‘New blueprint for healthy players and a competitive financial sector’
29/10/21
New reality in the banking landscape
The new cabinet is striving to build a resilient, sustainable Netherlands in the wake of COVID-19. What does ‘The Hague’ expect of the banking sector? And vice versa: what do banks expect from politicians? These questions sparked a lively debate in the Financiële Poort*, a meeting of the Dutch Banking Association on 13 October 2021. Eugénie Krijnsen, Industry Leader Financial Sector at PwC stated that during the COVID-19 pandemic, Dutch banks showed that they contribute to providing solutions. ‘But the banking landscape is more diverse than ever. This new reality requires a new (European) blueprint. For healthy players and healthy competition in the banking sector.’
* this article is also published on the website of the Dutch Banking Association
Increasingly digital customers
‘BigTech and FinTech have become successful in a short period of time,’ says Krijnsen. ‘They respond well to the increasingly digital customer and make good use of the ‘DNA loop’ (data, network and activities): data customers leave on their platforms makes the platforms increasingly attractive, encourages more activity, which makes more data available, and so on. Digital markets therefore have a ‘winner-takes-all’ or a ‘winner-takes-most’ dynamic. Some online platforms are so powerful that they actually set the conditions for market access. And act as gatekeepers to consumers and other market parties. The success of BigTech and FinTech is also due to the playing field not being entirely level; they focus on banking’s ‘tastier bites’. On the more profitable and less regulated activities.’
BigTech are in it ‘big’
‘Whether the arrival of all these new entrants has diversified the banking landscape is highly questionable,’ continues Krijnsen. ‘I would venture to say that the systemic risk hasn’t diminished, quite the reverse. Big Tech are in it ‘big’. Not only in our finances, but also – via social media and apps – in our communication, entertainment, shopping. Under PSD2, banks are expected to share data with other parties, such as BigTech and FinTech. Conversely, there is no legislation that obligates those parties to share data with banks. There is still too little legislation to protect consumers from excesses such as undue influence. Lessons from the past taught us that the financial sector requires proper supervision. But who supervises BigTech?’
A long and happy financing
All lessons learned from the past – also vis-à-vis banks and how they emerged more resilient from the financial crisis – are, according to Krijnsen, sufficient to underline the need for a new (European) blueprint for healthy players and healthy competition in the banking sector. ‘Ultimately, we all want banks, BigTech and FinTech to contribute to the long and happy financing of the economy, the payment infrastructure, the duty of care for customers and the digital revolution of customers, combatting financial crime and accelerating the ESG transition. During the financial crisis, banks were part of the problem. Now, banks are financially healthier. And, with the help of a great deal of new legislation, banks have been called upon to play a pioneering role in the ESG transition. That means they are now integrating environmental, social and governance factors into their strategy; from sustainable investment and credit decisions and risk management to external reporting.’
‘There is no legislation that obligates BigTech and FinTech to share data with banks. There is also too little legislation to protect consumers from excesses such as undue influence. Lessons from the past taught us that the financial sector requires proper supervision. But who supervises BigTech?’
Part of the solution
‘In the COVID-19 crisis, you saw banks becoming part of the solution by helping to finance economic recovery,’ concludes Krijnsen. ‘Banks now need to be sufficiently profitable to remain healthy and continue to perform these social tasks. That profitability is now being severely tested: low interest rates, the threat of asset write-downs, new competitors, changing customer expectations, and compliance with laws and regulations such as ‘financial crime’. The Netherlands now has more than eight thousand bank employees who are tasked with this gatekeeper role – more than double the number of community police officers. First and foremost, banks must work on their profitability by continuing to invest in their relevance to customers. Good supervision of these relevance factors by supervisory bodies, society and customers remains essential. In addition to resilience, a healthy competitive playing field is also urgently needed, as well as a dialogue about the duty of care that banks have towards customers concerning the use of their data, but also about the question of whether customers always benefit from a ‘seamless experience’ or a quick payment or loan, just to be able to buy? And who supports customers in a reality of low interest rates and over-liquidity? And in making wise decisions about investments in crypto-currencies, an asset class with a market cap of around two thousand billion dollars? Isn’t there a risk of mis-buying financial products? There are no such things as fairy-tales, but there are definitely lessons to be learned for a new (European) blueprint for healthy players and healthy competition in the banking sector. A new blueprint for a new reality.’
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