The COVID-19 pandemic has led to a dramatic shift in consumer behavior in Greece, as bank customers who once preferred to carry out transactions in branches rather than on digital platforms suddenly shifted to online and mobile channels.

National Bank of Greece SA, Piraeus Bank SA and Alpha Bank AE have all reported spikes in online banking activities in 2020, and industry insiders said the change in consumer habits will likely stick long after the pandemic has subsided.

From a bank's perspective, becoming more digital could ultimately help to cut costs by reducing the need for branches and ATMs. But it could mean that banks need to consider investing more in digital over the short term.

Inflection point

Just 40% of Greeks who are internet users had online banking in 2019, compared with a European average of 66%, according to the European Commission's most recent Digital Economy and Society Index. The general public in Greece have generally skewed toward using cash rather than card or mobile payments in daily life, with 75% of point-of-sale transactions by value taking place in cash, according to a 2017 research from the European Central Bank.

But 2020 has been a "paradigm shift" for Greek banks, according to research published by J.P. Morgan in October. Banking app downloads doubled in Greece around a month after the country imposed its first lockdown in March, and have remained consistently high ever since, according to the report. App downloads in Greece in the third quarter increased by 22.5% year over year, compared with an average 7.0% year-over-year rise in countries covered by J.P. Morgan.

National Bank of Greece saw a sustained decline in in-branch transactions since the pandemic hit, with the number of transactions falling to 1.9 million in March and 900,000 in April from 2.7 million in February. Numbers have not risen above the 1.1 million recorded in July since. By contrast, the number of e-banking transactions has risen to 6.5 million in October from 3.8 million per month in February. Digital subscribers at the bank hit 2.9 million in the third quarter, an increase of 27% on a yearly basis.

Alpha Bank reported in its third-quarter earnings that it had added 260,000 new e-banking subscribers in the first nine months of 2020, and said that its priorities for 2021 include making the most common retail credit products available online and encouraging a shift of transactions from branches to digital channels.

Piraeus saw an acceleration in the number of digital banking sign-ups in 2020 to 2,500 per week between lockdown and Nov. 23 from 900 per week before the first lockdown, according to the bank's earnings presentation.

Behavior change

"The pandemic has been a major behavioral shift toward cashless consumption and digital transformation," said Vasilis Zoupas, CEO of Woli, a Greek fintech that provides debit cards for children that can be managed by parents.

"Overall, this shift has brought increased convenience, security and a better overall banking experience — and therefore I expect it to become a permanent one," he said in an email.

However, there is one snag in the short term, Zoupas pointed out. As banks reduce the number of ATMs and cut branches, there has been pressure on cash circulation, which can create challenges for individuals and businesses who still rely on coins and notes.

Even pre-pandemic, Greek banks had been reducing the number of branches in an attempt to trim costs. These efforts are set to continue in 2021, with National Bank of Greece CEO Pavlos Mylonas telling analysts during the bank's third-quarter earnings presentation that branch closures were a "priority" and that he expected to shutter another 40 within the coming months.

While M&A involving fintechs has been a popular way to speed up the pace of digital transformation at many big European banks, this is unlikely to be on the cards for Greek lenders, Zoupas said. Partnering with fintechs via accelerators or local competitions is a more likely approach, he said.

Given that Greek banks still have "housecleaning" to do regarding nonperforming loans and need to improve efficiency, bolt-on acquisitions are seen unlikely at this stage.

Greek banks continue to have the highest levels of bad loans among lenders in Europe based on the European Banking Authority's recent transparency exercise, with an average nonperforming loan ratio of 30.28% at the end of the second quarter.

For Jonas Floriani, director at Axia Ventures Group and a regular commentator on Greek banks, the shift to digital will, broadly speaking, be a secular trend in Greece.

"It will be natural for citizens to increase their interactions with the banks via traditional channels once we are back to a 'normal' life, although I would expect that the level of digital interactions will settle at a higher level versus before, as customers have been able to experience the apps, websites, etc. Gradually, I expect banks to incentivize the usage of digital channels," he said in an email.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

But this shift is likely to involve costs for banks, at least in the short term, he added.

"The general thinking is that over the long term, a more digital bank will have a lower cost base. Until then, investments are needed. We don't know how much and we haven't had any firm guidance from management teams," Floriani added.