IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International

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IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
September 2015 Issue 717                                    www.retailbankerinternational.com

                                   IS IT A BIRD?
                                  IS IT A PLANE?

                           NO, IT’S A BANK BRANCH

                               ● FEATURE: Standard Chartered
                                      ● DIGITAL: CIBC
                                ● ANALYSIS: Consumer Credit
                            ● COMMENT: Dave Lewis, Alpha Insight

RBI 718 September.indd 1                                                                     02/10/2015 10:33:41
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
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IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
Retail Banker International                                                                                                                                      EDITOR’S LETTER

         CONTENTS
          3        COMMENT: DAVE LEWIS, ALPHA INSIGHT                       More choice & more banks does
                   Dave Lewis examines the current UK
                   banking market and how its customers
                                                                            not automatically mean more
                   are becoming more accustomed to
                   digital alternatives                                     competition
          4        DISTRIBUTION: VIRGIN MONEY

                                                                            T
                   Virgin Money has started rolling out its
                   new ‘Lounges’ across the UK, focused                             he ongoing investigation by the                            And there is the growing band of smaller
                   more on giving something back to its                                                                                      challengers and start-ups: OneSavings Bank,
                   consumers, rather than profit. Patrick
                                                                                    Competition and Markets Authority
                   Brusnahan investigates                                           (CMA) into the UK’s retail banking                       Atom, Starling, CivilisedBank et al and just
                                                                                    market continues to fascinate.                           the other day another new entrant appeared
          6        FEATURE: STANDARD CHARTERED
                                                                               The latest note to be released by the CMA,                    on the scene in the guise of Secco Bank.
                   Throughout the entirety of 2015,
                   Standard Chartered has implemented                       on 24 September, was a summary of evidence                         The argument beloved of the analysts
                   changes across the board. How is the                     taken from TSB.                                                  goes something like this: the big banks have
                   restructuring process affecting the
                   bank? Xiou Ann Lim and Sruti Rao
                                                                               I am obliged to TSB. Its evidence was can-                    unwieldy legacy IT systems, costly real estate
                   report                                                   did and, in part, advanced an argument I                         and horrendous compliance issues.
                                                                            have been trying to get across for some time.                      The new players are small, nimble, inno-
          8        DIGITAL: FNB
                                                                                The note said: “TSB fundamentally                            vative, niche, and will have the winning cul-
                   South Africa’s oldest bank, First
                   National bank, is embracing the newest                   believed that more choice did not equal more                     ture of an Apple or a Google.
                   of technologies and is reaping the                       effective competition.”                                            On the first point: the cost-income ratios
                   rewards and garnering acclaim for it.
                   Robin Arnfield reports
                                                                               There seems to be an almost evangelical                       of the big 5 average out at about 63%; Vir-
                                                                            belief on the part of the current government,                    gin, TSB, Bank of Ireland and NAB UK aver-
          10       COMMENT: JOHN LUNN, MOORHOUSE                            the regulators, consultants and the new start-                   age out in the mid to high 60s.
                   The United Kingdom is one of the few                     ups that more players in the current account                       On the point of nimbleness and product
                   markets that is hanging on tightly to the
                   free current account model. However,                     market will, by definition, lead to more                         innovation, Tesco Bank took about four
                   people are now turning towards the                       effective competition.                                           years to launch a current account and Sains-
                   charged model, whether their consumers
                   like it or not. John Lunn argues
                                                                               Perhaps the emphasis ought to be placed                       bury’s has yet to dip its toe into that water.
                                                                            on the word ‘effective’.                                           As for the respective mobile bank offer-
          11       DIGITAL: BANK LEUMI                                         I’d go further and agree with the gist of                     ings – as things currently stand – can anyone
                   Bank Leumi is well on its way to                         TSB’s evidence: it rejected the commonly                         really suggest that the new players offer a
                   becoming a digital-first brand in Israel.
                   Patrick Brusnahan writes                                 held view that the current banking model is                      better mobile banking experience or greater
                                                                            outdated and will not survive.                                   functionality than, say, Barclays or RBS?
          12       DIGITAL: CIBC
                                                                               I’ll make the less than bold forecast that                      The new players yet to launch have work
                   CIBC has been ahead of the pack in
                   Canada with regards to digital. It                       the Big 5 are not yet quaking in their boots                     to do and are up against big players with
                   launched Canada’s first mobile banking                   about the majority of the start-ups.                             deep pockets.
                   app and the country’s first NFC-enabled                     Not a week seems to go by without wildly                        I cannot help but think back to recent
                   mobile payment. What next? Robin
                   Arnfield reports                                         outrageous claims being made by one other                        Raiffeisen Bank investor presentations; it
                                                                            vested interest arguing that Barclays, HSBC,                     seems only yesterday but was in fact circa
          15       ANALYSIS: CONSUMER CREDIT
                                                                            Lloyds, RBS and Santander have had their                         2010-2011.
                   Patrick Brusnahan writes on the
                   recovering consumer credit market                        day.                                                               It wanted to grow its retail business in
                   in the UK and how it’s improving its                        There are the larger challengers, for exam-                   Central and Eastern Europe – but, it argued,
                   reputation                                               ple, Bank of Ireland UK, Virgin Money, NAB                       many of its target customers were frustrated
                                                                            UK (Clydesdale/Yorkshire) and retailers such                     by traditional branch banking and the inflex-
                                                                            as Tesco Bank, Sainsburys Bank and M&S                           ibility presented by banking in a physical
                                                                            Bank.                                                            branch. (continued overleaf)

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       www.retailbankerinternational.com                                                                                                                                 September 2015 y 1

RBI 718 September.indd 1                                                                                                                                                                     02/10/2015 10:33:44
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
NEWS: COMMENT                                                                                                     Retail Banker International

        Challenger banks and the corporation tax surcharge
        Treasury officials discuss the proposed corporation tax surcharge with the challenger bank bosses, hoping
        to increase competition in the marketplace. Simon Cadbury discusses the changes unveiled by George
        Osborne, the UK’s Chancellor of the Exchequer, and whether or not they will make a difference

                                                                                 L
          (continued from page 1) So it launched Zuno, a new digital bank                ast week, the bosses of Britain’s leading challenger banks met
        offering a comprehensive range of services online, on mobile to win              with Charles Roxburgh and other Treasury officials to dispute
        next generation, internet-savvy customers. Zuno would expand its                 the proposed corporation tax surcharge.
        customer base and support its ambitious business growth objectives.                This meeting follows months of debate and opposition
          Fast forward to September 2015 and Raiffeisen has just disposed        from the challenger banks. This is unsurprising given the surcharge
        of the still loss-making Zuno subsidiary, but no matter.                 threatens to give the more well-established and highly subsidised
          It will be no surprise to see one or more of the established Big 5     high street banks an unfair advantage over challenger banks and
        snapping up some of the current digital start-ups – in or about 2018-    newcomers to the highly competitive financial services industry.
        2019 would be a fair guess - and hopefully the challengers will be          First unveiled during Chancellor George Osborne’s Budget in July,
        able to cash out for a healthy profit.                                   the new tax will mean an 8% banking tax surcharge, on top of
          By then perhaps, Clydesdale/Yorkshire might finally have found         corporation tax, on lenders’ profits in excess of £25m ($37.8m).
        new and rather more enthusiastic owners than NAB.                        This would favour larger players in the industry since, due to the
          In an attempt to be positive for the UK challengers: at the margins    Chancellor’s reduction of the bank levy, bigger banks are expected
        and where an underserved niche of the market is served, there is         to pay less overall. Meanwhile, the smaller challengers would have
        indeed a fantastic opportunity.                                          to pay more than ever before in tax.
          Shawbrook and Aldermore, for example, grew their loans to cus-            This financial stranglehold is therefore dangerous to challenger
        tomers at CAGRs of over 80% and 50% in the period from 2012              banks, and poses a threat to their crucial role as competitors and
        to 2014.                                                                 disruptors within the industry.
          The new players are successfully growing their net interest margins       It’s been a record year for challenger banks and the increasingly
        (NIMs) ahead of the big 5 largely due to the type of customers they      emergent FinTech industry. For example, earlier this year, Intelli-
        have been targeting.                                                     gent Environments announced a partnership with the UK’s first ever
          One thing is certain: the market is going to remain hugely fun to      digital-only bank Atom to deliver a unique mobile banking solution
        cover and become even more cluttered.                                    to the market.
                                                                                    Challenger banks, in partnership with FinTech companies have
        Level Playing Field?                                                     been undoubtedly leading the way in disrupting the financial servic-
        Not content with unprecedented political support and encourage-          es industry through innovation. In fact, according to a recent survey
        ment and assistance from the regulators, the new players are mump-       by Interim Partners, an interim management staff provider, more
        ing and moaning about the way their profits are to be taxed.             than three quarters of banking sector executives believe challenger
           The challenger banks have mounted a vociferous campaign alleg-        banks have a significant technological edge over high-street rivals.
        ing that the established lenders will have an unfair advantage over         However, this position is likely to be damaged unless the tax
        challenger banks and start-ups relating to the banking tax surcharge.    surcharge proposals are reconsidered. The UK FinTech sector is
        What they need, they argue, is a ‘level playing field’.                  currently working hand-in-hand with challenger banks to develop
           UK finance minister George Osborne announced in July that the         innovative and, crucially, market-leading, competitive products for
        new tax will mean an 8% banking tax surcharge, on top of corpora-        banking customers. With these higher taxes in place, challenger
        tion tax, on lenders’ profits in excess of £25m ($37.8m).                banks may struggle to invest in such innovations to the degree they
           Leaving aside the rather obvious point that many of the challenger    are currently able to.
        banks will not make a profit of £25m for some time – Metro Bank             During last week’s meeting, a tiered structure for the tax was pro-
        for example is yet to break even – the challengers and start-ups are     posed, and it was also argued that the rules governing the amount
        unlikely to win this arguement.                                          of capital that can be held by the larger banks need to be changed in
           It is a bit rich to claim that Osborne’s modest proposal will some-   order to level the playing field. However, definite reconsiderations
        how stifle the UK fintech sector or strangle at birth the many new       have yet to be confirmed, and early reports suggest little movement
        banks at varying stages of the licensing process.                        at present.
           The new players would no doubt welcome some kind of tiered               The implications of the tax surcharge for the emergent Fintech
        structure for the banking surcharge; no doubt they would welcome         sector in the UK are clear, as are the implications to challenger
        Osborne penalising the established players by varying the amount of      banks and their customers. Although it remains to be seen what the
        capital they need to hold.                                               long-term outcomes will be, hopefully a solution can be arrived at
           I expect Osborne to stand his ground and he will be right do so. <    whereby the government’s desire for a “more vibrant and competi-
                                                                                 tive banking sector with new banks and more innovation” can come
                                                                                 to fruition. <
        Douglas Blakey
        Douglas.Blakey@retailbankerinternational.com                             Simon Cadbury

        2 y September 2015                                                                                       www.retailbankerinternational.com

RBI 718 September.indd 2                                                                                                                     02/10/2015 10:33:44
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
Retail Banker International                                                                  COMMENT: DAVE LEWIS, ALPHA INSIGHT

       Moving to the digital interface requires
       a higher level of process monitoring
       Having survived the financial crisis seven years ago, the UK’s retail banking sector now faces a more long-
       term set of challenges.Dave Lewis, director of Alpha Insight, looks at the digital issues facing the retail
       banking industry in the United Kingdom and how banks can serve its digital-savvy consumers’ needs

       A
                longside the ever-growing and             Inevitably, banks are seeking to satisfy the     but without the benefit of business context,
                increasingly complex requirements      requirements of their ever-more tech-savvy          they are of little use. Alerts may be triggered,
                of the regulatory authorities, the     customers by moving to predominantly                but who knows what they mean in terms of
                banking market is chang-                      digital interaction. It is a strategy that   relevance to critical business operations?
       ing rapidly as customers opt                                 makes obvious sense, yet carries
       to access services digitally –                                   with it the implicit promise       Looking outside the box
       especially via smartphones.                                        to consumers of rock-solid       If banks are going to provide customers with
       As well as having to                                                reliability and efficiency      the experience they now demand, they must
       adapt to this huge shift                                             in payment and transac-        ask what their systems are supposed to do
       in demand, the banking                                                tion processing, which        for clients and how that is to be measured.
       market is also seeing                                                 must be fulfilled. Fail-         It is a question of deciding what is really
       major disruption with                                                 ure to do so will incur       important from among the billions of pos-
       the emergence of new                                                  severe reputational and       sible metrics – of applying the right business
       challenger banks, finan-                                             financial damage.              logic. All banks have monitoring tools, but
       cial technology compa-                                                 Relying on existing          most are bogged down in the detail. They
       nies and new payment sys-                                          generic monitoring solu-         lack the real-time view of what is really criti-
       tems. It is now possible, for                                   tions may seem reassuring,          cal which would give banks the chance to
       example, to pay by Twitter.                                 but to be on top of the entire          intervene before processes collapse.
                                                             end-to-end system requires a more                What a bank needs is a tool that sits on
       Digital migration                               advanced form of business logic that is fully       top of conventional monitoring solutions
       This year, the industry body, the BBA,          embedded and supplies the correct business          and has the logic and intelligence to com-
       expects the number of transactions com-         context.                                            prehend the bigger picture so it can predict a
       pleted on mobile phones to hit 895 million,        This is especially necessary when banks,         failure, allowing the bank to take preventive
       compared with 427 million conducted in          particularly the larger ones, are burdened          action that removes the threat before dam-
       branches. Indeed, last year, transactions in    with complex and inflexible IT systems that         age is inflicted.
       branches declined by six per cent. By 2020,     have been built and acquired in piecemeal              It should establish key metrics and meas-
       the BBA expects 2.34 trillion transactions      layers over the last 20 years. Such systems         ure performance against them, building
       will be conducted via mobile devices.           are hard to integrate with a digital front-end      them into a dashboard, supplying business
         As an indicator of how mobile banking         so that customers can be provided with a            context and insight.
       has taken off, the BBA cites the 22.9 mil-      coherent and seamless experience.                      In simple terms, the bank monitors what
       lion banking apps that have now been               Indeed, without advanced solutions, the          matters, taking conventional end-to-end
       downloaded by UK bank customers, a rise of      complexity of legacy banking systems, exac-         flow monitoring and boosting its value many
       8.2 million in one year. A recent Euromoni-     erbated by constant out-sourcing of func-           times by applying its own business logic to
       tor survey also backs this up, placing the UK   tions, makes truly meaningful end-to-end            put key metrics in context.
       at the upper end of rankings that measure       transparency near-impossible and leaves                Such a solution will tell the user at a
       different countries’ use of smartphones for     banks vulnerable to failures.                       glance which of their critical processes is
       banking services. Some 36 per cent of UK           If we consider the recent high-profile           working well and what they should be wor-
       consumers had used their device for this pur-   failures of major UK banks to complete              rying about. It can quickly be implemented
       pose in a single month.                         payments, we can see the scale of the prob-         as an add-on, without the need to overhaul
          Besides the technological challenges,        lem. Institutions with complicated systems          an entire IT estate.
       banks of all sizes also have to face up to      monitoring millions of transactions have               If a bank has this end-to-end view of its
       declining rates of satisfaction among their     been unable to sort the wheat from the chaff        processes and fully understands how they
       customers, who now expect them to provide       when critical processes are heading towards         interlink and function, it will have greater
       the same fast and simple mobile or online       failure.                                            reassurance that in an age of 24/7 online and
       interactions that they enjoy with established      The lack of transparency means nobody            mobile banking, it is providing customers
       digital retailers, for example. In Capgemi-     really understands what is critical. When           with the services they want.
       ni’s 2015 World Retail Banking Report, the      market conditions lead to a sudden spike               All the more vital in an age when banks
       UK registered a decline in satisfaction lev-    in activity, such as a significant increase in      have to become truly digital organisations,
       els between 2013 and 2015, dropping 2.4         transactions, they never know if the system         using speed, reliability and convenience as
       points to 73.9 in the Customer Experience       is coping until a problem hits them.                important differentiators in a very competi-
       Index.                                             Banks may have sophisticated dashboards,         tive market. <

       www.retailbankerinternational.com                                                                                           September 2015 y 3

RBI 718 September.indd 3                                                                                                                          02/10/2015 10:33:45
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
DISTRIBUTION: VIRGIN MONEY                                                                                              Retail Banker International

         Virgin Money refusing to lounge about
          While a common thread in retail banking is either the stripping down of bank branches, or a shuttering of
          them entirely, Virgin Money has decided to take a new approach. The launch of the lender’s Virgin Money
          Lounges is trying to bring a cushier experience to bricks-and-mortar banking. Patrick Brusnahan writes

      B
                ranches are not very popular at the         one solitary ATM, the building looks noth-           Brodie said: “We found there was a power
                moment. More than 600 branches              ing like a bank.                                  between the concept of a lounge and the
                in the UK are set to close this year           Features include comfortable seating, free     concept of a store and, increasingly, these
                (according to the Campaign for              computer usage (on desktops and iPads), tea       concepts were starting to come together into
        Community Banking) – a significant increase         and coffee facilities, a virtual fish tank, and   one experience. It was a case of ‘How do
        from the 479 closed in 2014. New banks              even a self-playing piano. Financial features     you start to bring the concepts together and
        coming into the market, such as Atom Bank,          include on-site staff and huge touchscreens       make them more powerful as a one, rather
        Mondo Bank and Starling Bank, have decid-           to browse and learn more about products.          than two separates?’
        ed to ignore the branch entirely and focus on          Downstairs is where the tie-in to Virgin         “The first one we did was in Glasgow. We
        being either online- or mobile-only.                Atlantic begins. The seats resemble those of      moved a store which was in the secondary
          However, Virgin Money is putting greater          an aeroplane and there are even video screen      or tertiary part of Glasgow and moved it to
        focus on its stores and its new Virgin Money        windows to make it seem as if the room is         a prime site right in the middle of Glasgow.
        Lounges which are ‘about more than money            soraing through the air.                          We moved the store there and put the lounge
        and banking’, according to the bank.                   It is certainly impressive, but why go to      and created a very similar experience to [the
          With six locations already set-up in the          such lengths to provide an alternative bank-      Haymarket lounge]. That does work for us.
        UK, including a new airline-themed lounge           ing experience?                                   It’s quite symbolic of the general industry
        in Haymarket, London, and another set                  When speaking to RBI, Brian Brodie, sales      push away from product selling and hard
        for Sheffield early next year, Virgin Money         and marketing director at Virgin money,           selling to something which allows the cus-
        seems to consider the method to be the way          said: “Firstly, the brand is synonymous with      tomer to feel able that they can buy from us.
        forward.                                            being different and this is one of the mani-      It’s more led by them than led by us and we
                                                            festations that have of that different. We        think that’s where financial services needs to
        Consumer comforts                                   definitely wanted to do something which           move to.”
        Upon first entering the Haymarket lounge,           is about giving something back to the con-
        one thing comes immediately to mind. Bar            sumer. It wasn’t just about buying a product      Feedback and moving forward
                                                            from us, it was about an experience.              While it remains early days, the new lounge
                                                              “What’s better than to have people engag-       concept has been receiving very positive
          Virgin Money                                      ing with the brand in a social way rather         feedback. According to Brodie, every cus-
          Virgin Money, formerly Virgin Direct, was         than in a commercial way? We believe that’s       tomer that uses the lounge brings half a per-
          launched in 1995 and is currently in three        more endearing for a customer.                    son with them (on average). This is due to
          markets (the UK, Australia, and South Africa).      “If you think about us, we’re not the big-      the lounge not being a selling zone and cus-
          Its American arm entered into dissolution in      gest bank in the world, so therefore we have      tomers ‘don’t feel under any pressure when
          2010.                                             to figure out how we’re going to acquire          they come in here’.
             Virgin Money began plans to become             new customers and this is one way of doing           Brodie said: “Of course, that has a com-
          a retail bank in 2007 with an attempt to          it. However, this isn’t just about acquiring      mercial benefit for us because, inevitably,
          purchase Northern Rock. However, it was           customers; it’s rewarding existing customers.     people come into the experience and link
          nationalised by the British Government in         That combination is quite powerful.”              it with their financial needs. The next time
          February 2008.                                                                                      they need a savings product, we’ll be first
             As a result, Virgin applied for its own        Origins                                           in their minds. So it works for them and it
          banking license from the FSA (now known as        This approach first emanated from the             works for us. Everybody is better off.”
          the FCA) in 2009 and gained one through the       acquisition of Northern Rock by Virgin               The reason Virgin Money was able to do
          acquisition of Church House Trust the next        Money. Before the move, Virgin Money was          make a move such as this was due to the
          year. It eventually bought Northern Rock in       very much a digitally-led bank, which Bro-        relatively high levels of trust that brand has
          January 2012 and rebranded the business as        die said it still was, but with the capture of    obtained. Even before the post-financial
          Virgin Money.                                     Northern Rock, the bank suddenly had a lot        crisis world, trust has been an invaluable
                                                            of physical outlets.                              resource for banks.
             As of the lender’s recent half-year results,
                                                              The lounge idea was already in its early           On this, Brodie commented: “We’re lucky
          it had earned £81.8m in profit before tax, a
                                                            stages, but now the space was there to be         enough that we’ve got that trust. Having
          37% rise from the £59.7m collected in H1
                                                            able to realise the notion, despite some of the   said that, trust is easily lost and hard to win.
          2014.
                                                            outlets not being in the best location.           It works for us, I believe, because of the

        4 y September 2015                                                                                             www.retailbankerinternational.com

RBI 718 September.indd 4                                                                                                                            02/10/2015 10:33:48
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
Retail Banker International                                                                            DISTRIBUTION: VIRGIN MONEY

       nature of the brand which has a degree of        will tell us.                                    We think because of the physical interac-
       uniqueness to it and a slight cockiness and        “At the moment, the challenge for new          tion between humans, the process becomes
       funkiness. It allows space for the brand to      banks is to get the right mix of customers       more assisted. It’s a different experience to
       do something like this. I think it would be      to allow them to grow rather than just a         if you just went online by yourself.”
       difficult for our competitors to try and land    group of consumers that may not have the            Brodie concluded: “We’re definitely plan-
       something like this.”                            dynamic to allow growth.”                        ning to open more [Virgin Money Lounges].
                                                           The main reasoning for the Virgin Money       We’ve got another planned for the begin-
       Branchless challengers                           Lounges is to find that perfect combination      ning of next year in Sheffield and we’ll be
       Upcoming entrants to the market have             between ‘the human touch and the digital         continuing to look at other sites. I think the
       decided to skip the branch channel alto-         experience’.                                     way we describe this strategy is that it isn’t
       gether and make everything completely dig-          He said: “We’ve got 80 physical units,        a Carphone Warehouse kind of approach
       ital. While he sees the value in digital, Bro-   therefore the physical part of our business      with a store in every corner. That’s what
       die felt that the physical channels should       isn’t huge. About 70-75% of our business is      most people are pulling back from.
       not be underestimated as ‘consumers still        digitally led. What we tend to do is advance       “Concept-wise, this is as much about
       want it’.                                        the digital side of our business and drop        being able to give something back to cus-
          He added: “We definitely believe that         that into the physical. As we develop things     tomers than anything else because we
       the world will be going mobile and we’ve         online, we can deploy that in the stores.        know that customers want to interact with
       invested quite heavily in that. Almost 50%         “It’s simply just trying to help the custom-   us physically. The whole idea of what that
       of our digital traffic comes through mobile.     er through that process. When a customer         physical experience is going to be in the
       Whether people want to bank entirely on          wants a product, we give them an iPad and        future is definitely changing and this is part
       mobile, if nothing else, I think the consumer    that links into the digital experience online.   of our approach to that.” <

       www.retailbankerinternational.com                                                                                        September 2015 y 5

RBI 718 September.indd 5                                                                                                                      02/10/2015 10:33:56
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
FEATURE: STANDARD CHARTERED                                                                                               Retail Banker International

       Standard Chartered gets a facelift –
       What can we expect?
        It has been a year of changes for Standard Chartered. In anticipation of its management meeting
        happening in Singapore later this year, Retail Banker International’s Sruti Rao spoke to Karen Fawcett to
        find out what developments are under way in their retail banking division. Report by Xiou Ann Lim

       S
                tandard Chartered is having an event-     focusing on affluent and emerging affluent                  “It’s about concentration rather than
                ful 2015 so far. With falling profit-     individuals. “We recognise that we cannot                 spreading yourself too thin,” she added.
                ability, the bank has had to undergo      be all things to all people,” says group head
                a massive restructuring exercise. As      of retail clients Karen Fawcett.                          What does this mean in terms of cost?
        part of former CEO Peter Sands’s aggressive         “We want to build deep long-term relation- “Our costs are a little too high,” says Fawcett.
        cost-cutting plans, the bank axed around          ships, so we’re steering away from clients                Currently at a cost-to-income ratio of nearly
        4,000 jobs worldwide from its retail bank-        who just want a single personal loan to those             70 per cent, the bank is targeting to bring
        ing division earlier this year. It also exited    who will have a multi-product relationship                that down to about 55 per cent.
        its non-core and underperforming global           with us,” she says.                                         “What we’d like to do is to keep the
        cash equities business and announced that             In fact, the Asia-focused British bank is             momentum going, but at a lower cost,” she
        it would close 80-100 of its retail branches.     looking to grow together with its clients. In             adds.
        More interestingly, Sands himself exited          a market like Singapore, for example, the                    The focus on cities also has far-reaching
        the bank and was replaced by former J.P.          bank is tapping the emerging affluent clients             implications on the bank’s distribution.
        Morgan investment banker Bill Winters.            in the personal segment and migrating them “From a channel point of view, there is a
           Winters, who assumed leadership in June,       through to priority banking.                              lot of efficiency in being focused. We’re 2.5
        sent out a letter to staff on his first day to      “We spot them young, partner them at dif- times more efficient in strategic cities than
        outline direction and announce changes.           ferent life stages and serve their financial              outside of them – so we’re very focused on
        About a month later, he revealed a more           needs as they build their wealth. So, we have             staying in the right cities, where the emerg-
        straightforward management structure as           a continuum,” she explains.                               ing affluent and affluent clients are,” says
        well as his intention to simplify operations.        This heightened focus on banking afflu- Fawcett.
        With a résumé vastly different from his pre-      ent clients is interesting because while this                She adds that they are also looking at
        decessor’s, many wondered if Winters would        segment currently makes up only one-tenth                 branches in outlying areas with less traf-
        be steering the bank into a completely differ-    of the bank’s 9 million retail clients, they              fic and relocating them into urban centres,
        ent direction.                                    account for a third of the division’s income. where they can foster much better interac-
           Thus far, the bank’s plan to streamline its    Done right, and with suitable market con- tion with the bank’s clients.
        retail division is very much on course. Rep-      ditions, the bank could increase its profits
        resenting about 33 per cent of group income,      significantly.                                            What is the digital strategy to complement
        the retail business is seen as an important           In line with this strategy, the bank is also          this move?
        driver of the bank’s growth. Earlier this         focusing on high-growth cities – where there              According to Fawcett, emerging markets are
        year, the bank articulated a clear strategy of    are high concentrations of affluent individu- moving a lot faster in terms of digital and
                                                                                       als seeking interna- smartphone adoption as compared to more
          n STANDARD CHARTERED INCOME STATEMENT, DECEMBER 2014 (S$1000)                tional banking solu- mature markets. She cautioned against the
                                                                                       tions and comprehen- assumption that emerging markets would
                                                     2013                    2014      sive wealth solutions        have to go through the same evolution as
          Net interested income                   121,235                520,925       and advice. “Our             seen in Western Europe and the US.
          Profit before income tax                 56,628                 184,119      footprint is now on            “The markets are leapfrogging. Africa will
                                                                                       nearly half of the 100       go from handwritten application forms to
          Income before operating expenses       194,520                  815,149
                                                                                       fastest-growing cities       fully mobile in one big step – there will be
          Profit for the year/period               44,332                 148,047      in the world,” says          no gentle evolution as what we’ve previously
                                                   Source: Standard Chartered Bank     Fawcett.                     seen.”
                                                                                                                       That is why the bank is revamping its
                                                                                                                    digital platform – so that clients can do, on
          n STANDARD CHARTERED BANK (SINGAPORE) LIMITED CAR DISCLOSURE                                              their mobile phones and online, everything
                                                      30-Jun-14                 31-Dec-14              30-Jun-15    that they previously would have done in a
                                                                                                                    branch.
          Common Equity Tier 1 Capital                      1,418                   1,534                    1,539
                                                                                                                       Emphasising that the full capabilities of
          Eleigible Tier 1 Capital                          1,418                   1,534                    1,539  the bank need to be present in all channels,
          Total Eligible Capital                            2,236                   2,372                    2,373  she cites that the strategy follows what cli-
          Total Risk Weighed Asset                         17,076                  17,068                   16,645
                                                                                                                    ents want – convenience, ease of use and the
                                                                                                                    ability to get banking done whenever and
                                                                                    Source: Standard Chartered Bank
                                                                                                                    wherever they want.

        6 y September 2015                                                                                               www.retailbankerinternational.com

RBI 718 September.indd 6                                                                                                                               02/10/2015 10:33:57
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
Retail Banker International                                                                               FEATURE: STANDARD CHARTERED

         One project that will be rolled out later
       this year is the Retail Workbench, a tablet-       A recap of Standard Chartered’s 2015 so far
       based sales tool that enables staff to ‘bring’
       the bank to clients – wherever they are. Cli-      8 January - The bank announces plans to axe          corporation Daimler AG.
       ents will no longer have to fill in and sign       4,000 retail banking jobs and shut down its          10 June - Winters sends out a letter to staff
       multiple forms, as their data will be digi-        institutional cash equities business, equity         on his first day as CEO, pledging to focus on
                                                          research and equity capital market operations.       capital and returns. The bank’s shares surge.
      “Branches can become unused                         26 February - Former J.P. Morgan banker Bill         19 June - In another letter to staff, Winters
       space if you’re not careful”                       Winters is named incoming chief executive,           announces a management shake-up – with 13
                                                          replacing Peter Sands.                               members of the senior management team to
       tally captured once and processed. As for          4 March - The bank releases 2014 full-year           report directly to him.
       relationship managers, it means they have
                                                          results – “profits are down but there is a plan      5 August - Results for 1H 2015 are released,
       the full profile of clients at their fingertips
      – facilitating the process of offering tailored     of action”.                                          with a 44% fall in profits to $1.8 billion. Win-
       solutions to meet specific client needs.           25 March - Michael Gorriz joins as group chief       ters halves dividends but maintains investor
         As Fawcett says: “It’s not about being           information officer from German automotive           confidence as shares surge 6.5 per cent.
       multichannel or omnichannel. It’s about
       being unichannel – it’s the channel clients
       want. We are client-led, not digital-led.”

       Does this mean retail branches will become
       irrelevant?
       Fawcett believes that branches are still
       important as clients require face-to-face
       interaction. But the bank has quickly real-
       ised that people don’t want to go to branches
       and stand in teller queues.
         “Branches can become unused space if
       you’re not careful,” she says.
          She adds that branch transactions start
       to fall as soon as there is a critical mass of
       smartphone and smartphone apps in the
       market. Speaking about retail branches, she
       says: “We certainly don’t need as many and
       their use will be different.”
          She notes that clients now call and visit
       the bank for more high-end problem-solving
       or sales occasions. “So, this whole idea that
       we’re building branches for presence is no
       longer compelling.”
          Fawcett stresses that the bank is finding
       opportunities to do things in a more seam-
       less, global and consistent fashion. With an
       affluent population that is becoming more
       international in working across borders,
       multi-market capabilities are becoming
       increasingly important.
         “Think about the businessman who needs
       cash management solutions across the coun-
       tries to which he is exporting or the expatri-
       ate who is working overseas and investing in
       his home country or the parent who is fund-
       ing his child’s overseas education,” she says.
      “People want access to global products and
       they want global recognition for their bank-                                                         Karen Fawcett, Group head of retail clients
       ing relationship across countries.”
          The restructuring of the retail business
       is showing early signs of success according       retail business operating profit rose by 14           while costs have come down by 5 per cent.
       to the bank’s recently announced first half       per cent to $680 million. Higher returning            As Fawcett says: “Our strength is in our
       2015 results.                                     Priority and business clients now make up             network. We have what it takes to be the
          Although Standard Chartered saw a 44           46 per cent of the division’s income – com-           world’s leader in affluent retail banking in
       per cent dip in its 1H 2015 profits, the          pared to 40 per cent in the first half of 2014,       Asia, Africa and the Middle East.”<

       www.retailbankerinternational.com                                                                                                 September 2015 y 7

RBI 718 September.indd 7                                                                                                                               02/10/2015 10:33:57
IS IT A BIRD? IS IT A PLANE? - NO, IT'S A BANK BRANCH - Retail Banker International
DIGITAL: FNB                                                                                                  Retail Banker International

        FNB leads South African digital banking market
        Mobile app banking is the fastest growing digital channel at First National Bank (FNB), South Africa’s
        oldest bank. The bank has won top ratings for its online and mobile banking platforms, but how is it taking
        advantage of its new digital focus? Robin Arnfield reports on the bank’s technological progress

       S
                 ahil Mungar, Head of Marketing for    Blackberry platforms.                         ers along with prepaid, contract, and top-up
                 FNB Digital Banking, says:“FNB’s       “Our tablet app is available on iOS, airtime deals. FNB said it is the first bank in
                 mobile banking app and cellphone      Android and Windows, and includes Busi- South Africa to sell SIM cards.
                 banking service were ranked as the    ness Banking features enabling enterprise       According to South African press reports,
        best in South Africa in the South African      banking features such as dual-authorisation, FNB is using South African mobile operator
        Consumer Site Satisfaction Index 2015.”        collections, and payments,” Mungar says.      Cell C as its partner for FNB Connect.
          “Also, FNB Online Banking (FNB.co.za)          According to an FNB press release, the        FNB said that integrating its FNB Con-
        was ranked number one by South Africa’s        most popular transactions on the FNB Bank- nect service with its digital platforms such as
        Columinate Internet Banking SITEisfaction      ing App are payments, account transfers and   Online Banking gives customers the benefit
        Survey 2015.                                   prepaid products.                             of a single login to simultaneously manage
          “FNB’s banking app was ranked fourth           Other transaction types that are popu- their financial and mobile accounts.
        best globally in the MyPrivateBanking          lar with FNB Banking App users are Send
        Report, Mobile Apps for Wealth Manage- Money, iTunes gift codes, and card services           Enhancements
        ment 2015, and sixth best globally by the      such as cancellations, upgrades and ordering “Last year, we decided to enhance the Bank-
        UX (user experience) Alliance in March         new cards.                                    ing App across all device types with a new
        2015,” Mungar adds.                                                                                     look and feel, and improved usa-
           Launched in July 2011, the FNB “We’re getting a lot of repeat users of the cardless                  bility,” Mungar says.
        Banking App is now used on over ATM withdrawal app. People are using the service                         “Our goal is to improve the
        1.5 million active mobile devices. as they don’t want to carry cards”                                   banking experience across all our
          “FNB Banking App is our fast-                                                                         digital platforms, for example by
        est growing digital channel,” says
                                             Sahil Mungar, Head of Marketing for FNB Digital Banking            reducing the number of clicks and
        Mungar.                                                                                                 developing innovative solutions.
          “It’s also the most downloaded app in the    FNB Connect                                    “We’re seeing that digital banking is
        financial vertical across South Africa’s app   Since 2011, FNB has sold 285,000 discount- becoming a preferred banking channel for
        stores. We don’t break down user numbers       ed smartphones and tablets to the bank’s      many customers, and that they are finding
        into smartphones and tablets, but, reflect- customers, and also offers broadband ADSL        fewer reasons to use traditional banking
        ing the fact that tablet ownership in South    and 3G Internet packages. Around two mil- channels.”
        Africa is lower than smartphone ownership, lion customers use FNB's digital channels to        FNB’s Online Banking service has over
        we have fewer tablet users than smartphone     top-up airtime or electricity each month.     1.5 million active users. “Customers can
        users.”                                          In June 2015, FNB launched the FNB          now download and link the FNB Banking
           FNB’s smartphone app is natively avail- Connect mobile voice and data service, App to their devices without having to have
        able for iOS, Android, Windows Mobile and      offering FNB-branded SIM cards to custom- an existing Online Banking profile,” says

        8 y September 2015                                                                                   www.retailbankerinternational.com

RBI 718 September.indd 8                                                                                                                02/10/2015 10:33:59
Retail Banker International                                                                                                 DIGITAL: FNB

       Mungar.                                         fer services from South Africa to Zimbabwe      transaction volumes between July 2014 and
        “This improves customers’ ability to get       and to Mozambique via Western Union for         April 2015.
       started with app banking immediately.”          users of its Banking App, online banking and      First introduced in 2013, there are now
         FNB allows customers to open new              cellphone banking services.                     1,305 Slimline terminals in South Africa,
       accounts and switch their banking to FNB          Money can be collected at selected OK Ltd     which includes terminals at remote locations
       using its Banking App and Online Banking        stores in Zimbabwe or at one of the 15 FNB      across the country.
       service.                                        branches in Mozambique.
        “The digital account-opening process takes       Last year, FNB launched the Global Pay-       dotFNB
       under 10 minutes, at the end of which you’re    ments services which allows mobile app and      FNB opened its first dotFNB cashless and
       given an account number,” says Mungar.          online banking users to send and receive        paperless branch in 2012, and has opened a
      “You then wait a few days for your card to       SWIFT payments to and from anywhere in          further eight dotFNB branches around the
       be delivered by a courier, who will carry out   the world.                                      country.
       KYC verification on your doorstep.”                                                                The branches provides an environment in
         Mungar says that all FNB’s channels,          Cardless cash withdrawals                       which staff can help FNB customers migrate
       including cellphones, online banking and        In June 2015, FNB launched a cardless cash      to the bank’s digital channels - App Banking,
       the banking app, provide account manage-        withdrawal service enabling Banking App         cellphone banking and online banking – and
       ment services, as well as personalised cross-   users to withdraw cash from any FNB ATM         show them how to use these channels.
       sell capabilities offering existing customers   using their smartphone.                            They offer deposit-taking ATMs, interac-
       account upgrades, limit increases, invest-         Users pre-stage the withdrawal on their      tive financial planning Microsoft Surface
       ments and credit products.                      smartphone, select cardless services on the     tablets, and videoconferencing cubicles for
         Because these offers are pre-approved,        ATM, and enter their mobile number.             interviews with remote subject specialists.
       customers have the ability to sign up imme-        They then receive a one-time PIN which is       Customers can open FNB accounts at
       diately for them via the channel they are       valid for 30 minutes.                           the dotFNB branches and purchase smart-
       using, he says.                                                                                                           phones and tablets
                               “We’re seeing that digital banking is becoming a preferred banking                                which are bundled
       Cellphone banking channel for many customers, and that they are finding fewer reasons to                                  with the accounts.
       The South African use traditional banking channels”                                                                        “The dotFNB
       banking market is                                                                                                         store creates a bal-
                                Sahil Mungar, Head of Marketing for FNB Digital Banking
       divided between                                                                                                           ance between what
       affluent customers                                                                                                        we believe to be the
       who are very tech-savvy and primarily use          FNB launched its cellphone-based cardless    future of banking and the need for human
       digital channels, and low-income customers      cash withdrawal service, which uses USSD, interaction,” Kim Gibson-van der Walt,
       who have limited access to technology.          in 2011.                                        Head of dotFNB, FNB Banking Channels,
        “These low-income consumers tend to use          “So far, over R2 billion ($160 million) has   said in a news release.
       traditional channels and rely on cash in their  been withdrawn from our ATMs via cell-             He added: “Sales and service pods are
       day-to-day activities,” says Mungar.            phone,” Mungar says.                            designed in such a way that customers sit
         FNB provides a Cellphone Banking ser-           “Our initial prediction is that the cardless  alongside the bankers, sharing the experi-
       vice, which uses USSD (Unstructured Sup- cash withdrawal app will be even more pop- ence of discussing their banking portfolio,
       plementary Service Data), a GSM protocol        ular than the cellphone-based service due to    choosing a device and setting it up with the
       enabling cellphones to communicate with         its intuitive user interface, much quicker pro- FNB digital channels.”
       a service provider’s computers, for lower- cess, and the ubiquity of smartphones.
       income consumers.                                 “We’re getting a lot of repeat users of the   Sensor technology
         The service offers basic transactional        cardless ATM withdrawal app. People are         In February 2014, FNB introduced interac-
       capabilities such as balance checks, prepaid    using the service as they don’t want to carry   tive gesture technology at its flagship Canal
       airtime, data and electricity, and eWallets     cards.”                                         Walk dotFNB store.
       which enable users to send money to any                                                            The motion sensor technology recognises
       other cellphone.                                ATMs                                            the movement of shoppers who pass by the
        “Our cellphone banking service is popular      FNB has over 2,000 ATMs in South Africa. store front, prompts advertising messaging,
       with low-income customers, with over 2.5        Its ATMs range from ATM Advance ter- and allows people who choose to interact
       million active users,” says Mungar.             minals which offer a full range of services, with the screen to view FNB banking prod-
        “Our eWallet mobile money service gets a       including cash deposits, to mid-tier ATMs       ucts and services.
       lot of usage, due to the many migrant work- that dispense cash and offer account man-              Customers can select a cheque account
       ers in South Africa who need to send money      agement services, and touchscreen-based         and a bundled tablet or smartphone on the
       home to relatives.”                             Slimline self-service terminals.                spot by gesture browsing through a cata-
         According to FNB, its eWallet service,          “Slimline terminals offer bank account        logue of the products available.
       which is also available on the FNB Banking      management facilities, but don’t dispense          Once the customer has selected the bundle
       App, saw a 95 percent growth in transaction     cash,” says Mungar.                             of choice, a one-time code is displayed on
       volume between May 2013 and April 2014.           “They can dispense vouchers which cus- the screen that the customer sends via SMS
         In addition to P2P transfers, eWallet- tomers use to withdraw cash from a point- to FNB.
       holders can buy prepaid airtime, data and       of-sale terminal, and are usually placed in        The customer will then be called by a
       electricity, pay bills and make purchases at    convenience stores.”                            consultant within 24 hours to finalise the
       selected retailers.                                According to a news release, FNB’s Slim- application process and ensure that the new
         Since 2014, FNB has offered money trans- line terminals saw a 30 percent increase in          account and smart device deal is active. <

       www.retailbankerinternational.com                                                                                       September 2015 y 9

RBI 718 September.indd 9                                                                                                                    02/10/2015 10:33:59
COMMENT: JOHN LUNN, MOORHOUSE                                                                                        Retail Banker International

        How much does a free bank account cost?
        The UK is one of the only countries in the world that persists with the free banking model. But with paid
        current accounts, such as Santander 123, gaining attention, how long will this model continue to exist? Is
        there even such a thing as free banking on the high street for consumers? John Lunn argues

      B
                 anks are still suffering the fall out    the charges.                                     one provider to another simpler.
                 from the financial crisis and the lat-     Consumer research from PwC has found             However, this service does not provide
                 est scandal never seems far from the     that there would be stiff resistance from con-   ANP as the customer is issued with a new
                 headlines.                               sumers to banks introducing charges to retail    account and sort code upon switching.
           Whether it’s PPI mis-selling or Libor rate-    banking.                                           If account numbers were fully portable, it
        rigging, banks’ reputations continue to take        Sixty-six per cent of consumers are aware      would be similar to how we can now switch
        a battering in the court of public opinion.       of current account hidden charges and 50         mobile phone providers but still keep our
           So it seems unlikely that any bank that        per cent of customers would be likely to         original phone number.
        decided to introduce charges for all its          change bank if an upfront fee was intro-           If ANP was introduced, it would likely
        accounts would see a stampede of customers        duced.                                           have biggest impact on challenger banks,
        signing up, quite the opposite in fact.             Sixty-two per cent of customers would not      as their newer technology would probably
           It seems counter-intuitive, but were banks     be prepared to pay anything for their cur-       mean they’d be able to offer cheaper services
        to charge for their accounts it would actually    rent accounts and 27 per cent would not pay      than the legacy banks.
        make their services more transparent.             more than £10 a month.                             However, introducing APN would require
           Currently they have to recoup losses from        Submissions that have been made to             huge investment from banks as their systems
        providing free accounts from other areas          the Competition and Markets Authority            are not currently set up to offer this.
        and services, such as charging for overdrafts.    show differences in opinion between banks
           If we all paid a fee for our accounts, we      towards charging for accounts.                   Steps already in motion
        would be able to choose the level of service        Barclays seems indifferent, but recognises     Charges for banking are not a new concept
        we were willing to pay for and have total         that it could promote competition;               of course.
        clarity about what we get for our money.            Lloyds on the other hand believes it is a        With credit cards for example, we have
           It would also allow customers to earn a        step too far as packaged accounts already        long been able to see what they’d cost us a
        fair level of interest; consumer advice organi-   exist.                                           year as well as any extras we’d get, such as
        sation Which? estimates that customers miss         Tesco sees the free account system as          cash back or points towards air travel.
        out on £9bn ($13.6bn) a year in fees and          a barrier to entry as larger banks are able        And HSBC already has a fee-paying model
        lost interest.                                    to subsidise their free accounts from other      with a range of accounts with different
           Fees for accounts would promote compe-         sources.                                         charges and levels of service.
        tition by making it easier for people to com-       On the other hand, Virgin believes a             The trend is moving towards charging for
        pare accounts to find the deal that best suits    charge is necessary to promote competition.      current accounts but it would be a brave
        them and would also potentially mitigate the        Any wholesale change in charging for           institution indeed that implemented fees on
        risk of mis-selling.                              bank accounts is likely to need to be driven     all accounts.
                                                          by regulatory change.                              The mantle needs to be on banks to drive
        Resistance from consumers                           Andrew Bailey, deputy Governor of the          innovation in the products and services they
        But abolishing the free banking model comes       Bank of England and Andrew Tyrie MP are          offer their clients, and if that means charging
        with some big drawbacks, not least the risk       both vocal critics of the free banking system.   for them then there is nothing wrong with
        of consumers seeing it as yet another attempt                                                      that.
        for banks to get more of their hard earned        How much is this going to cost?                     Banks need to put their customers at the
        cash.                                             The Financial Conduct Authority had previ-       heart of everything they do and if they are
          There is also some cynicism around              ously commissioned a report (which Moor-         successful in this they will design products
        whether it would stop banks using unfair          house supported) into the costs and benefits     that their customers want and are willing to
        charges or mis-selling as they could intro-       of account number portability (ANP) as a         pay for.
        duce new fees or commission structures for        way of increasing competition in banking.          While it’s unlikely that free banking will
        employees.                                          ANP would make it easier for customers         completely disappear in the United Kingdom,
          Perhaps most importantly, it is a legal         to switch provider, as they would retain the     the direction of travel is very much towards
        requirement for employers to pay salaries         same unique account identifier.                  different tiers of accounts that offer different
        into a bank account so charging for accounts        The unique account identifier typically        services for different fees. <
        could be viewed as a new tax.                     comprises a six-digit sort code and an eight-
          It is estimated that nine million people        digit bank account number.
        have basic accounts who would then need             The Current Account Switch Service was
        to pay, risking a two-tier banking system         launched in September 2013 and is designed       John Lunn, Partner at transformation con-
        and the poorest people bearing the brunt of       to make switching current accounts from          sultancy Moorhouse

        10 y September 2015                                                                                         www.retailbankerinternational.com

RBI 718 September.indd 10                                                                                                                        02/10/2015 10:33:59
Retail Banker International                                                                                           DIGITAL: BANK LEUMI

       Bank Leumi leaping into the digital field
       Israel’s digital and online market is booming and the financial sector is taking note. Despite a slow start
       for banks, (consumers could only open an account online from July 2014) Bank Leumi is tackling this
       challenge head on to become a fully digital brand. Patrick Brusnahan investigates

       I
             nternet penetration within Israel is        upgrade the current environment and move            everything we do must improve the employ-
             increasing. The number of internet          forward in a more straightforward direction.        ee and customer experience.
             users in the country grew from 4.6          In the bank in Israel, we agreed that after we        “We have also set three priorities. Timeline
             million in 2009 to 6 million in 2013,       will be far into the CRM programme and              and speed are our number one priorities,
       a huge percentage of the 8 million person         the digital wallet, we will reconsider the deci-    then cost and then scope. We will be push-
       strong population. This is set to increase ris-   sion.”                                              ing the envelope and budget, but we will not
       ing to 8.4 million in 2018. Banks are set to                                                          compromise on timeline and we must deliver.
       take advantage of this rise in usage.             Necessary change                                    We are implementing the strategy in the pro-
          In addition, m-payments increased              Change is needed in the Israeli market as           gramme and in a year’s timeframe; we will
       sharply from ILS16.9m ($4.3m) in 2009 to          it develops. This month, the Bank of Israel         launch these digital capabilities and channels.
       ILS293.2m in 2013 at a CAGR of 104.2%.            asked Bank Hapoalim and Bank Leumi to               There is a new landscape which is agile in
       This is expected to increase even further to      sell off their credit card operations in an         new technology.”
       ILS2bn.                                           attempt to increase competition in the mar-            One of the key components of this shift is
          Bank Leumi is getting ready for the tech-      ketplace. These two banks hold over 20% of          Bank Leumi’s new digital channel, which the
       nological wave. It has selected Swiss vendor      the retail credit business and with that going,     lender hopes to launch within a year. But is
       Temenos to overhaul and replace its legacy        some other road to turnover needs to found.         that enough time to launch anything, never
       core banking system as part of a multi-year          To combat this, as well as updating the          mind a whole new channel?
       renovation programme. This is expected to         core, Bank Leumi saw an opportunity to cre-            He said: “We’re not going to ask for a
       save the Israeli lender millions of dollars in    ate something else: a digital sub-brand under       license for a new bank, we’re using our
       savings on IT maintenance costs each year.        the bank.                                           own banking license; this is just a digital
                                                            Yerushalmi explained: “We put together           channel. We strongly believe that one of the
       Transitions                                       a plan; however, we said that this by itself        roadblocks in our timeline is the inability to
       When asked about the change by RBI, Dan           would be risky and the benefits may not be          crystallise what we want to offer in a digital
       Yerushalmi, COO of Bank Leumi, said:              as expected. Then we felt we should build a         bank. If you want to define very clearly and
      “There is never a good time to do a trans-         digital channel i.e. a digital sub-brand under      specifically a unique offering, the process
       formation of core systems. I joined the bank      the banks. It has made a lot of sense to con-       should be simplified and we don’t see an
       almost three years ago and at that time.          nect the two programmes together.                   issue in building this within a year.”
        “At that time, because of the changes              “So basically, the first phase of the pro-           How this ‘digital channel’ will form is still
       we’ve seen in the market, we thought we           gramme is to build a digital ecosystem. This        up in the air. Yerushalmi conveyed that it
       should start dealing with two other strate-       is what we have embarked on and we’re              ‘might be mobile-only’. The important thing
       gic areas: mobile and digital, and CRM and        planning to launch it next year. Then, build        is that it has to be intuitive, something that
       cloud. As a result, we started a consolidated     our core capabilities gradually and replace         the lender has struggled with in the past.
       Cloud CRM initiative and we’ve built a new        the old capabilities with the new ones with         This is particularly with regards to security
       upgraded digital wallet that includes a lot       some overlaps in the programme. As you can          and identification, a part of the online and
       of capabilities that you can do today on the      understand, today, it is very hard to forecast      mobile experience that many banks struggle
       mobile if you are a retail, or even SME, cus-     and plan for a few years ahead. Things are          with. However, the COO believed that the
       tomer.”                                           changing so fast.”                                  new digital overhaul would change all of this.
         Yerushalmi believed that this is a necessary                                                           He said: “One of the real customer frus-
       step for the bank to be able to move forward.     Priorities and strategies                           trations is requests to add identification and
          He said: “You can understand that at           This development is with three strategies           information. Here we will try to do that for
       some point, the core capabilities are serving     and three priorities in mind. This is to make       the customer. We will not ask them ten times
       as a glass ceiling for every new initiative in    sure that the overhaul is worth doing and it        to identify themselves.”
       the bank and impacting time-to-market sig-        is done right. Most importantly, that these            Yerushalmi concluded: “Right now, our
       nificantly. We’ve implemented this in several     changes actually make a difference to how           bank is definitely leading the whole digital
       of our entities in Europe in the past and there   the bank services its customers.                    space in the local market. The main differ-
       were two considerations.                             Yerushalmi added: “Firstly, everything we        entiator today is technology. It’s not pricing.
        “One, we were about to embark on a trans-        do should bring significant business value.         We see a lot of the boundaries between busi-
       formation in North America, but due to the        The second objective is efficiency. We would        ness and technology blurring and therefore
       lack of experience in the regulatory envi-        like to build a place where everything that         the collaboration between the two is critical,
       ronment in North America, we decided to           we do tomorrow will take half of the time           otherwise you will not be able to make sig-
       continue with our existing partner there and      and half of the money. The third thing is that      nificant strides ahead.” <

       www.retailbankerinternational.com                                                                                            September 2015 y 11

RBI 718 September.indd 11                                                                                                                           02/10/2015 10:33:59
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