Fin-tech innovators are expected to bring some fire on Romanian banking market
The agility to change business processes, products and the way of communicating with customers will be crucial for the banks in the next years to stay alive, said Miodrag Mircetic, director, board member of the Asseco SEE Group, in an interview with Bancherul.ro in Bucharest, Noblesse Palace, Mai 17 2016, at the New Banking Vision Conference.
Innovative fin-tech start-ups will appear also in Romania to strongly disrupt financial market and push even more speed in banks transformation to digital, he added.
What are the new trends in digital banking, including Romanian market?
First of all, we are all witnessing a global digital transformation of the society. How we work, communicate, shop, even how we play is changing. When I see my kids at home sometimes I am scared and keep fighting big battles of taking them off from the mobile devices, but looking at the new generations that are coming, I thing it is a lost battle. On the other side, it will be very difficult even for me currently to disconnect from my mobile devices. I can not imagine my daily work without them and it is starting to be part of every person life, whatever she/he is doing. Actually this fact is changing the behavior of people in general, which affects every business, including banking.
How it is really affecting the banking business? One very obvious trend is that the way how customers today wants to consume the banking services and products is that they want to consume them online, non-stop. What is even more important today is interactions or business they are performing online.
People do not want to be bothered by the bank when they are occupied with personal things like speaking with friends, but they want to have the bank on the fingertip when they are entering a shop, for example. When they want to buy something but they need some credit arrangement, or when they are searching for holiday offers on internet, it will be convenient that the bank will offer some facility to get a credit for holiday in the moment they are searching for the vacation.
It is not enough anymore that after we finish searching for holiday we go on separate e-banking application to ask the bank for a loan. It is not good enough. The winners (in technology) will know you are searching for a holiday, know what is your position, the balance and the bank, and will offer you a loan for this trip in the moment you are booking the trip. There are millions of such scenarios, which really need to become business as usual, as today you are looking at the statement of the bank on the internet site, no need to go to the bank for this as in the past. This speed of speed of these changes and acceptance of changes is faster and faster, and this is making a huge pressure on banks to innovate and change the way they are working.
What it is also interesting is that 30 years ago some trends would come from US to Europe with a delay of 10 or more years. Then this was shortened to 5 years and now it is 5 minutes. From the first moment we heard about Uber, we had Uber in Bucuresti.
From this perspective of banks being able to keep pace with new technologies, where are the Romanian banks now?
All the banks in the world are in the same pot. There is nothing special about Romanian banks comparing to others in the region. Speaking about the readiness and capability, there are differences. First of all, there is a huge difference between market environments. US is different from Europe from legal perspective.
European financial market is more regulated than US. The type of innovations, not only in financial market, that can come from US are sometimes facing regulatory issues in Europe, and Romania is part of EU.That is one of the challenges. There is a set of laws which are currently putting setbacks and limitations to full digital transformation of Romanian financial and banking sector. Romania is currently let's say, in an equal position with other Eastern European states, so not too far away but still some legislation needs to be changed.
The other thing is capability of the banks and internal knowledge etc. Having in mind that Romanian banking market is populated by top European players, the knowledge transfers and trends dictated from the headquarters of this banks are instantly coming to local market and the local banks are competing with those international banking groups.
So we don't see that there is a lack of perception or understanding of new technologies. What we see in Romanian market is that the penetration and usage of digital services are lower than regional average. At New banking vision conference, we’ve heard from BCR that only 10 percent of the population is using even basic digital services which are offered by all Romanian banks. This is an issue for everyone, for overall community, for government, because not having the piece of digital economy is bad for overall economy in Romania.
We know that digital economies are growing faster than others, it is a fact by all statistics in the world. We also know that current statistics say one euro invested in digital economy is multiplying GDP by 9 or 10 in the developing economies. It also reduces the costs, increases efficiency of business processes etc.
People thinks that digitization will reduce the employment. On the contrary, the economies that are adopting more digitization are creating environment for new jobs, because overall economy and services are growing. So it is a challenge for the banks that requires budget, internal resources and partnerships with digital companies like Asseco or other vendors that can provide digital solutions. This technologies are not coming for free, it requires lots of investments in research and deployment.
Having in mind overall profitability of the banking industry, some of the banks are managing bigger profits and bigger budgets so they will be able to go faster in that. But we will probably see more and more of some small private initiatives even in Romania.
We are looking carefully and we believe that in all of the countries in the Balkans region, Romania is the biggest by size, except of Turkey, which means that probably in year or two some innovative fin-tech start-ups will appear to strongly disrupt financial market, and this will push even more speed in digital transformation of banks.
Will this fin-tech start-ups affect the banks or make them more willing to adopt new technologies?
There is no example of good competition destroying the business. It is reasonable to expect that they will push banks to be more pro-active, which means better services for the clients, better services for the economy. Of course, someone will lose, because there will allways be winners an losers when some disruption happens and market change. But the sector will not suffer as a hole. I am sure that many banks will be huge beneficiaries of this push and transformations.
Romanian banks are aware of this challenges for them and willing to adopt faster new technologies?
It is a different story for each bank. In general on the market, there is awareness of what is happening, that they need to jump into the trend and roll it. The differences are in the perspective: when, how fast will the change happen and how big budgets will be needed. But here are very big differences among banks.
There are banks actively searching and looking for overall digital transformation solutions, which already have active programs of digitization, which are already introducing new types of positions, like Chief Digitization Officer (CDO).
CDO is someone primarily business oriented, thinking how to use digital transformation to change the business process and the way of working with clients. There are banks in Romania that already have this position of CDO and teams that are preparing and executing some technology programs. There are also banks aware of digital challenges, but still observing and analyzing, not moving ahead.
Is this a wrong or a good strategy?
There is no answer to fit all. Always in all the trends, markets and segments you have early beginners, leaders, adopters, followers, depending on the market share, the segment a bank is operating, type of clients etc. They need to find their own way.
If you ask me of this penetration in Romania, a bank who is for example focusing specifically on private individuals in agriculture sector, jumping now in full digital will not bring much value. They need to focus on activities in other directions and only in 3 years from now digital will come on top of their agenda. But for a bank which is massive in retail, its customers segment having a decent share of young professionals, should be adopting new technologies today. So it depends on the clients, the size etc.
Also the things in technology that are now expensive for some banks, in 2-3 years will be cheaper. Some banks can afford it know, some later. At least we see that there is awareness. Maybe there are few small exceptions of banks overlooking this changes but most of them are fully awareness.
Reduced competition and no new players are affecting digital transformation in banking?
Actually we are not expecting any new comers or classical investment in the banking industry here, there are no even signs that something like that will happen.. Of course when there are no interruptions, the market will not really push towards innovation and change. But we are expecting to see some innovative fin-techs from abroad which will bring some fire to the market.
What will happen in digital banking in the near future?
I believe the most important thing that will happen will be the pace of changes increasing even more. While today we are talking about projects of 1,5-2 years, in 2 years from now we will be speaking only about initiatives in projects executable in 2 or 3 quarters. Agility of the organizations to adopt changes will be crucial in next years.
Beside the size, capital etc., agility or ability of organizations to change business processes, products and the way of communicating with customers will be crucial for the banks in the next years to stay alive. If they will not be able to transform and adapt to new processes and the new clients’ needs, they will lose clients. Studies show that loyalty of the clients is dramatically decreasing.
So we are listening this stories since already 5-6 years that client is only one click away from your bank to the competitor, but today we are seeing that as a fact, a thing that is happening. Still not in Romania and markets where only 10-20 percent of the banking clients are communicating with the bank exclusively through digital channels, but this will change very fast.
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