Coronavirus and digitalisation in Hungary's banking sector: system replacements on the horizon

The Hungarian economy took a plunge during the coronavirus pandemic. When asked about immediate reaction of the banknig and private banking sectors and about the current trends, Bálint Fischer responded that there was a knee-jerk reaction, and projects and decision-making mechanisms became more difficult even if they did not freeze up completely. 

The first three to four weeks were a "great challenge", but private banking and the investment world in general have started to perform better lately, he said. Fischer noted that this was facilitated also by the fact that investors were attracted to the stock market that no one had thought before would be interested.

Banks quickly realised that they were facing difficult times and even if austerity became necessary, digital transformation needs to be accelerated and the private and premium segments have to be strengthened.

Sándor Szalai said everyone had to put out the fire first, and everyone was engaged in replanning their security measures, business situation and fiscal trajectory. When a bank is setting up plexiglass sneeze guards and is trying to work out home officing for thousands of employees development decisions take the back seat. 

While customers were enclosing themselves, switching to working from home was not the only challenge, as they had to adapt to a host of new regulations within an extremely short period (e.g. repayment moratorium, security measures at bank branches, etc.), added Fischer.  

That is why we came to the decision to do something completely different. I think that those companies will come out as winners from this situation that have come to the same realisation.

When asked how seriously they had to redesign Dorsum's operation and business model as a consquence of the coronavirus crisis, Fischer replied that as their typical clients are large banks, brokerages, and fund management companies (for which Dorsum develops sizeable systems), fast projects that last a couple of months are rare and they develop mostly critical systems that require a long preparatory phase and massive funds. 

Dorsum realised that it has a group of products, mainly digital solutions designed for end users, which is of top quality in European terms but is currently offered only to large banks. "However, we can sell this product group also to much smaller players, with minimal integration, in an SaaS (software-as-a-service) model, basicaly as a service available for a monthly fee," said Fischer. 

Dorsum has created a mobile and web-based product in which end users can keep track of their own portfolio, risk levels and other relations to banks. "We focus on a clientel including smaller private banks, fund managment companies directly serving private persons that do not really offer digital solutions to their customers. The basic idea was to achieve a significant enhancement of customer experience rapidly, cheaply and with minimal integraion." 

The idea was an instant success at Dorsum, a project team was formed within a few days and two pilot customers were found within two weeks amidst the COVID period, which was quite a good feedback by the market that the direction was chosen wisely, said Fischer. The solution went live in September, allowing a modern and easily manageable access for customers to their savings. 

Szalai said the situation forced Dorsum, which has projects running in nine countries already, to revisit their current business priorities. The strategy remains unchanged in a sense that business development on foreign markets relying on Hungarian references continues to be strengthened further; the company's presence in Central and Eastern Europe is to be cemented and it eyes expansion to Western Europe. Ongoing international projects are uninterrupted, as everything can be done remotely, although the advancement of new and large cross-border projects has taken a back seat for now. Dorsum has started to renew back-office solutions that are used most widely by the company's customers. 

When asked if this means that Dorsum will put its foreign expansion on old, Fischer replied they after a complete shutdown in foreign relations after the coronavirus outbreak things started to go back to normal in the early summer, and by now it is business-as-usual also with foreign clients, albeit there is still no physical contact with them. Dorsum has also scored a large London-based customer, one of the key asset managers in the city that is currently rebuilding its entire digital infrastructure together with Dorsum in an 18-month projectd. The preparatory stage has been on for two months, and without COVID personal contacts with London-based rivals would have probably left Dorsum losing this contract. As Dorsum and two of its local competitors used only digital channels, it did not matter where their physical offices were in the end. 

Szalai noted that foreign markets did not freeze up even in the area of back-office systems. Quite the contrary, they have just started to receive inquiries regarding the renewal of systems in operation for 15 to 20 years. 

Brokerages, asset managers and investment service providers that entered the market in the late 1990's or early 2000's are now forced to develop their services and for that they have to modernise their back-office systems, as well.

When asked how long the replacement of core systems can take, Szalai replied that even in a first step it is estimated to be a job for two to three years that requires close co-operation with customers and serious community-level thinking by market players.  

One of the motivations to have changes on the client side could be the acceleration of digital transformation in the current environment which will require updates in end-to-end services on the back-office level, as well, in respect of technology and architecture and customer experience.

Asked if coronavirus has brought about a change in the fintechs vs. banks battle, Fischer said you can make a lot of money in the current market environment, and even private banking clients have a tendency to venture into riskier assets now. He also warned against going overboard with this attitude. Fischer noted that the classic trading clientele has become very active at brokerages.

A lot of customers that have only been buying retail government securities for decades have now started to eye stock markets.

Fischer also said some people bought their first shares on Revolut, as it is free under a certain number of transactions, it's conveniently on your mobile and it has a free trial. He does not think, however, that this will have a considerable short-term impact on the fintech vs. banks game, especially not in this region. The real question regarding the long-term social effects of the pandemic will not be the changes made to the fintech vs. banks map, rather than how COVID-19 will transform consumerism as we know it. 

Szalai said brokers and heavy traders benefited the msot, and those managing static assets could have also profited because the increase in the size of assets managed pushed commission income higher. 

Given that the communication between service providers and customers has changed (social distancing, no contact), Dorsum wants to offer remote and purely digital solutions that encompass all forms of communication, including decision making, the filing of orders, and singing documents. 

Fischer does not think all branches of banks will need to be closed and everyone will be working from home, but he is convinced that there will be some kind of change in this direction. 

When asked about how Dorsum manages the coronavirus pandemic on an operational level, Fischer said the watershed for them was 16 March, after which they switched to working from home almost overnight, then they returned to the office in June and as of early September they are back to home officing. 

Szalai added that such changes will have a short-term impact on used office space, and they have also realised that working from home is a good solution in various areas. However, it has also become obvious that home officing is not the best choice in some situations. 

When asked about the outlook on Dorsum's current financial year and 2021 Fischer said FY2020 is unlikely to go down in history as the company's best year, "but it will not be as bad as at so many other businesses." 

While a host of companies suffered a much greater blow, Dorsum is also missing some of its revenue because its customers put things on the backburner for two to three months. 

He things those corporations will become winners in the long term that perceive this crisis as an opportunity and adjust their mindset and strategy accordingly and start to implement new things.

As for 2021, Dorsum is fundamentally optimistic and believes that a lot of projects will come to fruition next year.