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
In our view, the factors brought about by regulatory projects affecting the Finnish banking market are, in particular, the regulations affecting banks' solvency and lending, as well as the opportunities that will open up with the reform of the Payment Services Directive. The maximum lending ratio, which limits the maximum amount of mortgages, ie the so-called loan ceiling, can also affect the demand for mortgages. In the opinion of OmaSp's management, the tightened maximum lending ratio will not significantly affect OmaSp's operations, as the maximum lending ratio for mortgage loans issued by the bank is generally well below the 85% limit set by the Financial Supervisory Authority. The banking market is also affected by the so-called Second EU Payment Services Directive (PSD2) and the changes it brings to national law, which have allowed banks to open customer payment account interfaces to external service providers. In the view of OmaSp's management, increasing and changing regulation makes it more difficult for very small banks in particular, as well as banks with a complex legal structure. The changes will have a relatively small effect on OmaSp's operations, as it will benefit from a sufficiently large business size and a simple legal structure.
Increasing utilisation of digital banking services
The role and use of digital banking services has grown significantly over the last ten years. In particular, banking services used on mobile devices have become more common for use by several customers. Producing digital services often requires less human and other resources from a bank than providing the same service at a physical location. Thus, the increased use of digital services will improve the efficiency of banking operations and the profitability of banks. The digitalisation of banking services is also a positive trend for customers, as it can improve the availability of a customer's service when the availability of the service is not only tied to geographical location or the bank's opening hours.
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 main competitor consists of banks operating in Finland that provide services to households and businesses, as OmaSp focuses on providing secured loans and providing comprehensive banking services, where the largest players in the market are banks operating in Finland. The relevant market for OmaSp is the Finnish banking market, where the field of competition is divided into large banks operating nationwide and, on the other hand, medium-sized banks operating in a large area in Finland. In recent years, the competitive situation has been affected in particular by the concentration of larger players in larger cities and the sharp reduction of the branch network. According to OmaSp's management, larger banks have also in some places significantly reduced their focus on providing services to small and medium-sized enterprises, which has opened up growth opportunities for smaller and agile banks.