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The rise of innovative technologies in finance naturally sparked an interest in digital banking. No wonder it has become a catch-all thing - while the competition in disruption is quite intense, many traditional banking institutions are currently attaching themselves to the idea of a digital bank in order to look more modern. Many new electronic money licence holders are going after potential customers who prefer the quick and convenient approach through digital applications also referring to their services as digital banks. But are they really digital banks?
The term digital bank is commonly used to describe many new payment apps or banking extensions. The definition is often used very broadly to describe the technological innovations within the banking sector or any banking solution that has a digital asset such as mobile banking app. Andrej Zujev, the founder of banking software provider Forbis Group, claims that many currently available digital services should not be categorized this way. “Digital banking is not just about modern solution implementation. The term should be ascribed to new technology built to fully digitize banking services, in other words making banking services as automated as possible. I would go as far to say that none of digital payment solutions that call themselves a digital bank are not really digital banks.”
As stated by Zujev, the appropriate framework of digital banking has to rely on automated systems to a large extent. “The need for human resources should be very limited. Nearly everything can and should be done automatically.” On the other hand, Zujev agrees that some vital functions should be overseen by people. “For example, people should check on all issues related to escalated legal concerns, advanced anti-money laundering or geographically specific regulatory concerns. This provides better quality assurance and security of large assets. Marketing and communications can be considered as well, but the rest should be automated.”
Forbis Group have been working on developing a true digital bank where nearly all functions are automated: “We have developed a product, which is closest to a proper digital bank now. Contomobile uses our digital bank solution and needs only 4 employees to run the operations. This white label solution is currently in high demand for financial institutions who want to go digital but do not have to reinvent the wheel.”
According to Zujev, who has worked on digital financial solutions for nearly 30 years, even modern banking solutions, while steadily becoming rivals for traditional players, should not be seen as fully digital banking companies. “Even big market players like Revolut or N26 employ thousands of employees, raking up expenses that wouldn’t be necessary for a completely digital bank. Real digital banking should be investing more in technology rather than physical assets,” argues Zujev.
Zujev holds that modern technologies are still underused in fintech sector. “Currently, the most technologically advanced frameworks are not being used to their full potential in digital banking.” One of the potential reasons for that is the still-ongoing use of more common IT solutions which are less developed than disruptive technologies. “Developers are using traditional algorithms instead of applying AI (Artificial Intelligence) or Big Data. These components are the future of automation and should be involved as much as possible.”
However, the expert agrees that the full digitalization of banking may take a while. “We are taking our first steps and many initiatives have large potential”, claims Zujev. “It is very difficult to predict how digital banks will look like in 5 or 10 years from now.” Although the future of this industry is ever evolving, some steps may ensure a more sustainable development. “A new structure and organisation of banking are necessary. There are many ideas and time will show which solutions can be the most suitable for banks and their clients.”
A banking system provider Fininbox has just introduced a new accounting service explicitly designed for Electronic Money Institutions (EMI) licensed in Lithuania – Europe's FinTech powerhouse.
In the past few years, the European Union (EU) member state Lithuania has become arguably the most desired FinTech hotspot in Europe. There are 52 electronic money license holders in the country to date, and that is the second-best result in Europe.
An increasing lack of high profile accountants in the Lithuanian market, according to Fininbox representative, was the main reason the company chose to include accounting as a service.
"Electronic Money Institutions, particularly foreign ones, need expert help with ever-tighter Lithuanian legislative requirements. Proper reporting to regulating authorities, like the Bank of Lithuania, the State Tax Inspectorate, the Centre of Registers and SoDra is of paramount importance for them. We can offer in-depth knowledge of the Lithuanian laws and procedures intricacies, and that's our main advantage," said Tadeuš Šturo, the Director of Fininbox.
According to him, sometimes even business development may depend on how well accounting drew necessary documentation.
"The success of any financial service provider depends on user trust; that's why every misstep can be disastrous. You can't expect to create trustworthily FinTech business if you get warnings or even fines from regulating authorities. It reflects poorly on you, your product, and that's bad for business", the head of Fininbox explained.
A new accounting service includes drawing up, entry and processing of documents (invoices, bank statements, accounting certificates, etc.), drawing up of mandatory reports, payroll accounting, and other additional operations, such as descriptions of assets and stocks inventory.
It's worth pointing out that reporting service shall be available only if the client has integrated accounting of economic activities with financial accounting.
Director of Fininbox says a new accounting service will provide necessary backup to EMI's and empower them by letting to focus on more valuable daily matters.