Digital banking, the digital transformation is now a reality in the financial sector. Banks, Fintech and Big Tech operate in a highly complex context, in which the challenge is the ability to offer new financial products and services and to improve the customer experience of an increasingly evolved and demanding clientele, through digital solutions aimed at making internal processes more efficient. Starting from the new, Fintech is a promising market. The realities that represent it are starting to generate profits and the forecasts made by the main research companies are positive. The main driver in this sector, so the data says, is the collaboration between banks and Fintech start-ups with a relationship scheme in which the former invest capital and the latter, obviously, technology, giving a strong innovative push to the institutions.
Digital banking: The fintech landscape in Italy according to Bankitalia
From projects to innovate the provision of credit and digital payments, including mobile banking, digital lending and services related to open banking to activities dedicated to innovation in business operations processes, corporate governance and investment and insurance services. The scenario described by Bankitalia is particularly eloquent: Italian Fintech is continuing its run. Spending on new financial technologies for 2021-22 in Italy has grown by more than 15% over the previous two years, from €456 million to €530 million. The Covid-19 epidemic does not seem to have affected the progress of innovation projects in this area and the review of investments has affected only a minority of them. On the contrary, between lockdowns and various restrictions, many Fintechs have undergone a significant acceleration, thanks to the acquisition of digital clients or with the strengthening of business community activities.
Digital banking: the brakes on fintech
The number of intermediary investors and projects in this field has increased, but the investments dedicated to innovation in the financial field, Bankitalia points out, could have been many more. Several factors have slowed them down:
- The insufficient demand for the products and services generated by the investments
- The financial cost of the investment
- The lack of adequately trained personnel
- The lack of interoperability between old and new systems
On the contrary, in the Italian Fintech panorama there is even a process of concentration compared to the previous survey. The weight of the top 10 investors has increased by about 5 percentage points, coming to count for 84.7% of total investments. Banks are still the main investors, accounting for more than three quarters of total expenditure. They are followed by Payment Institutions and Electronic Money Institutions with a stable share of 14.7%, financial companies, Asset Management Companies and, finally, Securities Dealers with a marginal share.
Digital banking, the return on investments in Fintech
However, it takes time to see the first results of these investments, also because the initial expenses are often substantial. According to the survey, it is the investment in technological infrastructure that weighs most heavily, representing 58% of the resources invested. Projects based on artificial intelligence and machine learning are decreasing in number, but growing in terms of expenditure, mainly driven by applications for digital lending. To govern the Fintech revolution, some Italian players resort to an ad hoc corporate department, specialized in the coordination of initiatives dedicated to financial innovation. Those working on projects amount to more than 1400 units, 0.3% of the total number of employees of the companies surveyed by the Bank of Italy. A value in line with the still small size of the overall investment.
Looking at the main services offered in mobile banking in Italy, the main ones are:
- The provision of instant bank transfers
- The opening of accounts and the collection of deposits online
- The development of apps to manage payment accounts held at different banks
- The widening of the scope of financial instruments offered via mobile devices
Digital banking, the main services
For Banca d’Italia, it is also worth noting the growth of apps aimed at improving the financial education of the user through, for example, the development of channels for the management of investment advice. The client experience remains central for the players in the sector. Innovative solutions are multiplying, such as the development of channels for easier communication with the bank and the recognition of the account holder via video camera.
Digital lending, i.e. digital credit services, is also playing a leading role in Fintech. Bankitalia, in particular, points to activities aimed at innovating one or more phases of the credit supply chain or the provision of working capital services for businesses, including:
- The digital onboarding of new customers
- Creditworthiness assessment
- Contract completion
- Credit monitoring
- Factoring and invoice trading
Post-pandemic digital banking
As we can also infer from the data reported in this study, the pandemic represented a turning point for many industries, especially from the perspective of digital innovation.
The need to challenge activities within business processes to adapt to the new environment has led managers and entrepreneurs to understand the need to streamline their operations and to bring the importance of the transformation process to bear in markets that for too long have been resistant to change.
Financial institutions have often tackled digitization processes by creating new divisions or acquiring “digital natives”, but during the pandemic, even the most traditional institutions have had to adapt to the new requirements by drastically reducing the number of transactions carried out at the counter.
And this evolution will not end with the changing pandemic conditions, in fact, according to the study released by BAI (Bank Administration Institute), 87% of consumers are now familiar with digital banking services and intend to continue using them. This change has led banks to review certain assets and their positioning in the territory, especially in terms of cost and staff optimization, affected by the reduction of opening hours and the closure of some branches, also as a result of the many extraordinary consolidation operations.
Digital banking: new consumers and the relationship with branches
That said, for some transactions users still maintain a preference for personal relationships and in-person activities, especially when it comes to non-standard transactions or advice on wealth and financial management for which customers still prefer the relationship with the manager.
Considering the various studies conducted on consumer behavior and the relationship with banks, banks should be able to maintain a relationship of trust with the customer by offering an innovative type of experience, different from the traditional one, but at the same time find the right compromise to establish a lasting and profitable relationship.
Digital banking: Traditional vs. fintech banks
All-digital banks are the best performers, both because they have anticipated changes in consumer habits and because they rely on a significantly lower cost structure than traditional institutions. These realities, in addition to offering a more satisfactory experience for customers on standard products such as opening a current account, remote identification or on online payments, are also becoming increasingly competitive in user wealth management.
The new challenge for traditional institutions will be to offer their customers new digital services on the personal management of finances and assets, starting from notifications on budget allocation passing to investment suggestions, also through the use of AI, to improve the service and continue to build the relationship of trust, fundamental in a competitive perspective, also online.