Retail Banking

Convenient banking

Banking has evolved fast in recent years since providing customers with high quality and convenient services whenever it suits them is of fundamental importance. In response to growing demand for digital services the Bank has focused on expanding its range of digital products. Arion Bank has long been a market leader in this area and surveys have shown that we enjoy a clear lead over the competition. The Arion app was named the best banking app in Iceland by bank customers for the fourth year in a row in the MRR survey

Nowadays 99% of contact with customers is through digital channels such as the app and online banking. Furthermore, a report by Finalta in 2020 showed that 73% of sales of the Bank’s products are made through digital channels, making the Bank a global leader in this respect. During the year Arion Bank received a special award from the jury at the Icelandic Web Awards for being a trailblazer in digital services in Iceland. The judging panel said that Arion Bank had pioneered the roll-out of digital services in Iceland with sophisticated and cutting edge solutions for users by thinking outside the box, prioritizing customer needs and thereby enhancing service and giving them a more enjoyable experience.

Branch network adapting to a changing environment

The advantages of our digital channels were put to the test in 2020 when the COVID-19 pandemic meant that the branches were open by appointment only for the majority of the year. As well as making it easier for our customers to do their banking digitally through self-service channels, we continued the enhance efficiency by reducing overheads and reducing the number of square metres used in the branch network. Some branches were merged and opening times at others were shortened in response to changing demand. The branches are designed to support the focus on value-adding services such as pension and financial advice, and to facilitate access to self-service channels. Calls to the Call Centre increased, and in response to the added demand employees from outside the Reykjavík area have joined forces with their colleagues in the Call Centre to ensure that our high levels of service are maintained.

Green future

Arion Bank has adopted an ambitious environment and climate policy in line with UN Sustainable Development Goals and the Paris Climate Agreement. Arion Bank is committed to contributing to the fight against climate change and helping our customers do the same. Retail Banking has already launched three green products which customers have responded to very positively: green mortgages, green deposits and green car loans.

Approximately ISK 200 billion in new mortgages over the year

Interest rate cuts during the year resulted in a surge in refinancing mortgages and also invigorated the property market. Approximately half of the Bank’s mortgage portfolio, almost ISK 200 billion, are loans granted in 2020. Almost 21,000 credit assessments were performed during the year, 95% of which were completely digital.

A range of new products relating to mortgages were launched in 2020. Firstly, we introduced supplementary mortgages, which are loans suited to people who want to take a mortgage from their pension fund but who need a higher loan than the fund is able to provide. In the autumn we began to offer mortgages for people whose income is in a foreign currency or who are resident abroad.

In response to borrowers’ loss of earnings due to COVID-19, people were offered the option of a payment holiday on their loans. People can apply for a payment holiday of up to nine months and payments on the loans of around 2,000 individuals were deferred. Loan deferrals peaked in April and May, when around 1,500 customers had a mortgage payment holiday. This figure fell sharply in the autumn and at the end of the year approximately 250 customers were deferring mortgage repayments.

Strong deposit growth

We restructured and simplified our range of deposit accounts to ensure that our products better met our customers’ needs. These changes proved popular, with an 84% increase in new savings accounts in January 2020 compared with January 2019. A new feature was launched in the app where customers could set themselves a savings goal and see a graphic representation of their goal. More than 4,000 customers set themselves a savings goal over the year.

In mid-2020 Arion Bank introduced a new range of accounts called Green Deposits. They are the first green deposit accounts in Iceland and are designed for people who want to make a contribution to a sustainable future. Initially the deposits were exclusively used to finance green car loans from Arion Bank but owing to the popularity of Green Deposits their scope was increased and now customer deposits are also used to finance projects which support the circular economy and pollution prevention and management. At the end of 2020 Green Deposits amounted to more than ISK 5 billion.

Deposits in Retail Banking have never shown such robust growth in a single year, either in terms of retail deposits or deposits of SMEs. Retail deposits in Retail Banking increased by ISK 26.1 billion, three times the growth rate of 2019.

Excellent year for vehicle loans

Vehicle financing enjoyed a strong year at Arion Bank, with loans up 26% from the previous year. The Bank offers highly competitive terms and the vehicle financing system is one of the most sophisticated on today’s market. Customers can complete the entire loan process 100% digitally. Operating expenses in vehicle financing decreased by 52% from the previous year, despite a huge rise in the amount of loans, and Arion Bank is well placed to deal with the fierce competition on this market.

Our green car loans have competitive interest rates and there are zero loan origination fees on fully electric cars and a 50% discount on origination fees on other eco-friendly vehicles. By offering these concessions Arion Bank is aiming to support the transition to clean energy and to reduce carbon emissions from vehicles in Iceland. Green car loans represented 10% of total vehicle financing at Arion Bank in 2020 and green vehicle loans are financed with the Bank’s green deposits.

More automation in loan process

Arion Bank continued to make the loan process more automated so that customers could increasingly rely on self-service channels. The percentage of customers arranging unsecured loans through self-service increased from 49% to 57% between years. Defaulting short-term loans dropped significantly during the year. The number of customers who could automatically extend their overdrafts also increased.

In 2020 Arion Bank teamed up with Leiguskjól, a subsidiary of the Bank, and now all the company’s renting guarantees are issued by Arion Bank. The partnership has got off to a great start, with demand for rental guarantees growing quickly and the Bank has issued more than 1,100 guarantees with the company.

Pension savings in the app

Arion Bank became the first Icelandic bank to enable users to gain an overview over their pensions in the app. The solution enhances access and customer awareness of pensions and gives them a unique insight into the status of their private and mandatory pension savings. The app can also be used to apply for supplementary savings, to merge accumulated private pensions savings in a single location and to see the estimated balance at retirement and monthly payments.

Small and medium-sized enterprises

Corporate Services specializes in providing services to small and medium-sized enterprises (SME) as well as organizations and institutions of all sizes. Substantial changes were implemented during the year aimed to make us more pro-active and to bring our advisory services to a new level. We also had to respond to the unexpected circumstances triggered by the COVID-19 pandemic.

Corporate Services in the Reykjavík area was merged at the Bank’s headquarters to create a Business Hub. It provides all the standard corporate services with a focus on advisory services. The Business Hub has a team of highly experienced specialists with expertise from across the business sector. In addition to servicing customers in the Reykjavík area, the Business Hub is also responsible for product and business management and helps the branches provide corporate services across the country.
A key focus in 2020 was developing the SME loan portfolio which has made the portfolio more profitable. Another emphasis was expanding into the domestic deposits market and this met with great success. Core corporate deposits grew well in excess of the division’s forecasts. Green deposits also played a major role in the excellent results achieved by Corporate Services in this area.

The government and the Icelandic banks made an agreement on business support loans and bridge loans to alleviate the economic impact caused by COVID-19. Every effort was made to make the process as digital and efficient as possible. A digital solution was developed in which loan applications which met certain conditions could be processed 100% digitally, from application stage to payment, in just a few minutes. During the year the Bank provided 321 business support loans and 85% of loan applications were processed entirely automatically.