In our radio broadcast with Inforádió and the MNB (Central Bank of Hungary), Péter Fáykiss and Gergely Gabler directors at the Central Bank of Hungary, and Botond Bilibók, Chief Executive at HOLD Asset Management were talking about the future role of financial intermediaries.

Everyone agreed that it would be too early to talk about a fintech revolution. For a long time, the market for financial services has been developing without a stop. Currently, cash alternatives, such as payment cards or online banking, have gained ground – though Hungary is somewhat lagging behind in this regard. However, sharing economy, which has run over the hotel industry (Airbnb) and the taxi service market (Uber) so far has missed this sector. Interestingly, while in the XIXth and XXth century, banks, the traditional players were the innovators, now startups and technology giants, such as Amazon or Google might take this role which is going to be a serious challenge for regulatory authorities too.

Botond Bilibók said that this industry went through the least innovations in the past 10-15 years. We could say that fintech has arrived, but the revolution has not. The sparks of change are there, for example, that personal contact is basically disappearing, and payment systems have largely abandoned cash, however, in the next 15-20 years, there are going to be far greater changes than in the last two decades.

According to Gergely Gabler, the instant bank-to-bank transfer, that MNB is planning to introduce next summer, will provide opportunities to technology companies, and might also change the public attitude. Péter Fáykiss added that through this, traditional players will be able to compete with blockchain-based currencies in the field of payment service providers, moreover, due to the nature of the two technologies, instant transfer could probably be even faster. He thinks that regulations would have two major functions in this field. One is to keep a balance between motivating and regulating new technologies, because, on the one hand, they have significant customer added value, on the other hand, they can cause financial stability problems and consumer and data protection issues. The other function would be to create equal footing for competition between traditional players, incumbents, and their challengers.

They agreed that the blockchain technology could bring the biggest changes. It could have a more significant role not only in payments but also in anything registry related (for example land registers), and even in contractual relationships.
However, Gergely Gabler also said that cryptocurrencies, in their current form, cannot fulfil the classic function of cash, so, for now, a currency based on them which is independent of central banks is rather unlikely since they provide the stability that is expected from foreign currencies. Botond Bilibók quoted Dávid Szabó, who thinks that a currency free from regulations could be far more stable than the present ones. Péter Fáykiss added that he believes that by virtue of the complex nature of society and economy there always will be certain aspects that cannot be managed by automatization.

Everyone also agreed that technology giants like Google and Facebook are in extremely good positions to fundamentally change the market. The number of their users and the data at their disposal enables them to drastically reform lending even in the form of peer-to-peer or private lending. In addition to this, they can create an excellent user data-based debtor scoring system. There have already been attempts to develop one; for now, it seems that regulation is the only thing keeping it from happening.

According to Botond Bilibók, what makes this change the most noticeable is that those banks that some years ago were celebrating the opening of their 100th branch will soon welcome closing them. So far, this industry does not offer services online; fintech companies have not yet achieved any significant breakthrough in this area either. The reason is probably that they do not have a broad customer base to experiment with. As for banks, they have shortcomings on the technological side. If those two merge, the revolution might happen.
Péter Fáykiss mentioned that the recent significant decrease in the number of bank branches has stopped and the industry has started to shift towards hybrid banking. More solutions will become automatized but there will still be ones involving personal contact. He brought up Estonia as an example, which is a heavily digitalized economy, yet there are still three things that require personal administration because they have such a defining role in our lives: marriage, divorce, and buying and selling of property.

Gergely Gabler added that the business model of banks will have to change, and branch networks will have to decrease because IT developments and experts required for this shift will be expensive. Data is the new oil, and banks are not in a position to compete with Facebook or Google.
Everyone acknowledged that banks cooperating with fintech and technology giants will be crucial. Péter Fáykiss said that people have more trust in banks – since it is one of the most regulated industries – than in technology giants, and this trust is something they could bring to the table in this relationship. Furthermore, they know how the banking system and financial regulations work. PSD2 is the regulation that could boost this cooperation. It requires banks to share their customer data with others, which could be extremely profitable for fintech companies.

Original date of Hungarian publication: 21 June 2018.