Master Thesis Digital Banking & Financial Technology
Yüklə 0,77 Mb. Pdf görüntüsü
|
|
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 1 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 2 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 3 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). |