Digital Banking: Challenges and opportunities

Digitalization is radically transforming the banking industry, enabling new products, services and business models. This transformation will take time to complete, forcing banks to act now and embrace new technologies for a sustainable business strategy.

2017-12-07 10:19:47 - From the Print Edition

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.


Michal Szczurek, ING Bank: We are investing over ten million Euro annually in digitalizing our services in Romania

Banking as we know it will change as the young generations prefers digital, fast and easy, Michal Szczurek, CEO ING Bank, told The Diplomat-Bucharest.

"Financial products are more or less the same, but the key element that differentiates one bank from another is customer experience and our customers' expectations are the ones shaping the future evolution of the banking systems," said Szczurek. "Today we are the most-recommended bank in Romania by owned clients and we intend to keep them at least as happy as they are now. But to do so we have to be in contact with their expectations and needs and soon enough they will compare the banking services not with other banks, but with other platforms or suppliers. That is why, at an ING Group level, we started to think about a financial platform to be launched in 2021 that will integrate more features of financial management than just banking. Also, in Romania, we are investing over ten million Euro annually in digitalizing our services.

According to Szczurek, both the challenge and the opportunity for ING is to find the means to meet their customers' fast growing expectations: "When we could offer the approved amount instantly due to the online cross check with ANAF and the Credit Bureau, a client asked us why can we not offer it online? This was the challenge, to find the means of changing the channel, so that now, two years later, we have the legal possibility and the necessary tech infrastructure to make the entire process online and instant, including money transfer."

2017 was a year of investments for ING in developing digital services for its clients, not only on the online loan but also other products to be launched to enhance customer experience.

"These investments have translated to new employment, training, new HR architecture, and means of working like the Agile working mode that changed not only our teams, but our project management structure, now having more expertise and more perspectives on one objective," mentioned Szczurek. "Nevertheless, we identified our clients' tendency to diversify their activity with the bank, having two or more products from ING, which lead to ten million Euro in client volumes. The bet on digitalization has proven to be a profitable one so far and I have no reason to believe this will change: the number of clients increased, their operations with the bank diversified and business grew, and I believe these three indicators will continue to grow."

According to its CEO, ING Romania will continue to grow its digital offer for its clients and it invests a daily effort in keeping its first place on the Net Promoter Score (most recommended bank). "Banking should be easy, fast and safe, and these concepts will help us outline our strategy for the following years," said Szczurek. "The banking market has been growing moderately, driven by consumer lending and mortgages. Corporates are still not in investment mode, but as the economy continues to develop, corporate lending will pick up. There is much more talk about the digitalization, but the branch footprint reduces slowly. Consolidation is progressing, and I believe we will see some changes in the league table driven both by M&As and organic growth."

Consistently delivering digital developments and improving customer experience, ING Romania shows strong commercial growth, the company's CEO added: "The bank's loan portfolio reached 17.6 billion RON at the end of 2016, increasing with 22 per cent over the last 12 months, while the market was almost stable (within one per cent). The funds entrusted reached 22.3 billion RON at the end of 2016, increasing with 20 per cent against last year. Overall, ING had a sound income development, up by 299 million RON, reaching 1.3 billion RON for the full year 2016, out of which a pre-tax results are as high as 565 million RON, up 44 per cent from 2015."

ING Bank will move its Bucharest headquarters to the Blue Rose Office Park, a new office project developed by Portland Trust in the Expozitiei Boulevard area. ING will fully let a 20,000 sqm office building within this project, which will represent almost half of the project's total area of 42,000 sqm. The bank will move some 2,000 employees there. The office building will have eight floors and will host an ING unit at the ground floor. Real estate advisory firm CBRE Romania has helped ING Bank find this relocation solution.

ING's local headquarters are located in the Crystal Tower office building, on Iancu de Hunedoara Boulevard, in a central area.

The Blue Rose Office Park is the first office project to be developed in the Piata Presei-Expozitiei area after many years. This area will see significant development in the following years, as it is part of the Bucharest subway expansion from the train station to the airport.
ING Bank Romania recorded a gross profit of 303 million RON (some 67 million Euro) in the first half of 2017, up 45 per cent year-on-year. Its total revenues stood at 154 million Euro, up 27 per cent compared to the same period the previous year.

ING Bank Romania's net profit was over 56 million Euro. The loan portfolio increased by 23 per cent in the first half of the year, reaching 4.4 billion Euro. The market share for lending increased from 7.1 per cent in the first half of 2016 to 8.6 per cent in the same period of 2017.


BRD to offer financial advice for clients with a chatbot

Since the beginning of the year, BRD has been developing a chatbot based on Personetics technology, which will operate via Facebook, according to Horia Velicu, head of the bank's innovation lab, as reported by Business Review.

Soon, BRD clients will be the first among those of the French banking giant to benefit from financial guidance via a text conversation with an AI. "In Romania, Facebook usage rate is very high, so for us it made sense to start it," Velicu explained. To this end, BRD partnered with Personetics, a company that provides customer interaction technology solutions for the financial services industry from its offices in London, New York and Tel Aviv. "They are specialized in finance chatbots and use a financial ontology to grasp the language and product information in a conversation. This differentiates them from the general purpose chatbots like Siri or from other general commercial chatbot developers," Velicu said.

The pilot project, independently developed and implemented by Societe Generale's Romanian banking unit, is designed to offer a full-fledged financial tool. "What started as a simple bot that could only answer a couple of questions about investment in equity funds, turned into a more complex application that can assist customers in selecting and subscribing to investment funds, transferring money between funds, bill payment or withdrawing money from their accounts," Velicu told Business Review. The end purpose, he explained, is for the chatbot to become an alternative to the classical menu-based mobile banking application and ultimately support all functionalities offered by MyBRD Mobile.
The main advantage of implementing this type of tool, Velicu argued, is the ability to offer personalized assistance to customers at any time, something they have come to expect. "We live in a world where we can do almost everything at almost any time. We must be able to provide assistance over any digital channel, 24/7," he acknowledged.

Among the challenges encountered while developing the tool, Velicu singled out the linguistic aspect. "Until now, chatbots have been developed mainly using English, while for the Romanian language, there is not much annotated data for the machines to learn from" he explained, adding that the bot's personality is also important.

As for whether Romanians will come to trust a chatbot with their money, Velicu is optimistic, while acknowledging there are some variables. "It all depends on the complexity of the task a chatbot would have to perform and the client's affinity with technology. While it may take some time, I'm sure that they'll come to trust it," the head of BRD's innovation lab said.

In Velicu's view, the introduction of the chatbot does not amount to a complete change in the status quo. "There will still be some areas where human interaction will be preferred, such as double-checking certain information or complex situations where human assistance is required. The chatbots will be complementary to traditional services, not a substitute," he added.
According to Velicu, conversational data will be used to identify BRD clients' areas of interest, as well as contribute to machine learning. The data "allows the bot to learn to better address the needs of the client and even become proactive and ask the client if he or she needs a particular service, at a particular time."

The project is attracting attention at group level and is likely to be replicated in other territories, Velicu believes. "I have seen a large interest in the Societe Generale group regarding our chatbot experiment and yes, most probably, there will be other countries interested in implementing their own." However, its design, the platform and implementation will depend to a large extent on the local culture, Velicu explains.
BRD recorded a net profit of 1.066 billion RON in the first nine months of this years, growing by 76 per cent year-on-year.
"The growth of 6.8 per cent of the interest revenues came from the solid evolution of the volumes. The net income from commissions was sustained by the card activity's profit," a press release shows. "The number of the active retail clients grew by 34,000 since last year from which 31,000 are individuals and 3,000 are small companies. The internet contracts and mobile banking stocks also increased by 25 per cent, reaching 1.30 million compared to the last year. The number of the MyBRD Mobile subscribers grew by 55 per cent."

According to CEO Francois Bloch, BRD has planned investments in the next five years for speeding up digitalization in banking operations
"There is digitalization you see as a client, the fact that you are able to access your bank through multiple digital channels. This is one part of the digitalization," said Francois Bloch. "There is the other part, which is unseen by the clients, which is the internal digitalization and automation of processes. In fact, this part has a bigger share in terms of investments compared to the part which is seen by the clients. Today, we have an ambitious development plan and it's about dozens of millions of Euro in investments over five years in order to speed up digitalization of our processes and improvement of distant channel offering for our customers."
Talking about the overall financing environment in Romania, Bloch said that there isn't enough demand: "We have capital and we are ready to finance large investment projects. What we see today is a lack of demand, we don't see a large number of clients coming directly."


BCR launches car-sharing service in Bucharest

BCR together with its leasing division, a BMW dealer and a software developer who designed the dedicated app, will launch the first car sharing service with a significant number of cars in Bucharest.
The service will use electric BMW cars. The project will start with only ten cars, but aims to reach a few dozen soon. The car sharing system is not well known in Bucharest, but is popular in Cluj-Napoca. Cluj-based firm Get Pony is the only company providing this service in Bucharest. It charges a rent of 7.5 Euro per hour and BCR will likely charge a similar fee.

The car sharing system addresses those who rarely use the car, which is why they don't have the incentive to buy one. The customers will pick up the cars from a default location and will leave them in the same place to be used by the next customers.
The net profit of BCR fell by 51 per cent to 559.8 million RON (123 million Euro) in the first nine months of the year compared to the same period of last year.

BCR said the fall in profits was mainly due to base effect from substantial risk provision releases and from significant gain following the sale of certain stakes in the first three quarter of 2016. Both the net interest and fee incomes fell, while the net trading result gained 11.2 per cent to 61.75 million Euro. The bank's operating result reached 235.5 million Euro, up 0.4 per cent compared to last year due to lower operating expenses.

In the retail segment, BCR's portfolio of new loans stood at 4.1 billion RON driven mainly by demand for the Prima Casa program. The net retail loans stock grew by 3.6 per cent against December 2016.
On the corporate side, new volumes added on the balance sheet totalled 1.9 billion RON.
"The corporate book growth is further supported by a solid pipeline of better quality new business, with a shift from working capital loans towards more investment financing, net corporate loans stock advancing by 1.3 per cent against December 2016," said the bank in a statement.
Deposits from customers decreased by 1.2 per cent to 47.6 billion RON (10.3 billion Euro) at the end of September 2017. In terms of net charge of impairments on financial assets not measured at fair value through profit and loss, BCR recorded a provision of 13.48 million Euro. The ratio of non-performing loans fell from 13.3 per cent at the end of September 2016 to 10.5 per cent in September 2017.


Raiffeisen Bank to launch a new version of its banking platform next year

Raiffeisen Bank is accelerating its digital transformation and will launch a new version of its banking platform next year, as part of a strategy that runs through to 2020.
Bringing people from all departments and putting them in the same room, pretty much like a start-up would do, is something that is already happening inside the bank, according to Bogdan Popa, operations, IT division head at Raiffeisen Romania, Business Review reads.

Popa said the bank has to take an adaptive approach in order to accelerate the investments in technology that increase its engagement with its customers.

"Traditionally, banks worked through very limited structures and today we see that this way of work can be improved, if the people from various areas stay together, such as those from IT, from retail, from legal and communication," Popa added. "So, if IT people and non-IT people gather together, they can understand better the products that we want to offer. On the sixth floor of our building we have put together IT people, product specialists for corporate, retail and payments, and we will also have marketing and communication people."

The lender is also expanding its analytics operations to better understand what kind of products or services might fit the users of its digital channels, according to Popa.
"The first level is to provide customers with a structured view of past transactions, so for instance to search very fast for a previous transaction. The second level is maybe to let the customer in your app, which maybe right now is more oriented towards transactions, to let him or her set targets. For instance, I want to save a certain amount of money over several months -- the app can provide reminders of this objective," said the head of IT operations.

"We are building cross-functional teams; we have this adaptive approach and are trying to break these small borders between teams. If up to one or two years ago you could have said ‘I know retail' and someone else knows IT, things are starting to change," he added.

Popa also said that Raiffeisen Bank has a "significant investment" in the mobile and online banking platform, which will be upgraded and relaunched next year. He did not specify the budget for the heavy transition to digital, but said that the bank had a core team of 100 people working on this process.
Moreover, the lender has defined some "digital guides", who will assist the bank's employees in the branches to implement the new strategy. Meanwhile, Steven van Groningen, CEO of Raiffeisen Bank, said that more than 40 specialists will be hired in the next period to support the pivot to digital.
The bank is also working on payment by phone in stores. Popa says this is the "next level" after contactless payments: "At present we have loans that are initiated online, and the amount is growing handsomely. We are still doing the signature on paper, but over here we are also looking at ways to no longer do this so as to have digital end-to-end. It will be easier, for instance, for customers that already have the app to take out loans through the app and get personalized offers."

Providing a similar experience for desktop and mobile users is a thing of the past, suggested Popa, pointing to a sharp increase in the number of customers that are using only the bank's mobile application for daily operations: "The exclusive users of browsers are starting to go down – they were the most. Those that are using just the app are starting to grow. Today we have 377,000 customers that have used the two channels at least once a month. Banks' reach through browsers is falling and their reach through the app is growing exclusively. We have monthly growth of around 10,000 customers that reach banks through digital channels."

In August 2017, exclusively-mobile users generated 56 per cent of the usage of digital apps, while those using desktops, for instance, had a share of 33 per cent. Another 11 per cent of customers used both the mobile and desktop versions of the banking platform.

The bank aims to have 400,000 customers that use its digital channels by the end of 2017, which is roughly 20 per cent of its total number of customers. In the case of the app, Popa said that it is used on average ten times a month, although there are customers that open it several times per day.
Since starting operations on the local market in 1998, Raiffeisen Bank International has invested one billion Euro in Romania, according to van Groningen. The bank merged with Romanian state-owned lender Banca Agricola in 2002. In the first half of 2017, the bank's revenues reached 222 million Euro, while its total assets exceed seven billion Euro. The lender recorded a profit of 54 million Euro in this period, according to its CEO. It has two million customers, of which 1.9 million are individual customers, while 5,600 are large corporate customers.

During a press event that marked Raiffeisen's 20 years of operations in Romania, Van Groningen said that the bank has granted loans worth seven billion Euro in the last five years, and there were 700,000 new clients that got a loan last year alone.
Speaking about the direct and indirect taxes paid in the last six years, he explained that this figure stands at 640 million Euro. The executive said that the bank has spent 1.5 billion Euro for its employees in 20 years.

Last year, the bank's revenues stood at 450 million Euro, out of which 13 per cent was allotted for risk costs, 27 per cent for suppliers, 25 per cent for capital and shareholders, while 16 per cent went to employees.

"Our purpose is not just to make profit, and this will never be because in this way on the long term as a bank you will not have a sustainable path," said the executive, adding that Raiffeisen Bank has invested 20 million Euro in the community in the past 20 years.
Raiffeisen Bank estimates show that Romania's inflation rate will expand next year, while the interest rates on the interbank market ROBOR is also set to grow by the middle of next year.
"Our ROBOR has always been volatile. Historically, starting in 2003 it was quite volatile, because historically the BNR wanted a stable exchange rate. The BNR always wanted a more stable exchange rate, but it came at a cost for interest rates," said Ionut Dumitru, the chief economist of Raiffeisen Bank. "The abnormal period was when ROBOR was below one per cent," said Dumitru.
The lender forecasts that the inflation rate will jump to over four per cent by June 2018, compared to 2.4 per cent at the end of last year. On ROBOR, Dumitru says it might reach over two per cent by mid-2018, up from around 1.8 per cent at this moment. The chief economist suggested that the central bank might focus more on keeping stable interest rates, which would mean that the exchange rate for the RON could become looser.


Banca Transilvania takes the lead on the Romanian card market

Banca Transilvania is the largest card issuer in Romania with three million cards in its portfolio, and an 18.5 per cent market share, but the bank hasn't specified how many of these are active cards.
Banca Transilvania also ranks first for the volume of card transactions, with a 20 per cent market share. The lender launched the first card in 2000. Banca Transilvania says that 20 per cent of its card transactions are now contactless. This translates into an increase of over 450 per cent in June this year over June 2016. The bank has 40,000 POS units, 1,200 ATMs and almost 16 multifunctional ATMs.
Banca Transilvania is the second lender in Romania based on its assets. It is currently negotiating to buy Bancpost, another important local bank. Banca Transilvania recorded a net profit of 167.7 million Euro in the first nine months of this year, up 18 per cent year-on-year.

The bank's assets amounted to 11.8 billion Euro at the end of September. Its loan portfolio reached 6.4 billion Euro, up ten per cent compared to the end of 2016. Total customer deposits increased by seven per cent compared to the end of 2016 to 9.6 billion Euro. Banca Transilvania granted over 138,000 new loans, worth over 1.9 billion Euro, to individuals, small and medium-sized companies or corporate customers.

Banca Transilvania financial group, which includes the bank's operations as well as the activities of the other subsidiaries, posted a profit of 178.2 million Euro in the first nine months of this year, up 18 per cent year-on-year.
Banca Transilvania is close to signing an agreement to takeover Bancpost, the local subsidiary of Greek group EFG Eurobank. Once completed, this deal will take Banca Transilvania to a market share of over 16 per cent, very close to the market leader BCR.
Eurobank has been pursuing exclusive negotiations with Banca Transilvania for the potential sale of its local subsidiaries Bancpost, ERB Retail Services IFN and ERB Leasing IFN.