In the first Digital Banking Club debate of 2016, a panel of banking experts assembled to discuss what the financial sector in the UK could learn from its European brethren. As it turns out, it could be a lot, ranging from digital adoption to dealing with new competition. Patrick Brusnahan writes

Entitled What can we learn about best practice from our European colleagues?, and sponsored by Fujitsu and Experian, the debate had delegates from across Europe flocking into the historic Law Society in London.

While certain parts of Europe, usually the nations described as ‘developing’, are regarded for their innovative and digital output, Simon Cadbury, director of strategy and innovation at Intelligent Environments, believed the situation to be more complex.

He said: “No one country dominates with respect to innovation. However, there’s something about developing countries. Is it a young population? Is it an organisational culture? Does this embrace innovation? Overall though, London is the capital when it comes to fintech.”

Jacek Iljin, managing director of retail banking at mBank, had a unique perspective on the matter. mBank was founded in 2000, with its core banking up and running within 100 days, and has since risen to become the fourth largest retail bank in Poland with over five million customers, 3.8 million of them in Poland. Taking into account that its main focus has been digital, this is even more impressive and the bank has won several awards for its online and mobile banking.

Its success can be seen in figures with over 780,000 active mobile banking users. It has not neglected the physical aspect of banking though with 100 branches across Poland.

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Iljin said mBank was in the right place at the right time: “We were well positioned from the start. It was in our DNA to be 100% digital from the beginning. Our case is special. There are not many like us: a digital bank that has succeeded. We treat Google and Facebook as our competitors.”

As a fairly new bank, mBank was developing in a similar fashion to its market. Iljin stated that the team behind the bank is ‘young with no tradition, only looking outwards with nothing to lose’.

Oliwia Derdak, senior analyst for e-business and channel strategy professionals at Forrester, believed that the efforts of players such as mBank forced markets to evolve.

She said: “[I] think there is a cycle in countries where one bank does something innovative and others are pressured into it.”
Jakub Grzechnik, Head of Mobile and Internet Banking, PKO Bank, Bank Polski, agreed. As Bank Polski is one of Poland’s oldest banks, and its largest with almost 2,000 branches, it needed to adapt.

Grzechnik explained: “The effect of these banks has forced us to be innovative. We saw the iceberg on the horizon, but it took an age to turn. Now, we are moving quicker. Even though we are an old bank by Polish standards, we have hardly any legacy systems.
“Back in 2000, the market was not saturated. Even today, there is a stake to fight for. We knew this was worth fighting for. We have some legacy branches that are simply too big, but we will still need face-to-face contact with customers.”

Ahmet Ertan Algan, ABank’s unit head for digital banking and card payment systems, believed that Turkey was in a good position to have the best of both.

He said: “Turkey is attractive to the foreign market. Its demographic is perfect for digital banking. Branches are still important for banking in Turkey, we have 16 in the big cities, but Turkey is getting many more customers online.

“Generations Y and Z, the younger audiences, are demanding more from their banks. New start-ups and smaller digital banks are changing the Turkish market.”

Inspiring innovation
The chair, Douglas Blakey, asked where the panellists looked to for inspiration in terms of innovation, whether that is in the financial sector or not.

Iljin states that he looked towards disruptive companies, such as Klarna and PayPal, while Grzechnik looked at Spanish banks as ‘prime examples of banks digitally innovating’. Simon Cadbury gave USAA Bank as an example of a player that is ‘constantly innovating’.

Berdak warned about focusing purely on innovation without deciphering how it is financially viable.

She said: “There is a danger on only focusing on functionality; thinking about delivering customer experience without connecting that to ruthless targets. It’s hard for some people to see the value of digital without that.

“People feel uncomfortable investing. Start-ups are showing you can change that through digital.”

Iljin saw his goal to be at the ‘frontier of innovation’ and that meant, to him, focusing on mobile.

He explained: “We are betting on mobile, but not through a ruthless financial perspective. We are pushing our customers to mobile. It’s no longer a red light for us. Half of our customers regularly use our mobile solutions. We are making the mobile app a preferred gate to all other channels.

“Mobile is much more comfortable for the customer. We have special offers for customers on mobile as well. The only big concern is the onboarding process.”

Berdak retorted: “There are still security and trust issues with mobile.”

Grzechnik emphasised that there is more to banking than just moving it onto the mobile channel. He stated: “We are betting on a multi-channel scenario. Our branches are part of a legacy, but also an asset. People don’t like bank [branches], but they trust them.”

Algan agreed with that perspective and added: “We are trying to implement a multi-channel infrastructure at the moment, but we are also trying to digitise the whole process.”

Cadbury remarked that there were other markets outside Turkey and Poland implementing plenty of innovation as well.

“Germany is a market we will learn a lot from; banks such as Fidor and Number26 particularly. There is more that the UK can do, but it’s not far behind. Online banking adoption rates are above average in the UK.”

The PSD2 shadow
One thing that is on the minds of everyone in Europe is the upcoming PSD2 regulation. Jakub Grzechnik talked about why this is a worrying aspect of the future.

He said: “We are deeply concerned about PSD2, but at the same time, we are familiar with the theme of the whole retail banking revenue stream being cut up by fintechs that are taking chunks of retail banking and building their own businesses on it. It’s just that after PSD2, the fear is we will be left only with the cost and process of brand current accounts and all the profits will be taken up by the other small fintechs.

“It is a possible scenario, but we are trying to create such a strong experience for the customer: an integrated, multichannel experience, that the ‘stickiness’ customers have will make it difficult for all the start-up players and all the competitors to get those profitable opportunities.

“Just look back at our history. mBank is a formidable competitor, but even with mBank, we as an incumbent and as a traditional institution, have managed to retain our market share and remain the top bank in the country. We are all big banks trying to create a customer experience, good enough for the customer so that the customer is too lazy to go elsewhere.”

Berdak also wondered if the market was truly considering the implications of how expensive being innovative can be.

She explained: “The biggest obstacles to innovation are running costs. Digital banks that are being created now will struggle to grow. I am not convinced they will gain a million customers overnight, or if they will even grow beyond 100,000 customers. We underestimate the challenges in being a challenger bank.”

Emerging technology
The discussion moved towards what form of technology would grow within banking in the foreseeable future. Iljin once again stated his belief that mobile technology will dominate the market in the near future.

He purported: “The best camera you can have is the one you always have with you, i.e. your phone. The best bank is the one you have in your pocket, once again, your phone.”

However, Simon Cadbury was not as convinced. He replied: “I’m not so sure. 50% of iPhone users actually struggle to read their screen. In addition, only 20% of the UK population is prepared to bank only on their mobile.”

Another emerging service is blockchain, something quickly shut down by Grzechnik. He said: “I would compare blockchain to QR codes. There is simply no unified customer experience. Being digital is not good enough to be successful in the market.”

The Panel

Oliwia Berdak, Senior Analyst Serving E-Business & Channel Strategy Professionals, Forrester

Oliwia is a Senior Analyst at Forrester serving the European consumer financial services sector. Her research focuses on the digital transformation of banking, insurance, and wealth management, mapping out digital strategies, adoption trends, and best practices. Prior to joining Forrester, Oliwia held a number of research positions in both business and academia, working with a variety of methodologies to deliver insight. Oliwia also worked for six years as a freelance analyst for Euromonitor International, drawing on national laws, macroeconomic data, and statistics to analyse the latest economic, social, and political developments in Europe and explain their significance to businesses.

Simon Cadbury, Director of Strategy and Innovation, Intelligent Environments

Simon is a product marketer and strategist with 18 years’ experience working for a range of major international brands. Simon’s role is to work with Intelligent Environments’ investors to set and deliver the company’s mid and long term strategy, as well as overall responsibility for the product development and management of Interact; the company’s core product offering. Simon joined in 2013 from Lloyds Banking Group where he was responsible for payment technology and also sat on the Credit Card division’s leadership team. Prior to this he worked on the launch of a number of firsts in new technology – the Blackberry (BT Cellnet), BT Openzone (BT Retail), 3G Live! (Vodafone Australia) and Sky HD (BSKYB).

Ahmet Ertan Algan, Digital Banking and Card Payment Systems Unit Head, ABank

Ahmet is responsible for internet banking, mobile banking, IVR systems, ATM & ITM banking, fraud monitoring and credit & debit card systems software development at ABank. He studied at Okan University, where he obtained a master’s in business administration, specialising in ‘customer relationship management’ in 2013. He also holds a bachelor’s degree in computer science engineering from Ege Üniversitesi.

Jakub Grzechnik, Head of Mobile and Internet Banking, PKO Bank, Bank Polski

Jakub Grzechnik is head of mobile and internet banking at Poland’s largest bank, PKO Bank Polski. Jakub is responsible for the development of the bank’s digital distribution channels, for their sales performance as well as integration with other distribution channels of the bank. He also leads the innovation agenda in digital channels and the fintech ecosystem. Jakub was chairman (until the end of 2014) and since then, a member of The Supervisory Board of Polski Standard P?atno?ci (PSP), the company created by 6 of the largest Polish banks to jointly build the innovative mobile payment standard Blik, based on the IKO app developed by PKO Bank Polski. Jakub led the Blik creation project from the outset in March 2013, interacting directly with CEOs of the 6 banks to agree on the system design and governance.

Jacek Iljin, Managing Director Retail Banking, mBank

Jacek Iljin has been Managing Director Retail Banking, Sales & Processes at mBank since January 2014. Prior to assuming his current role, Jacek spent over 5 years as Head of the Product Management Division at mBank responsible for Core Banking Products Business (Accounts and Cards) and Analytical CRM. Previous roles undertaken by Jacek at mBank included Marketing and Business Development Director and Head of Business Strategy and Customer Segmentation.