Over the past 4 weeks we have visited 4 countries across Europe, the latest being Italy where we were enchanted, frustrated and sometimes bemused by what we found.
The world’s most advanced 'country' 2,000 years ago, Medieval Italy is also recognised as the source of modern day banking, subsequently exported by its rapacious merchants and clergy.
Monte dei Paschi di Siena, founded in 1472, is the oldest bank in existence, but only just – in the EBA’s recent Asset Quality Review Monte Paschi was the worst performer in the stress test with a potential capital shortfall of EUR 2.1bn. A rights issue of EUR 3bn was subsequently made.
This was largely expected, after all many banks have ignored the inevitable need to recapitalise, but what really struck us was the sheer number of banks and branches – a recent The Economist article estimated Italy to have 680 banks and 54 bank branches per 100,000 people, compared to the European Union average of 39.
Admittedly, many of the branches we saw were full, but with frustrated clients clutching papers as they waited in interminable queues! No smart apps, internet banking or self-service here.
Does This Matter?
Yes. For shareholders of Monte Paschi the value of their investment has fallen 50% since the stress test. Nor was this fall unique, Bank stocks across Europe were affected by fears of systemic weakness and contagion.
For clients (and itinerate travellers) it means that valuable time is wasted in queues and higher transaction costs incurred due to a reliance on the branch channel. Brand value is destroyed.
For Bank management it is a salient lesson, client sentiment, technology, regulation and financial models are changing and those who do not embrace that will be valued lower. History counts for little in today’s world of discontinuous change!
The Future Is Digital
The branch has its place, not everyone has the means or willingness to conduct their financial affairs online, however the power of Digital banking cannot be ignored. Recent research from Deloitte suggests that over a 5yr period US transaction volumes exploded in Online and Mobile channels, growing from zero to 4x the size of the Branch, where volumes stagnate.
The Future Is Here Today
What has driven this rapid Digital transformation? Quite simply it is a Win:Win for both parties.
Clients are empowered to receive service when and where suits them, improved interaction makes it easier to understand and buy products, cost benefits from digital can be shared.
Banks increase their client touchpoints massively, can generate bottom line impact through higher sales and process efficiencies, while having a digital business model improves decision making, new product launch times and improves business model agility. Put another way, digital provides 61,320 sales hours in a year (24*7*365) and branches just 10,120 hours (8*5*253), at a lower cost of sale!
The advance of financial technology will create new opportunities for financial services firms to deliver digital solutions in currency, cards, insurance and more, making life easier for loyal clients and passing travellers alike.
Neil Mathieson 11.01.2015