Master Thesis Digital Banking & Financial Technology



Yüklə 0,77 Mb.
Pdf görüntüsü
səhifə3/18
tarix27.12.2023
ölçüsü0,77 Mb.
#200146
1   2   3   4   5   6   7   8   9   ...   18
Anastasiou MDE2003

The Financial 
Brand
. [online] 19 Dec. Available at: https://thefinancialbrand.com/news/digital-
transformation-banking/digital-banking-transformation-trends-for-2023-157279/. 


13 
Chapter 1: Digital Banking 
1.1. Short history of banking 
The development of digital banking has followed that of technology and the 
internet. It began with the appearance of the first ATMs and the first electronic bank 
cards in the 1960s, a period when the majority of banking customers began to accept 
and trust new technologies (Bátiz-Lazo, 2018).
In the 1970s, the development of computer technology, the creation of the 
first electronic transaction systems and the establishment of the SWIFT payment 
network were a major step in the evolution of digital banking (Scott & Zachariadis, 
2012: 5). This was followed by the development of the internet in the 1980s, which 
enabled retail banking customers to use the first digital channels for their transactions. 
In the period 1980-2000, digital banking is now also used by home users, and the 
term 'on-line' is introduced, which refers to the combined use of a terminal, keyboard 
and computer screen to access banking systems via the user's telephone line 
(Schulte, 2008).
From the 1990s until 2000, digital banking was increasingly chosen for 
banking transactions (Salehi & Alipour, 2010: 202), reaching its peak at the dawn of 
the 20th century. Wireless technology and widespread use of smart phones ushered 
in a new era in digital banking, which fundamentally changed the way banking is 
done. The percentage of customers who now choose digital banking to conduct their 
transactions is believed to be as high as 60% (Beers, 2022). 
1.2. Digital Banking 
Digital banking refers to all banking services that are carried out with the help 
of technology and especially the internet (Aladwani, 2001: 214). The transition from 
traditional banking to digital banking has been gradual and is still ongoing (GateHub, 
2020). The rapid growth of technology has brought about tremendous changes in the 
banking sector as well (Ismail, 2018). These changes in the banking sector did not 
happen by chance, great importance was given to the fact that banks had to take 
advantage of new technologies. In Greece, the four systemic banks had developed a 
plan starting in 2016, which emphasized the adoption and promotion of new 


14 
technologies. The aim of the country's banks is to create a solid foundation in order 
to take more decisive steps as the ever-changing developments require it. According 
to a survey by consulting firm Ernst & Young titled ‘Global Banking Outlook 2018’, 
digital transformation was the top priority for 85% of banks globally in 2018 (EYGM, 
2018).
According to the same survey, banks considered investing in new 
technologies to improve their efficiency as important parameters for their success. 
but also risk management. Addressing cybersecurity was a top priority for global 
banks by 89% in 2018. Also another factor that helped e-banking was its low cost.
According to a survey, twenty-two percent of owners say more than a quarter 
of their business is currently transacted online, but 32% expect that to be the case 
within the next five years (Newport and McMurray, 2018).
1.3. New Trends 
The rapid expansion of digital banking has made it necessary to transform the 
current strategy of banks to include all the channels used by their customers (Internet, 
mobile phones, physical branches), offering a range of digital products such as 
phone banking, online banking, mobile banking, etc. (Kaur et al., 2021: 107).
The multiple benefits of digital banking have led bank managements to 
prioritize investments in digital banking technology over conventional banking models.
The main factors shaping the future banking industry following the onslaught 
of the digital age are (Abbott, 2022):

Changing customer behaviour as well as changes in their expectations of the 
Banks served to date.

The constant pressures from bank regulators.

Super-apps are dominating more aspects of the digital world and human 
interaction. Banks face a high-stakes choice to compete or collaborate. 

As Environmental, Social and Governance concerns grow, banks are being 
urged to become guardians of the planet. There will be costs
—but the returns 
are sure to make it worthwhile. 

Fintechs and other trends 

“Free” products from digital-only challengers and BNPL firms are forcing banks 
to be more transparent
—and more creative—with fee structures. 


15 

Banks are looking for ways to have meaningful conversations with customers in 
digital spaces. Technology like AI can help make the human connection. 

With crypto currencies here to stay, experiments like Central Bank Digital 
Currency Trackers are gathering momentum. The search is on for use cases that 
prove the economic benefits. 

Artificial intelligence and machine learning in banking now surpass humans in 
some tasks. Applying this tech will bring zero waste operations within reach. 

The next payments revolution will stem from open networks, which empower 
banks to reimagine their payments offerings for newly-demanding customers. 

Search for growth in international markets 

The pandemic disrupted the supply chain for banks’ most critical asset: talent. 
Competition is rising. Winners will transform themselves as employers. 
1.4. Advantages of Digital Banking 
In recent years, online banking has been gaining more and more users, who 
are fascinated by the positive aspects of digital banking (Shamdasani et al., 2008: 
132).
Some of the advantages of e-banking are the following (Franke-Folstad, 
2022):

Immediacy: It is true that the user can choose the time to carry out his 
transactions as well as the place, 24 hours a day and 7 days a week and even 
from any place he wishes. Also electronic banking knows neither holidays nor 
public holidays, the transaction can be carried out and can be seen on the first 
working day in the system.

Easy to use interface: the interface of electronic banking is increasingly user 
friendly, by pressing simple buttons, with videos and online explanations it 
becomes possible to use it even people who are not so familiar with technology. 
Alternative means: one can, as mentioned above, carry out transactions in many 
ways,
i. 
from their computer,
ii. 
their mobile phone, their smart watch,
iii. by phone, mobile wallet.
iv. Via ATMs 
v. By means of cards and POS


16 

Sense of control: the e-banking user can see on his screen step by step the 
movements he makes , after executing the movement he wants he will have to 
give the final confirmation before the movement is valid, having even been 
informed of the supplies that will have occurred. He can also at any time see the 
history of the moves he has made.

Update. He can check if the transaction he made on his own was done, when, 
and at what time. He can also learn about new products of the Bank and new 
services offered by the banks. 

Organization. It makes it easier for the user, with proper planning, not to forget to 
fulfill his obligations, with a simple transfer order.

Cost: the commissions required by banks are lower through their website than 
from the branch. It makes sense since it does not require the help of a bank 
employee for each transaction. The user of the online banking page becomes a 
bank employee all by himself.

Automation of transactions: the user can by standing orders schedule some 
payments so that they are made automatically. That is, when he knows the date 
when an account expires he gives a standing order electronically to have the 
payment happen a specific day of each month without any additional movement 
for each month, as long as of course there is money through in his account. 
Especially in payments that may incur interest in case of delay the standing 
order policy can be very useful.

Security: most importantly, banks ensure that customers can enjoy all of the 
above in a secure environment. Security through e-banking is ensured by strict 
standards and safeguards such as the unique user code that each transactor 
has, the pin number required for each login to the internet site, the code 
confirmation that comes on the mobile ,are some of these safeguards
Besides, banks are wasting time and money in this area by hiring specialized 
staff and programs that provide them with the security that their customers require. 
Properly trained staff is key to the successful implementation of a digital reform. 
Continuous and adequate training, using them in the right position and properly 
evaluating their skills as well as their opinion on processes and suggestions can 
solve problems in processes and techniques that could not be implemented digitally. 
A properly and technologically trained employee will have an even more correct 
opinion on the outcome of actions. 
Similarly, from the banks' side there are some benefits, such as:

Reduction in costs; with the help of digital banking banks use much less staff 
and thus save money.


17 

The services provided are always active. The service offered is 24 hours 7 days 
a week and 365 days a year. All the bank's customers, whether through 
branches or web are served better and faster since e-banking helps to avoid 
crowding of bank customers in the branches and no queues

Banks can serve even their customers who are located in small areas and 
remote from the city.

By developing innovative services and technologies, banks enhance their 
competitiveness, their reputation and their customer base. This results in 
attracting more customers.

Banks can gather a significant number of statistics. quantitative and qualitative 
characteristics resulting in the development of their products and services. 
1.5. Disadvantages 
Digital banking also has some disadvantages. On the customer side the main 
disadvantages are (Natter, 2019):

Specific technological equipment is required to be able to connect to a bank's 
digital page, one must have a computer or smartphone and definitely an internet 
connection.

It is required to be knowledgeable in a specific expertise. Internet pages are very 
user friendly however however the user should be familiar with the use of 
electronic media.

Distrust: a major hurdle to overcome in order to use e-banking was that 
customers had to be convinced to trust the new technologies. Customer mistrust 
often stems from the lack of physical contact with employees, and there is 
always a fear of the security of transactions due to external factors or personal 
error, in which case, of course, the cost is not borne by the banking institution 
but by the customer himself. 
There are some disadvantages on the bank's side as well, such as:

Initial investment and maintenance costs: banks have to spend huge amounts of 
money on the new technologies necessary to provide all these services to their 
customers. There are new products appearing every day and increasing the 
competition between banks, whose staff is discovering new improvements every 
day so as to attract more customers. Therefore, in addition to the costs required 
for the design and implementation of the banks' network ,an additional cost is 


18 
required for the maintenance of this network and for its evolution and adaptation 
to the new technologies that are constantly emerging.

Costs of educating customers: new technologies are not familiar throughout the 
world, especially to older people. Banks employ qualified staff who give 
instructions at all times by telephone. There are also video tutorials on the banks’ 
internet sites which make it easier for users. Advertisements are also used from 
time to time which also contribute to the same purpose. Especially after the 
pandemic, there are many difficulties in visiting a branch, such as: having to 
make an appointment first, withdrawing or depositing more than a certain 
amount, paying pensions only by card, etc., all of which force even older people 
to use the electronic banking system, usually with the help of someone close to 
them, of course.

Security of transactions: Another major cost incurred by banks is transaction 
security, either through updating and upgrading security protocols to ensure the 
solvency of transactions and protect customers from fraud or even through 
closed circuit monitoring at ATMs. In recent years, the number of people using 
digital banking has been increasing, but this has not happened by chance, banks 
have slowly convinced and educated their customers. 
1.6. The digitalisation of banks in the face of the pandemic 
Beyond the impacts the COVID-19 pandemic has had on human health, the 
virus has had a significant impact on regional and worldwide economies, at the level 
of all economic sectors, with particular significance in the sphere of technology. The 
pandemic crisis has been compared by analysts to the phenomenon of the black 
swan, which is a sudden, unexpected event of significant significance that causes 
serious consequences and profound changes in the political and economic 
environment. The COVID-19 pandemic crisis has impacted corporate operations and 
performance and increased demand for contactless financial goods and services. 
Infection control measures like social exclusion and lockdowns of specific areas of 
society were implemented to prevent the spread of COVID-19. The vital part that 
digital infrastructure may play in the quick provision of services by banks and other 
financial institutions has been underscored by this pandemic. The magnitude of the 
changes may be seen in the fact that, globally, 76% of adults now have a bank 
account, up from 51% a decade ago, and that, in developing countries, 71% of 
individuals now have one, up from 42%. When there were mobility constraints and 


19 
when the government considered restricting the usage of cash because it was 
unhygienic, the highest rise in digital payments was observed. Despite all the 
negative consequences on most economic sectors, other activities showed 
increasing patterns, particularly in the area of internet commerce, which created a 
demand for digitalization in order to conduct online business. The conditions imposed 
by the epidemic have caused people to do more transactions online, which has sped 
up the adoption of banking and financial digitalization, including technical 
advancements in banks, in order to boost their efficiency and offer present clients 
better services. Due to pressure from central banks and governments to absorb the 
shocks brought on by the pandemic crisis to the economy, which had an impact on 
their profitability and performance, banking institutions also played a significant role 
in supporting the real sector. To lessen the impact of the pandemic crisis on homes 
and businesses, governments in European nations have taken a number of actions 
(Doran, Bădîrcea and Manta, 2022: 1-2).
The surge in e-commerce and contactless payments brought on by the 
epidemic has led to more initiatives in the field of payment services, boosting up-and-
coming competitors that pose a threat to established companies and could reduce 
bank earnings in the next years. For individuals and businesses looking to exchange 
money, banks often serve as a gateway in traditional business models in the 
payment services industry. Banks are the ones exchanging information on amounts 
to be debited/credited and paying outstanding balances via the central bank, despite 
the fact that the front-end infrastructure may differ (e.g., debit cards, credit cards, 
online banking, and other remote banking services for businesses) (Resti, 2021).


20 
Image 

Traditional 
business 
models 
in 
the 
payment 
services 
sector 
(https://www.europarl.europa.eu/thinktank/en/document/IPOL_IDA(2021)689460) 
In the past 15 years, new initiatives and technologies, whose potential has 
been further increased by the epidemic, have reduced the market dominance of 
banks.
Image 

Examples 
of 
new 
business 
models 
in 
the 
payments 
arena 
(https://www.europarl.europa.eu/thinktank/en/document/IPOL_IDA(2021)689460) 
First (Case I), new payment processors with a focus on e-commerce 
transactions have emerged, giving consumers a quick and secure way to transfer 


21 
money (often with free insurance coverage on their online purchases) and giving 
merchants the chance to sell products and services globally using a single tool in 
exchange for a fee. Second (Case II), non-financial businesses such as e-commerce 
websites and phone companies have begun running their own "electronic wallets," 
giving customers a simple and affordable way to exchange money among 
themselves, sometimes focusing on small transactions for which traditional transfers 
would prove to be too time-consuming and unprofitable. In both Cases I and II, new 
payment providers can choose to become chartered institutions to acquire access to 
central bank settlement or they can use a bank to handle interbank payments. In the 
meantime (Case III), new distributed technologies have made it possible to conduct 
payments without depending on the banking system or even the Central bank. This 
includes crypto-assets (which, however, do not provide a reliable means of payment 
due to the significant volatility in their market value) and global stablecoins, which 
can be pegged to actual currencies and backed by a sufficient amount of low-risk 
assets (Resti et al., 2021). Traditional lenders' profitability is under risk due to the 
entry of non-bank companies in the payment services industry. In order to provide 
the same simplicity of use, standardization, and service breadth given by the new 
entrants, institutions must improve the accessibility of their systems since more and 
more consumers have grown accustomed to alternative channels throughout the 
pandemic. This necessitates considerable IT expenditures and can result in 
additional consolidation. Banks have also been embracing Internet-based platforms 
(including sites owned by non-financial companies) as an outlet to approach new 
clients and sell customized goods with minimal distribution costs in response to the 
growing involvement of new entrants in traditional payment services (Resti, 2021: 22).
According to Fu and Mishra (2021), the Covid-19 crisis has significantly 
increased the amount of new technology testing and adoption in the EU financial 
sector. Customers' lifestyle changes as a result of the pandemic have been found to 
have increased willingness to trust the security of internet/mobile banking services, a 
favorable perception of the usability of new technologies, and an increase in the 
perceived utility of these services, according to Baicu et al. (2020). In line with this 
development, the EBA recently conducted a survey on the use of digital platforms by 
banks, including comparators (websites that compare products provided by various 
institutions), platforms managed by institutions to provide access to third party 
services, platforms marketing non-financial goods and providing bank services as a 
side product, ecosystems (i.e., platforms acting as a single point of entry to 
numerous third-party providers, both financial and non-financial), and enablers 
(platforms enabling access to pre-existing payment tools and leveraging data for 


22 
service extension). Travel booking websites that offer insurance or foreign exchange, 
real estate companies that offer credit and/or insurance products, and online retailers 
that offer installment loans are a few examples of non-financial platforms that 
advertise banking services. These agreements, often known as "banking as a 
service" or "BaaS," entail the payment of a brokerage fee to the site owner, who 
retains ownership of the distribution network (and may decide to switch to a different 
provider in a way that is almost unnoticeable to the final customer). However, they 
also bring about a number of benefits, giving banks an inexpensive, novel approach 
to expand their customer base and develop their product lineup, according to a 
recent study of retail bank executives.
Image 

Potential 
benefits 
of 
the 
BaaS 
model 
(https://www.europarl.europa.eu/thinktank/en/document/IPOL_IDA(2021)689460) 
Ecosystems differ from traditional business models in that banking services 
are offered with other financial and non-financial products on the website, not as an 
add-on service. In turn, they are distinct from enablers (typically, large technology 
companies), who frequently operate in situations where a contractual relationship 
with the customer already exists (for example, a deposit account) and who facilitate a 
new method of payment (for example, a digital wallet hosted on the customer's 
smartphone that allows payments through an NFC terminal or a QR code). According 
to the European Banking Authority (2021), the increased use of digital platforms 
offers a variety of potential opportunities for both EU clients and financial institutions, 
as it can make it easier for customers to access financial products and services while 


23 
giving lenders new ways to meet rising demand without incurring the costs of a 
traditional sales network. However, as more and more lenders rely on digital 
platforms to sell their products, this could lead to the emergence of brand-new 
arrangements in which banks and non-financial entities are financially, operationally, 
and reputationally dependent on one another.
In addition, the communication between bank supervisors and authorities 
overseeing digital platforms run by non-financial entities may prove untested and 
slow to respond (given the sector's rapid rate of innovation and the frequent provision 
of cross-border services). Non-financial entities that act as middlemen between 
lenders and customers are typically less regulated than financial institutions. For 
banks, who believe they would suffer reputational harm if the services offered 
through digital platforms were disrupted, this may lead to instability and some sort of 
"step in risk." Network economies that reward huge platforms and anti-competitive 
behavior that creates a highly concentrated market may also make institutions more 
dependent on third-party platforms. Digital platforms' capacity to attract new clients 
unfamiliar with financial services could also present challenges in terms of misselling, 
conduct risk, and customer protection (including, e.g., complaint handling, as the 
provision of banking services relies on multiple players and individual responsibilities 
may become blurred). Concerns over privacy protection may also arise from the 
platforms' use of personal data to profile user behavior and interests. Recently, the 
European Banking Authority recognised these dangers and outlined a variety of 
potential solutions (European Banking Authority, 2021).


24 
References 
Abbott, M. (2022). 

Yüklə 0,77 Mb.

Dostları ilə paylaş:
1   2   3   4   5   6   7   8   9   ...   18




Verilənlər bazası müəlliflik hüququ ilə müdafiə olunur ©azkurs.org 2024
rəhbərliyinə müraciət

gir | qeydiyyatdan keç
    Ana səhifə


yükləyin