Nordic competition forces Estonians to think innovation

  • 2005-03-23
  • By Aleksei Gunter
TALLINN - Taking a lesson from their Nordic neighbors, Estonian banks have decided to skip over a natural stage in development and boldly adopt the newest technologies as a means of keeping abreast of the competition.

A number of Finnish and Estonian banks are currently working on projects related to ID-cards, a document containing a microchip valid for traveling within the EU and also used for digital signature, and have stepped up efforts to promote the "m-payment" system for buying public transport tickets via mobile phone.

The m-payment system, which allows people to pay for goods and services by dialing a special phone number, was launched in November 2002 by Hansabank and Uhispank but was slow in finding approval among consumers and businesses.

However, beginning last summer, individuals with m-payment accounts are now allowed to transfer money between themselves, a function that instantly increased the number of people with m-payment contracts to over 17,000 in the two banks.

The number of businesses supporting the service slightly exceeded 1,700 last year.

Ilkka Korkiakoski, electronic channels vice president of OP Bank Group Central Cooperative, the second-largest banking group in Finland, said the group had been signing about 10,000 new e-banking contracts a month. Of the 860,000 e-banking accounts issued by the OP Bank Group, 80 percent are used at least once a month, he added.

"Electronic channels play a key role as most of the services start from there," said Korkiakoski, adding that people usually first try to find information about the banking services on the Internet. He said the group believed to have about 1 million individual e-banking users, since it is common for some households to share one bank account between several people.

Korkiakoski said the group was working on a personalized e-banking portal capable of servicing clients with both personal computers and handheld devices, as well as tagging on personal finance management 's something beyond simple bill payment. The portal will ostensibly offer more communication options, such as IP-telephone calls. He added that, theoretically, the next-to-next step could be the development of e-banking applications, which users would install on their PCs.

Despite the Finns' technical savvy, in order to cope with the diversified needs of the population it is essential to maintain the right balance of channels and not to close bank offices in the hope that the Internet will do the job, Korkiakoski said.

In 1996 OP Bank Group helped pioneer Internet banking as we know it in Europe and was second in the world to open an Internet-bank based on a "www" protocol.

Korkiakoski, who praised the pace of ID card implementation in Estonia, said OP Bank Group last year introduced a bank chip-card that can be used for digital signature transactions. However, the market may not always be ready for new services. For instance, the group had to cancel the development of its digital TV payment system due to a lack of set-up boxes in the country.

While in Estonia digital TV is far from reaching the houses of common Estonians, the country has been repeatedly praised for the high penetration of e-banking services. Olari Ilison, who works in the product development division of Hansabank Group, said it was difficult to point out any major differences in the online banking services of the two countries' banks.

"The services offered by Estonian and Finnish banks are similar in many ways," said Ilison.

Hansabank, the largest bank in the Baltics, introduced a PC-banking solution in Estonia in 1993 and launched the first Internet-bank on the domestic market three years later. In 2000 the SMS-notifications and WAP access to online banking appeared. The most recent innovation: the launching of a separate Internet banking portal for corporate customers in 2001.

"About 96 percent of the transactions (information requests and payments) are made through electronic channels in Hansabank. We can say clients actively use bank services through electronic channels on an everyday basis," said Ilison.

What's more, as technology continues to improve, one cannot claim that development of e-banking services and technical solutions will ever stop, he added.

Hansabank will apparently relocate the focus on expanding its online banking client base from Estonia to other Baltic countries, Ilison said. "A major part of Estonia's residents are already clients of at least one Internet bank. Hanza.net (Hansabank's online banking portal) had 589,147 clients in Estonia as of the beginning of March," he explained.

Uhispank, Estonia's second-largest bank, had 339,000 Internet bank clients as of the end of 2004.