Banking for the future generationsReading Time: 8 minute
What is the main characteristic of the Dutch banking system? Continuous innovation. Dutch banks have always known how to face the challengesof digitalization and of the competition with fintechs; they are prepared for the expectations of the Z Generation and for an increased involvement in community. We interviewed Chris Buijink, president of the Nederlandse Vereniging van Banken, about the change that traditional banking experiences on its way to digitalization and about the way banks remain relevant in an ever changing economy and for clients who want an increased involvement in community and society.
What are main challenges that banks have to face now compared to five years ago?
I have been the president of the Nederlandse Vereniging van Banken for six years. Back then, banks were preoccupied with organization culture, banking ethics and the new way of doing business after the financial crisis, when lending reglementation became tighter. It was a period of crisis and the Netherlands’ economy was not doing very well. Now we experience a period of economic growth; banks and generally financial institutions are concerned with the climate risks. The banking sector is interested in meeting the objectives of the Paris Agreement on climate change. Dutch banks work towards the transition to a low carbon emission economy, so last year we signed, along with insurance companies and pension funds, an agreement to map and reduce the CO2 footprint of the companies and projects a bank finances. This year we will make the impact of our portfolios transparant and from 2022 we shall start with plans to actually reduce the climate-impact of our portfolios. We want to show our clients our involvement in financing sustainable projects, because climate change is a serious subject. In a broader sense, we want to show how banks contribute to sustainable development and the role they have in the society. Also, in the last years we have worked with NGOs and trade unions to promote human rights. Another example is our participating in actions along municipalities to solve the problem of indebted people, because banks can detect beforehand the emergence of such problems and debt accumulation. This way, people can benefit from assistance on behalf of municipalities and NGOs.
Of course clients have to be offered quality services, but we also have to be transparent and showcase banks’ contribution to the society. Also banks have to be the watchdogs of the financial system; we have a policy regarding money laundering and other financial crimes and we work with authorities.
What are the most important challenges in transforming traditional banks into digital banks?
Nowadays the bank is an application, everything is on the smartphone. If you go to a restaurant or supermarket all you have to do in order to make transactions is take out your phone. Banks invest a lot in services digitization and customer experience, because they have to be attractive for today’s clients, but also for tomorrow’s clients. It it very important to stay relevant, it is vital. Banks have to pay attention to what clients want and need. This is the main drive of digitization; another one is that digitization increases organization efficiency and it is even more important today, when interests are low, banks’ profitability is under pressure and banks are not alone in this ecosystem.
Meanwhile, fintechs have appeared.
Yes. Fintechs were previously seen as dwarfs who laid siege to the towers of the banks. Now we have a new ecosystem, in whichs banks and fintechs work together. In fact, some banks became fintechs. The payment system in the Netherlands is one of the safest and most efficient, with the lowest costs for the customers. And we owe this thing to continuous innovation in the banking system. And there are also fintechs that work for the banks. While a few years ago fintechs were considered a threat, now they work and grow along with the banks.
Big technology companies have also entered the financial services market and that motivates banks to be more agile, to respond more quickly, to be proactive, to innovate; it is only these banks that will remain relevant and competitive. They will excel in customer relationship, driven by the desire to answer to the clients’ needs. Those banks that do not meet these conditions will eventually disappear. If you analyze Dutch banks, they are among the most innovative in Europe and I am sure a lot of them will stay relevant to the new generations of customers for a long time.
Another very important thing is the evolution of the European Banking Union, in order to have an integrated financial system that allows banks to grow in Europe, to be more innovative. In other regions, the market is less fragmented. I think a unified European financial market is the key. If we take into account the number of banks in Europe, we see that the banking system needs to be consolidated, we need strong players in Europe and on a world level.
What do the banks do to be attractive to the Z Generation?
Z Generation is very important, they are digital natives, they are not accustomed to the environment I grew up in, for example. Banks have to be very connected with the new generations in terms of customer experience and needs. Z Generation is completely digitalized and it is hard to imagine how the generations that come after them will be. If you asked me and my generation, in the ’80s, how banking would be today, we wouldn’t know what to say. Being agile is very important for organizations like banks, that have to be open to customers and customer communities. They have to hire talents, employees endowed with imagination, strategical vision and thinking who can be able to imagine what tomorrow will look like. We also see this change when we look at the evolution of professions and what kind of employees banks want. A few years ago banks were searching for people with economy and banking studies, but today they target IT or gaming specialists, who can create experiences for the customers. They have to be open for innovation. ING, for example, is creating here, in Amsterdam, a campus where other companies, startups and fintechs can work with universities. It is a technology campus, an ecosystem open to innovation. This is how we can evolve and respond to what the Z Generation wants. We have to cope with this transition in which you have senior customers as well as young, completely digitalized customers. It is a transition from the traditional banking to online and it will take some time. We had a program in which primary school children visited banks and we asked them what they want from us. Some of them said they wanted their money to be delivered at home by drone, others wanted to communicate with the bank by smartphone. They didn’t want physical interaction, but wanted to interact by phone app, and also to have a friend to communicate with by apps. Banks have to focus on the customer, to be very careful to what the customer wants, they need to innovate. But innovation also means failure, it is a trial and error process, so after a failure you have to start over again. Banks need to have a culture of innovation, to be open to the outside and to have an entrepreneurial mindset, although banking industry is highly regulated. In this kind of market it is a bigger challenge to be innovative, but without the entrepreneurial mindset it is hard to be competitive.
Is the regulation level too high in the banking sector?
If we compare it to other industries, it is. The banking sectoris highly regulated, especially after the financial crisis. I would say the regulation level is not proportional – a big bank and a small one have to obey the same rules. But watchdogs in Europe themselves say enough has been done in this field, now we have to see whether those regulations are as useful as expected. I am not one to complain about the strict regulation in the banking sector; banks have to be solid and safe, but they also have to innovate. It is not easy, but we are not in this world to do easy things. We haven’t gone to the Moon because it was easy.
What trends have you remarked noticed in this transition from the traditional banking to the digital banking?
As I said before, banks are focused more on the customer – that is one of the trends. Another one is about customers expecting transparency and flexibility. Customers trust banks, although during the financial crisis banks had image issues. People trust banks and the fact that their money are safe with the banks. On the other hand, in this economy based on big data, banks have to be a kind of watchdogs of the customers’ personal data. This is very important if we want them to trust us from now on too. The more so in this era of digitization, banks have to remain a trustworthy partner, in retail (credits for natural persons) as well as business financing.
Another trend is the opening to innovation and cooperation. We already have new computer generations, specialists who work on quantum computers, whose speed and data processing complexity are far beyond what my generation dreamt. In past years banks have become more and more versatile, they cooperate with universities and create innovation hubs. This also happens due to the mix of talents who work in banks, come also form other fields and have learnt to cooperate and to co-create, to build together.
What do you think are the most important changes banking will see in the next years?
People think banks – and not only banks, but also other companies important to the economy – play a major role in society. If you ask young people, at the beginning of their careers, why they chose banks jobs, they will often say they want to be in a company that has an important role in society, in the climate change process, in the community, in the transition to a less polluting energy. They want to work for success companies who also get involved in the society and contribute to the sustainable development of the society. Last year, 181 CEOs of the main companies in the USA issued a common statement about the importance of the corporations’ involvement in the society, about a purpose more important than profit alone. Profit and shareholders are still important, but we should pay attention to all stakeholders – the society as a whole, employees’ interests, business partners. You have to take all these things into account, but also be transparent. I said that banks are part of the agreement on climate change that was signed by several financial institutions, so results can be measured and verified; it is just one example of our involvement in the community.
It is also very important that we live in a world of collaboration, of innovation, and banks have to be lean players in an ecosystem that comprises companies with tradition or younger, big tech companies or fintechs. Banks have to stay relevant for the Z Generation and the generations that will come after that.
What do you think about the Romanian banking system?
We collaborate with the Romanian Association of Banks (Asociația Română a Băncilor -ARB) and last year we took part in sessions of the Board and the Executive Committee of the European Banking Federation, in Bucharest, at the occasion of the rotating presidency of the Council of the EU. We talked to representatives of the banks in Romania (you have foreign banks in Romania – from France, Austria, the Netherlands) and we work together in the European Banking Federation with ARB representatives. It is a younger banking system, but that comes with the opportunity of faster growth and an opening to innovation. If you walk on the Amsterdam streets you can see fewer banking offices than Bucharest. I think it is important for Romania and the whole local banking system to be part of an integrated European financial system. An European banking union will make European banks more resilient and more innovative. Romania and the local banking system will benefit from this.