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northern european banking customers lead the way in terms digital preferences

FintechOS Guest Blog: Banking under lockdown , how Western European and CEE banks have responded to the CV-19 crisis

The Covid-19 pandemic has been a shock to the system for European financial services, and it’s sure to have sharpened every banking leader’s thinking on the importance of digitalization. When the shutters came down on branch networks, online and mobile channels became the go-to for most customers. The digital leaders had little to worry about, but the laggards have had to scramble to plug the digital gaps. And then there’s the effect on customers. In less than two months, several years’ worth of behavioural changes have taken place, and for many, there won’t be a return to ‘banking as usual’.

This article explores how things are shaping up in both Western and Central and Eastern Europe (CEE). The first two sections look at trends in the use of retail branches and digital channels in both regions. The final two look at how banks have responded to the CV-19 pandemic and consider the way this reflects where they sit on the digitalization curve.

Bye, bye bricks and mortar: is digital putting the branch out of business in western Europe?

Globally, the evidence shows that face-to-face-only banking customers are becoming the exception. The share of digital and hybrid banking customers has jumped over the past few years: in 2015, they made up 65% of all customers; the figure hit 88% in 2019.i And in Western Europe, the trend is just as clear.


Most banking in a branch.


Most banking is digital. Branch visit every 2-3 months.


Rarely visit branches. Once a year or less.

























Source: BCGii

Most of these customers are self-selecting into digital channels, but in some cases, banks are encouraging the less motivated to embrace digital. For example, banks in the Nordics and the UK have managed to reduce the number of customers using branches by up to 60%.iii How? By rolling out the kinds of digital journeys that serve heavy branch users effectively through other channels. 

All of this goes some way to explaining why retail banking branch networks are shrinking across the UK and Europe. In some cases, the contraction is severe: the Netherlands has seen a 71% drop in branches from its peak, as the chart below shows.

All of this goes some way to explaining why retail banking branch networks are shrinking across the UK and Europe. In some cases, the contraction is severe: the Netherlands has seen a 71% drop in branches from its peak, as the chart below shows.


Banking under lockdown: how western European and CEE banks have responded to the CV-19 crisis
Source: McKinseyiv


Naturally, this throws up some questions about the future of the bank branch in Western Europe. For some people, human interaction matters – its an essential part of the customer experience and their relationship with their bank. So, branches arent going to disappear completely any time soon. After all, theyve played a part in helping banks build trust and credibility and engage with their communities over the years. What we can expect to see is a change in their role: rather than providing pretty routine customer service, the branch will be the one-stop-shop for more complex transactions and higher-value interactions.

But then banks are faced with another problem. How do they build trust in a digital-first world, one where they will interact virtually with the overwhelming majority of customers? The answer is pretty straightforward: they can do it by excelling at customer experience (CX). CX is already displacing the branch network as retail bankings growth engine, with experience leaders pulling ahead in terms of new deposits.v And its a deciding factor for customers when theyre choosing a bank: 38% say user experience is the most important factor in the decision-making

But the hallmark of a true CX leader will be the ability to serve the individual needs of every customer by translating data into hyper-personalised products and real-time offers. Because thats what customers increasingly want – banking that is contextual, convenient and totally customer-centric. Its the next phase of digital banking in western Europe: migration to digital channels is speeding up and demand for a tailored banking CX shaped by personal circumstances is rising.

A digital wave in motion: change is coming to CEE banking

In general, the take up of digital banking has been lower across the CEE region, but we can already see the pace of change speeding up. In 2017, the average share of the population that had used online banking was only half that of Western Europe:

A digital wave in motion: change is coming to CEE banking
Source: McKinseyvii


Yet a lot of customers across the CEE region could now be described as hybrid: those who use both branches and digital channels emerged as the largest segment in 5 countries in a recent survey carried out for Erste Group.viii As the chart below shows, the majority of customers in Austria, the Czech Republic and Romania are hybrid, while in Hungary, Serbia and Slovakia almost 40% use a mixture of branch and digital services.


Most customers use both branches and digital channels
Source: Erste Groupix


Its clear that the branch remains an important touchpoint for banking customers in these 7 countries: 90% visit one in any 12-month period.x And its not just about using ATMs or self-service machines. Many reported personal contact with an advisor or cashier.

But digital banking is still growing, and its largely being driven by mobile. On average, 60% of CEE banking customers use digital banking channels regularly, and while year-on-year growth is relatively slow, big gains in mobile banking usage in South-eastern Europe are behind it.xi For example, 33% of Serbians who use digital banking channels do so only on mobile, while the same is true for 25% of Romanians.xii

So, although the CEE region lags behind Western Europe in terms of overall digital channel usage at the moment, many signs point to a wave of online and mobile banking adoption. In Bulgaria and Romania, for example, internet banking adoption increased by 100% and 126% respectively between 2013 and 2019. The CEE region is also a leader in contactless payments, with research by Visa showing that contactless now makes up 76% of all payments in Poland, Slovakia and the Czech Republic and pointing to growth in mobile and other digital payments. Taken together, the research highlights a real willingness to embrace new financial technologies.

It also has to be said that enthusiasm for digital banking services is stronger than in many countries in Western Europe. As the chart from McKinsey below shows, eastern European customerswillingness to purchase digital banking products is greater than that of customers in Spain, Germany, France and even the UK. 


northern european banking customers lead the way in terms digital preferences
Source: McKinsey xiii


But why do actual digital purchases of digital banking products lag behind the UK and Germany, or roughly equal those of France and Spain? With some notable exceptions –  such as Polands mBank, amongst others – the western European banks are, in general, further ahead in terms of digitalizing the journeys and sub journeys that matter. Theyve been under greater market pressure, with digital challengers attacking their market share, a digital arms race between incumbents and rising customer demands for digital-first services.

The last push in digital migration: western European banks react to CV-19 

In Western Europe, banks are focused on providing essential services to their customers. This involves limited branch operations, as some customers have yet to make the transition to using digital banking, but all customers should still be encouraged to use digital channels where possible.

Weve seen that in markets such as the UK, Germany and Spain face-to-face-only customers constitute 12-15% of the total. These customers will need support in their shift to digital. This might come in the form of safety-focused messaging campaigns aimed at reducing reliance on branches for services that are available digitally, but banks should also look at how they can help by providing tutorials, online demos in safeenvironments, and video-based remote support.  Several banks have taken some steps in the right direction while branch hours are scaled back, such as setting up additional call centres and mobile chat support, but with the range of plug and play digital tools at their disposal banks can afford to be more ambitious.

In Western Europe, digital self-service options are comparatively advanced, but banks should still try to enhance their digital offerings by identifying features that can be improved quickly, for example, speeding up the process of setting higher limits for online transactions and simplifying password reset. The crisis has already seen the creation of some new services. In the UK, for example, RBS and Natwest have launched the companion card, a supplementary card for the over 70s, who could be facing lockdown for up to 18 months. Associated but not directly linked to accounts on the banks system, it has a weekly refreshablelimit of £100 and allows family or friends to shop on the account holders behalf. Efforts such as these show that its possible to react quickly to market demands and roll out new products and features tailored to the needs of individual segments.

The pandemic has also focused attention on the next phase of digitalization for western European banks, hyper-personalisation, because CX is taking on a new importance. Demand for context, convenience and control in interactions with banks is increasing, forcing incumbents to rethink how they deliver contextually relevant and, in the current crisis, sensitive experiences. For most banks, this will require an evolution of both tech stack and culture aimed at enabling hyper-personalized experiences in real-time for affected customers.

But when we look back at this moment in years to come, well probably recognise it as the last push in the digital migration, as the remaining face-to-face-only customers are encouraged to go digital and a return to banking as usualbegins to look unlikely. 

Closing the digital gaps: CEE Banksresponse to CV-19

Across the CEE region, banks are responding to the new normal by speeding up digitalisation: remote account opening and servicing will, at least in the near term, have to displace branch visits, and so rolling out digital journeys quickly and easily will be crucial to business continuity.

While the strong willingness to engage with digital banking services across the region will make success more likely, there will still be challenges to driving mass digital migration. Efforts to support the widespread shift to digital will be important (as they will be for the face-to-face-only customers in Western Europe too), and so CEE banks will need to launch messaging campaigns, educate customers and beef up remote support operations.

Many banking leaders in CEE also see opportunity in the midst of the crisis: Erste Groups new CEO has revealed that developments in digitalization that would have taken a couple of years under normal circumstances have accelerated dramatically. And theres evidence that other CEE banks are acting to ramp up digital innovation. In Romania, for example, CEC Bank responded to reduced customer mobility by using FintechOS to launch a 100% digital onboarding and mobile banking service.

Raiffeisen Bank has also seen a surge in digital banking uptake since the start of the crisis, particularly in cash-dependent regions such as the Balkans. Its group CEO has positioned the crisis response as an opportunity to show customers the strength of its digital offering and convince them that they wont need to move to non-bankchallengers in the future.

So, the picture that emerges from CEE is one of banks speeding up the process of closing the digital gaps in their service offering. Whether its by launching digital onboarding journeys or new self-service tools, the CV-19 crisis has forced them to focus more resources on digitalization and prepare for a period of intense competition in the future.

No going back: the digital gains of the CV-19 crisis

The digital gains made in the past few months are here to stay. Customer behaviour has changed permanently in the wake of the CV-19 crisis and banks will have to rise to new digital expectations: only 46% of customers say theyll go back to banking as usual, while therell be a 20% increase in mobile and 17% rise in online banking.

In CEE, banks will have to keep up a rapid pace of digital delivery to capitalise on the momentum of growing demand. In Western Europe, the ability to deliver hyper-personalized offerings over a customers channel of choice will be essential to meeting expectations, while reluctance to visit a branch will speed up its redesign as a more complex, high-value operation. But while the banking sectors in these two regions face different challenges, for both the following is true: the clever use of tech will decide who wins in the digital future.



i BCG, 2019, Global Retail Banking 2019: The Race for Relevance and Scale

ii BCG, 2019, Global Retail Banking 2019: The Race for Relevance and Scale

iii McKinsey, 2019, Rewriting the rules: succeeding in the new retail banking landscape

iv McKinsey, 2019, Rewriting the rules: succeeding in the new retail banking landscape

v McKinsey, 2019, Rewriting the rules: succeeding in the new retail banking landscape

vi Deloitte, 2018, Digital onboarding for financial services: a must-have for digital natives

vii McKinsey, 2018, The rise of Digital Challengers: how digitization can become the next growth engine for Central and Eastern Europe.


xiii McKinsey, 2019, Rewriting the rules: succeeding in the new retail banking landscape

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