Romanian Banks on the Road to Digitalization - Georgi Robev & Gabriel Voicila

15 Dec, 2021

Originally published in Economica (in Romanian).

2020 brought with it the crisis generated by the Covid-19 pandemic, along with new arguments why digitalization and the provision of personalized digital services are vital for the continuation of a business, regardless of the field it operates in. The financial sector is no exception, and banking institutions are facing new challenges in changing the way they operate. Technology can help them navigate these challenges and give them a competitive advantage. ECONOMICA.NET challenged Gabriel Voicilă (PwC Romania) and George Robev (Software Group) to a discussion about the role of digital banking platforms in transforming banks and how they operate, and the multitude of digital solutions that can be integrated to provide customers with ultra-personalized services through key technological capabilities.

Gabriel Voicilă is a Digital Technology Partner, with over 24 years of experience in the IT&C services industry. He specializes in SAP and Intelligent Automation technologies, and his role is to help clients master digital transformation projects.

George Robev is Business Development Director ECA at Software Group. He is a technology manager with over 17 years of experience in the IT sector and has held key leadership positions at companies such as IBM, SAP and SAS Institute. One of the ideologues behind the creation of the National Center for Supercomputing Applications (Bulgaria), part of the EU initiative PRACE (Partnership for Advanced Computing in Europe).

Gabriel Voicilă, Technology Partner at PwC Romania, answers:

How has the pandemic changed the way financial institutions operate?

In brief the pandemic was a catalyst for the financial institutions that were ill prepared for remote client interaction. Because of this, many have been forced to implement digital workflows that allow the clients to identify themselves digitally, to submit documents remotely and securely. Finally, some organizations realizing that customers could leave for another bank due to poor customer experience, lack of digital tools, have started to have customer centric workflows, which before was not always the case.

What are their new challenges and how can they be overcome?

I would say that the main challenge is to transform themselves into a digital bank offering a rich customer experience. Some of these organizations have major difficulties to change the way they operate, because many of their operations were based on the traditional Brick & Mortar approach and their digital channel was an add-on. While B&M will not disappear, because banking requires direct interaction sometimes, there is the need to be a truly digital bank and that is difficult to do. Leading players are opting to launch completely separate digital banks that operate independent from the traditional ones. This is the better approach, but it requires executive focus and heavy investment.

What does digital transformation mean for banks and why is it necessary?

Digital transformation is something ubiquitous nowadays, but in my opinion for banks this means the ability to offer with a few clicks a rich experience to the clients, means to know your client much better than today, and to be accessible from anywhere and any platform. I believe these are attributes that are reflected by a shift in consumer behaviour, not related only to Millenials and GenZ, and staying behind is a major risk.

How can technology help transform banks and the way they operate?

First of all, the banks are using very complex systems that in many instances have been designed and deployed 20 or 30 years ago and those systems act like a drag when it comes to changing them, or their ability to support and launch new products. We see more and more examples of neo-banks or fintechs that aim to change that and to completely replace the large and complex core-systems with platforms that are built on APIs and microservices that offer modern and agile ways to support banking operations. I believe this is the future of banking and within 3 to 5 years, we will hear and see many neo-banks being launched on the market and reshaping the industry.

Digitalisation has also made its mark on the banking workforce, with automation sometimes resulting in redundancies and staff cuts. Are there other jobs that have developed as a result of digital transformation?

In my experience staff cuts as a direct result of automation are rare, because these organizations prefer to refocus the redundant staff to other activities. On the other hand, the need to do more and more remote and fully digital banking will probably result in a shrinkage of the branch network, thus resulting in layoffs. Nevertheless, digital transformation leads also to job creation, for example in the area of customer analytics, where a different type of skills are needed, especially in the field of AI. Another example is that of a UX designer, which requires a design thinking mindset, resulting in better client experience. Finally, I would mention the need to embrace agile in everything the banks do, in order to cope with the fast changes, which also requires a different skill set.

What trends do you foresee in 2022 for the financial services market?

It is not a simple question but I think in Romania the real negative interest rates will put a focus one the profitability of the banks and there will be an increased fight for the customers. The consolidation trend will probably continue and we will see more banks shrinking their branch network as they delve deeper into digital. Finally the possibility of a continued pandemic, due to Romania's low immunisation rate, will continue to give the executives a hard time in planning for the next year.

George Robev, ECA Business Development Director at Software Group, answers:

How has the pandemic changed the way consumers relate to financial and banking institutions? What did they want before and what do they want now?

The most dramatic change is related to the fact that the consumers that were not digitally enabled and would have always preferred physical interaction with their bank were forced to start embracing digital. The ones that were digitally savvy are now demanding non-physical interaction only, a fact that is forcing the financial institutions to permanently stay digital, develop, improve and make the client banking journeys more secure. All consumers realized that the “devil is not so black”. From on-boarding, to loan origination and credit risk assessment - all this now is moving to near real time experience and interactions.

What does "banking" mean now, in 2021, and how will it change in the coming years?

I can say that we are currently examining rapid transformation of the legacy banking technological platforms to support the next generation of banking which I’m quoting as “everyday banking”. Now we are experiencing technological evolution, where AI, RPA and nano-services architectures are taking place in real adopted operations. Future is looking more connected than ever in the sense of real-time client interaction, real-time credit decisioning and real-time banking serviceability.

Omnichannel has also arrived in the banking industry. How is this being integrated into banks' offerings and what benefits does it bring to customers?

Predominantly there are two areas of benefits: 1) convenience in every interaction between client and the bank 2) ecosystem-based banking where the financial institution is providing a sticky client experience combined with value-added services from 3rd party trusted providers. The examples are many: starting with the urban mobility services and finishing with e-commerce integration for small and medium business banking clients. Regarding the integration of the omni-channel approach in the existing banking technological landscape the answer is not straightforward. There are different techniques and methodologies available as best in class examples, however that depends a lot of the financial institution’s maturity, availability of humans to support the new or amended process and last but not least robust and proven technology stack, like the one we are providing on the global banking markets.

Can we reach a plateau phase in terms of innovation in the financial-banking system?

There are always plateaus from the early adoption to maturity and declination stages and that's normal. However, nowadays the time needed to enter the “plateau” has dramatically shrinked. As we are speaking some of today's technologies are already outdated and the banks are forced to think, act and decide with unprecedented speed - a matter of fact that brings uncertainty, security concerns and in many cases hidden costs. Software Group is always trying to balance the approach in a way that provides stability and predictability in both technology and product lifecycle domains.

The company entered the Romanian market in 2021. How was this first year?

Very dynamic and interesting as the Romanian financial market is significant and the level of digitalization is just ramping up rapidly. We are impressed by the level of professionalism and the open mindset.

What similarities and/or differences did you notice between the Bulgarian and Romanian markets?

Although Software Group is a company that operates globally and Bulgaria is just one of the 70+ countries where we have an established presence, I can say clearly that there are more similarities than differences. Both banking systems are stable, with relevant NPL ratio and domestic capital resources. Both markets are still fragmented as representation of the market share of participants. 4 big banks in both Romania and Bulgaria are representing between 52 and 66% of the overall market, something normal for financial markets that are just starting their digital journeys and are constrained from size perspective. The outlook is positive and will be driven by the political and economic stability in the region.

What are your plans for 2022 in Romania?

We plan to grow and expand our operations in Romania by proving our abilities and solutions in practice. The Romanian market is of strategic importance to us and we want to build a stable presence with a long-term perspective. We start by developing a strong partner ecosystem and addressing the specific needs of the market through an approach that brings the digital environment to the forefront. Our conversations with customers go beyond product discussions - we help them shape their vision for the future and support them throughout its successful realization. We are here for the long run, as a reliable partner for the end-to-end digitization of innovative financial institutions in Romania.