Banks Rush to Embrace Digitalization to Trump FinTech Competition

The past few years have seen international banks closing branches. More often than not, the banks’ PR communication attributes it to changes in user experience and the increasing demand for digital services. But while tech and crypto aficionados insist that physical banks will eventually become extinct, that vision still seems some way off.

Digitalization has, naturally, reached Hungary; however, banks that the Budapest Business Journal spoke to insist that physical branches are still well-frequented points of sale.

UniCredit Bank Hungary says it focuses on digitalization to improve customer experience, efficiency and to automate processes, making them paperless where possible.  

This approach helps the bank “drive future banking value creation by developing innovative and efficient products and services relevant to our customers, while freeing up human capacities in our network,” UniCredit tells the BBJ.

At the same time, it enables the bank to dedicate more time for customers and creates value for them through advisory services.

Budapest Bank’s approach seems to be similar; it says it believes that a bank can only be successful with the symbiosis of online and offline banking solutions.  

People Business

“In branches, we expect the focus to shift to consulting while the online world will become the platform for fast and routine transactions. Even though we live in a world of fast decision-making, where online services are becoming more important, people are still prudent and risk-averse. When it comes to consultation and financial questions, our experience shows that customers usually prefer personal meetings,” Budapest Bank says.

“Because of this and to provide the best customer experience, we have not reduced the number of our branches in years,” the bank adds.  

Although the past 10 years have seen transactions migrating to digital channels to such an extent that 98% of money transfers go through digitally, UniCredit insists that traffic in branches has remained on a stable level, fueled by the increasing need for other products and services such as lending, investment and insurance.

“Last year, MagNet Bank did not close any branches, however we hold a unique position, since we did not start up by opening hundreds of branches, and then slowly closing 30-50% of them,” MagNet Bank tells the BBJ.  

The bank does admit that it has closed “some regular branches”, but notes that it also opened some “special branches” catering to more modern tastes: a fair-trade café and branch office in Budapest, a bistro and a bank office, also in Budapest, and a coworking space combined with a branch office in Székesfehérvár.

MagNetBank also says that, while the younger generation may favor digital services for their banking errands, the older generation will seek the help of tellers in offices, meaning that when it comes to account opening, loan disbursement, cash-related transactions and financial counselling, physical branches are still preferred.

When financial technology companies surfaced few years ago and started spreading rapidly due to their accelerated approach to opening bank accounts through mobile apps, traditional banks appeared to be in danger. The latter’s legacy systems lagged behind in functionality and speed, which tainted user experience.  

Competition or Cooperation

While many FinTechs today still proclaim themselves claimants to the throne, practice shows that the competition is also often shaping into cooperation.

“FinTechs are considered in our group as a source of inspiration rather than competition, as banks have significantly more capital and customers and can provide safety reassurances for clients,” UniCredit Bank tells us.  

“FinTechs are focusing mainly on transaction and linked services, while banks’ advisory profile is becoming more and more bold, meaning that they do their activities partly in different dimension. This advisory approach applies not only to the retail business, but also to corporate, where our bank clearly puts a focus on increasing client face time and further improving the customer experience,” UniCredit Bank says.  

All of which means banks today are often looking to pursue partnership with FinTech solutions to improve the customer experience, as well as to introduce new services to their markets.

“While a few years ago, most experts believed FinTech companies would be the great challengers of banks, these days it seems like they are more often than not looking for the possibility to cooperate with them. We see the same trend at Budapest Bank, as we are currently working with about 10 FinTech companies to improve our services. Since the banks are the ones with the customers, the easiest way for FinTech companies to gain customers is if they work together with banks,” Budapest Bank says.  

This comes in handy as traditional banks need to introduce new services using their legacy systems, while ensuring that the end user does not notice the changes during their everyday banking.

“Efficient cooperation can be a win-win situation for both parties: with stable partnerships, FinTech companies can work out their business model, customers receive the newest services from these companies, while banks don’t have to develop new solutions and services themselves,” Budapest Bank adds.

Trust is another important factor in play here. “In most cases, FinTech solutions also have banks as financial backups. The absence of trust is still a defining factor against FinTechs, whereas banks tend to enjoy bigger trust from clients. In some instances, branch-based personal administration is still required when dealing with everyday finances. In the field of credit disbursement, banks are unavoidable and FinTechs have not yet managed to replace them,” MagNet Bank notes.