Banks Enjoy Digital Advances, Serving Increasingly Tech-savvy Customers
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If anything, the adage of technology disrupting every industry is amplified in banking. Beyond the usual suspects of AI and machine learning, banks must grapple with fintechs, peer-to-peer payment, cryptocurrencies, blockchain and NFTs. The Budapest Business Journal explores a market of great potential.
As technology advances rapidly, the Hungarian banking sector’s focus has fallen on fully leveraging the opportunities provided by recent tech solutions.
“As a result, the Hungarian market saw the arrival of several new mobile banking applications and experienced the expansion of such features as video banking. Importantly, an ever larger share of banking technology runs on the so-called cloud infrastructure,” the Corporate Communication Department of OTP Bank tells the BBJ.
“Banks also seek the possibility of using artificial intelligence and machine learning tools. For example, OTP Group is building a supercomputer to use its machine learning capability to examine and process the Hungarian language,” the comms department adds.
AI solutions have been around for a while; chatbot technology in the banking industry provides customers with personalized assistants and support through virtual assistants. Machine learning can help analyze customer data and provide personalized financial advice.
“Also, some banks have already introduced personal financial management tools that help customers track and manage their spending, create budgets, and achieve their financial goals,” MKB Fintechlab, the innovation and design lab of MKB Bank says.
As processes increasingly move to the cloud, such architecture is becoming an ideal solution to enable smooth global payments, peer-to-peer transfers, and contactless payments for banks.
“While most of the early BNPL [buy now, pay later] players were fintechs and other digital players, we see a great opportunity for banks to expand into this form of payment through consumer and corporate credit cards as well as short-term unsecured lending. A few banks have already started to explore these opportunities, despite having previously distanced themselves from BNPL in its original form,” MKB Fintechlab says.
Banks aren’t the only ones adapting. People are also becoming more aware, says OTP.
“The financial literacy of clients is constantly evolving. Based on the annual research of OTP Bank, the ‘Financial self-care’ index increased from 34 to 37, which is the highest y.o.y. growth in the history of this survey. The positive externality of the current economic situation is that the population is trying to save money and pay attention to expenses, which OTP Bank supports through its MobileBank app with the ‘Expenses Monitor’ (PFM) and ‘Wealth Portfolio View’ functions,” OTP tells us.
Magyar Bankholding sees similar improvements but acknowledges the role that educational institutions and banks must play in strengthening customers’ financial literacy.
“According to MKB Fintechlab representative research, 73% of Hungarians use some kind of financial application, and this number has been growing over the years. When it comes to financial education, there’s clearly room for schools and universities to step up. But it makes sense for banks to play a role in this, too, as they have the data and tools to help people manage their money in real life. Financial education strengthens consumers’ relationships with banks and can improve their financial condition and outlook,” the bank argues.
When fintechs first started gaining ground, they were seen as a genuine threat to traditional banking. In a spirit of free market competition, the objective was to offer a better alternative and lure users away from banks. Today, the two ends of the spectrum are more likely to work in synergy.
“Collaboration between banks and fintechs is evolving, driven by the rise of digital ecosystems, regulatory changes and increasing customer adoption. A collaboration with a bank provides fintech companies with a stable client base, a stamp of trust, access to capital, and know-how. Banks profit by ensuring new sales channels, business models, and a seamless digital customer experience. Collaboration is key for banks because regulation imposes various requirements, restrictions and guidelines on them, which makes it more difficult to catch up with the trends,” MKB Fintechlab explains.
Such collaborations come in multiple forms. Banks invest in plug-and-play models, allowing both sides to explore synergies in culture, business processes, and IT without significant financial commitments.
“However, one field that still needs to be explored is blockchain, the most innovative emerging technology in the financial services industry. Banks can experiment with blockchain technology to protect data, verify and identify, record transactions, sign contracts, and improve traceability. Because of its safety and dependability, this technology is beneficial to financial services,” MKB Fintechlab says. [For more information, see box below.]
But how does Hungary compare internationally? “The Hungarian market is pretty much open to competition from other EU markets, hence fiercely competitive,” reckons OTP.
“Given that EU-based fintechs are also present on the market, OTP Bank constantly launches new solutions to remain relevant to the digitally mature or younger customers too. For the best functions, OTP Bank cooperates with fintech companies. It provides one of the ‘best-in-class’ digital services in Hungary, as is confirmed by its mobile store rating, which is among the top international players. In addition to digital solutions, OTP Bank can also provide personal advisory for complex needs,” the country’s biggest lender says.
The total value of the region’s most significant technology companies exceeds USD 130 billion, according to the Digital Champions CEE 2021 publication.
“This is 12 times more than it was a decade ago, and it is also ahead of China in the rate of growth. Among the 13 countries participating in the research, Hungary ranks sixth in terms of the market capitalization of enterprises with USD 4.98 bln,” MKB Fintechlab points out.
“OTP Bank does not see major differences in technology goals among European banks; they all see that if they don’t keep up with the technology, they may be at a market disadvantage,” OTP Bank concludes.
Blockchain, Crypto and NFTs
When Bitcoin first surfaced, users hailed it as an alternative to traditional finance. Today, banks are increasingly looking to exploit the advantages of the technology behind it.
“Many blockchain applications in banking provide opportunities to improve the sector’s current processes and procedures. However, it is also conceivable that banks will employ blockchain solutions designed to live outside of the existing system in the future. If this occurs, the blockchain challenge to the sector will be a success,” MKB Fintechlab tells the BBJ. “Financial institutions should shift from thinking of crypto as a competitor to more as a partner.”
“NFTs [Non-fungible tokens, or unique digital assets] have real-world uses in financial services that major banks are now exploring, whether as part of a marketing strategy, to assert themselves as digital innovators, or because they want to expand their presence in asset management. The topic might not achieve the explosive growth that some analysts predict, but banks should have a strategy to reap the rewards if the market does mature,” MKB Fintechlab adds.
This article was first published in the Budapest Business Journal print issue of March 10, 2023.
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