Digital Banking and Insurance Conference - opportunities and threats for the financial sector
Digitalization is radically transforming the banking and insurance industries, enabling new products, services and business models. This transformation will take time to complete, forcing banks and insurance companies to act now and embrace new technologies for a sustainable business strategy
By Petre Barac
Back at the turn of the millennium, there was a world without Google, Facebook, digital tablets, Web-based apps, or smartphones. The ensuing shift has brought enormous changes in consumer behavior and expectations. As more and more people engage with the new technologies, it is changing nearly every business model. Customer onboarding and engagement, underwriting and risk management, billing and claims - all these areas are being changed by the digital innovations.
The new wave comes with the power of innovation; the digital transformation of the banking and insurance industries is one of the key challenges ahead - and certainly a big opportunity for the industries to renew themselves.
As 2017 unfolds, financial services firms must address the twin challenge of delivering digital transformation wins for their organizations while ensuring compelling digital experiences for their customers and employees.
The elite event was supported by The Diplomat - Bucharest partners which include gold partners - EY Romania, partners - BearingPoint, along with institutional support by ARB, UNSAR, ANSSI, ANIS and the participation of All to Know Romania and CertAsig.
The conference was structured into two sessions. The first panel was moderated by Rodica Tuchila, advisor - Romanian Banking Association (ARB), and the second one by Ovidiu Demetrescu, president Board Council - ARBA (Romanian Association for Good Administration). The Diplomat - Bucharest next presents the main topics of the Digital Banking and Insurance Conference.
FIRST SESSION - BANKING
Sergiu Oprescu, ARB: "The digital transformation era should be regarded from an opportunities′ perspective"
The Romanian banking system fully understands the role of digital technologies and their adoption will contribute to the taxation of the gray and black economy, says Sergiu Oprescu, president of the Romanian Banking Association (ARB).
"We have never had so many opportunities and yet so many dangers in the environment in which we operate," Oprescu states. "We must look at this change in light of the opportunities that we have. The Digital Agenda is one of the seven pillars of the EU 2020 Strategy. From our point of view, the emphasis should be on innovation. Locally, we have a digital strategy for Romania 2020. The good news is that we have an index of the digital economy and society (Digital Economy Society Index - DESI) which is calculated at the European level. The bad news is that we are last, but even there is some good news: we cannot go anywhere but up."
In his opinion, the financial system fully understands the role of digital technologies and the banks intend to be the first to adopt these digital services. "This will lead to taxation of the gray and black economy. Digital technology in banking will lead to customer loyalty, so we have a win-win situation for everyone," Oprescu claims.
He noted, however, that Romania has problems in terms of promoting new technologies in the segments of connectivity and digital human capital.
"Although we are last, we are included in a category of countries that are ′catching up′ and our cruising speed exceeds the European average, so we are moving in the right direction," says Oprescu. "Connectivity is our main strength, and we rank second at EU level in terms of broadband speed. We have some issues with internet usage (27th place in 2016) but we rank third on the use of social networks. Unfortunately, we are in last place in the EU when it comes to online shopping and internet banking."
Ruxandra Avram, BNR: "We want to make sure that new digital products are not dangerous for clients and the banking system"
We are going through a tough period with many challenges and huge efforts to adapt to this new digital era, says Ruxandra Avram, head of regulating and monitoring system payments department - National Bank of Romania (BNR).
"The beneficiaries of these digital initiatives are the banks′ customers," says Avram. "Unfortunately, the regulator always falls behind the market. We want to provide regulations by knowing the reality of the market, not just make them up while sitting in an office. We should protect the human resource and make sure there are no dangerous digital products for clients and the banking system. Banks must aim to protect their customers, their accounts and their funds."
BNR does not believe very much in Bitcoin and does not have any initiative to adopt Blockchain technology, because "it is not easy to digest", according to Ruxandra Avram. In her opinion, Bitcoin technology overlaps virtual currency.
"As a central bank, we do not believe very much in Bitcoin, because it′s not something tangible," says Avram. "Personally, I see an overlap between Blockchain technology and virtual currency itself.
Others say it′s better to take this technology and use it, but what for? The European Central Bank has also withheld, saying something like ′Okay, use this technology but push it a little towards the anti-money-laundering activities.′ Now, we do not have any central bank initiative to adopt this kind of technology because they are not digested very well. We will wait and see."
Marian Ignat, BCR: "We need massive investments so that we don′t miss the business opportunities that come along with the digital transformation"
Technological evolution will radically change the banking market in the future and the clients could be able to open any bank account or obtain a loan just by using their smartphones, starting by 2020, according to Marian Ignat, head of digital banking - Banca Comerciala Romana (BCR).
The bank′s representative believes that changes brought by new technologies to be implemented in 2020 can be currently viewed by those who observe the latest trends in digitalization already taking place in Central and Western Europe.
"I think that by 2020 we could open the phone, choose the bank where we want to make an account and make payments," says Ignat. "That will be the future. We may ask for a loan by phone if we want to buy something immediately and do not have money. We need massive investments so that we don′t miss the business opportunities that come along with the digital transformation. We can visualise what the banking services may look like in 2020. These are not fairy tales. We see what′s happening in Western Europe and even in Central Europe. That is the future. We believe in a positive future. People need products, homes, cars, TVs. These are basic human needs that we need to provide."
In his opinion, the digital era somehow appeared around the 2000s with the first internet banking solutions. "15 to 20 per cent of total customers use these internet banking and mobile banking solutions, so we still have a lot of room for growth" says BCR′s Ignat. "Growth rates are over 30 to 35 per cent year-on-year so our recovering speed is good. This is happening because of a better-educated population, but also because the banks are aware that we need investments in financial education."
According to Marian Ignat, about 95 per cent of transactions in Romania are made with cash, so "the potential is huge for anyone entering this market."
"We must invest in our digital channels to reduce costs," states Ignat. "We have a problem in serving our clients and this problem can be solved through digital channels." The banker believes that banks will be more effective in providing online payments, given that only 20 per cent of customers are using internet banking, so the growth potential is huge.
Toma Cimpeanu, ANSSI: "The financial sector is vulnerable to phishing attacks and identity theft"
Technological problems always come with benefits, as well as vice-versa, says Toma Cimpeanu, executive director - ANSSI (National Association for Information Systems Security). "For us, technological change is helpful because we offer services in various fields. There are about three billion accounts on social media accounts and 1.7 billion are being used daily. Of the 1.7 billion daily active accounts, 600,000 Facebook accounts are compromised daily for various reasons. 99 per cent of computers have vulnerabilities. 68 per cent of the money lost cannot be recovered. 60 per cent of employees take away their data when they leave work and go home."
He gave an example of an international cybercrime group who managed to steal one billion US dollars from 100 banks in two years, through spear phishing.
"If cybercrime is a business that means there must be a market to buy and sell some things. This market can be found in the so-called dark web," according to Toma Cimpeanu, who believes the banking sector is vulnerable to phishing and identity theft.
Apps on your phone, social media accounts or a simple mailbox are all at risk for stealing personal data, which ends up in the databases sold by cybercriminals using them for stealing from bank accounts, says Cimpeanu.
"You have certainly received messages on mail that you have won something, or to buy something cheap, even free. Many have clicked on those links. The mechanism works like this: a cybercriminal buys ten million email addresses, which cost about 1,000 US dollars. the offender pays with Bitcoin, hoping that he will never be found. But it takes time for them to send ten million emails on Google or Yahoo account and 99.8 per cent are blocked by spam filters. Then the offender buys a special mechanism which costs around 5,000 US dollars for him to send more emails. But only ten per cent of emails reach their destination, so about one million."
According to him, half of received emails are opened and ten per cent of people are clicking on the links contained, while 5,000 recipients enter their personal data on the requested web page. "The offender gets 5,000 sets of personal financial details. The damage is around 60 US dollars per card. So, the offender has invested under 20,000 US dollars and earns 300,000 US dollars," says Cimpeanu.
Razvan Grigorescu, CEC Bank: "We face multiple challenges to find a balance in this new digital era"
Market evolution has led us to expand our activities in communication and exchange of information, says Razvan Grigorescu, information security manager at CEC Bank, who believes there is a fierce competition in the financial and banking market.
"In the past, there was a lack of communication between the banks on the local market," says Grigorescu. "We face multiple challenges to find a balance in this new digital era. We need to find a balance between the implementation of new services and digital products operation. We must defend and protect customers′ privacy as it is extremely important."
According to him, in the past few years, local banks have managed to develop a better communication in the sector with the exchange of useful information. He adds: "We also managed to have good relationships with the management of our institutions and with the National Bank of Romania who became a partner in the discussions. We talk about new challenges in terms of technology and those regulations which will lead to further changes. There are many banks that have already adopted electronic products, remote payment instruments, mobile banking, and home banking all because of good cooperation between banks."
Teodor Tarle, BearingPoint: "We have many regulations to apply but they should not interfere with the digitalization process"
We have many regulations to apply but they should not interfere with the digitalization process, says Teodor Tarle, business advisor financial services at BearingPoint. "This must help us to develop better services for our customers."
He states that banks′ reports that are sent to the regulator can provide a lot of useful data. "Regulatory tsunamis, internationalization and technological changes are the elements that force the financial institutions to make investments in their IT systems based on sustainability, reliability, and stability."
Tarle speaks of the need for an integrated platform for reporting, calculation and valuation and components based on one standardized data model.
BearingPoint, one of Europe′s leading management and technology consultancies, announced revenues of 622 million Euro in 2016, up ten per cent over the previous year. The firm also reported year-over-year net bookings growth of 13 per cent. The firm also invests strongly in recruiting top talent and developing its people, and affirms its goal of one billion Euro in revenues by 2020. In 2016, the firm increased its geographical coverage: it opened new offices in Singapore, Portugal, Romania and the Czech Republic. BearingPoint now has 36 offices in 22 countries and, together with its global consulting network, serves clients in more than 75 countries.
SECOND SESSION - INSURANCE
Adrian Marin, UNSAR: "Insurance companies need to adapt to fast changes in the industry following Internet of Things and digital era"
Digitalization has profoundly changed the customer profile and the business community must react constantly to meet new trends, says Adrian Marin, president of UNSAR (National Association of Insurance and Reinsurance Companies in Romania), who believes that insurance companies need to adapt to fast changes in the industry following Internet of Things and digital era.
"Autonomous cars are already part of our lives. There will be industries or economic sectors that will benefit from these technological developments, and others who must adapt quickly to the trend. Obviously, this creates opportunities, but also threats to match. Thus, local governments can save money by reducing costs, people can be more productive on their way to work by using a phone or a tablet or being able to work while commuting."
He also reminds that car-sharing is already ′a thing′ and the insurance industry must adapt to these modern solutions. "This service already implemented in Germany, arrived here in Romania in Cluj.
Another aspect of digitalization is the protection and security assisted by drones. There are companies who provide insurance products with drones, which in turn can be used for risk evaluation and damage assessment, including in agriculture.
Furthermore, technology is now connected to healthcare. "Millennials have a very different perspective on social life and health. Internet of Things and wearable devices are increasingly connected to us: we monitor mileage, heart rate, sleep quality, and health insurance policies are linked to those things in many countries, which allow clients to have discounts."
UNSAR′s president stresses that the modern consumer currently leaves his mark on the insurance industry, wanting everything as quickly as possible and at a high quality.
Ionela Stan, EY: "The move towards a new operating model is underway, with robotics and digital technologies evolving rapidly"
The move towards a new operating model is underway, with robotics and digital technologies evolving rapidly, according to Ionela Stan, EY Romania.
"Robotic process automation (RPA) is a cost and time effective enabler, complementing any digital transformation journey to streamline business processes, achieve profitability and maintain a competitive advantage. In combination with other technology investments, RPA creates an integration layer to help unlock and transform your digital operations for the future."
In her opinion, disruptive technologies have already started to permeate other industries and insurance will follow. "They will drive organisations that best adopt them towards sustainable profits. Analysts estimate that 47 per cent of jobs are candidates for automated processing. Some peers have already started their robotics journey and are moving towards advanced adoption."
According to the quoted source, implementing RPA faster and deeper than peers allows a competitive advantage. "A market-leading position will accelerate benefits realization from RPA and other disruptive technologies."
Among the key benefits of RPA, EY′s representative mentions: reducing human expense by automating frequent manual repetitive tasks, improving exception handling and moving work to best locations; improved knowledge worker value-add by increasing focus on highest return activities (i.e., time dividend, focus on high value/core competencies - Innovation; Customer analytics; Competitor analysis; Product origination) and improved worker satisfaction/retention by eliminating dull routines; reduced end-to-end time to handle peak periods, meet deadlines, and smooth post-M&A integration by virtually connecting disparate systems and data sources; delighting the customer with differentiated and enhanced servicing and journey experiences, therefore improving retention and satisfaction.
Teodor Blidarus, ANIS Romania: "Digital era is reshaping the customers′ experience and I believe that in the future every company will focus on its core business"
The digital era is reshaping the customers′ experience and in the future every company will focus on its core business, says Teodor Blidarus, president of ANIS Romania.
"From my point of view, digital transformation impacts the way we look at a company, how we reshape customer experience in relation to insurers, internal processes of a company and how we rethink business models. What does digitalization insurance mean? What is the difference between digitalization and technology? What is the potential of the IT industry in Romania? There are three questions that I would like to address."
He speaks about fintech companies needing to become more focused on their clients and their core business.
"Everybody wants to be more efficient, there are various technologies which can help you do that, but the problem is this does not digitalize the companies. It is all about how we manage to have a balance between new technologies and the companies′ IT systems, which are to stay relevant for the following 50 years," says Blidarus.
ANIS represents the interests of Romanian IT companies and supports the development of the software and services industry, as well as the growth of companies involved both in outsourcing projects and in developing proprietary applications. The association was founded in 1998 and now includes about 120 members - companies with both Romanian and foreign capital, small and medium companies as well as multinational ones - with a presence in the main technical universities in the country.