Fintech institutions operate on a very different business model compared to traditional banks and as such, they have a competitive advantage in terms of cost structure and overheads. Their cost advantage and speed of operational and business decision making is evident by their rapid expansion and their proven ability to grow their user base quickly. However, although Fintech bring obvious benefits to users, up until recently we haven't seen large defections of customers from traditional banks to these new players. The confidence to the incumbent banking structure together with the value that people place on their existing bank relationships provide the opportunity for an adjustment period for incumbents. Having said that, generational differences matter. Consumers aged 25 to 40, also known as generation Y, have had the biggest effect on digitization of financial services2. Generation Y account for almost 50% of mobile banking users. Based on this trend, banks can expect Generation Z (ages up to 24 years) to be even more engaged in digital banking and technology driven solutions. In contrast, generation X, the baby boomers, still see value in live communication and visiting physical bank branches. These younger consumers look for alternative ways of processing their financial transactions that are simpler and faster. The banking system needs to adapt. Incumbent banks that work with dated technologies and overextended branch networks are likely to lose their competitive edge. Technological innovation is the way to increase efficiency as a result of new competitors entering the market and new generations being more reliant on technology.

There are currently 14 authorised electronic money institutions and 10 authorised payment institutions while there are 43 pending applications (32 EMIs and 11 PIs). Compare this with the 12 local and foreign authorised banks and subsidiaries in our country. However, as with all revolutions, these global developments come with costs and risks. The number of cyber incidents reported to the ECB Banking Supervision in 2020 increased by 54% compared to 2019. Banks are specifically targeted. Banks underwent almost 26% of cybercrimes in 2019. These included compromised credit cards, leaked credentials and malicious banking applications. Banking landscape and future change The euro area banking sector is undergoing a transformation, with higher competition from non-bank financial intermediaries and Fintech institutions. The euro area's financial structure has seen a movement from strong bank dominance towards a more balanced composition1. The development of non-bank lending diversifies the sources of finance available to businesses, providing competition to the banking sector. 1/4  BIS - Central bankers' speeches  As a result, Credit institutions need to adapt to the unfolding competitive landscape. The ongoing digitalisation of society at large, coupled with the changes in the way people work and conduct their purchases because of the pandemic, force the banking sector to adapt to a new way of conducting business. In addition, the low profitability challenge that European banks face, exacerbates the need to adjust and acts as a catalyst for the already strong competition banks are experiencing from Fintech and the non-bank financial intermediation firms.