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Digitalization of the retail banking sector

Digitalization of the relationship between retail banks and customers is a must in an economy where according to estimates the usage of tablets has increased by 70% in the last year and physical contacts between bank branches and customers have reduced by 20% in the last decade. And such technological development is now supported by the appropriate regulatory environment that however at least in Italy requires to comply with quite stringent requirements.

By 2016, the number of bank branches is expected to reduce by over 50% in northern Europe and by 15% in southern Europe compared to 10 years before. This means that not only basic bank account services (e.g. wire transfers and payments) will be only offered through remote channels of communication, but also for instance investments, mortgages and any type of service that currently are or in the future will be offered by banks.

But in countries like Italy where regulations still require the written signature and in some cases the certification by a public notary for the validity of certain documents, the opportunity of relying on so called digital signature tools and other remote systems of execution is crucial. Indeed, such tools provide the same evidentiary value of written signatures effective towards any third party which the consequential major advantage for banks that through their Internet banking platforms will be also able for instance sell financial instruments of third parties.

However, the implementation of such tools requires to rely on third party providers that act as “certification entities” and therefore certify the link between the signature tool and the relative holder that is “presumed” i.e. the burden of proof to challenge such link will be on the customer. Additionally, stringent obligations shall be complied with in relation to the provision of information to customers also to avoid that the signature is then challenged. Most of the obligations relating to such functionalities can be outsourced though but since the bank is still the primary contact with customers, this change also requires an ad hoc training of internal staff and the implementation of adequate policies.

Likewise remote channels of communications can be used for notifications and in this respect Italy has introduced the so called “certified email” tool whose evidentiary value is the same as a registered letter with return receipt and is now compulsory for all Italian companies and to deal with public entities.

The digital challenge for banks needs also a new approach on communications with customers which requires not only the provision of financial data and of consultancy and customer support services on mobile platforms (e.g. video communications with a dedicated consultant), but also for instance the usage of social media to set up and maintain the relationship with customers. However, the usage of social media can trigger some legal risks especially for the “viral” effect of activities performed on the Internet. Adequate internal rules shall be adopted to avoid misconducts that might have a major negative impact on the bank’s reputation.

As far as Italy is concerned, the Internet banking sector is still behind some European countries but according to estimates the number of customers using an home or corporate Internet banking account will be by 2017 almost 50%. Therefore major potentials are out there and it appears that digitalization is not anymore an option but an obligation.

We will see which banks will be able to take the best out of the above. Also feel free to contact me, Giulio Coraggio (giulio.coraggio@dlapiper.com), to discuss. Also, follow us on our IPTitaly group on LinkedIn!