Quick read: European banking’s digital experiment


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European bank chief executives speak obsessively to Euromoney about new and rebooted digital banking arms – read on for a guide to Dominic O’Neill’s in-depth examination of the strategy and rationale behind these projects, and their chances of success.


1.   Digital disruption: why Europe's online banks might ramp up

Disruption is everywhere in European banking and much of it from the banks themselves.

Digital brands are the new battleground for a sector that is ever more competitive with itself while also staving off the challenge from fintech upstarts on the one hand and the bigger tech giants such as Amazon and Facebook on the other.

So far, most online operations have stayed small in comparison to their more traditional parents, but a changing dynamic is seeing banks having to respond to customer demands for quicker, simpler and cheaper services.

The result could be an opportunity for online brands to expand as parents ramp up investment. Read more… 

‘Banks were thinking they were the centre of the universe. Now the power is shifting from the institution to the customer.’ – Benoît Legrand, ING

2.    George, bei Erste: how digital can be the better way into the rest of Europe

For a bank looking to spread its wings across Europe, M&A seems like too much trouble. That’s bringing down the price of takeover targets, but passporting and other integration efforts mean that for many banks the more attractive way into a new market is via a digital-only arm.

Commerzbank has done just this with its Polish subsidiary mBank, while Erste’s digital brand George sees good opportunities in markets where the parent does not operate. FinecoBank and ABN Amro’s Moneyou and Prospery are others. Santander’s Openbank could follow.

Regulation is still a challenge, though, as national authorities want control over banks within their borders, whatever they look like. Read more…

‘Banking union has not made much difference. We still can’t move liquidity and capital between subsidiaries.’ – Aris Bogdaneris, ING

3.    The guinea pigs: subsidiaries can show parents the future

It’s not just geographical expansion where banks’ digital arms can come in handy. They are also being used to test out new technology and back office systems.

Santander’s Openbank, for example, is one of the first in the world to operate on cloud-based infrastructure. It only has 135 staff for its one million customers, making it a speedboat to the parent group’s supertanker.

CaixaBank, meanwhile, uses its imaginBank brand as a test site for front-office app-based innovations.

Over time, digital banks might offer parent groups a way of running down their legacy systems and shifting their entire customer base onto new infrastructure. In the meantime, operating both can offer a platform hedge. Read more…

‘It’s our sandbox. [ImaginBank] is a great tool to try new things and move those that work onto CaixaBank.’ – Gonzalo Gortázar, CaixaBank

4.    Cannibalization: the big worry with new brands

It’s not all good news. Diluting the focus of a core brand and even debasing one’s own market are real risks.

The UK’s Co-operative Bank has considered closing digital bank Smile to new customers. BBVA has taken the approach of folding its domestic online arm back into the parent. It still has separate digital banks in other markets, though.

George doesn’t compete with parent Erste: the only online app for the bank is George. Some explicitly do compete, such as FinecoBank with parent UniCredit.

Even if banks avoid simply moving their own customers from one of their brands to another, there might still be a pricing impact on the sector as a whole. That could affect all banks, whatever their strategy. Read more…

‘We [at UniCredit subsidiary FinecoBank] are competing with UniCredit in the same way that we compete with other traditional banks.’ – Alessandro Foti, FinecoBank

5.    Millennials: The target

The cohort of 18-28 year olds is seen as the hunting ground for fintechs.

That’s why digital banks are putting their efforts into wooing them in much the same way that some other industries do: look at BMW with Mini. Open banking adds to the challenge by making cost and quality contrasts more stark.

The longer-term objective is not just to attract millennials to bright shiny apps, but to keep them loyal as they become asset-richer and in more need of a bespoke offering. Read more…

‘The goal is not just to catch customers from other banks, but also to stop them moving and make them more profitable.’ – David Urbano, imaginBank