INTERVIEW: Defining the banking models of the future

Levon Hampartzoumian is a prominent figure in the banking and auditing scene in Bulgaria, currently Chairman of the Forum of Bulgarian Entrepreneurs. His extensive experience includes being CEO and Chairman of UniCredit Bulbank, Honorary Consul of Canada, and holding senior positions in the Bulgarian government, PwC and Earnst & Young.

Kalin Radev is the CEO of Software Group, a global technology company that provides digitization and integration solutions to financial service providers. Kalin has over 25 years of IT industry experience in Europe, Africa, Middle East, Asia-Pacific and Latin America, with a focus on banking, insurance and financial inclusion .

Thinking back to 2021, another difficult year, how would you comment on the performance of the banking sector in South Eastern Europe?

LH: 2021 has been a challenge for the world, economies and banks, due to pressures from the COVID pandemic. Such shocks reveal long-accumulated inefficiencies and imbalances in global supply chains and trade. Paradoxically, this time the banks played an important role as a network, which provided a massive redistribution of government / central bank resources supporting businesses and consumers suffering from the economic consequences of lockdowns and the general downturn in sectors. affected. SEE banks in general followed the general trends of banks in the euro area, which is not surprising given that SEE economies are strongly linked to those of the EU. In addition, a substantial part of SEE banks are owned by EU banking groups, which in turn indirectly benefits non-euro area countries.

What are the main trends underlying the development of the local / SEE market?

LH: Local markets face a challenge of the utmost importance: to grow and develop in a world where pre-pandemic inefficiencies are addressed in order to create more sustainable supply and production chains, without compromising growth, profitability and the environment. Nearshoring and ESG are determining factors affecting the strategies of companies in the short and medium term. Inflation and in particular the growth of mortgages are matters of concern for governments and regulators. At the same time, pressure on interest margins and profitability is forcing banks to take faster action to increase efficiency and P / I ratios. One obvious solution is the rapid introduction of digitized products and processes. While banks are a bit slower than the fintech “challengers”, the more innovative and agile among them will be among the winners in the post-pandemic world.

KR: The current fastest growing trend in the world is digitization in its many aspects – from now standard digital channels, through RPA, machine learning and artificial intelligence, to implementation. artwork of digital currencies. In Bulgaria and the region, banks and financial institutions are engaged in digitization in one way or another, but still have a long way to go before fully exploring its potential. We are seeing innovative projects primarily related to launching mobile wallets as super apps – ‘one-stop-shop’ platforms that are surely redefining the way banks interact with consumers and opening up new opportunities for both parties.

However, these innovations are still very retail oriented and we are still waiting for progress in the areas of SMEs, enterprises, trade finance and other areas.

As digital currencies gain momentum and are already implemented in different parts of the world (even in emerging economies like Nigeria, which launched eNaira in October), they are now also on countries’ radar. from South East Europe.

Telecoms are becoming increasingly involved in the financial services space by acquiring leading IT companies and applying for banking licenses, thus contributing to the competitive environment and pushing traditional players to accelerate their innovation plans. and digitization.

All of these trends have been dramatically accelerated by the pandemic. While the launch of digital solutions in 2020 was more responsive, in response to the crisis and the need to serve customers remotely, this year we see digital transformation projects taking place in a more planned manner and as part of a long-term strategy.

As digitization redefines all sectors of the economy, what technological trends are driving the banking sector forward and do you see gaps in legislation to ensure the proper functioning of market players?

KR: Digital identity, authentication and authorization are among the fastest growing areas where technology is a key enabler. We are already seeing good examples in the region, such as the Republic of North Macedonia, which recently introduced the first national digital identity service in the country.

Ecosystems are another technological trend that will define the future of banking. By integrating with multiple partners, banks are able to create large ecosystems that deliver a variety of value-added services from a single point of access – typically the mobile Super App, mentioned above. This approach is adopted by banks in different geographies and has proven useful in helping them stay relevant in competitive environments and even take the lead in some local markets.

Banks are also starting to transform lending for the digital world, balancing the need for volume, speed, quality and compliance. This is where technology comes in, enabling them to digitize client onboarding, streamline the entire credit risk management lifecycle, and grow a profitable loan portfolio.

LH: The legal framework is a lower priority obstacle for the digital transformation of the banking sector. Creating a regulatory sandbox can contribute to faster development of digital products and processes. The major challenge for banks is to develop digital product channels, without cannibalizing existing commercial relationships. In this regard, fintechs are better placed because of the lack of “analog” heritage. Digitizing without high-quality databases and redesigning existing processes and product catalogs is unlikely to bring the desired business results and customer satisfaction.

Looking at the booming fintech scene, do you see fintech companies as a complement to banks, or rather as a competition with them?

KR: It was originally expected that fintech would take over the financial services industry, but that hasn’t happened and probably won’t happen in the future. We find that banks and fintechs often team up and sometimes assimilate to provide a better product and customer experience. The banks remain strong and they have their reserved areas where they will continue to dominate. fintechs are going to become more and more popular for some offerings like retail and in many cases they will be backed by banks for licensing, liquidity, resources etc. This is actually a good learning curve for banks because
sparks digital adoption to help them transform and move forward.

What does the bank of the future look like from the consumer’s point of view?

LH: The bank of the future will be more digital than “physical”, offering fluid availability of services 24/7, tailored to the individual needs of customers. Mobile banking is going to have the lion’s share of operations in retail and core business operations. However, cash is not going to go away due to cultural and systemic redundancy factors. Competitive battles between different market players are going to be decided not in “mutual admiration board companies”, but by the positive opinion of customers based on their respective product journeys.

KR: I think the future model will be a mix of digital ‘day-to-day banking’ and physical centers where customers go for help and advice. Financial products and services will be available digitally, but not all customers would like to access them this way. In any case, the winners will be organizations with a clear strategy of adopting the ‘play platform’ approach to be able to respond adequately to market dynamics and to have a base on which to base. they can innovate with a quick time to market.