Over the past 4 weeks Union has visited 4 countries across Europe, the latest being Italy. We were enchanted, frustrated and sometimes bemused by what we found.
The world’s most advanced country 2,000 years ago, Medieval Italy is also recognised as the source of modern day banking and finance, subsequently exported by its rapacious merchants and clergy. Monte dei Paschi di Siena, founded in 1472, is the oldest bank in existence, but only just – in the EBA’s recent Asset Quality Review Monte Paschi was the worst performer in the stress test with a potential capital shortfall of EUR 2.1bn. A rights issue of EUR 2.5bn was subsequently announced (link).
This was largely expected, after all many banks have ignored the inevitable need to recapitalise, what really struck us was the sheer number of banks and branches – a recent The Economist article estimated Italy to have 680 banks and 54 bank branches per 100,000 people, compared to the European Union average of 39. Admittedly many of these branches were full, of frustrated clients clutching papers as they waited in a long queue.
Does This Matter?
For shareholders of Monte Paschi the value of their investment has fallen 50% since the stress test (link). Nor was this fall unique, Bank stocks across Europe were also affected by fears of systemic weakness and contagion.
For Bank clients, including itinerate travellers, it means that valuable time is wasted in queues and higher transaction costs are incurred due to a reliance on the branch channel.
For Bank management it is a salient lesson, technology and regulation are changing the industry and those who do not embrace that will be valued lower. History counts for little in today’s world of discontinuous change.
The Future Is Digital
The branch has its place, not everyone has the means or willingness to conduct their financial affairs online.
However the power of Digital banking cannot be ignored. Recent research from Deloitte suggests that over a 5yr period US transaction volumes exploded in Online and Mobile channels, growing from zero to 4x the size of the Branch (which remained stable).
What has driven this Digital transformation? Quite simply it is a Win:Win for both parties:
Clients receive quality service 24/7/365 >> highly personlised offers can be made >> improved info and interaction make it easy to understand and buy >> cost benefits can be shared.
Banks grow their bottom line from revenue growth and process efficiencies >> standardisation improves corporate governance >> the ability to accelerate the launch of new products and adapt quickly as conditions change enhance corporate agility.
As the next generation on financial technology turns raw data into business intelligence and predictive analytics make it easier to provide personalised offerings so Digital will further benefit Client and Bank alike. There is no going back, indeed innovation in currencies, payments and card technology will make it easier for travellers too.
The Future Is Already Here! Union Financial Technologies has a range of solutions that help Banks and Financial Institutions increase profitability, client retention and corporate governance.
- Digital Engagement tools which make it easy to engage clients, help them understand your offering and purchase it.
- Core Banking solution that allows you to serve clients through all channels, ensure a standard approach across your business and automate complex processes.
- Credit scoring solution that helps you make better decisions about credit quality and debt capacity, ensuring clients receive the right product at the right time and price.