The digital-only bank is becoming commonplace: we have seen Monzo, Starling, N26, Atom and many more launch in that mould. Changing into a digital-only bank is, however, a different prospect – but MKB Bank has done it. Patrick Brusnahan investigates

Hungary-based MKB Bank is the fourth- or fifth-largest lender in the country, depending on who you ask.

At the end of its 2017 fiscal year, the MKB Group held €6.6bn ($7.6bn) in assets, a slight decrease of 2.7% from the previous year.

While traditionally a corporate and wealth management bank, MKB has between 190,000 and 200,000 customers in retail. In addition, the firm holds over 40,000 corporate customers. Its representation in the Hungarian market is sizable.

However, over the past two years, MKB has undergone a transformation process into a fully digital bank. It also completed the task in those two years.

With the help of Oracle and its Flexcube core banking solution, MKB is now the first all-digital bank in Hungary, after transforming its entire technology system.

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MKB chief executive Ádám Balog says: “It is not every day that a historically conservative medium-sized player commits its resources to modernising its systems, changing its culture and taking a leap towards digitisation.

“It is through the reliability of partners like Oracle and the management of our stakeholders that we were able to make this move in such short a time.”

Why?

This is a bold move. While digitisation cannot be avoided, removing physical aspects and going fully digital would be considered extreme by some.

On the other hand, Mark Hetenyi, chief digital, retail and strategy officer at MKB, believes this is the only way forward. Speaking to RBI, he explains: “It’s a call of the times really. When we looked at it three years ago, we were a state-run institution for over 60 years at the time, and we had a number of choices ahead of us.”

He continues: “Doing our market analysis of the digital market, all the customers wanted their services delivered in a different manner. We knew we had to do something. The options were multiple: you could touch up your front end, your IT, or something more radical such as core banking. In the end, we decided to do it all.”

This was part of a conscious decision to make sure the bank remained competitive – not just for the present moment, but for the next 10-20 years. Preference for digital services is increasing, and MKB saw this as a chance to meet those needs and “get rid of the legacy system issue” at the same time.

Hetenyi notes: “Disruption came late to the banking industry, but it is here now and has been for a couple of years. Even though different countries and regions experience banking digitisation at different speeds, it has arrived here, and we needed to be prepared.”

Speed

To complete such a transformation in two years is something of an accomplishment – especially with no terrible headlines as yet. UK-based TSB was not so lucky with its core banking transformation.

“It’s part of our pride to do this so quickly,” explains Hetenyi. “We would dub ours as one of the more complex types of switches, so we’re quite proud of achieving it within a short timeframe, but we also managed to pull it off smoothly. That’s very important to us, from a customer perspective.”

There were obviously struggles in the process, and Hetenyi believes MKB was at a “disadvantage” when going for radical digitisation. One challenge was to juggle a core banking overhaul with developing technology at the same time; MKB was not willing to freeze developments. In addition, as a “medium-size” player, MKB had to be sure to deploy its resources correctly when making the changes.

Hetenyi adds: “I’ve done my tenure with multinational companies, and the resource question is quite a lot different than it is for a medium-size player. We had to make sure we had the right staff and the right competencies. We also had to make sure we weren’t exhausting those helping us to make this happen.”

Customer feedback

Customers were expecting this change, but the question remained about how tolerant they would be of problems. Issues and bugs in the first few weeks need, as Hetenyi notes, “customer patience” for them to be fixed.

He explains: “We had some issues with calibrating, but the best thing is to be honest with the problem-solving capability. Not a single project like this has gone live without bugs, but we’re already solving problems and we’re not taking months to do it.

“It’s such a massive change, and the customers are looking to see that everything is in a stable manner,” concludes Hetenyi.

“I think the feedback from the customers is that they do see we have pockets of issues to fix, but it is a stabilised system.”