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Banking in transition

Banking in transition

​​​​​Argenta CEO Marc Lauwers talks ​about how the WSBI-ESBG Belgian member approaches 21st-century banking & insurance in latest issue of News & Views magazine.

​This article originally appeared in Bank and Financiewezen, Belgian finance magazine.

Published online: 5 May 2020

At the invitation of the Antwerp Financial Forum held in October 2019, I delivered a speech with the title "Argenta in scaffolding". Indeed, together with the mother company Investar, Argenta is working on a thorough renovation of its headquarters in the heart of Antwerp for its more than 1,000 employees. That project was necessary because the old buildings became too small and were not adapted to the contemporary way of working.

The choice to remain faithful to the historic site was not only motivated by emotion. The accessibility with sustainable means of transport and the location in the heart of Flanders' most important economic city are important assets for an attractive employer. But "Argenta in scaffolds" mainly indicates the challenge that Argenta – and by extension the entire financial sector – faces to remain relevant in these disruptive times.

Since the Middle Ages, the retail banking model has remained virtually unchanged: converting short-term savings into long-term loans where the intermediation margin forms the basis of the earning model. Various trends are now putting that classic model under pressure and that could lead to a thorough reshaping of the financial land scape. We consider digitisation, regulation and the lower interest environment to be the most important challenges.

Challenging times: Digitisation, regulations, low rates

The first challenge is digitisation.

Digitalisation accelerates the (r)evolution in all segments of society. Mobile devices, Cloud, platform as a service, big data, and APIs ensure that technology is available 24/7 and affordable for all companies. Newspaper headlines predict a variety of possible futures: "1 in 3 banks will disappear", "the real tsunami is yet to come", "the bank branch is making a comeback", "bank of the future: digital or brick & mortar". Digitalisation provides a dynamic evolution where traditional multi-year plans still have little value. Financial institutions are preparing to respond flexibly and quickly to these changes. In recent years, Argenta has thoroughly revised the app and internet banking. And we also invest in the expansion of our data architecture. For the coming years we will place an additional emphasis on simplifying our application landscape and the associated infrastructure.

The second challenge is regulation. In the aftermath of the 2008 banking crisis and the 2010 debt crisis, supervision was tightened to prevent government funds from being used in the future to save the financial sector. This has led to a mountain of new rules, the creation of new super - visors and a heavy burden on the resources of financial institutions. After all, transposing the rules into practice requires investments in IT and mobilizes a large number of employees to respond to the continuous flow of inspections and surveys.

Argenta is not exactly a complex financial institution. We limit ourselves to banking for households and have no trading room. However, in the past year my risk teams have had to answer nearly 500 times to various questions from the regulator, ranging from emails to extensive stress test programmes that run over several months. We subscribe to the need for professional and harmonised European financial supervision. But in our opinion it can be more efficient. And despite all those regulators and rules, banks continue to be saved with government money.

In addition to a lack of efficiency, we Europeans could certainly do with a healthy dose of European chauvinism. PSD2 is a good example of this. PSD2 is a European directive that regulates payment services in the European Union. With PSD2, the so-called “Open Banking” model was created. In this model, banks have to grant third parties access to their client's current account provided that the client gives his consent. The political vision behind this was that banks, due to their closed nature, are troubling financial innovation by third parties, namely fintechs. 

By forcing that access, the challenger banks could break through. Perhaps the original fathers of PSD2 did not realise that companies such as Google, Facebook or WeChat benefit much more from cracking the bank vault. And certainly with regard to privacy, there are still some grey zones. Allow me to quote the Dutch academic Bart Jacobs who said : "If you look at this as an outsider, you think: which idiot has made this up?".

But PSD2 is now a reality and, despite the many childhood diseases – which cost a lot of money – it will fundamentally influence the financial landscape.

Low interest rate environment: Cause for banking business model to evolve

The third challenge is the low interest rate environment. This challenge becomes more existential as banks become more dependent on the interest margin for their income. What hurts extra in Belgium is the mandatory minimum interest rate of 11 basis points on regulated savings accounts. In addition, the government collects 29 basis points via the bank tax and the deposit guarantee contribution, while the interest rate on government bonds is negative and while the ECB applies a penalty interest rate of -0.5 percent above a certain buffer for the surplus cash that banks deposit. Banks that finance themselves on the capital market raise money cheaper, sometimes even paying negative interest. Traditional savings have therefore become the most expensive form of bank funding. And that puts pressure on the intermediation margin, which still generates the majority of revenues for many banks. If low interest rates become the new normal in the coming years – and that is indeed what we expect – then the business model for banks must evolve.​

Banks remain the reliable intermediary

Each of the challenges described requires bankers and insurers to think about the impact on their business model. In the "2020 Banking and Capital Markets Outlook", Deloitte predicts a consolidation battle for the next decade in which so-called Fintechs will become mainstream and the surviving classic banking players will adjust their strategy radically. The key words for future banking are "open, transparent, real-time, customized, secure". But while the method of banking is changing, the role of banks remains the same; to be a reliable intermediary between the ones who have capital available and the ones who can put that capital to good use.​

Argenta: 60 years of growth, family character

In a little more than 60 years, Argenta has grown into a fully-fledged bank and insurance company. In 2019, Argenta served 1.72 million customers in Belgium and the Netherlands, we have 28 billion in savings and we provide 31.1 billion home loans in Belgium and the Netherlands. 2,575 people work every day to serve our customers. Approximately 1,500 of these are employed in the 440 independent bank branches. We made a profit of 174 million euros in 2018, with a return on equity of 6.2% while maintaining strong capital and liquidity buffers. With over 85% of the shares, the Van Rompuy family, through holding Investar, is still thereference shareholder and has reinvested a large proportion of the dividends paid out. The remaining 15% shares are held by the cooperative company Argen-Co. This family character leads to a cautious risk policy, as a result of which the financial crisis of 2008-2010 has not had an effect on Argenta.

We want to be the first bank and insurer for families and individuals who value sustainable financial advice, without frills. We offer them simple, honest and close support to ensure their financial health. We make the difference in the defining moments of the life of our customers, such as birth, purchase of a home or accrual of pension. Our strength lies in our 400 bank agents who serve our customers daily with personal advice. In addition, we have continuous dialogue with our customers. Via the dedicated website “my thoughts” we periodically request input from our customers and we make adjustments. For our bank agents and their employees there is a similar platform that is supplemented by physical consultation.​

​Measuring employee satisfaction

This also requires openness and dynamism from our employees. Every year we measure the satisfaction of our employees in an “Employee Investigation” and adjust the management accordingly. We see a strong connection with the brand and a positive atmosphere among our staff. We have been investing for several years now with targeted training in the leadership of our managers. And we are happy that we also see that translated into the results of the employee satisfaction survey. Employees grow if they get the space from competent managers. Due to the rapid growth of recent years, we were forced to give interesting assignments to external parties, now we prefer to give our own people opportunities and to internalize knowledge in key areas. ​

We are committed to healthy growth, in all areas, through a culture characterised by entrepreneurial spirit, pragmatism and simplicity.

Achieving scale: The case for partnerships

Argenta has conquered its place on the market on its own. In the past 60 years, Argenta has not participated in the various merger movements that have taken place in the Belgian financial landscape. “Doing things on our own” is not a religion, however, as we have proven that by bidding for the financial services company Fidea. The combination of a suitable IT platform, experience with distribution via a bank channel, geographical proximity and cultural affiliation made it a suitable partner for Argenta Insurance. But acquisitions are not theonly way to obtain scale. And scale is certainly part of the answer to the challenges of the coming years. I notice that many market participants are thinking about platforms and services that could be shared. An impressive example in another European country is in Germany, where the members of the savings bank association – with some 400 savings banks – share the same payment platform that makes its “S-Payment” website the most visited in Germany. Closer to home, we recently set up Jofico with the Belgian financial institutions Axa, Crelan, VDK and Bpost to jointly manage payment terminals. It is not in the back kitchen where we make a difference. Clients look for a loan, want advice on an investment, get a quick solution in the event of an accident or fire, for example. The technical platform where this is processed can be perfectly offered by third parties, as long as the service provider remains a familiar face. Today we already work together with different suppliers. In future, partnerships will become more important to serve the customer with quality in a cost-efficient manner. Scale helps to keep investment costs under control.

Diverse revenue streams: Asset management, insurance, payment traffic

In addition to limiting costs, Argenta is also working on the diversification of revenues to decrease our dependence on the interest rates. The insurance platform will be renewed in the coming years to realize the growth ambition. The asset management activities – via Argenta Asset Management and Arvestar Asset Management – have grown considerably in recent years.

Payment traffic is a final source of income. I have always stated that our current account will remain free as long as we can afford it. “As long as” seems to be gradually coming to an end. We are investigating to limit the free nature in the future to a limited package of services. These are bizarre times. Argenta experienced a 14% higher influx of new customers in 2019 and savings grew by €1.6 billion. Taking into account the statutory bottom interest rate of 0.11% on the regulated savings account, this is less positive than it appears. If growth remains the same and we cannot reinvest the savings raised, we must be able to curb that inflow through a limit on the savings account. A Dutch colleague is considering refusing new customers. We think it is more reasonable to limit the permitted volume, which is already provided for in the general rules of transactions for most financial institutions, but is not (yet) enforced in practice.

​​Local players: A place under the sun

The challenges facing the financial sector are manifold. But we believe that there is a place under the sun for a local player who is close to the customer and knows the customer personally. And we think that with our strong office network, Argenta is in an excellent position to be that local player. This requires clear choices. Briefly summarised: the head office invests in digitisation, keeps costs under control and makes products and services as simple as possible; the bank branches continue to focus on personal contact with the customers.

Banks listen, make time for people, take simple approach

Everyone needs banking services, and these are still primarily provided by a bank. But finding a bank that suits you is not easy. It starts with a bank that makes time and really listens. Argenta enters into a dialogue with customers, offices and employees. We invest in a long-term relationship of trust where you can go to the same person. A person you know who can make things simple when it seems difficult. We notice that simplicity works and this requires hard work and reinventing things time and time again. When they walk out the bank branch, we want our customers to say to themselves “I did not know it could be that simple". ​

Innovation; Innovation Hub