Digitisation and innovative business models in the European financial sector, impact on employment and customers

This page is also available in

Digitisation and innovative business models in the European financial sector, impact on employment and customers

In the last few decades, the banking and insurance sector are continuing to be reinvented by technology, regulation, and changing customer needs and expectations. New models of investments, savings, insurance, and fund transfers are allowing the widest range of people to participate in projects of different sizes.

FinTechs and InsurTechs are catalysts and often the partners of financial services institutions in modernising their services, amalgamating strengths and weaknesses and generating synergies between each other. In the EESC's view, there is considerable potential to create value by nurturing an innovative co-opetition ecosystem.

There is definitely a need to restore trust and stability in the financial sector, with the management of the transition from the old (traditional banking system) to the new system being crucial. In this respect, the EESC calls for the appropriate legislation to be put in place in the EU context of an integrative process of the Banking Union and the Digital Single Market, allowing for growth and innovation while also ensuring protection for consumers and employees in the finance industry.

To achieve a truly Single European Financial Market, European Commission policy should support a level playing field in terms of innovation. As a general principle, broadly analogous conditions are needed in terms of regulation as well as consumer rights, working conditions and supervisory obligations, both for the traditional finance industry and FinTech companies, in line with the rule of the same activity requiring the same regulation and the same supervision. More specifically:

A risk-based approach to regulation should be consistent throughout the innovation lifecycle, providing a proportional and simplified regulatory framework for both incumbents and new players to experiment with new technologies and business models in interaction with the regulators. The creation of an EU framework for experimentation, working with industry and wider stakeholders - including consumer and employee representatives - would provide the tools for gearing up to support innovation across its activities ("Sandbox" for FinTech Innovation).

To match the conditions with those of third parties, it is necessary to look at the treatment of software as an intangible asset, to avoid subtracting from core equity capital the high investments that the entities based in the EU already make in IT (following the example of the US and Swiss banking systems, or the insurance sector).

The European Commission, the European Banking Authority and Member States have to strongly commit to a harmonised and effective implementation of the revised Directive on Payment Services (PSD2) which introduces very strict security requirements for the initiation and processing of electronic payments and the protection of consumers' financial data, paying special attention to technological social media and commercial giants.

Consumer challenges and risks linked to the digitalisation of financial services should be carefully examined by the Retail Financial Services Action Plan and the Fintech Taskforce, guaranteeing close coordination between DG JUST and DG FISMA, in particular with respect to consumer protection issues, e.g., determining what kind of data should be used to assess creditworthiness, how to ensure the understanding of pre-contractual information and effective identity checks through a screening process.

The measures included in the proposed amendment to the Anti Money Laundering Directive (AMLD) should be immediately transposed, particularly those tackling terrorist financing risks linked to virtual currencies and risks linked to anonymous pre-paid instruments.

Enhancing crowdfunding and other collaborative economy solutions by exploring the potential of establishing a "quality label" to build users' trust in order to better develop virtual communities and facilitate interaction among cooperative customers.

Support for the introduction of open-source software solutions in the financial sector in order to increase sound market competition, reduce costs and prevent vendor lock-in in the sector.

PtP lending regulations need to be addressed at the same time to encourage smaller balance sheets.

Hybrid lending (driven by Basel 3 capital requirements) needs to be supported by the European Commission.

The EESC emphasises that digitalisation must never replace good personalised advice from a qualified human advisor (proximity in banking with the help of a network of adapted agencies should not disappear!).

Understanding FinTech requires new skills from all: regulators, supervisors, financial ecosystem stakeholders and the population as a whole. In order to take advantage of one of the main potential benefits of FinTech as a driver of financial inclusion, EU Member States have to strengthen financial education and digital literacy, anticipating the new scenarios. This needs to start in schools, and should embed information about financial products in the context of how they are presented online and their relationship with the development of the Internet of Things.

Digitalisation in the financial sector threatens many jobs, and this is forcing employees to update their competences and skills. The EESC advocates ensuring that skills training and further education take place on two levels. Internally, by allowing employees to take on new tasks and create a cross-over between current financial employees from "traditional institutions" and FinTech/InsurTech companies, and externally by preparing employees who cannot remain in the sector for jobs in other sectors.

The EESC calls on the European Social Fund to provide specific training programmes within the new flag ship initiative "Digital Skills and Jobs Coalition"[6], to support the up-skilling and retraining of the financial sector's workforce to prepare them for new digital technologies.

The EESC calls on companies to replicate codes of conduct and the best practices on internal rules limiting the requirements for employees to be online at all times of the day and to issue guidelines discouraging employees from working at weekends and during vacation time. If voluntary approaches do not work, the EESC calls for binding rules in this respect.

Timely information and consultation, in line with the relevant EU Directives on informing and consulting employees, are key to meeting all of these challenges. The European Commission and Member States have to ensure compliance with the provisions of applicable law and, in particular, the rights of the employees' representatives to be involved in intra-company changes.

The EESC calls for the proposal for a Directive on preventive restructuring and second chances to be strengthened and completed, as this will help to gain access to restructuring procedures before any business insolvency is declared.