Taking digital banking to the next level in Central and Eastern Europe
This article is part of the Banker’s Special Report, A New Era in Digital Retailing for EEC Banks, in association with Backbase.
Stay-at-home orders enforced around the world to prevent the spread of the coronavirus have pushed retail customers online in ways few could have imagined before the pandemic began. Covid-19 acted as a catalyst for longer-term trends already in motion before the virus reached Europe.
Customer adoption of digital banking is a trend that has accelerated over the past year as branches have remained closed and many aspects of spending and saving moved online. âDuring the pandemic, the global digitization of businesses took a leap forward, which would have taken five years in a time of non-crisis,â explains Pierre-Yves Guegan, head of retail banking for Central and Eastern Europe ( CEE) at UniCredit.
âBefore 2020, the pace of digitalization of banking services was not the same in all countries. The pandemic has greatly accelerated the digitalization of our products and services already underway [across the region],” he adds.
The switch to digital banking had been developing for many years before the Covid-19 epidemic, and it’s something the CEECs adopted much more easily than their peers in Western Europe. Mr Guegan reports that UniCredit CEE has seen the adoption of digital banking by retail customers grow at a good pace across the region, especially in countries such as the Czech Republic, Hungary and Romania.
âOur customers have rapidly and increasingly adopted digital solutions, and active digital users continue to grow along with digital sales,â he says. âWe’re also seeing an acceleration in the service model as customers visit our branches less, paving the way for the future evolution of our omnichannel service model.â
Accept the change
Mastercard’s Evolution of Banking 2020 study found that users in Eastern Europe were much more positive about digital banking platforms than their Western peers. Exactly half of respondents from Eastern Europe said they frequently conduct financial transactions online or through an app, compared to just over a third (39%) of Western Europeans.
Pawel RychliÅski, president of the CEE division of Mastercard Europe, says that while Covid-19 has âundoubtedlyâ had a significant impact on the digital transformation of everyday life, there are historical and cultural reasons why Eastern Europeans have embraced digital banking with more enthusiasm.
âIn Central and Eastern Europe, the development of mobile banking applications has further advanced in terms of innovation, functions and consumer adoption,â says RychliÅski. âThe reasons for this can be debated, but one of the most important factors is certainly the fact that the banking sector in Central and Eastern Europe, after the political and economic changes of the early 1990s, started from scratch when we are talking about legacy technology.
Therefore, it was easier for banks and their customers to move directly to new solutions supported by innovative technologies, rather than upgrade those built in a completely different technological age.
âThis is why in the countries of Central and Eastern Europe, contactless technology, or the use of online and mobile banking services, has been adopted so quickly and easily by consumers,â says RychliÅski.
Indeed, consulting firm McKinsey noted in a report on digitization in the region that payment card-based financial transactions had “totally bypassed” the more common use of checks in other developed markets.
A healthy environment for start-ups and fintech neobanks has also emerged in recent years, with a strong digital infrastructure and talent in the region. According to Raiffeisen Bank International’s EWC Fintech Atlas 2019, this year marked another peak of investment in many markets in Central and Eastern Europe. He highlighted Belarus, Poland, Czech Republic, Slovakia and Slovenia as the main digital banking markets.
The expansion of fintech has been supported by initiatives such as open banking, which has increased competition in the market by enabling traditional banks and neobanks to offer new products and services to retail clients.
âEastern Europeans are embracing innovative digital banking services offered by well-established traditional banks, mainly because these institutions already offer very innovative solutions,â says RychliÅski. “However, that doesn’t stop consumers from taking advantage of what many fintechs in our region have to offer in the areas of payments and personal finance.”
In addition to becoming important players in the CEEC market, Mr. Guegan says fintechs have made a major contribution to the transformation of the region’s banking sector. âBanks have a number of important advantages over fintech start-ups: capital, customers, security and trust,â he explains. “[Incumbents] Leverage FinTech companies as inspiration to transform and improve customer offerings and services, using digital platforms and analytics. “
UniCredit is “strongly committed” to the development of innovative and effective products and services, and has partnered with fintechs to accelerate its digital transformation for several years now, he says.
The role of regulators in digital banking adoption should also not be overlooked, says Alistair Stuart, Managing Director of European Custodian Bank Digital Banking, part of the Apex Group, given the often ‘complicated’ relationship. that they have in trying to promote innovation while protecting customers. âIt is a real challenge to regulate a complex and multidimensional market like Europe,â he says. âIt’s somewhere between the devil and the deep blue sea where you sit as a regulator.â
Branko Popovic, director of strategy and transformation for Southern and Eastern Europe at consultancy firm PwC Serbia, says regulators in the region have helped promote digital banking and enabled new entrants to access markets. âRegulators promote competition – this may be by simplifying the various procedures to allow new entrants, such as some neobanks, [to flourish],” he explains.
Beyond the pandemic
It’s hard to ignore the impact of the pandemic on the long-term adoption of digital banking. For many banks, this was an opportunity to improve their existing offerings and expand the range of products and services available digitally to increase their sales.
âIn the first quarter of 2020, we made more progress in our digital transformation than in the past three years,â says Mr. Guegan. âAll of this has been possible thanks to our previous work and investments in digital transformation. We are now building on our earlier investments in mobile banking, internet banking, contact centers and paperless branches. “
For example, over the past year, UniCredit has strengthened its digital penetration by providing a common customer experience across its mobile banking channel in seven Central and Eastern European countries. âThis has translated into a 54% increase in active mobile users and a more than 200% increase in mobile transactions,â he says.
This has also led to the development of new services, including more than 200 initiatives related to Covid-19 in the Central and Eastern European markets, adds Mr. Guegan, allowing customers to continue to benefit from the best banking services during the periods. lock. âFor example, within a few months we have developed a complete end-to-end online checking account opening in Hungary and new digital and automated processes for moratorium requests in Slovenia,â he says.
While digital banking is likely to remain a feature of post-pandemic life, Mr RychliÅski argues that doesn’t mean banks can afford to be complacent. They will need to prioritize investments in innovations, personalize the customer experience and focus on data security and privacy, he notes.
âThe prospects for the growth and use of digital banking services in CEECs in the coming years are very promising,â says RychliÅski. âConsumers’ openness to digital solutions will go hand in hand with their increasing availability and advancement, also due to the pandemic.
âOn the other hand,â he adds, âif financial institutions are to retain consumers in the future, they will have to deal with today’s risks and consumer expectations.â
Indeed, the conventional banks that remain in place are unlikely to thrive after the pandemic with more digital-savvy retail customers, Popovic adds. Banks will need to think about what they need to be competitive in what is already becoming a more competitive environment.
âThey have to adapt. They need to prioritize digital initiatives and really figure out what’s important, âsays Popovic. “I’m not even talking about [spending] money: some of these markets are grappling with the availability of [talent] able to design and implement those digital solutions that enable banks to compete successfully in a digital market. “