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2019.11.19 17:26

Digital banks – a common practice or the distant future?

LRT.lt2019.11.19 17:26

Banks are undergoing transformation, and their digitisation is faster than ever before. However, whether digital banking can replace traditional banking, will be a question during this year's Fintech Inn, the largest financial technology conference in the Nordic countries and the Baltic states, according to a press release.

Since 2008, the number of bank units across the EU decreased by as much as 27 percent, or by 65 thousand, according to the data of the European Banking Federation. In Lithuania, the number decreased from 783 in 2008 to just 252 this year.

The financial sector is still going through a period of active digital transformation and it’s questionable whether traditional banks will remain.

However, there is still a lot of room for competition in Lithuania for convenience, price and accessibility of services, says Jekaterina Govina, adviser at the Bank of Lithuania.

“Lithuania has already done a lot to prevent positive innovations in the financial market from encountering unnecessary obstacles. For example, we are developing LBChain technology platform, and regulatory technology (RegTech) solutions,” says Govina.

However, it no longer makes sense to use terms, such as 'traditional banks', she adds.

“It is obvious that those who will not keep up with the changing environment [...] will be no longer needed,” says Govina.

Digital banks – competitors or partners?

Tthe development of fintech and new market players pose new challenges for banks, as the relatively low market entry costs, flexibility and specialisation are the main strengths of fintech companies.

Šarūnas Legeckas, the representative of German bank N26 operating exclusively in cyberspace, says it's important for digital banks to win customers who still work with traditional banks but are dissatisfied with the products they offer.

“Customer needs are changing dramatically, consumers are increasingly using mobile devices for payment and banking services, they are used to such mobile services as Netflix, Spotify and Airbnb,” says Legeckas.

However, traditional and digital banks can still supplement each other, according to the press release. This became particularly relevant following the adoption of EU Payment Service Directive 2 (PSD2) in 2018.

This directive expanded the concept of a financial institution and enabled third parties to offer higher value-added services, as well as o operate in all member states with the authorisation of the host country.

Theory lags behind practice

However, the reality turned out to be different, says Tamaz Georgadze, the founder of a startup Raisin that has acquired MHB Bank in Germany.

“Unfortunately, the way the directive has been implemented thus far, especially in Germany, reduces the comfort and convenience for users achieved so far. I think that market players need to gather together and define more precise technical standards, and to agree on rules in order to enhance the user experience,” says Georgadze.

For example, although N26 has licenses issued both by German and European central banks, there is a lack of harmonisation and uniform treatment of rules in different countries, according to Legeckas from N26 bank.

The upcoming Fintech Inn conference will be one of the platforms and an opportunity for consumers to better understand and gain confidence in digital banks and the services they provide, according to the press release.

Fintech Inn conference is organised by the Lithuanian Finance Ministry, the Economy and Innovation Ministry, the Ministry of Foreign Affairs, the Bank of Lithuania, the Agency for Science, Innovation and Technology, and the Public Institution Invest Lithuania.