Czech Republic's digital banking shift to endure post-COVID-19 – Moneta CEO

COVID-19 has done what lenders in the Czech Republic could not before the pandemic: convince reluctant customers to bank online, according to Tomáš Spurný, CEO of Czech challenger bank Moneta Money Bank a.s.

"Online banking has always been more convenient than visiting a branch and the challenge has just been to get clients to try it," Spurný told S&P Global Market Intelligence. Now that many people who previously shied away from digital banking services have gotten used to them, they are not likely to switch back to branches. "We believe a large part of the activity which shifted online during the pandemic will remain online even as life returns to normal," Spurný said in written comments.

Although the Czech Republic is a frontrunner in digital banking and leads by use of online services in central and Eastern Europe, over 15% of its population still does not use the internet regularly and 9.28% of all adults have never been online, according to Eurostat data.

The relatively lower level of urbanization in CEE is another factor that has kept customers loyal to traditional bank advisory and branches in the Czech Republic and neighboring countries, according to S&P Global Ratings. Urbanization ranges from 55% to 74% in CEE, compared to the EU average of 75%, Ratings said in a recent report.

COVID-19 has accelerated the adoption of digital services and given a boost to CEE markets, such as the Czech Republic, which were already making strides in digitalization. Rated Czech banks' mobile banking usage rose 50% in 2020, S&P Global Ratings credit analyst Cihan Duran said in an interview.

Digital push

Aside from the surge in the number of online and mobile banking customers, Moneta has also observed a change in the type of digital services demanded, Spurný said. Before COVID-19, Moneta focused on online sales and simple activities, and had seen relatively little demand for more complex services online. Now, however, many of the bank's clients seek "a banking relationship which can be serviced entirely remotely," he said.

"We have seen increased demand for online services across all our product categories from online payments, which increased 149% year over year, to mortgages, where our online mortgage proposition has grown from almost nothing to more than 15% of our business," Spurný said.

In response to this shift, Moneta launched a program "to progressively build out our digital capability to serve the full range of complex services we currently offer only via branches," the CEO said. Within three years, the bank aims to completely remove the need for clients "to ever visit our branches," he said.

Air Bank merger

Moneta has been committed to fully digitalizing its business since its IPO in 2016 and the pandemic has made it clear that the bank needs "to go further and faster" with that plan, Spurný said.

The announced merger with fellow challenger bank Air Bank will strengthen Moneta's market position and help it take advantage of future digitalization opportunities, Spurný said. Another wave of innovation is coming after the government recently allowed citizens to use their banking credentials to identify themselves online, which will "dramatically simplify" know-you-customer procedures, the CEO said.

Moneta is considered a major competitor to traditional Czech banks, especially after the merger with Air Bank, according to S&P Global Ratings' Duran. Currently the eighth-largest Czech lender by assets, Moneta will climb to sixth after the merger, with total assets of 481.7 billion Czech koruny, just shy of the 482 billion koruny that fifth-ranked Raiffeisenbank a.s. had at the end of 2020.

The merger, which Spurný said is expected to close later this year, will make Moneta the Czech market leader in consumer lending and the fourth-largest bank by retail deposits. Currently, Moneta ranks second by consumer loan volumes and sixth by retail deposits, according to the bank's own data.

Despite the digitalization push, Moneta does not plan to shut its branch network but rather change its purpose. "If we have learned one thing in the last year, it is that where you sit does not have to define your job. In the future, branches will play a hybrid role: part-front office, back office or part-call center and part-head office," Spurný said.

The Czech Republic's second-largest lender by assets, Ceská sporitelna a. s., has a similar plan. "Branches will still play a significant role, but their [function] will shift to very different areas," Josef Boček, a strategy analyst at the bank, said in an interview.

As of June 9, US$1 was equivalent to 20.85 Czech koruny.