For large companies, adapting to the digitization of financial services brings with it changes that can be made while the business is running. However, this is very different for many traditional SMEs, and especially for micro-enterprises, as they do not have sufficient internal knowledge and resources to easily fit into a financial world that is undergoing rapid change.
In the era of the internet and the smartphone, customer profiles have changed as well. Their urge to digitally manage their banking and insurance businesses, however, depends on various factors such as their age, level of education and occupation. Financial advice, however, requires direct human contact based on customer experience, even among young people.
Virtual branch offices, online subsidiaries of banking or insurance groups provide clients with access to finance, loans and insurance products via the Internet or smartphone through new applications. For such offers apply more favorable conditions:
- a free bank card, interest rebates, an account opening bonus or discounts for insurance companies and mutuals in the amount of several monthly contributions. These customer benefits are part of the transition between the traditional business model of banks, insurance companies and mutuals and a new model emerging from digitization.
This new scenario offers both risks and opportunities for the consumer:
- easier access to products, more / better choice, opportunities for price comparisons across websites, more personalized, tailored offers, reduced transaction costs (time and money) and increased security through new biometric authentication systems;
- new useful products (eg crowdfunding), but also many new products that are complex, opaque, difficult to understand and risky, such as: Eg instant loans;
- potential difficulties in providing pre-contractual information / disclosure through new distribution channels, eg. Eg via smartphones due to their small display;
- Insufficient information about the risks associated with financial products;
- insufficient supervision of the activities of new entrants in the financial services sector or enforcement of the rules applicable to them;
- in some cases, legal uncertainty as to which legislation applies to new entrants;
- non-regulated areas (eg automated advice);
- any unjustified unequal treatment / exclusion associated with the use of mass data and the lack of digital skills;
- cyber security. Digitalisation should actually increase transparency in the distribution of financial products, but the apparent simplification of the products offered may mask the overall imbalance in the financial relationship. The use of algorithms is neither a guarantee that there are no hidden disadvantages nor that offers are in line with European standards. Financial education
must therefore also include the imparting of knowledge about financial products in terms of their online marketing.
Other financing options and importance of ethical and responsible finance
The strong dependence of companies on bank financing (more than 75% in Europe compared to 20% in the US) and the lack of a capitalized equity culture in Europe makes SMEs (more than 98% of all companies in Europe, employing two thirds of workers and 58% of total added value) are potentially vulnerable to credit crunching as they occurred during the years of the global financial crisis. Therefore, additional options for non-bank financing and the associated risks – especially in the case of crises – need to be explored.
For the financing of SMEs, in addition to aid from European funds, there are a number of alternatives that help to improve business development and reduce risks, job creation and business competitiveness through the reduction the usual financing costs, as provided for in the Juncker plan. A socially responsible, transparent and sustainable banking model and a financial system anchored in the real economy, providing stability and social and territorial cohesion, must be strengthened. Sustainable Banks work specifically on a three-pillar model (which includes measures of financial, social and environmental performance to finance projects without negative externalities), by building a close relationship with their clients and to the wider meaning Take affected people very seriously.
Cooperative banks and insurance companies, as well as mutual banks and insurance companies, have long been concerned about creating added value for all partners (the stakeholder value principle) in order to expand their business. Nonetheless, they too have adopted approaches from the traditional commercial institutions and have not got away with it in the financial crisis. So far, digitization does not seem to be moving in the direction of a return to more ethical business practices that meet the real needs of society.
Impact on employment and working conditions
According to the rating agency Bloomberg, around 600,000 jobs have been lost in the banking sector worldwide since the economic crisis of 2008. The reason for these massive job cuts is mainly the crisis, but also the digitization process. In Europe, four million people are employed by banks and insurance companies, three million of them in banking and just under one million in insurance. According to CitiGroup, around 1.8 million jobs will be lost in the banking sector in Europe and the US over the next ten years. In Europe, where banks currently employ around 2.9 million employees in full-time equivalents, only 1.82 million are to be retained by 2025. This trend is reflected in the numerous recently announced job cuts by several major European banking groups. In some countries, there is a tendency towards part-time work and other forms of employment in the financial sector.
Active labor market policies are needed to manage current and future changes for the workers concerned. The social partners at all levels play an important role in finding appropriate solutions. A good example of this is the general retraining fund for all bank employees in Austria, introduced through sector-level collective bargaining and jointly funded by industry and the public sector.
The continuing branch dying goes hand in hand with a rethinking of the branch concept depending on the type of customers concerned. Even before branch closures, the number of employees declined due to the automation of business processes. The network of general agents and brokers of the insurance industry stands despite clear shrinkage tendencies. The number of employed agents will decline.
On the trading floor, buying and selling of company shares, foreign currency or “credit default swaps” (financial derivatives with which the seller guarantees the buyer in the event of a third party default) are increasingly handled by computers.