Breaking the banking rules

The Polish banking sector is striving to triumph in the market with groundbreaking, internationally recognized innovations. The world is learning from Polish banks and wants to emulate their success By Wojciech Rylukowski Even though Poland is still struggling to break into the group of countries whose economies are considered innovative, its banking sector is one of the most cutting-edge in the world. Barely 25 years after the country had only two state-owned retail banks, no ATMs and few branches, Polish lenders are setting international standards in digital operations and are spearheading worldwide innovation. Alior Bank, mBank and Idea Bank, among others, are creating a new era in banking services, coming up with novelties that are later adopted by their peers in foreign markets. Innovation establishes position When Poland’s first virtual bank was launched in 2000, there were few who actually believed it could pose a threat to major retail lenders, not to mention becoming a trendsetter. mBank offered services through various channels of communication, including the internet, fixed phone and mobile phone (back then through WAP), but had no “physical” branches. Fifteen years later, the bank, now owned by German Commerzbank, is operational in Slovakia and the Czech Republic, and is contemplating expanding into Austria and Hungary. In addition to forming joint ventures and licensing its technology to developing markets. Two years ago, its online service underwent a major overhaul and the effort has been internationally recognized. The bank won the Best of Show award at Finovate London 2013, one of the world’s most important conferences on banking and technology. Having the internet in its blood, the lender has managed to capture the youth market, as 70 percent of its customers are under 40 and 30 percent of mobile application users are mBank customers, which is all the more surprising in that the bank’s share in the market doesn’t account for that much. Within barely fifteen years, the bank has grown to become the fourth biggest retail lender, a position it has earned by employing a disruptive strategy. Mbank’s story is not an isolated case. Idea Bank, a lender focused on micro and small sized enterprises, introduced Idea Cloud in 2013,  an application that combines traditional internet banking with accountancy services. The system collects all the information on inflow, outflow or invoices of the user, monitors balances, payment dates and learns consumer activities. It can predict future cash flow and when there’s a deficit on the account, the application proposes a loan or video call with a consultant. One year later, the lender was awarded with one of the most prestigious prizes in the world - the Disruptive Innovation of the Year at the global contest BAI     - Finacle Global Banking Innovations Awards. International successes confirm what recent reports by market research company Forrester Research have asserted: that digital banking is what Poles do better than anyone else in Europe. [negative]"there are several hundred banks in the world that want to catch up with Poland or Turkey. The whole world seems to be our area of expansion.[/negative] The backbone of success Why has Poland become so successful in the field? Experts say that there are numerous reasons: the Polish market is still a fledgling system, economic growth is dynamic and institutions are stable. Mieczysław Groszek, deputy chair of the Polish Bank Association has identified a few factors that have helped in establishing Poland’s position. Firstly, local managers were given a certain amount of leeway by foreign owners to achieve their ambitions. The second reason is the fact that local banks used the advantage of their backwardness that allowed them to leapfrog a few stages. “Checks, for example, have never gained popularity in Poland, because there was technology that allowed for non-cash settlements in a more user-friendly manner. Americans have very modern technology, but they will use more obsolete solutions if those devices don’t earn their value. They are paying the price for being at the technological forefront some time ago,” Groszek said. The third reason, according to him, is the fact that the Polish banking sector has achieved a sufficiently critical dimension. Huge profits were recorded thanks to technological upgrades, and the improvements brought in additional profits. Another factor stems from fierce competition: one innovator is very quickly followed by others. The dawdlers are pushed to introduced similar novelties so they are not left behind. [caption id="attachment_76926" align="alignleft" width="344"] Image:Idea Bank[/caption] Bartłomiej Wyszyński, a strategy director at Artegence, a digital agency that worked with mBank and Idea bank on their disruptive solutions, said the situation with banking is similar to that related to telecommunications. After the fall of communism, both sectors had to be created from scratch, which presented many opportunities. Experts responsible for the introduction of innovative solutions in telecommunications were offered contracts in the UK, because they had experience in something that was just about to be introduced over there. The same occurs now in banking, as Poles, who crafted new systems here, are eagerly employed by foreign lenders. “I remember that when we won the award for mBank at Finovate London, CEOs of various, foreign banks were approaching us, saying that Polish lenders need to become competitors in their domestic markets so that they could implement changes in their systems. They needed an incentive to upgrade their obsolete solutions,” Wyszyński said. Only in Poland Apart from all these structural reasons, Poles just seem to have a drive for technological novelties and they quickly fall in love with new solutions. This is the case with contactless payments, in which Poland is a global leader in terms of the number of such cards issued and growth dynamic. Banks strive to tap into Poles’ fondness for originality and race to offer new products and services. Since Idea Bank targets entrepreneurs, it has  launched Idea Hub, a branch that also serves as a shared working space. The co-working area offers Wi-Fi, office devices, free newspapers and coffee. Businesspeople can use a conference room or meet with a client in modern office surroundings. The solution is aimed at micro and small sized companies, which oftentimes suffer from a lack of their own facilities of this kind. As entrepreneurs are not the type of people whose biggest headache is what to do with free time, Idea Bank has decided to facilitate access to ATMs and offers its clients  on demand cash deliveries. With the swipe of a finger on a smartphone, a customer is able to summon an ATM laden BMW i3. Four of these are out on Warsaw’s streets, sparing customers the extra effort of a trip to a cash machine. It may sound like something invented for those too lazy to go to the nearest ATM, however, surveys suggest that many businessmen make nightly cash deposits. It is therefore a matter of safety, rather than comfort. Another interesting innovation originating in Poland is a debit card that displays your account balance. Introduced by Getin Bank, the card requires two different PIN codes, the standard one to access your account at a cash machine, the other to activate the display. It may also be used as a token to validate your online banking  transactions. Bank Millenium has offered the possibility of applying for a loan via  an ATM. Instead of applying for credit at a branch or on-line, the lender’s customers may proceed with the operation at a cash machine. Within minutes, the sum will become available in their bank account. What's more, several banks now offer the chance to send money by telephone or e-mail, while a few are experimenting with enabling money transfers via Facebook. Trinkets or new quality of service? One may argue that some of these are just transitory gadgets, designed by the marketing department to position the lender as innovative. Groszek partly agrees with this critique, saying that innovations are centered around payments and payment methods and not on core banking activities like calculating credit. He added that as the market becomes more and more saturated, gadgets will cease to be so well-received and what will really matter is the ease of functionality. However, it is not that these innovations are just trinkets. “Consider the money transferred to pensioners - if we didn't have modern electronic banking, the money would be withdrawn the next day. But a bank that serves 5 million retired Poles is able to entice clients to use its on-line banking features and thus convince them to keep the money in their account.” There are various banks and various strategies and indeed, some lenders just blindly follow fashion, Wyszyński said. But, in his opinion, innovations are economically justified. For example, Real Time Marketing (RTM) can boost sales by crafting an offer fitting the needs of a client. “Imagine a man who tries to pay for his groceries with his credit card towards the end of the month. The transaction is declined. The next week when he logs into his online account, there’s a pre-approved overdraft offer with a message: With our current account loan, you will never run out of money at the end of the month,” Wyszyński gave as an example. New solutions also decrease costs - expansive on-line platforms are so all-encapsulating that a customer can fully exploit the service. But he has to be taught how to use it, that’s why banks harness learning tools such as the gamification of interface design. “Trust me, innovations make sense, they boost profits and make people’s lives easier,” Wyszyński assured. [negative]"innovations make sense, they boost profits and makes people’s lives easier.[/negative] What the future holds In which direction will the Polish innovators head? Groszek claimed that tools such as Idea Cloud, which go beyond core banking services will play a more decisive role. In two years, the law will have changed and non-banking entities will be able to service payments and check credit history. Using their large client bases, banks would have to offer something extra, for example, services related to accountancy or legal advice. Banks are also expected to license their systems abroad. “There are several hundred banks in the world that want to catch up with Poland or Turkey. The whole world seems to be our area of expansion,” said Wyszyński, as for him and his company the world is his oyster. Nevertheless, Groszek warned that innovation may be hindered by a tax on banking profits orchestrated by the main opposition party or by over-regulation of the sector by the financial watchdog KNF. But considering the large profits banks post each year and fierce competition between lenders, it isn’t  an exaggeration to say that we may expect new solutions which will make the digital banking experience even more friendly.