Digital Finance: champions and latecomers

Digitalization is changing the financial industry, enabling new products, services, and business models. The new wave comes with the power of innovation; the digital transformation of the financial industries is one of the key challenges ahead – and certainly a big opportunity for industries to renew themselves.

A recent survey distinguishes digital champions from laggards. Deloitte has conducted a comprehensive benchmarking of functionalities and customer preferences in 238 financial institutions from 38 EMEA markets including Romania. The survey has distinguished four groups of financial institutions: digital champions, smart followers, adopters, and latecomers. Digital champions offer a wide range of functionalities relevant for customers and a compelling user experience.

EMEA is highly diversified from the point of view of digital maturity and Romania is part of the category of digital adopters among countries like Austria, Belgium, Bulgaria, Hungary, Italy, Slovakia and others, according to Deloitte Romania specialists Dinu Bumbacea (consulting partner-in-charge) and Vladimir Aninoiu (technology director).

“If the local banking sector does not live up to market pressure, it will face competition not only from other countries’ banks fuelled by the implementation of PSD2, but also from fintechs like Revolut, N26, Monzo, and Starling,” said Bumbacea and Aninoiu.

Revolut, which entered the local market in May 2018, announced recently that it has reached 250,000 users in Romania. This makes our country the fifth largest European market for this fintech. Market pressure from customers and competitors is a key ingredient for advancing the digital maturity of the financial sector.

Another challenge comes from the unpredictable and ever-changing legal and tax landscape, which can lead to a slowdown of investments in the digitalization of the financial services industry, according to Deloitte specialists.

For them, the opportunity lies in improving the main activities of the customer journey across multiple customer interaction channels by offering a compelling user experience: “For many banks, online and mobile channels have become as important, if not more important, than branches and ATMs”.

Deloitte: Customer expectations regarding the level of service that should be available through digital channels are relatively low

Specialists say traditional banking products and services are transforming from brick-and-mortar into internet and mobile. Several local banks have started initiatives linked to digital customer on-boarding, consisting of guiding the customer in the first steps of the on-boarding process and platform accessibility.

“We also see digital account opening – an improved account opening experience – through channels like internet and mobile banking and identity verification methods. There are also online credits, which expand the customer’s relationship with the bank,” Deloitte experts say.

According to them, internet banking penetration is highly correlated with internet access, but it does not explain digital maturity.

At the end of 2018, there were around 11.7 million internet users in Romania (approximately 60 percent of the population) but it is estimated that only one in five users are actively using digital channels to interact with financial institutions.

“Low usage of internet and mobile banking and a reduced level of financial intermediation offer financial institutions significant room for growth,” Deloitte representatives say. “For the time being, customer expectations regarding the level of service that should be available through digital channels are relatively low. The intensity of competitive pressure driven by financial institutions that decided to leverage their digital channels as key competitive advantage is still reduced.”

Banks that are only focusing on transforming traditional banking products and services into digital try to maintain the status quo: old banking world in new channels. The customer and competitor pressure will intensify and fintechs will challenge the incumbents as high entry barriers drop considerably.

Deloitte specialists believe we will move more sooner than later towards open banking: “Open banking is a platform-based business approach where data, processes, and business functionalities are made available within an ecosystem of customers, third-party developers, fintech start-ups, or partners. The services provided are financial and may come from banks as well as from third parties.”

Digital technology has transformed customer habits as it allows customers to get what they want almost exactly at the moment they need it. Everything is now happening in real time, which is why those companies that can offer immediacy, personalization, and accessibility to their customers will win out in the long run.

“Customer loyalty should not be taken for granted, now more than ever, as customers can switch to competitor suppliers just by a simple click or swipe. When using digital technology, customers often rate organizations based on their digital customer experience first and therefore a compelling user experience has become an instrument for customer retention and building a digital-emotional connection,” Deloitte specialists concluded.

Idea::Bank: There are no more limitations related to the size of a bank’s branch network

In the past years there has been an increase in acceptance of digital banking which means a shift in clients’ needs but also an increase of banks focus on offering customers simple solutions, according to Simina Maria Baiasu, executive vice president of Idea::Bank.

“All of these have determined easy access to technology for the clients and have simplified several processes,” she says. “For example, access to online products, loans, and deposits, contactless technology for the cards, which enabled the increase of daily card usage by making each transaction easier for the clients. Another reason is very high penetration of smartphones which brought financial services literally into your hand. Having the client so close to the banks is a great opportunity, but on the other hand it meant a shift in the way financial institutions design their offer. In today’s digital world, the focus has shifted from products to user experience, which became the main differentiator. The Idea:: Bank team focuses on delivering simple digital solutions, easy to use and relevant for clients taking into consideration an “open banking” approach.”

In her opinion, the access to financial services without having to go to a physical location is an incredible opportunity for the financial institutions to reach out to more customers and interact more frequently, no matter where they are.

“There are no more limitations related to the size of a bank’s branch network,” she explains. “This allows the clients to choose from a wider range of offers and puts the pressure on banks to adapt more rapidly to consumer’s preferences and to be more reactive to the changes in customer expectations, which are usually driven by other industries. Using the wide range of new technologies efficiently is another challenge for the financial institutions, as there must be a balance between offering customers better experiences and staying competitive on the price of the services.”

Baiasu goes on to say that the speed of adoption in banking digital services is different for the customers: “Some clients have embraced new solutions making their lives easier and putting them more in control of their finances. For them, most banks have yet to meet their expectations in terms of user experience and ease of use for daily banking. However, there are still many clients that do not need anything else besides cash, although they may be bank clients already. There are many reasons that explain their behaviour – from limited access to card payments in rural areas or small cities to lack of financial or digital literacy.”

Idea::Bank’s executive vice president observes that digital customers are more demanding in terms of product and service quality.

“This is a positive pressure that will enhance the quality of life and will oblige businesses to be more cost efficient,” she adds. “At the same time, digital finance brings the opportunity to increase financial inclusion through economies of scale. However, we will continue to see financial institutions being reluctant to serve small value or unprofitable customers, which often stand in the way of achieving financial inclusion. In other economies, we have seen that the role of the Government is critical in order to create the environment that will allow extensive financial inclusion. There can be different ways for this – through citizen awareness, through direct regulation or through empowering and stimulating the financial institutions to play a more active role.”

Baiasu believes that the main purpose of successful digital solutions is to improve user experience in order to increase usage, thus the sales revenues of a supplier. In her opinion, this applies to most industries, although it may have different shapes. “Improving user experience may be reflected in the ease of finding the desired goods or services to buy, in the personalization of buying experience, after-sales services, giving more control to the clients, getting feedback from clients and many others,” she explains. “Digital technology brought a shift from a product-centric approach to a customer-centric approach. On the other hand, digital solutions make it easier for the clients to search for and buy new products. With so many offers at a few clicks away and having the transparent access to other customer’s satisfaction, there is an increased competition for the clients with suppliers offering better services.

Idea::Bank is preparing to launch a new online banking solution this year: “In order to offer new digital solutions to the clients, we find fintechs as a great opportunity for partnering in order to develop the best services. We continue implementing several projects with fintech partners that will allow us to reach our customers more easily but also to improve user experience for existing clients.”

Revolut: Romanian market is lagging far behind when it comes to digital payments

Established banks are taking small steps towards digitalising their services, but Romania is still light years away from Western countries. While the banks are lagging behind in terms of digitalisation, few international fintechs operate on the Romanian market, leaving people with only a handful of alternatives should they choose to go digital.

“We are not only lagging behind in terms of existing alternatives to banks and high-quality digital services, but also in terms of user education,” says Irina Scarlat, country manager of Revolut for Romania. “The Romanian mass-market audience is not tech-savvy and lacks the overall financial education that they need in order to go digital with their money – and beyond,” she says.

In her opinion, Romanians are already tired of using the outdated services offered by the banks and they are interested in new, simple, easy-to-use and smart solutions for managing their money: “There’s a lot of place for innovation in this area and we are glad to bring here a product that has already convinced over four million users of its benefits. Also, we are a pioneer on the Romanian market, offering a unique service, and we feel we don’t have a real competition here.”

Romania is among the countries with the lowest card penetration when it comes to payments. Yet, things have started to improve over the past several years and trend is expected to continue. One challenge would be the fact that Romanians tend to be sceptical when it comes to digital financial services and building trust has been a top-level priority from Revolut ever since it entered the Romanian market one year ago.

Scarlat goes on to say that the Romanian market is lagging far behind when it comes to digital payments and financial services, and this is not only because of the quality of services available, but mostly because of the market development. “Romania is split in two,” she continues. “The first part comprises the innovators and early adopters that live in urban areas, have above-average income, are tech-savvy and financially educated. The majority of residents though do not fall into this category: they do not trust banks (or financial institutions, for the matter), they are not tech-savvy, and they lack the financial education required to make the most out of their money. I think this comes along with lots of opportunities for the incumbent and a big responsibility: to educate the market and to build the trust required to help people better manage their money.”

The relationships between customer / user and supplier / provider have fundamentally changed due to digitalisation which removed the need for physical interaction. Digitalisation made things simpler, faster, and more efficient. On the downside, when talking about markets in Southern & Eastern Europe, this evolution towards the lack of physical or human interaction is received with a lot of scepticism and it is going to take years until the market will be ready for this. Once again, it is the responsibility of the incumbents to prep the market and get it where it has to be.

Scarlat says Revolut is a customer-centric company which continuously innovates to meet the needs of the users. “This is the reason why we are going to launch new features of our product that will help users be in control of their money in all areas, every day,” she adds. “The fact that we received a European banking licence will allow us to offer overdrafts and local IBANs so that users will be able to receive their salary in their Revolut account. In other news, we plan to expand our business with a host of new products and services, including a commission-free trading platform, family/kids’ app, and an acquiring product for businesses. Also, we are focused on expanding all over the world and this year Revolut will enter markets such as the US, Australia, Singapore and other Asian countries.”

Auka: Most Romanian companies (87 percent) accept the card payment

Auka, a Norwegian financial technology company, launched the “Mobile Payment Solutions for SMEs in Romania” report, which provides an analysis of the main factors that influence the growth and adoption of mobile payments among retailers in Romania.

The report is based on a market survey conducted in January 2019 on a sample of 28,000 respondents – SMEs in services, commerce and the hospitality industry, from all 28 EU Member States. Starting from questions regarding the current consumption of mobile payments in Romania and the challenges of small and medium-sized companies, Auka has managed to identify the trends in this field on the domestic market.

If we refer to payments, Romania is still behind many of Europe’s neighbours. While consumers and companies in Romania now have more access to mobile payments, efforts must be made to educate and inform the general public about their benefits in terms of safety, security and affordability, given that most of the transactions are still under cash form. Here are the most important results of the study:

In Romania, 88 percent of the respondents stated that the organizations they represent accept the cash payment, and 87 percent said that their companies accept the card payment. These percentages are a significant increase, indicating that card payment has reached a much higher level than the European average of only 78 percent. Compared to other EU countries, Romania is in the ranks of countries such as Austria (58 percent), Belgium (73 percent), or even Great Britain (73 percent).

Approximately 58 percent of small and medium businesses use mobile payment, regardless of contactless technology, e-wallets, or QR codes. And in this respect, small and medium-sized companies in Romania seem to excel compared to the European average or to neighbouring countries.

In other EU Member States, accepting payments by mobile phone (either contactless or electronic wallet) seems to be a representative feature of the hospitality industry. At the opposite end, district boutiques and beverage and cigarette stores seem to be the least willing to accept mobile phone payment, regardless of the form used. Cash is still in power among these small distributors.

Approximately 39 percent of respondents in Romania indicated that they would consider placing mobile payments, while 40 percent said they were still unsure of the decision to adopt this type of payment.

What do Romanian SMEs prefer?

The preferred method of payment among small and medium-sized companies in Romania remains cash, about two-thirds (60 percent) of respondents in the Romanian survey naming it as the most commonly used. Non-cash payments (card or mobile) were preferred by only 40 percent of respondents in Romania. The conclusions of this report show that, despite the fact that most SMEs in Romania do not encounter a problem when making non-cash payments, they show a clear reluctance towards digital methods. This can only show the need to educate all categories of payment users, whether we are talking about companies or ordinary consumers.

As the main reasons for which entrepreneurs prefer and accept cash as a method of payment in exchange for non-cash payments, customers’ requests and habits have been cited. It is worth mentioning here that the preferences of the final consumers have the greatest influence on the entrepreneurs in the decision to adopt one method of payment over another.

Approximately 63 percent of respondents in Romania said that government decisions or legislative changes in the field had little or no influence on them.

Asked about payment trends, 78 percent of respondents in Romania have indicated that over the next ten years mobile phone payments – contactless or otherwise – will be dominant. The same opinion is also reflected at the European level, with the average of respondents who consider digital and non-cash payment methods to be the future accounting for about 72 percent.

Banca Transilvania launches BT Open Banking

Banca Transilvania has launched the BT Open Banking platform (BT API Store), which allows fintechs and other technology companies to test integration with BT to present bank services, such as: online balancing, transaction history, and the initiation of transactions through external platforms to Banca Transilvania.

PSD2 is a first step towards Open Banking and is a mandatory European directive for the banks in Romania, in the direction of the significant development of banking services. This implies the creation of a single market for payments at the EU level, facilitating new market access for new and other industries, creating a platform for SEPA payments, and protecting consumers’ right to make payments.

“Open Banking is the new way to make banking. We now have the opportunity to integrate other players into the BT ecosystem, such as fintechs, which will bring a superior digital experience for customers, and new ideas can be implemented much faster than before. Fintech helps us keep up with new challenges and requirements, not only with new technologies, but also with the competition coming from other sectors,” says Mariana Chindris, Digital Transformation coordinator at Banca Transilvania.

The testing stage will continue until September, after which the final version of the platform will be launched. In the coming months, the bank will add other services. The BT Open Banking project was fully implemented by the IT and Digital team of Banca Transilvania, in collaboration with solution providers IBM and IT Smart Systems.

Banca Transilvania has experience in collaborating with fintechs, bringing customers a series of financial solutions for better money management and entrepreneurship support:

BT collaborates with Personetics, a market leader in cognitive banking applications, to provide a superior digital experience to BT customers by including artificial intelligence into its services. The cognitive banking application offered by Personetics will be integrated with the bank’s new Internet Banking and Mobile Banking, which will be launched in the first half of this year.

BT has become a shareholder of Timesafe, the Pago developer of the only Romanian application that can be used to pay utility bills with the card from a single account.

BT has entered a partnership with Ebriza, in which BT is the main investor in a 300,000 Euro funding round launched by BT. Ebriza digitizes business management and totally transforms the definition of cash register, sales, and management software. They will be accessed online, non-stop, on any device, tracking real-time business activity, stocks, and sales.

BT is also collaborating with Blugento, a company specializing in providing eCommerce solutions, so that entrepreneurs can open their own online store within a maximum of three days, based on a monthly subscription.

BT is also in partnership with Smart Bill, the leader in the online billing and management solutions market that provides a business-friendly solution for issuing, delivering, collecting bills, notices, proformas, receipts, and inventory management.

(From the print edition)