Remarks by the Supervisor of Banks, Dr. Hedva Ber, at the Banking Supervision Department conference on “Technology is Changing the Face of Banking”

To Presentation (Hebrew)​

•  The Supervisor of Banks defined the issue of innovation and the integration of new technologies in banking as a main anchor of the
  Banking Supervision Department’s work plan for the coming years, and presented the supervisory activity promoting the issue in recent months.
•  The Banking Supervision Department’s goal is to promote banking that has added value for the customer and is sustainable, and new technologies make it possible.
•  These changes, which are being led by the Banking Supervision Department, will positively impact banking customers, by increasing competition and markedly increasing efficiency in the banking system in coming years.
•  The Supervisor also referred to the banks’ annual financial statements for 2015, which were published in the past week, and said that the salary norms have a negative effect on the public’s trust in the banks. As is known, the Banking Supervision Department has acted to deal with this issue, and already in the coming year a decrease is expected in the salaries of bank’s board of directors’ chairpersons, due to a directive issued by the Banking Supervision Department half a year ago. In addition, the legislature is promoting a bill that reflects its ethical approach to the appropriate compensation for financial sector executives, and the Bank of Israel supports it. Obviously, compensation should be linked directly to business outcomes and to the complexity of the activity.

 

The Banking Supervision Department held a conference for the banking system today, on the issue of “Technology is Changing the Face of Banking”. The Conference dealt with the Banking Supervision Department’s policy to promote technology and innovation in banking, parallel trends occurring around the world, various banks’ technological initiatives and the effects on customers, risks and challenges in technology, and the various dimensions of the change needed at banks.

 

The Supervisor of Banks, Dr. Hedva Ber, said, “We expect to see a significant change in the banking system in the coming years, as a result of the integration of new technologies in the area of financial services. The technology will increase the transparency for customers, so that they will know how much they pay, and for what, and will be able to compare prices between the banks; it will improve and broaden banking products and services; it will increase competition, and will allow—essentially, will require—an increase in efficiency in the banking system, for the customers’ benefit. Despite the risks involved in incorporating new technologies, the Banking Supervision Department is committed to allowing, and even providing incentives to, the banking system to undergo a technological revolution, while requiring the enhanced management of the risks involved. The Banking Supervision Department’s goal is to promote banking that is sustainable, which adds value to bank customers, in terms of service that is good and has added value, lower costs, and transparency. Incorporating new technologies in the banking system will make this possible. These technologies will change the face of banking in the coming years.”

 

“In recent months, we have been working in parallel on several new policy directives for banks; some have been published and some will be published soon. These directives will support the changes that the banking system will go through, and will even lead these changes. The directives relate to the following issues:

 

1.   Online banking—a directive that removes many supervisory restrictions on the direct interface between the bank and its customers, without the need to go in to the branch. The directive creates the infrastructure for establishing a new, branchless, digital bank.

2.   A supervisory requirement of banks to set policies for providing services to all their customers—even those who do not feel comfortable with digital applications. The policy is to refer to the dispersal of branches and of automated machines, assistance in educating customers on digital items, and more.

3.   A requirement to establish a significant multiyear efficiency plan, through easing the possibility of carrying out voluntary early retirement at larger scopes, in a manner that will allow employees to honorably retire from the banking system.

4.   A general license for banks to operate mobile branches and partial branches (not on all days of the week), to allow flexibility and access to customers in areas with small populations. The process will help the small banks, whose branch deployment is relatively low, to reach more customers.

 

These directives complement each other, and will allow the banks’ “production function” to change.

 

“What will the banks look like in ten years from now?” asked the Supervisor. “The banks will look different—more technological, more competitive, and more efficient. The adoption of technology and innovation will allow the banks to provide a wider range of services to customers, at a lower price, and with greater transparency, while customers will have the ability to obtain some of the services from entities other than the bank where they maintain their current account. The new technological infrastructure and tools will lead to a situation in which nonbank entities and fin-tech companies will operate alongside banks and will specialize in specific niches in terms of financial products and services. Some of them are expected to work in collaboration with banks and others will compete with the banks, and even take away some share of their revenue.”

 

The Supervisor noted, in reference to the banks’ financial statements for 2015, “although the reports indicated, among other things, a strategic shift by banks to more credit to households and small businesses, and thus fee revenues remained nearly unchanged, various data, such as reports of wages of senior officeholders, demand a response. As is known, the Banking Supervision Department acted to deal with this issue and already in the coming year a decrease is expected in the salaries of bank’s board of directors’ chairpersons, due to a directive that we issued half a year ago. In addition, the legislature is promoting a bill that reflects its ethical approach to the appropriate compensation to financial sector executives, and the Bank of Israel supports it. Obviously, compensation should be linked directly to business results and to the complexity of the activity.”

 

“The Banking Supervision Department will support and help to bring about the changes required in the banking system, in all areas, through adjusting regulation and while looking out for the good of the customers and the economy.”