Digitalization dilemma

Tomas Stegura, Head of Digital at CSOB

The Financial world has been undergoing digital transformation for some time already. Many daily banking services are switching to digital environments, with some being available just digitally. This trend is bringing several advantages as well as disadvantages to the clients, banks, and society as a whole. Is this trend a good one? Is it moral to continue to push for greater digitalization? Is our society ready? Let’s look at some factors in play so you can make an opinion of your own.

This article is written in the context of society in Central Europe. When looking at the situation here, you will find there is a high level of literacy, good availability of internet, and excellent mobile phone coverage, including 5G. Banks are in constant competition, and standard banking services are offered more or less for free. Digitalization trend in banking brought several possibilities for servicing clients' financial needs - personal via branches (more than a thousand standard bank branches and several thousand small ones available in the country), over the phone, through internet banking, mobile apps, or lately through voice or chat controlled digital assistant.

We can see a slow shift from in-person banking towards digital banking with continuous incentives to avoid in-person banking in the majority of daily banking cases.

What factors support this trend?

First of all - convenience and change in behaviour. The COVID-19 pandemic brought increased reluctance to interact in person and taught people that banking in person could be avoided in the majority of cases. Therefore, more and more people opt for this for daily banking and resort to in-person banking only when dealing with significant financial decisions of their lives or businesses. Also, having your bank available at all times is more convenient than fitting visiting your bank between 9-5 into your daily agenda.

“Is it moral to continue to push for greater digitalization? Is our society ready?”

The second factor - is cost motivation from the banks' side. Maintaining a fully operational digital banking proposition is not a cheap task; however, maintaining a well-trained, locally available, and well-equipped branch network is even costlier. Also, scaling up digital is easier than scaling up physical presence. Therefore, we witnessed a slow decline in bank branch numbers in the whole country.

Third factor - demographics - more younger clients enter the banking market every day. Computers and mobile phones were integral parts of their childhood and studies. Therefore, they are used to doing everything in a more digital way.

The fourth factor - technological progress - Look at mobile phone progress in the last 10 years. How vastly better and capable has the device become, and how drastically decreased has its price for the end user? Similar thing happened in computer industry and many more. This enabled digitalization of the society as a whole and impacted banking as well. An example from the financial world can be made with standard domestic payment. 10 years ago, you were happy when you could wire money to the recipient's bank for a small fee. It took two days on average, and you needed a password and potentially an SMS code to authorize the payment. Nowadays, you send the money for free, and it is instantly received at the recipient bank, you can use biometrics to authorize the transaction, and it will get automatically categorized within your personal finance manager budgets, and you get a reminder in case you differ from your standard payment habits.

There are more factors, but the most important were listed.

What are the factors acting against the increase in digitalization? Can they be mitigated?

One of the main blockers of digitalization can be attributed to emotions, mainly fear. There are several fears connected with digital banking experienced and expressed by the clients. The first is a general fear of computers and everything digital. There are scary hackers and other dark things living in the depths of the internet, and they should not be trifled with. This fear prevails with the older generation and is very hard to overcome. Assisted digital service can partially mitigate this fear.

Then there is fear of mobile phones. For various reasons beyond the grasp of security experts, many people perceive browser-based internet banking running on desktop computers as safer than mobile phones with banking apps. These clients are willing to try and use internet banking, but mobile banking apps? Never! This fear is hard to overcome, and studies we conducted show that even financial incentives might not be enough for people to emerge from their comfort zones.

The last important fear is the fear of making a mistake. Even a trained person can make a mistake, and when dealing with finance, mistakes are costly. Many clients lack confidence in themselves, and having another person around gives them a sense of confidence. Banks can help mitigate this fear by offering assisted digital services and by clever design of apps that encourage users whenever they successfully try some new feature.

Financial

Digital Transformation