The last 7-month world is living in a state of an emergency, and the banking industry is not an exception.

Banks’ performance on the debt market and equity is at the same level as during Lehman Brothers’ collapse in 2008. During the starting phase businesses and borrowers started to lose income, jobs and sales, facing the decrease of income. Banks’ customers sought financial relief, however, governments expected support from the sector – not the best situation for the banking system worldwide.

How banks are working nowadays?

Taking into account the current situation banks were the first who reacted to the call of health organizations to eliminate the person-to-person contacts by encouraging alternative digital operations, keep the social distance while serving the clients and provide financial relieves to their borrowers.

WHO (the World Health Organization) called on the banks to use contactless payment methods and avoid banknotes circulations as carriers and accelerators of disease.

The banks of Korea and China requested lenders to decontaminate the banknotes and put them into the quarantine, and the U.S. Federal Reserve isolated Asian banknotes for 14 days. Armenia banking industry reacted to the pandemic in several directions. First of all Armenian banks reviewed the terms of existing loans.

Initially, deposits also decreased. In general, it was expected that the banks would have some problems, but at this moment there are no big issues, which is also because the Armenian government implements its activities through banks, thus keeping the sector active.

Other important actions include the encouragement of digital financial activities, in case of the physical presence of clients – social distance providing actions were taken to avoid crowded offices.

Some Relevant Statistics

The level of NPL in the total loan portfolio of Armenian banks “froze” at 8% in the first quarter of 2020, and 5.2% in assets, but compared to the last year’s rates (8.5% and 6.2%, respectively) is lower. At the same time, the volume of overdue loans decreased slightly, while the amount of healthy (standard) loans accelerated growth from 16% to 17.5%.

US Currency in Circulation is at a current level of 1.977T, up from 1.972T last week and up from 1.751T one year ago. This is a change of 0.28% from last week and 12.94% from one year ago.

What changes are expected in the banking industry?

During the last few years the banking system changed drastically, and today the major question is – when will Big Tech take over the financial services? A glimpse of the future banking system points to digital banking and the innovative technologies’ huge impact on the sector.

Facebook launched a digital currency called Libra, Google partners with Citigroup on checking accounts, and this just the beginning of FinTech triumph. The banking system will be dramatically changed by 2030, specialists presume. Fintech continues a confident inroad into the banking sector, which solutions’ main users and drivers are young millennials and Gen Z clients.

The government and private sector encourages such a shift towards online banking, and actually, takes relevant measures. The Federal Financial Institutions Examination Council asked U.S. banks to test their systems’ ability to handle traffic of their digital banking demands. Such actions are called to “increase reliance on online banking, telephone banking, and call center services” and remote working.

Goldman Sachs traders already tested working from the home regime, and HSBC has implemented a split-site working regime, after an infection case of their Asian employee.

Singapore’s DBS bank developed a model of branchless banking for the future, and when one of their employees was infected: DBS digitized about 11 financial procedures and implemented a robust digital banking system.

Impact of the fintech’s growth on the banking industry

The era of FinTech domination started! Back in 2018, the global FinTech market was valued at $127.66 billion and is expected to reach $309.98 billion annual growth rate (24.8%) by 2022.

Concerning the Armenian banking system, the digital transformation the executive director of the Union of Banks of Armenia insists that the Armenian banking system is going through stages of serious technological changes. “One of the strategic directions of banks is the introduction of the latest technological solutions, which is an ongoing process”.

According to the director of the Union of Banks of Armenia, customers’ demand for the latest technologies in the sector is growing, and the banks must meet the requirements for a faster transaction without visiting a branch or providing brokerage services. From the cybersecurity side, the system is sufficiently secured and meets the highest demands of international standards.

Investing in money today and tomorrow

People think that any kind of crisis is the worst time for investment. But the reality is quite different because there is NO GOOD time for investing, because of possible bad investment and future failures. Investment means first of all disciplined actions enough to keep and grow your money. The best way to invest money is to learn how to do it.

First of all, it is possible to start investing with as little as $5 in the pocket, with just a smartphone, thanks to technologies!

Second, decide on where to invest, and here, there are plenty of options that include Stock Market, Investment Bonds, Mutual Funds, Savings Accounts, Physical Commodities, etc.

If you seek small returns, choose for example US treasury bonds: it’s almost the easiest and fail-safe way to get a 2-3% annual return. However, if you’re looking for big returns, look at the stock market by buying prospective companies on sale or other mentioned methods to invest in the future.

Transforming the banking system: expectations in the customer’s perspective

The whole financial sector has been drastically changed by the expansion of Neobanks by transforming the traditional banking infrastructure. According to AT Kearney, such banks will reach the customer base of 85 million by 2023, which is 20% of the European population over the age of 14.

This process has been fastened during the last seven months, as more people over the world moved to the digital banking system. This pushes digital verification technologies forward, as they are fast and secure. These are the main pillars of Neobanks’ rise: these make banks of the future competitive and draw the traditional banking system backward.

Here are the top trends of the future banking system according to the Banking Dive:

• Digital Transformation – it’s not new in 2020, and those who underestimate the DT and need of their systems to be transformed will fall behind
• Data & Personalisation – Support and customization degree through the bank’s digital channels are what we look at when choosing a bank
• Artificial Intelligence – According to the Business Insider, today 75% of big financial institutions use AI during various processes’ implementation
• Cloud Computing – Sure some banks rely on local servers, but the big players moved to the cloud today. These transitions will continue for the upcoming years

Going Cashless

According to World Bank research, 2.5 billion adults worldwide transact only in cash, which with all imaginary comfort is full of many problems such as higher crime rate, healthcare issues (spreading the diseases), cost, etc. Today digital banks and FinTech companies offer cheaper and faster services to drive online banking more accessible. Here are the benefits of going cashless:

• The lower crime rate, as there is no physical currency
• Lower money laundering rate as there is a digital paper trail
• Timesaving
• Fast and easy exchange

Beneficial of a cashless society will be those with tech literacy, who will find the changes convenient. Hence, there rises a question of digitally literacy and retraining the people to make possible going cashless.

According to American and German studies, crime in Missouri dropped by 9.8%, when state cash was replaced with EBT cards. Besides, a cashless transaction system is a preventer of illegal transactions, gambling and drug operations, and money laundering. From the cost-cutting side, cashless transactions are again a winner – printing bills and coins, money storing and protection are costly in comparison with cashless transaction system keeping.

However, the new system needs careful testing and scrutinized customer strategies to manage risks and provide a sustainable financial system, while opening up banking using the last trends of FinTech.

According to UBA director S. Sargsyan, the Armenian banking system in the near future is going to pass through serious technological changes. Competition, demand for high tech solutions are pushing Armenian banking system to take a vector of digital transformation, which for sure will make grand changes in the banking labor force market: many specialists will lose their relevance, however, demand for qualified specialists in IT and finance will rise, balancing the changes.

Today Armenian banking system meets all international standards from the point of view of risk management and cybersecurity, based on the Armenian office of Microsoft representative report, which ensures the balanced and successful transformation of the banking system during upcoming years.

Will online banks terminate the common banking system?

42% of Americans and 47% of Canadians will avoid physical visits to bank branches after the COVID-19 global lockdown ends, based on Simon-Kucher & Partner’s research.

A March 2020 report by Lightico shows that 82% of clients are anxious about visiting bank offices and 63% chosen to use digital applications for financial operations instead of visiting banks in person. And this tendency is long-lasting.

Best-in-class digital facilities’ expectations will rise and push the banking system into total digital transformation. The current situation is challenging for sure and the impact of the virus is profound. However, a proper strategy allows success, laying the foundations of the future banking system by implementing advanced technologies. This will create not only a more successful, fast, and advanced system, but also help cost-cutting and driving efficiencies into the new level.

Tower agency is here to help you navigate through the whole process of investing in real estate in Armenia.[/vc_column_text]