To Presentation (Hebrew)
The Supervisor of Banks, Dr. Hedva Ber, spoke at the “Capital Market and Banking” session at the Israel Business Conference sponsored by Globes. The following are the main points of her remarks:
· “Technology is redesigning banking. It is making it possible to increase competition, immediately lower prices to consumers, improve availability and service to the customer, and enabling the required process of increasing efficiency at the banks.
· The Banking Supervision Department has identified the existing barriers to direct banking, and is currently acting to revise its policy and directives to enable the technological changes, promote increased competition, and support increasing efficiency of the banks—for the good of the customer.”
The technological and digital revolution that has changed many areas of our lives, has also come to the world of financial services, including the banking industry. Various processes are taking place with great power in the banking and technology fields, and these are expected to have an impact in Israel as well. As part of this, bank customers are moving to direct banking and greatly reducing their visits to branches. Direct banking includes the Internet, banking via smartphones (mobile banking), and the increase in the use of ATMs. In addition, in recent years, banks that are completely digital have been established and are operating in various parts of the world—some of which are subsidiaries of traditional banks and some are independent—that offer a variety of banking services to household and small business customers digitally and without physical interaction with the customers.
Technology in the field of banking presents many opportunities. First, it enables increased competition. In the past, financial institutions found it difficult to compete without a large network of branches. This presented a barrier to the development of new and small players. Technology is changing this situation, which is expected to be reflected in greater competition from nonbank entities, including credit card companies. Moreover, technology is making information accessible, and enabling the transfer of power to the customer. The current concept in the world is that the information belongs to the customer (the household, the small business) and if the customer decides to transfer it to another financial entity in order to obtain a better price quote, the information is transferred immediately through technological means from the customer’s bank to the competing financial institution.
Direct activity enables customers to immediately and significantly lower the banking fees they pay. For instance, in the banking system in Israel, basic transactions such as bank transfers, cash withdrawals or deposits, or deposits of checks, are 75 percent less expensive when they are conducted through direct banking rather than through a teller at a branch. The large differences in prices exist at all the banks and for a wide variety of transactions.
Another advantage of technology is that it makes financial services highly available and very convenient. The customer can execute transactions outside of normal hours, without coming to the branch, through telephone call centers, and especially via the Internet or mobile services.
Another aspect of technological banking is reflected in the fact that banks in Israel, and around the world, send the customer a wide variety of warnings via mobile phone, which help the customer control the state of his finances. For instance, banks around the world send SMS messages to a customer who is nearing a low balance in his account, where there is concern of falling into overdraft. Evidence shows that many customers react immediately to such warnings and execute transactions with the aim of preventing or reducing the overdraft. In other words, technology contributes to informed banking customer activity.
Furthermore, technology is leading to, and enabling, the increasing efficiency of banks around the world, by changing and streamlining processes, closing branches and reducing manpower. The efficiency ratings of most of the banks in Israel indicate a low level of efficiency by international comparison, and adopting advanced technologies can help in this as well. Now more than ever, increasing efficiency is essential for banks so that they can offer competitive prices to the public against competition that will be created in the finance-banking field, which we at the Bank of Israel are promoting together with the Ministry of Finance and other bodies.
Against this background, the large banks in Europe, the US and Australia are closing a large portion of their branches and significantly reducing their employed workforce. In Israel, we see only a moderate decline in the number of branches. Some of the banks have closed branches, mainly in the large cities where there are other branches nearby, while new branches are opening in the smaller cities and in the periphery. Some of the teller desks are also being closed within the branches of some of the banks. In parallel, there has been an increase in the number of ATMs, enabling customers to execute a wide variety of basic transactions, and in the number of cash withdrawal machines.
In contrast, technological changes in banking create challenges in a number of dimensions and require preparation on the part of the banks and the public. For instance, there are groups within the population, such as some of the elderly customers, or those with less technological acumen, that find it difficult to transition from the traditional banking world to the world of direct and technological banking. Technological changes also present new risks and strengthen the risks of information leakage and risks to business continuity.
The Banking Supervision Department’s policy is to enable the changes while at the same time requiring the banks to prepare for them and to provide responses to the public for which the transition to direct banking service consumption will involve a complex acclimation. The Banking Supervision Department has surveyed the technological and other barriers that currently exist in our policy, and we are currently acting to revise a number of Proper Conduct of Banking Business directives so that many of the barriers will be removed. These facilitations will make it possible to significantly reduce the need for the customer to come to the branch, and expand the types of transactions that can be executed remotely through direct means.
Alongside technological facilitations, we have required the banks that are reducing their number of branches to define a policy that will assist population groups that are not easily acclimating to the change, such as some of the elderly. Thus, we have today instructed the banks to define a policy that will relate, at the very least, to the planned deployment of branches, the deployment of automatic machines, increased telephone call centers, and digital education. As part of this, the Banking Supervision Department will enable banks to operate mobile and partial branches that will be able to offer services in towns, rural communities and kibbutzim where the population is not large and does not require or justify a permanent branch.
In addition, alongside the technological facilitations, the Banking Supervision Department will require the banks to also construct a risk management concept in line with this new world and to add controls.
In summation, technology is changing the face of banking, and alongside the challenges, it provides many opportunities for households and small businesses.