizing retail business. However, the opening of “branches of the future” of Sberbank of Russia and the Bank of Moscow already indicates the banks’ readiness for experiments and real innovations.
All kinds of innovations introduced by banks in recent years are one of the most interesting topics of the decade related to the transformation of the banking business. Nowadays, it is perhaps difficult to find a bank that would not mention innovation in its strategy or would not focus on the modern technologies it uses in customer service.
However, a number of experts see one of the reasons for the financial crisis precisely in the uncontrolled introduction of technological innovations in the banking sector: excessive passion for innovation on the part of banks and their rejection by consumers became a trap in which banks found themselves in different country markets. Banks spent a lot of resources on something that, as it turned out, did not lead to increased sales, is not interesting to customers and does not affect their loyalty.
It is also necessary to take into account that the understanding of innovation and its perception by the banks themselves and their clients are radically different.
As usual, the provider of financial services (bank) and the consumer of these services (client) each have their own point of view on the very concept of “innovation” or “innovative technologies”. And sometimes these points of view turn out to be diametrically opposed.
IDNT Business card
IDNT company specializes in the development and implementation of bank branch formats for retail and private banks. IDNT conducts projects in the CIS countries, and also takes part in European projects of the company's foreign partners. The author of the material, founder and strategic director of IDNT Nikolay Chumak, studied and analyzed the design of banks in the UK, Japan, Hong Kong and Singapore.
Innovation: the approach of banks...
We can say that the introduction of innovation in banks occurs in two directions, which, unfortunately, are not always interconnected: in the direction of technological innovation and in the direction of improving customer service processes. For many years, innovation has been a tool for optimizing the costs of financial institutions and has occurred in such areas as IT, marketing, CRM, packaging and product design.
At the same time, the client, who, ideally, should be the focus of attention of any bank, could not sufficiently realize his needs, since banks worked to standardize products and business processes, which, most often, did not imply an individual approach to each consumer.
Banks, organizing the sphere of sales of financial services, sought to resemble trade and service enterprises, where a certain part of purchases (up to 50%) is impulse. But, as practice has shown, banking clients do not want to buy financial products and services based on impulse, but require a higher level of personal attention from banking specialists and expertise.
...and the customer's view
In some cases, the client requires either a very simple or, conversely, a complex financial product. However, the bank, as a rule, offers a ready-made package of services. To the disappointment of banks, each client considers himself unique and needs a personalized approach, which a regular bank, as a rule, cannot always provide. In 2011 IDNT company together with Scorpio Partnership (UK) completed a survey of bank managers engaged in servicing wealthy clients in the CIS, “Private banking Survey in the CIS”. The results of the study showed that the majority of banks surveyed are simply not able to provide advice in any area that goes beyond the scope of a standardized retail product.
Even within the framework of such financial services as Wealth Management, which require the highest level of expertise on the part of banks, implying the creation of banking products based on the principle of open architecture and a purely individual approach to each client, banking specialists are not ready to take responsibility for advice when a client chooses products and services. The most common answer to the question about a client’s choice of product was the following: “We show the options, and the client makes his own decision.” In the field of retail banking, the situation is even more complex, since the format of mass servicing of retail clients does not imply much attention to each client, sufficient to determine the needs and select the optimal and profitable combination of products. That is why the bank branch should provide opportunities for retail customers to educate themselves and familiarize them with banking products in a modern, interactive manner. Even if the bank provides a standard package of services, the client, even if he is not able to combine products from different packages, must make sure that a particular package is suitable for him.
The most innovative banks in Europe already offer their retail customers a choice of several product/service options and combinations thereof. This gives the client the feeling that this product was created specifically for him. If previously such an approach was available only to Private Banking clients, now, thanks to the introduction of innovative IT solutions, some elements of the “open architecture” are becoming available to retail clients. This direction opens up broad prospects for innovations that can change the consumer experience of a standard set of financial products.
When it comes to banking innovations, clients first of all remember the Internet and remote banking services, which are relatively new channels for promoting services for banks in post-Soviet countries.
Improving and developing channels for remote customer service that are relatively new for CIS banks - online banking and mobile banking - is today one of the broadest areas for innovation.
It is no secret that many retail consumers find these new technologies too complex and inconvenient in most cases. The interface of the client’s mobile device is often overloaded and does not allow one to intuitively master a new channel.
Banks still have to make a lot of efforts to popularize these channels among retail clients. Bank branches could provide significant assistance in this process, inviting visitors to familiarize themselves with and test innovative remote banking channels. Bank branches are still perceived by customers as a more secure and secure service environment than remote channels. However, how many banks can you find special areas and equipment designed to demonstrate and train clients on new services?
It turns out that, despite the huge investments made by banks in the development of remote banking technologies, their clients simply do not have the opportunity to learn about all the advantages of new products and service channels.
Introduction of banking innovations in Europe and the CIS: similarities and differences
In the coming years, banks in the post-Soviet space will have to spend a lot of effort on introducing technologies and systems that have already become basic for the European banking market. European banks have the opportunity to develop new approaches to customer service, changing service scenarios and building customer loyalty, relying on the existing IT infrastructure.
The experience of such players in the global retail banking market as ING Direct, First Direct, Metro Bank, Virgin Money, Tesco Bank, etc., demonstrates exactly this approach. Within its framework, the bank creates one basic product (most often this basic product is a payment card), and then develops business processes for it, selects a sales channel (branch or other channels). Then the bank connects to the “basic” product the promotion of other “modular” banking products: for example, car lending, mortgage lending, insurance products, affiliate programs, etc. Thus, the promotion of a new product is carried out through already established channels of the base product infrastructure. The individuality of the solution for each client is created precisely through a set of “modular” products. New products are created as customer needs arise (or are predicted).
Tesco Bank
A striking example of this approach to creating new products for retail clients is Tesco Bank (UK). The bank began its activities as a division of the largest British retail company - the Tesco supermarket chain, which has more than 10 million loyalty program members and enormous consumer trust in the brand. Since the early 2000s, the Tesco chain began active expansion into various segments of the retail business and service industries, opening networks of gas stations, mini markets, selling clothing, telecommunications and much more under its brand. Financial retail did not go unnoticed either.
Tesco Bank has a good online presence. A special Tesco Compare website has been created, where consumers can compare Tesco Bank offers with other banks, which gives them the opportunity to make sure they make the right choice.
Tesco Bank offers 28 products, some of which are the most profitable on the market. Among them is a loan with the longest grace period (13 months). Today, one in 10 purchases in the UK is made using a Tesco credit card. In the summer of 2011, Tesco Bank launched mortgage products.
In essence, Tesco Bank is not only and not so much a financial product, but rather a continuation of existing relationships with customers, behind which there is a high-value brand. The financial services provided by the bank in this case are just a tool for achieving clients’ life goals or improving their well-being. This approach distinguishes Tesco Bank from conventional banks, which, on the contrary, pass off financial services as relationships. Tesco Bank's innovation lies primarily in using the existing loyalty of customers of the supermarket chain to provide them with another type of product - banking.
Metro Bank
Metro Bank aims to change the nature of financial services by creating a “new consumer experience”, just like successful retail brands do.
The Metro Bank example demonstrates how innovation can provide banking customers and managers with greater opportunities to communicate and resolve financial issues, which in turn has a positive impact on sales of complex, but most profitable products that require advice and planning. New banking products are simply “connected” to a standard card, but at the same time the client receives a personalized approach from the manager and can purchase only the products (services) he needs.
“In the end, love your bank!”, “Fans, not consumers” – these are the ambitious slogans the bank operates with. Metro Bank intends to create and nurture a new type of consumer of financial products - just as Apple does in the field of computers, media and gadgets. By 2020, the bank plans to open 200 branches of the new format and expects to conduct a competitive retail business in the very conservative and slow-moving British market. Of course, to achieve this, the bank not only proclaims bold slogans, but also strives to provide customers with precisely the quality of services that are lacking in the market. However, doing this in the UK’s centuries-old financial market is an extremely difficult task.
Thus, it is impossible to develop better and more successfully than competitors by following standard strategies existing on the market. Therefore, Metro Bank strives, first of all, to destroy the existing stereotypes about the bureaucracy and slowness of banks: “No stupid rules!” For example, in the UK, customers are accustomed to banks being closed on weekends. There are only three bank branches in the whole of London - HSBC, Santander and Barclays - that are open on Saturday. In contrast, Metro Bank operates 7 days a week, with staff starting their workday at 7:45 a.m. to open branch doors for customers at 8:00 a.m. and finishing at 8:00 p.m.
Metro Bank tries to dispel four myths about banks in the UK market:
Bank branches will eventually disappear;
Banks make money by cutting their costs;
Clients do not switch to another bank for service.
In developing a new market strategy, Metro Bank management went against the established belief that Britons change banks less often than get divorced. The bank believes that the main criteria when choosing a financial institution are the recommendations of existing clients - the best promoters.
The bank’s management also decided to refute the widespread opinion that such a sales channel as bank branches is about to disappear, giving way to remote banking services.
The bank's business model is based on a network of retail branches, which are located in premium, very expensive locations, which goes against the trend of collapsing branch networks. Metro Bank decided that only branches opened in the most popular places among the population would be able to attract more customers.
The bank uses the most modern IT technologies available on the market. Today, the IT sector in most large banks needs improvement. However, such projects are prohibitively expensive, and in today's recession, most banks cannot afford such investments, which negatively affects the quality of customer service.
Against the general background of large banks constantly reducing costs for IT and personnel, Metro Bank stands out quite noticeably. A Metro Bank client receives the same quality of service as a Private Banking client: a personal manager who knows the client personally and is able to resolve any issues in the field of banking services without switching the client to other specialists. At the same time, the bank does not conduct any customer segmentation - each consumer is unique and has its own hierarchy of values.
One of the problems for many banks is that the decision to issue a loan is made not at a specific branch, but at the head office. This affects the speed of decision making and quality of service. At Metro Bank, the client feels that all decisions are made by his personal manager. Within 15 minutes, an account is opened and a card is issued to the client, and he leaves the branch with the product completely ready for use. Of course, it is expensive to install special equipment for printing and personalizing cards directly in the branch, but this is the price for creating a new consumer experience.
The bank's call center operates 24 hours a day; calls are answered by a bank employee, not by an answering machine. Each branch has a self-service area. All this creates a feeling in the client that the bank and its services are available at any time.
Online banking
“Pure” online banks are also experiencing a crisis of confidence on the part of customers. Often clients choose a bank based on its physical presence - one whose branch they can visit and talk to the manager. Against the background of high market competition and insufficient trust on the part of consumers, the latter choose a bank, focusing not only on favorable conditions, but also on a higher level of guarantees, which may be the bank’s network of traditional branches.
To solve this problem, ING Direct is opening coffee shops in the US and Canada. Thus, the “virtual” office format is complemented by the presence of the banking brand in the physical world. ING Direct coffee shop banks are not focused on selling banking products, but play an important role in building relationships with clients, attracting new categories of clients and increasing the level of trust.
Virgin Money and other online banks are following a similar path today, opening branches in the form of “lounge areas” or shops. It is important to understand that this technique works for a certain type of credit structures and is not profitable for ordinary retail banks. For example, Abbey National invested $300 million in opening coffee branches before its management realized that customers did not expect free coffee from their retail bank and were not willing to visit branches more often.
Gadgets in the service of banks
With the rapid development of IT technologies and the reduction in the cost of digital gadgets, the banking industry has the opportunity to test the use of various devices for promoting and selling financial products. Interactive tables, tablet computers, electronic kiosks and video walls are an incomplete list of devices used for such purposes. For example, Coast Capital Credit Union (USA) intended to use iPads to promote products in branches and advise clients. Barclays' flagship branch in central London offers customers and guests travel and community information through interactive kiosks and a video wall.
Banks sought to present their products and services in a more attractive way, using technologies that had already become familiar to consumers. In practice, it turned out that clients are just as uninterested in watching bank advertisements on computer screens as they are on TV. Thus, in pilot concepts, devices with touch-screen functions and tablet computers remained unclaimed by clients, and banks’ attempt to replace communication with managers with various gadgets was unsuccessful. Only a few banks have managed to attract attention to their interactive devices thanks to high-quality content and popular functionality.
Banks on the Internet
Banks strive to lead an active life in the online space, using their websites, search engines, and social networks. What happens on the Internet is almost impossible to control, and the risks associated with the spread of negative opinions are very high. One way or another, banks will have to learn to win the trust of the Internet audience. In turn, the Internet can become a good source of ideas and customer feedback for banks.
Commonwealth Bank (Australia) has created a special website called IdeaBank, which invites ordinary people to express ideas about new banking products and desired changes in the banking industry. A winner will be selected through voting and expert assessments and will receive $10,000 for their ideas. In principle, this website is an external R&D department.
Danske Bank (Denmark) and First Direct (UK) followed the same path, which also opened online innovation laboratories.
When it comes to selling financial services online, there is little doubt that mobile and Internet banking will replace other channels in the future, but it is clear that this will not happen as quickly as previously expected. Neither banks nor their clients are ready for this yet.
Innovation in banks: a bridge between the bank and the consumer
From all that has been said, we can draw the following conclusion: today the most successful innovations introduced by banks are associated with changing approaches to customer service. Technologies and channels for promoting services are fading into the background, since they solve only technical issues and do not replace a personal approach to the client and trust on his part. The development of technology has somewhat shifted the focus of experts’ attention from branches towards alternative sales channels. However, bank branches still remain the main sales channel for financial products, generating up to 90% of sales.
Undoubtedly, it is profitable for banks to sell standardized products and service packages, minimize communication with clients, and also use remote banking services. However, for their part, customers express the need for a personalized approach and selection of only those products that they really need. Therefore, banks first of all need to introduce those innovations that can create a bridge between these two opposing positions and present the banks’ offer in the most attractive format for clients.
Economy of CEE countries and banking scenario
Extremely favorable macroeconomic environment for CEE countries
On a global market scale, 2018 is the ninth year in a row in which economic growth was 3.5% or more. This hasn't happened since the 60s. The observed economic growth in USA during these nine years also became the second longest in history (after the economic expansion that followed 1991) At the same time, there was noticeable economic growth in Eurozone, covering all countries in the region. Economy of countries CEE After the crisis, it is growing at an unprecedented rate; such a rate of economic growth has not been observed since the 80s. In 2017, GDP growth in CEE countries averaged 3.7%, or 4.6% excluding Turkey and Russia.
For 2018, the UniCredit Group forecasts sustained economic growth in CEE with a GDP of 2.8% and a slight cyclical decline thereafter. Growth will be driven by domestic demand (consumption and investment) and will average 4% in many countries - including Hungary, Bulgaria, Romania, Slovenia, Turkey and Slovakia.
Increased lending in CEE (excluding Russia and Turkey)
In terms of lending dynamics, as well as financing and credit quality, the CEE banking sector is in a more stable and resilient position compared to previous years.
Lending in CEE will continue to grow, in particular in the CEE region (Central-Eastern Europe, excluding Russia and Turkey), which will contribute to positive economic growth trends of up to 5% for three consecutive years (2017–2019), followed by a slowdown in 2012–2016.
In 2018, lending in CSEE will match the growth of deposits - almost for the first time in ten years. This gives reason to hope that the priorities of this economic region will shift from savings to investment. This is supported by deposit data, which peaked in 2017, followed by a projected slowdown now. At the country level, the highest lending growth rates in 2017 were recorded in Turkey (20.7%), Slovakia (9.9%), Bosnia-Herzegovina (6.5%) and the Czech Republic (5.7%). We forecast a slowdown not only in economic growth but also in credit growth in these countries, with growth rates expected to be faster in countries that lagged earlier in 2017, particularly Croatia and Serbia.
Since 2011 the coefficient ratio of bank loans to deposits in the CEE banking system (with the only exceptions of Turkey and Slovakia) fell sharply below 100%, which means that most CEE banks are self-sustaining. In addition, there is a significant share of short-term “frozen” deposits - both from corporations and from individuals who are currently not investing in long-term instruments, waiting for new opportunities.
In terms of credit quality, economic growth in recent years, along with assignments of non-performing loans and improved debt collections, has contributed to the decline problem loan ratio, which played a role in increasing banking profitability. In ALL CEE countries the volume of problem loans will be less than 9%, with the exception of Russia, and in Hungary, the Czech Republic, Slovakia and Turkey - less than 5%.
Introduction of digital and financial technologies in CEE countries
CEE countries are well equipped for new digital technologies
Digital infrastructure - The level of penetration of cellular communications and the Internet is developed in CEE in the same way as in more developed countries. Cellular penetration rate in most CEE countries there are more than 100 (one mobile subscription per person), with usage levels Internet exceeds 60%.
Demographic trends in the region also contribute to the intensive development of digital technologies, in which a significant role is increasingly played by the young “digital generation” - the so-called millennials and “Generation Z” in the economy - since almost 50% of the population of these countries is under 35 years of age, while in Western In Europe this figure is 40%.
Digital banking In terms of individuals using the Internet to conduct banking transactions, CEE is developing rapidly - in particular, this is happening in the Czech Republic, Turkey and Serbia, where the number of digital banking users has doubled since 2010.
Boom of the fintech sector in CEE in recent years
This UniCredit Group study is the first of its kind to provide a detailed picture of financial technology sector in CEE, confirms its boom in CEE countries. The study focuses on the period from 2012 to 2016, which cannot be compared with previous years in terms of the number of companies opened.
According to the Tracxn database, there are now more than 600 financial technology companies. More 50% these companies operate in segments payments and transactions or financing, including in lending between individuals or crowdfunding, while 12% companies are engaged investment and asset management(trading platforms, automated consulting, personal finance analysis, etc.). The remaining companies occupy a large segment of activities in the field of cryptocurrencies, expense accounting, insurance (so-called InsurTech), risk management and fraud prevention.
Of all the countries in the CEE region, Russia accounts for the lion's share of fintech companies, followed by Turkey, Bulgaria, the Czech Republic and Romania.
Key data on digital technologies in CEE:
“Favorable global market conditions have contributed to the development of fundamental macroeconomic and banking factors in CEE countries, which are quite strong today. Taking into account the high number of mobile and Internet users, favorable demographic trends and the high pace of development of digital technologies, the region is ready to concentrate all efforts on digital banking, which is increasingly appearing in traditional macroeconomic and banking analytics,” notedMatteo Ferrazzi, Coordinator of the Strategy and Forecasting Division in CEE countries, UniCredit.
Sources: IMF April IMF Report on the State and Prospects of the World Economy, World Bank, Central Banks, UniCredit Group Quarterly Forecast on CEE for the 2nd quarter of 2018, Strategy and Forecasting Unit UniCredit Group, International Telecommunication Union, Eurostat, marketing materials, Tracxn.
GroupUniCredit in CEE: the digital way
Thanks to their innovative approach, CEEs are an excellent platform for testing new digital and IT solutions.
Digital developments of the UniCredit Group are aimed at improving customer experience through a multi-channel and multi-country customer approach based on all digital touchpoints. The development of digital processes also improves the quality of advisory services and allows us to anticipate medium-term changes and needs of our clients, including their use of multiple channels. Our investments in digitalization are aimed at improving the customer experience, while we continue to optimize our processes and our cost base.
This digital journey is mainly aimed at understanding customer needs in order to improve the quality of service and continuous value creation. The UniCredit Group is implementing common platforms offering cross-country solutions applicable to almost 45,000 corporate clients.
We have launched relevant transformation programs, particularly related to innovation and digital technologies, which has led to sustainable growth of our digital customer base in CEE.
Our digital journey continues, allowing us to develop and seek new opportunities in new countries, reaching more and more clients. Further strengthening our analytics capabilities will help account managers in their day-to-day efforts to improve market reach and cross-selling growth.
GroupUniCredit ranks first in the overall ranking of the five leading CEE companies, - noted Carlo Vivaldi, Head of the CEE Division of the GroupUniCredit. - We strive to continue to maintain a strong leadership position in the region, achieving planned and stable organic growth in revenue and customer base. “It will primarily be driven by the introduction of digital technologies and innovation, which, along with more effective credit risk management and cost planning, will help improve profitability.”
“CEE countries represent an ideal market for the development of digital banking. The development of digital technologies is not a new idea, but we believe that attention needs to be paid to the CEE region and its potential opportunities, especially in the banking sector. Our unique network in CEE represents an excellent opportunity to complement the existing financial and market environment of CEE with a turnkey digital banking solution,” - added Andrea Diamanti, Head of Corporate, Investment Banking and Private Banking.
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