Levon Hampartzoumian is a prominent figure in the banking and auditing scene in Bulgaria, currently President of the Bulgarian Business Leaders Forum. His vast experience includes being the CEO and Chairman of UniCredit Bulbank, Honorary Consul of Canada and holding senior positions with the Bulgarian government, PwC and Earnst &Young.
Kalin Radev is the CEO of Software Group, a global technology company that provides digitalization and integration solutions for financial services providers. Kalin has over 25 years of experience in the IT sector in Europe, Africa, the Middle East, Asia-Pacific and Latin America with a focus on banking, insurance and financial inclusion.
Looking back at 2021, another challenging year, how would you comment on the performance of the banking sector in South East Europe?
Levon: 2021 was challenging for the world, economies, and banks, due to COVID pandemic pressures. Such shocks reveal long accumulated inefficiencies and disbalances in the worldwide supply chains and trade. Paradoxically, this time banks played an important role as a network, which provided redistribution of massive government/central bank resources supporting companies and consumers suffering economic consequences of lockdowns and general slowdown of affected sectors. SEE banks in general were following overall trends of the Eurozone banks, which is not surprising, since SEE economies are strongly interlinked with EU ones. In addition, a substantial part of banks in SEE are owned by EU banking groups which in turn brings indirect benefit to countries not members of the Eurozone.
What are the main trends underlying the development of the local/SEE market?
Levon: Local markets are facing one challenge of utmost importance: growing and developing in a world where pre-pandemic inefficiencies are addressed in order to create more sustainable supply and production chains, without compromising growth, profitability and environment. Nearshoring and ESG are decisive factors affecting corporate strategies in short and mid-term. Inflation and in particular mortgage growth are subjects of concern for governments and regulators. In parallel, the pressure on interest margins and profitability are forcing banks to take faster steps toward increasing efficiency and C/I ratios. An obvious solution is the rapid introduction of digitalised products and processes. While banks are somewhat slower than fintech “challengers”, the most innovative and agile of them are going to be among winners of the post pandemic world.
Kalin: The fastest developing current trend globally is digitalization in its numerous aspects - from the standard by now digital channels, through RPA, machine learning and artificial intelligence, all the way to the implementation of digital currencies. In Bulgaria and the region banks and financial institutions are one way or another engaged in digitalization, but still have a long way to go before fully exploring the potential. We see some innovative projects mainly related to launching Mobile Wallets as Super Apps - “one-stop shop” platforms that surely redefine the way banks engage with consumers and open new opportunities for both sides.
These innovations are still very much focused on retail, though, and we are yet to see progress in SME, Corporate, Trade Finance and other areas.
As digital currencies are gaining momentum and are already being implemented in different parts of the world (even in emerging economies like Nigeria, which launched the eNaira in October), they are now on the radar of the SEE countries as well.
Telecoms are getting increasingly involved in the financial services space by acquiring leading IT companies and applying for banking licenses, thus contributing to the competitive environment and pushing the traditional players to move faster on their innovation and digitalization plans.
All these trends have been hugely accelerated by the pandemic. While the launch of digital solutions in 2020 was more reactive, in response to the crisis and the need for servicing clients remotely, this year we see digital transformation projects happening in a more planned manner and as part of a long-term strategy.
As digitalisation is rejigging all sectors of the economy, what tech trends are driving forth the banking sector and do you see any gaps in legislation to ensure the smooth operation of market players?
Kalin: Digital identity, authentication and authorization are among the fastest developing areas where technology is a key enabler. We already see good examples from the region such as the Republic of North Macedonia, which recently introduced the first national digital identity service in the country.
Another tech-driven trend that will define the future of banking is ecosystems. Integrating with multiple partners, banks are able to create large ecosystems that offer a variety of value-added services from a single access point - typically the mobile Super App, mentioned earlier. This approach is adopted by banks in different geographies and has proven to help them stay relevant in competitive environments and even take the lead in certain local markets.
Banks are also starting to transform lending for the digital world, balancing the need for volume, speed, quality and compliance. This is where technology steps in, enabling them to digitize customer onboarding, streamline the full credit risk management lifecycle and grow a profitable loan portfolio.
Levon: Legal framework is of lower priority barrier for digital transformation of the banking sector. Creation of Regulatory Sandbox can contribute to a more rapid development of digital products and processes. The major challenge for banks is to develop digital products channels, without cannibalising existing business relations. In this respect, fintechs are in a better position due to lack of “analogue” legacy. Digitalisation without high quality databases and redesigning of existing processes and product catalogues, most probably will not bring the desired business results and customer satisfaction.
Looking at the burgeoning fintech scene, do you see fintech companies as complementing banks, or rather as competing with them?
Kalin: The initial expectation was that fintech will take over the financial services sector, however this has not happened and will most likely not happen in the future. We see that banks and fintechs often partner with each other and sometimes assimilate each other in favour of offering a greater product and customer experience. Banks are staying strong and they have their reserved areas where they will continue to dominate. fintechs are going to be increasingly popular for certain offerings like retail and in many cases will be backed up by the banks for licensing, liquidity, resources and more. This is actually a good learning curve for the banks as it
triggers the adoption of digital technology to help them transform and move forward.
What does the bank of the future look like from a consumer perspective?
Levon: Bank of the future will be more digital than “physical”, providing smooth 24/7 availability of services, custom tailored to individual needs of the clients. Mobile banking is going to have the lion's share of operations in retail and basic corporate operations. However, cash is not going to disappear due to cultural and system redundancy factors. The competitive battles between different market players are going to be decided not in “mutual admiration boardroom societies”, but by positive customer opinion based on their respective product journeys.
Kalin: I believe the future model will be a mix of digital “everyday banking” and physical centres where clients go to get assistance and consultation. Financial products and services will be digitally available, but not all customers would like to access them this way. In all cases the winners will be the organizations with a clear strategy of adopting the “platform play” approach to be able to respond to the market dynamics adequately and to have a base on which they can innovate with fast time to market.