Trends and recent changes
Substantial structural changes have been visible in the Finnish retail banking market in the recent years, of which the most notable ones include
- increased regulation
- growing use of digital banking services
- a decreasing number of bank branches and
- the emergence of alternative financial services providers into the industry
Increased regulation has partly been driven by the European Union’s increasing integration as well ass the internationalisation of the financial markets, which have increased the need for more harmonised regulation at the European level.
According to the OmaSp’s view, especially the regulation schemes that have an effect on banks’ capital buffer requirements and lending as well as the possibilities opening up from the payment services directive reform impact the Finnish banking market. The capital buffers required from the banks have increased during the past decade and will further increase as of 1 July 2019, when the structural additional capital requirements, i.e. a systemic risk buffer, imposed on credit institutions by the FFSA enter into force.
OmaSp is of the view that the more stringent maximum loan-to-value ratio will not notably impact OmaSp’s operations, because the maximum loan-to-value ratios in the Company’s mortgages, are in general notably below the 85 per cent limit imposed by the FFSA.
The banking market is further impacted by the revised so called EU Payment Services Directive 2 (PSD2) and the changes entailed by the directive to the national legislation that have been in force since the beginning of 2018. As a result of the directive, banks must open the interfaces of customers’ payment accounts for third party service providers by the transitional period, i.e.autumn 2019.
The bank’s view is that increasing and changing regulation will complicate the operations, especially for very small banks but also for banks with complex legal structures. In addition, the Company is of the view that changes in regulation have a limited effect on OmaSp’s activities, since it benefits from a sufficient scale of its operations as well as a simple legal structure.
Increasing utilisation of digital banking services
The role and utilisation of digital banking services has increased considerably in the last decade. According to a survey conducted by Finance Finland, in 2017 it was already significantly more common to submit a loan application digitally than through a bank branch. Furthermore, in the recent years, the popularity of mobile banking services has soared. In 2017, already half of Finns were utilising a mobile phone or tablet device as the primary or secondary device for the utilisation of online banking, while in the spring of 2014 only approximately one fourth did so. The provision of digital services often requires fewer personnel and other resources from the bank than the provision of the same service at a physical service location. Thereby, the increased utilisation of digital services enhances the efficiency of functions in the banking sector and the profitability of banks. The digitalisation of banking services is a positive trend also for the customers, because as a result, the availability of the service as the service availability is not only tied to a geographical location or to the bank’s office hours.
Reduction in the total number of branches in the market
The increased utilisation of digital banking services is closely connected also to the reduction of bank branches in the Finnish banking market as digital services often replace the service provided in physical branches. The number of branches serving individual clients reduced from slightly over 1,500 in 2010 to under 1,000 in 2017. In addition to the closing down of the bank branches, also the remaining branches’ service selection may have been reduced. For example, approximately 15 per cent of bank branches serving private customers are not offering any cash services anymore, and approximately 30 per cent have reduced the amount of cash services being provided.
Despite of the increasing digitalisation, 75 per cent of Finns still want to utilize banking services also at a branch. Furthermore, sourcing of new customers and the sale of additional services continues to largely take place via branches.
 Source: Finnish Financial Supervisory Authority, Report on the availability and pricing of basic banking services 2017 (19 September 2017) Source: Finance Finland, Saving, use of credit and means of payment 2017 (8 June 2017)
Entry of alternative financial services providers into the sector
The changes in the banking market, along with a shift in customer demands have also made room for alternative financial services providers. For instance, consumer credit providers, asset management companies and financial service comparison marketplaces relying purely on digital channels, have emerged in the market. Many of the new providers of alternative financial services are focusing on one or a few services, such as, for example ”payday loan companies” offering high-interest, rapidly available consumer credits. In the recent years, also companies providing more comprehensive financial services have begun to surface in the market, not offering traditional physical branch services at all but, rather, purely offering their services through digital and other distance connection service channels. The diminishing significance of the physical bank network has also accelerated the offering of credit to Finland from abroad at an increasing pace. Alternative banking and financial services providers have, however, rarely ventured into the most important services of traditional banks, namely secured loans and payment services. OmaSp sees that the entry of alternative financial service providers to the market has opened up new possibilities for cooperation e.g.in unsecured corporate lending, but has not significantly affected the competitive situation.
OmaSp’s relevant group of competitors comprises of banks operating in Finland, providing banking services to households and corporations. The new alternative financial service providers that have emerged during the recent years have not significantly changed the competitive setting from the Company’s point of view, because OmaSp focuses on the granting of secured loans and the provision of comprehensive banking services, where the largest operators in the market comprise banks operating in Finland.
The market relevant for OmaSp is the Finnish banking market, in which the competitive field is divided into sizeable banks operating on a nationwide basis and, on the other hand, into medium-sized banks operating in wide areas of the country. In the recent years, the competitive situation has been particularly impacted by the concentration of the larger incumbents into bigger cities and the rapid reduction of the branch networks. OmaSp is under the understanding that larger banks have also at times considerably reduced their focus of providing services to small and medium-sized companies, which, in turn, has opened up growth possibilities for smaller and agile banks. In the past few years, several medium-sized banks, such as OmaSp have grown at a considerably faster pace than the larger banks and, therefore, their significance in the Finnish banking market has increased.
Selected information on Finnish retail banking market incumbents
|Company||Mortagages to households, 2017, EUR billion ||Growth in mortgages granted to households 2015-2017 (2)||Cost-income ratio . (2015–2017 avg.)(3)||Number of offices 2017,pcs|
|Large operators || || || || |
|OP Group||37.7||2.5 %||55 %||442|
|Nordea (1)||28.4 ||1.2 %||42 %||161|
|Danske Bank||10.9 ||0.6 %||61 %||42|
|Medium-sized operators|| || || || |
|Savings Bank Group||4.9 ||11.3%||64%||146|
|POP Bank Group||1.9 ||6.9%||73%||85|
|S-Bank||2.1 ||Not available||85%||12|
Source: OmaSp (OmaSp’s figures), Bank of Finland (16 April 2018) (2017 figures for operators other than OmaSp), Finance Finland annual statistics ((9 June 2016) 2015 figures for operators other than OmaSp), FFSA cost-income ratio.
(1) Nordea’s figures include Nordea Bank AB (publ), Finnish branch, Nordea Mortgage Bank Plc and Nordea Finance Finland Ltd as of 25 September 2018. The expense-to-income ratio figures Nordea Bank AB (publ), Finland branch averages for 2015-2016. (2) Average annual growth (formula: (2017 figure / 2015 figure)^(1/2)-1 (3) ) In 2017, net income on financial assets and liabilities, amounting to EUR 10.8 million, was highlighted in OmaSp’s results. Net income on financial assets and liabilities is the equivalent of the sum of the items “Net income from trading” and “Net gains on investments” in the financial statements of 2015-2017.