The banking and insurance industry in Europe has a diversity that is characterized by large European or even global
institutions and more or less autonomous regional or local structures with some national characteristics. Although a period of concentration has taken place in most Member States, the sector remains fragmented at European level. The old boundaries between banking groups and large insurance companies have almost disappeared with the creation of financial conglomerates.
In a new environment of volatile markets and low interest rates, with strong regulatory pressure, supervision and oversight imposed on banking by the financial crisis, coupled with digital transformation and increased competition (new fintech companies) and new consumer trends, banking sector results continue to shrink then. The emergence of new non-bank models in the digital economy makes it necessary to analyze the interplay of four components: traditional banks, new digital actors, regulators and consumers.
In line with the increasing use of the Internet, banks are establishing online branches and virtual offices where customers can conduct simple transactions and contact a consultant. Corporate strategies to dramatically reduce staffing costs and inferior conditions for on-site customer care have reduced the number of customers visiting bank offices, resulting in a branch divergence in Europe.
In the insurance industry, there are different distribution channels: employed agents, brokers, general agents, bancassurance and independent insurance agents working for a single company. Insurance companies are increasingly being sold online or via smartphones. The dominant nature of the individual strands of these multi-channel distribution networks varies from country to country and from product to product. For example, life insurance is mainly distributed through banking networks (so-called bancassurance).
The payment methods used are constantly evolving and tend to continue faster and faster. The use of checks and cash has fallen dramatically since the early 1990s. At the same time, payments by bank card, direct debit or bank transfer have increased, ensuring better traceability, greater control and security, and helping to contain the shadow economy. Electronic payments offer more application possibilities, especially for the transfer of funds between individuals and the payment of social benefits. New players in the field of electronic money are becoming active in online commerce, while next to the bank card, new technologies are being developed and established, such as contactless payment. In addition, special attention must be given to the development of the cryptocurrency market (including Bitcoin).
Technical progress in the European financial sector and new entrants to the market
Financial innovation takes place on the Internet: online banking, big data, artificial intelligence, blockchain, cybersecurity, etc. Data is exchanged at high speed, enabling risk assessment and financial decision-making through algorithms and mass data. This technical upheaval and the difficulties of traditional banks due to equity issues and temporary liquidity bottlenecks, as well as the development of alternative distribution channels that are not subject to the banking legal requirements, have paved the way for FinTech, InsurTech and Blockchain, while giving consumers new opportunities but also brings new risks. FinTech and InsurTech companies, whose numbers are constantly growing, bring together finance, insurance and technology. These companies use the resources that technology provides them to innovate financial products. They are on the upswing, especially in asset management, lending to individuals, corporate finance and online payments. Equity financing (crowdfunding and P2P) is also playing an increasingly important role through special platforms, making use of mobile apps, virtual currencies and electronic payments via the Internet or smartphone. Banks and insurance companies are
putting increasing pressure on them to compete on their traditional business lines. The largest Internet companies, in particular the GAFA (Google, Apple, Facebook, Amazon), are also busy developing financial market projects because they have control over Big Data.
Applications based on Distributed Ledger Technology (DLT) technology may provide a new way of trusting a wide range of services. The blockchain technology for the storage and transmission of information works without a central control body, is transparent and secured. Both businesses and individuals can use this system to conduct certain transactions bypassing the financial sector, especially using cryptocurrencies.
Using FinTech, both businesses and individuals can use crowdfunding for specific projects by raising funds through
donations, loans or equity investments through dedicated platforms. These platforms handle peer-to-peer loans, whether consumer loans or personal loans, without involving the banks. This allows private individuals to directly finance micro enterprises and SMEs. The platforms can complement or enhance venture capital, especially for innovative companies, and the associated mobile apps provide clients with the real-time financial information they need to manage their spending or investment decisions. These new entrants compete with the traditional business models of the banking and insurance industries, but both banks and insurance companies are beginning to coexist with them. For example, some have already entered into cooperation agreements with FinTech and InsurTech companies, while others have established their own subsidiary structures. In addition, investments in FinTech have grown rapidly in recent years, and this interest has also spread to InsurTech.