The world is slowly coming to terms with the economic havoc wrought by the pandemic, so what now? Financial services industry: splendid isolation or stronger together? Digital transformation: lasting change or passing fad? Strategy: same old, same old or back to the future? And what do horse carriages have to do with all this? We’ve sat down with W.UP President Balázs Vinnai to find out. Here’s what he’s had to say.
Do you think that the coronavirus crisis has changed the way customers pay, bank and spend forever?
I think the world as we know it will change –and it will change dramatically. Not only because the crisis has opened a door to new possibilities but also because it has sped up processes that had been unfolding for years. One of these is digitalisation, of course. Due to stay-at-home orders, people had to find new ways to access the products and services they needed from one day to the next. And there’s a good chance they will not go back to their old ways. Will we eat out or travel again? Certainly. But just as life wasn’t the same after the global recession of 2008 or the 9/11 attacks, it won’t be the same now either.
It’s not that customers have suddenly decided to change their attitudes. It’s more that people who had not been comfortable with online and mobile banking channels before are now realising that not only is it easier but just as reliable. And this new-found trust will drive them to digital banking over and over again. For banks, that’s going to be a huge challenge. The number one reason why they’ve kept their branches, by far the biggest cost burden to their business, was the sales volume they’d generated. But if less and less people need cash desk services and sales are moving to digital channels, it’s time they put this money elsewhere.
If everything and everyone goes digital, not having branches will not be a disadvantage anymore. In other words, incumbents and challengers will be competing on an equal footing.Balázs Vinnai, President at W.UP
And they’d better hurry. Challenger banks were hit hard by the coronavirus outbreak because the biggest chunk of their customer base are frequent travellers who often make payments in foreign currency. But their cost-to-income ratio is so much better than that of their traditional counterparts that they will have no problem staying in the game. In fact, they might even have better chances at winning. If everything and everyone goes digital, not having branches will not be a disadvantage anymore. In other words, incumbents and challengers will be competing on an equal footing. And who’s bigger and who’s better will be judged based on completely different criteria on the digital playing field.
How will banks’ priorities change in terms of operations, innovation and product development?
Whenever a crisis occurs, the short-term plan is to shut down any activity that has even a minimal risk. In the mid-term, however, it’s crucial to explore how to turn adversity into opportunities and future-proof your business, no matter who or where your customers are. Let’s take digital transformation as an example. In Eastern Europe, only a small percentage of banking sales had been made in digital channels before the crisis. In Western Europe, around 60%. But that still means that 40% of sales had been generated offline, which you now have to move to other channels to provide uninterrupted service.
It’s important to remember that digital does not mean self-service.Balázs Vinnai, President at W.UP
That said, it’s important to remember that digital does not mean self-service. Ideally, it’s a process where customers can ask for help or information whenever they need it without having to visit a physical branch. In other words, omni-channel operations will remain key, even if all these channels will eventually become digital. Chat, especially video chat, will gain momentum as it helps banks respond to customer needs in real time. If you tell a customer during a sales process that a sales representative will call them within 24 hours to close the deal, you’re done.
Do you think this sudden rush to digitalisation will outlast the crisis?
There will be different strategies, I’m sure, but in the long run, those who commit to speeding up digitalisation efforts will come out as the winners. Old business models might be enough for banks to get by once a new period of prosperity begins but they can do much, much better than that. Think of horse carriages. If you’re a tourist, you might still hop on a horse-drawn carriage to see Central Park even though carriages have long been replaced by other means of transportation. Or take watches as an example. Using mechanical watches doesn’t make much sense today. But they look nice and elegant so a lot of people still wear them. But that doesn’t change the fact that 99% of watches are now digital.
How do you expect the crisis to shake up market dynamics?
I expect an even fiercer competition between market players than before. We’ve seen some pretty significant valuation drops, with Monzo, for instance, but thanks in no small part to government incentives, there’s still a lot of cheap capital available in the market. Meaning that fintechs have every chance to continue growing and become attractive merger or acquisition targets for established players. At the same time, incumbents need to warm to the idea of consolidation, too, to cut costs and find economies of scale. The merger of Budapest Bank, MKB Bank and Takarekbank in Hungary gives you a good indication of what’s in store for the industry on a global level.
Do you think that purpose-driven banking will be the future of the industry?
I think in a way banking has always been purpose-driven. Because, in essence, what does a bank do? It helps people make their dreams a reality. If they need a new home, they can apply for a mortgage, if they’re eyeing a new car, they can take out a car loan, if they’re shopping for Christmas gifts, they can charge them on a credit card. The problem is that for a long time, banks have forgotten that. Product-focused thinking has taken over, and instead of serving customers, banks’ main goal has become selling products, like mortgages, car loans or credit cards. But who on earth is dreaming about taking out a mortgage?
To build win-win relationships with customers, financial service providers should refocus their efforts on making customers feel understood and supported. But first, banks need to become more embedded in the financial services ecosystem. A customer is browsing flats on Rightmove? They’ll probably need a mortgage offer. They’re looking for gifts on Amazon? They might be interested in your newest credit card. Banks can no longer afford to cling to their autonomy. I really believe that this is what open banking should be about: traditional banks teaming up with newcomers to become a valuable part of customer journeys.