Banking business models of the digital future : the case of Latvia

Abstract

How the banking business model in Latvia changes? What are the main forces determining these changes? What group of banks in the retail banking sector has had more intensive changes during the last three to five years? Are banks feeling competition from the FinTech companies and realising a more flexible and focused policy or are they continuing to believe on traditional banks’ domination? This paper explores this process by analysing banking products and services in Latvia. How advancements in technology continue to transform the lives of banking customers? The study shows that digitalization guarantees the development of banks. Banks are looking at new avenues such as mobile application and mobile marketing to provide value-added services to customers and increase revenues by charging nominal fees for the services. Latvian banks are getting more flexible in customer services and banking products like crediting and financial resources transferring. We divided Latvian commercial banks into two significant groups: banks more specialized in international customers servicing and banks more specialized in domestic customers servicing. Financial indexes have been compared in conformity to these two groups. The CIR, ROA, ROE estimates point out the profitability and efficiency of commercial banks. LIQUIDITY shows that banks in Latvia have an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately into cash. The profitability and efficiency indicators are more predictable and stable in banks servicing domestic customers. Banks servicing international customers specialize in focused retail, but banks servicing domestic customers provide a wider range of products and services. As a result, banks servicing domestic customers are more flexible.