About the process and reasons for the diversification of the banking sector
The banking system is a multifunctional world in which diverse banks and a regulator interact. However, earlier the bank performed its basic function — it gave out and took money back, making a profit from it. With the development of the IT sphere, the banking system has changed significantly. One of the main consequences of this change is the diversification of banking institutions and services. In this blog, I expressed my position regarding the changes that IT has brought to banking.
Many of us are familiar with the concepts of “retail bank”, “commercial bank”, etc. These are institutions that have long been familiar to society that works with businesses and retail clients. However, in recent years, the financial sector has been tirelessly growing, that’s why some players are moving into non-traditional niches, and also changing the way they provide their services. I will consider these changes and their consequences from two perspectives — the bank itself and the client.
Traditional banking services are card issuance, payments, deposits and loans, payroll projects. But with the technological component, banks began to transform. So, for example, payments appeared on websites and in applications. It is no longer necessary to place kiosks that require complex maintenance to accept payments. Now it is all about a simple integration. Also, a relatively new direction is the provision of preferential programs to clients. For example, Monobank provides non-traditional offers for the bank — payment of 5% per annum on the balance, cashback and free instalments.
With the development of fintech and the payment sphere in 2020–2021, a new niche was also formed, which was maintained by small and medium-sized banks — transactional. This is the format of banks, which pay attention to comprehensive service and processing of cash flows for corporate clients. They process a huge number of transactions of various formats. It is a communicator bank because it integrates payers, recipients, financial and non-financial organizations, payment systems and service providers. Ukrainian banks are also developing a transactional niche. An example would be IBOX BANK, which has taken a strong position in the market due to its transactional strategy.
If we consider this transformation from the client’s side, then he also received a lot of privileges. The user, in principle, always wins when the competition between businesses intensifies, because the most convenient and innovative solutions appear in the leadership race. This is how the neobanks were born. They saved the user from queues and wasted time in departments. Now the courier with the card will come to the client himself, or the user will open a virtual card in the banking application. Moreover, you can get a loan in 10 minutes, get monthly interest on the balance, make NFC payments, and shortly you will be able to use the BNPL service in Ukraine. All of these solutions have permanently changed the habits of users, as well as their attitude towards banks.
IT solutions made banking convenient and fast for the client, competitive for market participants and, possibly, difficult for classical banks. Traditional players now need to think not only about the usual services but also to participate in the contest for IT staff, innovation, customers and their experience. Everyone sees the process of diversification of the banking sector in their way, but I would define it as rather positive and beneficial for the market.