a Balkan ‘7 3.4. Digitalization and Its Effects on Banking ‘me With technology, such as blogs, YouTube channels have entered our lives, banks now ye have twexist in social media not only for marketing and public reladons purposes but vw also to create anew service architecture and protect the customer base, Social Internet a_like Twitter, Pacchook, and Linkedin has increascd intcractive communication and vee social media has ereated new business models. vs Chris Skinner explains the meaning of digitalization for banking as follow: voc Banking is no longer money banking but data banking, and more importantly, itis ‘ce more important to save the storing of the data, John Reod, CEO of Citibank 30 years ‘ee ago, made the first point to the phenomenon of digitization and said “Banking is only se about bits and bytes" (Skinner 2014, pp. 11, 14). vw According to Skinner retail banks traditionally operate based on physical disti- jev_bution, hut they must naw switch ta mature and praven electronic distribution ‘Phers vv isnow a young generation that has grown up with the Internet, which we call digital vst natives. These people live ther lives on the Internet and naturally use digital chan- vwe nels. Banks should now abandon their multi-channel strategies and become a digital sm bank, secing that there is only one channel and that it isa digital channel (Skinner ‘2014, pp. 20, 21). ve Cuesto et al. identified three successive phases in the digitalization process of ve a bank: the first involving the development of new channels and products, while ve the second means adapting technology infrastructure, and the last requires. deep ‘ve organizational changes for strategic positioning in the digital environment (Cuesta, vw» Tuesta, Ruesta, and Urbiola 2015). sm» According (0 Skinner, itis fundamentally the advancement in technology that raises digital banking. These technologies can be grouped into four main groups (Skinner 2014, p. 93). Mobile Network Communication 8 Mobile network commumeation indicates the combination of mobile Internet, felecommunications, and. information technologies. Mobile systems have trans- formed banking by removing the necessity oF going from one place to another to make something by providing the opportunity (0 reach the service on our table oF in ‘our pocket phone 24/7 (Currently, there is one phone per person on the planet). Reeds Social Technologies 110 Twitter, Facebook, blogs, YouTube, podeast mainly refer to the ereation of simple 1 interactive social content platforms. Social media’s difference is the production of Pic ope ET3 Impacts of Digitalzation on Banks snd Hanking 0 12 content by users. Digital banks now communicate with customers via blogs and so receive feedhack in this way. For instance, ICICI in India provides banking services via Facebook, smartyPig offers a social savings tool for banks. es Social Finance Models te Social media has also revealed social finance models that can be grouped under 4 headings (Skinner 2014, p. 126). ne 1. Social Money and Payment allow you to make payments between friends on es social media using PayPal or other means for Internet payments. New players me like Square, mPowa, and iZettle are developing on focusing their effort on 1 mobile payments, zx 2, Virtual currencies: Decentralized currencies, especially bitcoin, are struggling we toreplace cash, 3. Social credit and savings: These platforms are the ones that bring saving holders ‘who want to get higher returns and credit recipients looking for lower interest rates. 4. Social finds and investmems: Crowning and social trading v= Data Analytics Data Analytics refers to techniques of analytics and data mining for so-called big data, Data become abundant, dhusitiy ow important process dhs data iat infoemae tion, Data mining means finding and analyzing the relationships between picce-by- pice data and ditecting this information te how to inerease sales in texms of banking Data processing now brings banks face-to-face with important data handlers, Google, Amazon, Facebook. And we ean proclaim that whoever makes the data meaningful wall win the war, BRogy Be ee © Unlimited network communication, storage, and modular programming: Plug and play systems, cloud technology, and APIs are examples of systems in this regard. Ba e» 3,5 Digitalization and Its Effects on ‘Iraditional Banking 0 Structure an Digital Banking affects traditional banking in many ways. Some expected effects se can be expressed as follows:BRU REE BE 3 o Balkan ‘© ‘Traditional banks will disappear totally/ One of the most radical views is Skinner's. According to Skinner, taitional branch-based banking is expired Skinner states that the branches were designed under the conditions of three centuries age and did not meet today’s objectives (Skinner 2014, pp. 97, 41). ‘© The number of branches of banks will decrease, the number of employees will decrease/ Skinner points out that around 8% of bank branches in Europe have closed after the financial crisis. Branches are becoming less important and ‘customers are no longer going to branches and mobile technology is becoming ‘the main contact point with the customer. Customers are often forced {0 g0 to banks only because they need to disclose their documents such as identity cards as per customer identification (KYC) rules. If these rules are changed or if new banks go to the customer to obtain these documents, the number of physically accessible banks will be further reduced (Skinner 2014, pp. 43, 54). In a study ‘conducted in Turkey about the impact of digitalzation reveals the increase of alternative distribution channels accompanied by the number of branches and the number of employees of branches demonstrating a declining trend between the years 2014-2018 (Bakartas and Ustadmer 2019), Digitization will change the labor structure in the banking sector. While the ‘number of employees in the banking sector will decrease, the demand for employees such as * Data Scientists, Rata Engineers, Dnta Architect and Chief Data Officer’ will increase (Mirkovig, Lukie, and Martin 2019, p. 35). ‘© Competition will increase” Compared to traditional banking, digital banking paves the way'for banks to enter the sector at much lower costs. Ths will facilitate ‘easy market entry and increase competition, ‘© Traditional banks will expand their digital applications/ Fintech institutions and ennerging digital banks offer digital prolucts, while wauitionsal banks will be forced probably to increase thei digital applications asa result. A study conducted in Turkey pointed out thatthe banks, even if they have a competitive and profitable structure investing in digital banking became a strategic necessity (Kahveci and. Wolfs 2018, p. $5) ‘© The competitive structure in banking will change/ The banking market is now ‘evolving into a market where competition is more intense and entry and exit are ‘easier. Banking is now moving out of amarket where banks, i., service providers, were decisive to-an ecosystem where customers, the new finance and digitization ‘ecosystem are decisive. Banks will be confronted with making a strategic decision ‘within this increasing competition structure, which is basically whether they will ‘compete with or cooperate with emerging digital service providers. The bes! way for hanks seems to he cooperative competition. loint competition emphasizes the need for banks to act together when competing with financial technology ‘organizations. ‘Joint competition’ or cooperation’ is used to mean the cooperation ‘of competing institutions for the common interest. Will the Fintechs be destructive ‘or supportive for banks? According to Puolo Sironi. destruction is inevitable, but itisbetter to transform the banks rather than taking them out of the system (Sironi 2018).3 Impacts of Digitalzation on Banks snd Hanking 4 ‘ Fintech’s financial products will inerease/ Another change brought about by Jigialization and technological advances ws the innovative, exible, and adapt- able financial solutions offered by companies called Fintech. These solutions appears to he the impact for transforming hanks and hanking in general. While Fintech companies pose a threat tothe sector, on the one hang, itis also possible to create new business platforms in partnership with Fintech organizations to provide an advantage in competition. These developments in technology have also affected regulations and caused legal regulations on open banking. Open banking has enabled the sharing of data wit the Application Programming Inter faces (API) on an authorized basis and enables Fintech organizations to innovate new financial services, This change now makes banks a platform and enables the establishment of structures that will allow them to reach more competitive, ‘quality financial products and services by going into cooperation with Fintech ‘organizations BURRRRE ERE E EEE MeKinsey published the °A Brave New World for Global Banking” analysis in 2016, According to the report, large technology companies can position themselves between banks and their customers and seize the key role in customer relationships, which can tum into 2 threat of existence for traditional banks (McKinsey 2016). ‘To overcome this problem, banks should revise their business models, Banks should establish clase relationships with Fintech initiatives, connect with platform providers and other banks, and reduce costs through common platforms. Another important task for banks is to make their customers happy by providing innovative digital services. Banks will now provide new digital services most cheaply and flexibly via collaboration with Fintechs. namely the new financial service providers. Fintech organizations are new initiatives that use financial technology suecess- fully. These initiatives offer new financial solutions o customers with advanced tech- nology. The main feature of their financial solutions is that they provide effective 14 and fast solutions to financial problems. As another feature of FinTek organizations, sss we should add that they are innovative and agile structures. Fintechs can transform ve the traditional banking system through digitization, s Fintechs, which emerged in America and became widespread all over the world, se produced innovative solutions through a direct loan to a person, digital payment sv methods and big data analysis. Fintechs directly or indirectly reached an audience se2 that banks could not reach at much cheaper costs and took their place in the finan- 2x1 cial ecosystem, Robo consultants, for example, reduced the demand for individual ‘2 investment experts with gamification technology and delivered this service to large ss audiences. Their personalized product’ approach made them successful inthe market s (Sitoni 2018). weeeeeaes z= Banking ecosystem will change, Open Banking will develop rapidly/ Open ze banking is-no longer bank-centered but it becomes intensely market and ey —_ecosystem-centered, These developments indicate that we are entering a period sof serious changes in the banking market and ecosystem of the way banks do se business. Pic ope ET