What drives European Digital Banking?

The past, present, and future of Europe’s banking sector and its digitalisation progress as seen under the lens of Oleg Patsiansky of BPC.

 

The financial industry is undergoing a rapid transformation due to digitalisation, resulting in an unparalleled evolution of the banking landscape in Europe. Multiple factors, such as shifts in consumer preferences, regulatory reforms, and technological advancements, have fueled the growth of digital banking. Additionally, past and ongoing macroeconomic and geopolitical developments have greatly contributed to this and to shaping of industry preferences.

European digital banking landscape

Since the outbreak of the Covid-19 pandemic, the European banking landscape has changed significantly. The willingness to conduct business and operations digitally has increased. According to the European Central Bank ECB, 43% of the supervised EU banks projects aim at customer experience enhancement, while 83% of banks aim to reduce costs mainly through IT legacy transformation. 

From the customer side, in 2022 while according to the survey done for ECB, supervised traditional European banks reported to have almost half of their customers already appear to have gone digital, with 36% those using mobile banking and 21% using online banking for day-to-day operations. 

Meanwhile, according to a recent report, the growth of the digital banking market is accelerating, driving the number of neo-banks to more than 160 across Europe in early 2023. 

What are the main drivers behind such a robust growth of challenger banks in Europe? Will it persist?

What is the driving force behind the popularity of challenger banks?

Regulatory reforms

The growth of digital banks in Europe has been significantly boosted by the implementation of PSD1 and PSD2 regulations. These regulations have brought about a fair and competitive landscape for both traditional and digital banks, while also promoting innovation and safeguarding consumer interests. The ability for digital banks to operate across the EU and access customer data has been instrumental in the expansion of digital banking. Currently, the Financial Conduct Authority (FCA) allows digital banks to submit their applications year-round and access testing environments and services early in the development process, making it easier for them to enter the market.

Intensifying cost-of-living

Amidst geopolitical crises and rising prices, consumers are seeking out intelligent tools that can assist them in monitoring their spending, and by default, grants them a comprehensive insight into their finances. Digital banks, in addition to offering a straightforward and time-saving enrolment process, provide contemporary, customer-centric functionalities like PFM and budgeting. This has the potential to heighten consumer loyalty, ensuring a strong customer retention rate and securing a stable, long-term position in the market.

Macroeconomic challenges

The number of migrants and refugees who require support will steeply increase in 2023. Consequently, there is a rising need for wallet-based solutions that are simple and easily accessible to address basic needs such as digital payments and remittance, as well as to enable them to access financial services and receive government support and funds, facilitating refugees’ integration into their host country, which gives a good ground for digital banks to take additional market.

Future opportunities for growth

The European banking landscape is undergoing significant structural changes that have the potential to transform the industry. However, in order for new players to capitalise on these trends and build a successful business, it is essential to gain a comprehensive understanding of the opportunities presented by the European market and be prepared for the challenges evolving in the landscape.

For now, the landscape can be considered favourable for continued growth, given established European banks allocate no more than 5% of their staff to digital transformation projects as reported by European Central Bank supervision commission, which plays in favour for digital-ready challenger banks to take over the market.

Furthermore, BaaS providers offer digital banks the opportunity to develop and expand their portfolio of products and services in a more cost and time-effective manner than ever before, unlocking new revenue streams and driving up customers' lifetime value, as suggested in a recent BPC report. 

Lastly, with SMEs being the backbone of the European market but still lacking the access to financing, provides an untapped new customers and market potential for the digital banks to grow in the region.

About Oleg Patsiansky

Oleg leads BPC’s digital banking practice where he works on designing what the future digital banks could be. He is passionate about digitalisation and building solutions that help people eventually live in better societies. Oleg brings a wealth of experience in banking and payments having worked with BPC Banking Technologies for over 20 years. He has been part of the BPC journey and instrumental in the growth into a dynamic company that now has 350 clients in over 100 countries. He has been heavily involved in the transition from switching solutions, fraud management, and merchant management to emerging channels such as internet and mobile. He has deployed solutions across the industry verticals of banking and finance, telecoms, government, and transportation.

About BPC

Founded in 1996, BPC delivers solutions which fit with today’s consumer lifestyle when banking, shopping, or moving in both urban and rural areas, bridging real life and the digital world. With 350 customers across 100 countries, BPC collaborates with all ecosystem players ranging from tier one banks to neobanks, Payment Service Providers (PSPs) to large processors, ecommerce giants to startup merchants, and government bodies to local hail riding companies.