There are several changes under way in the banking sector, driven by technological advances as well as increased regulation imposing stricter capital requirements and new EU legislation related to advisory services and commissions.
Private banking and lending
The larger, established banks are widening their operations and standardising the product offering to achieve economies of scale. At the same time, many new financial services firms have entered the market. Niche banks, which primarily target the upper segment within wealth management (private banking), see opportunities to compete with the major banks by creating attractive offerings for clients seeking to invest in tailored products. Demanding investors are more often seeking out smaller, more individualised firms.
Existing services are changing, while new technology and new distribution methods are facilitating the development of new services. Physical bank branch offices have become less important to clients as regards assistance with ordinary banking matters. Nowadays, these services are preferably performed digitally via computers, mobile phones and tablets.
Digitalisation is also paving the way for the continued establishment of new banks and fintech firms, which are using new technology to make financial services more efficient. As a result, competition in the banking market is increasing. With smart solutions, even small firms can meet the various needs of their clients as a full-service bank while offering customised services.
Smaller niche firms can also take market shares in lending by, for example, moving into segments where the major banks have been more restrictive, such as consumer loans, credit cards and property loans at higher risk/margin. Interest rates have been at historical lows for a long time and all segments of the lending market have grown as a result. Equity requirements have increased, which limits the growth rate for niche banks, but digitalisation is fuelling the migration in the market. By taking advantage of new technology in the right way, small firms can compete with the big banks.
Card issuing and card acquiring
The card and payment solutions market involves numerous firms and is becoming increasingly complex in pace with rapid technological progress and stricter regulations with high security requirements.
E-commerce is growing and new types of digital payments made over the internet or mobile phone are expected to make up an increasing share of global non-cash transaction volumes. The dominant card companies like VISA and MasterCard are being joined in the market by other international firms like PayPal and Klarna, as well as national payment services like Swish.
Businesses and consumers alike are demanding smart services for greater convenience and flexible support for various types of consumption patterns. At the same time, rigorous demands are imposed for system security and reliable protection from fraud.
For traditional payment services providers, the ongoing market changes entail both challenges and opportunities. Banks with many years of experience with card issuing and acquiring services linked to electronic payments can strengthen their offerings by cooperating with other firms, such as fintech firms and niched application developers.
Globally, average annual growth of 10.9 percent has been forecast for non-cash transactions by 2020.4 This is in line with the historical trend. The most recent available statistics show that global non-cash transaction volumes increased by 11.2 percent during the full year of 2015 to reach the record level of 433 billion transactions. Debit and credit cards accounted for the majority of the transactions and are still the dominant form of digital payment.
4) World Payments Report 2017, Capgemeni and BNP Paribas