This will change everything
Smartphones have transformed the financial world. But will they be the death or the salvation of banks? Andy Pemberton highlights five ways banks are meeting the digital challenge
Words: Andy Pemberton
Illustration: Tom Humberstone
It’s not often a business leader, even one as feted as Steve Jobs, gets to hold a piece of history in his hand — and recognise the fact at the time. But, when the Apple CEO stepped onstage in January 2007 and held aloft a slab of plastic, metal and silicon about the size of a wallet, he did just that.
In front of wide-eyed Apple acolytes, he introduced the smartphone to the world. As The Economist later pointed out “Apple’s iPhone exemplifies the early 21st century’s defining technology.”
Today smartphones are everywhere. Officially the fastest-selling gadgets in history, they outsell personal computers by a ratio of four to one. Half the adult population owns a smartphone. By 2020, 80% will.
And Jobs was right. The device he held in his hand back in 2007 is changing everything. Much more than a phone (voice calls continue to be a function used less and less), they are powerful mobile computers — the first truly personal computers — capable of reshaping entire industries and transforming society too. Your phone goes where you go, knows whom you talk to, what websites you visit. It collects that data, data that can be used by business, government and others for all kinds of purposes. Smartphones are “digital census takers”.
They are opening up new markets too. Over half the adult population of the world still lack bank accounts. Mobile is increasingly the means by which they can be drawn into the banking system. That will have a big impact not only on banks’ bottom line, but on entire economies too. In developing countries, a 10% rise in mobile phone users adds a percentage point to per captia GDP.
How fast will all this happen? At lighning speed. Uber, for example, is now a household name, operating in 55 countries, yet it is not even five years old. And banking services are on the front line too. It took Chinese e-commerce giant Alibaba just seven months to become China’s largest seller of money market funds and three years to become a $16 billion lender. Consulting giant Accenture believes a third of traditional bank revenue will be eroded by competition from non-banks by 2020.
Over half the adult population of the world still lack bank accounts. Mobile is increasingly the means by which they can be drawn into the banking system.
At the time of writing, Apple has just launched its Apple Pay service in the UK. The technology allows shoppers to make small purchases by waving their iPhone 6 or Apple Watch over a till terminal. Many of the UK’s biggest retailers have signed up. But days before Apple Pay launched, HSBC — a participating bank — accidently let slip to the press about the launch plans. Almost overnight HSBC vanished from the list of launch suppliers. The bank — and its six million customers — had to wait an extra month to get on to the service.
Had the mighty Apple punished the world’s local bank for its mistake? Maybe, maybe not. But are tech companies going to be in a position to slap down banks soon? Accenture thinks so. It believes mobile digital is a fundamental challenge to retail banks. If banks don’t get their finger out, Accenture says, new competitors such as Apple could restrict banks to a limited role as back-office utilities, while non-banks become the new face of their customers’ financial lives — all via the smartphone. Or, put crudely, whoever controls the mobile app, controls the customer and therefore the banking business.
The answer for banks could lie in them moving further into the commercial lives of their customers. Banks can use their significant clout — their vast reservoirs of transaction data, for example — and combine it with new digital tools to help customers make decisions on what to buy, where and when to buy it — dinner, a movie or even a new home. The widespread use of smartphones represents a bigger set of opportunities and threats than banking has seen for years. Here are five global case studies of banks that have grasped the nettle and pioneered ideas that meet the challenge of mobile and beyond — with real results.
Commonwealth Bank of Australia did mobile payment years ago
Australian banks are way ahead of the bell curve when it comes to smartphone payments. Commonwealth Bank, Westpac, Credit Union Australia and Bendigo Bank have all released mobile payment apps. ANZ Bank and National Australia Bank say they have them in the works.
In 2011, Commonwealth Bank of Australia led the pack when it launched ‘CommBank Kaching’ for iPhone. It was part of its drive, launched the year before, to become a “truly mobile bank”.
Kaching initially only worked for iPhone, allowing users to pay each other through peer-to-peer networks such as email and text through their mobile.
Apple had been holding off introducing near field technology to its phones so the iPhone 3s and iPhone 4s that were knocking round in 2011 weren’t equipped. So CommBank developed an iPhone case that had the technology built into it. Australians could now bump their mobiles together to pay each other. A deal with Mastercard made tap-and-pay in shops possible.
The result: By 2012, after hundreds of thousands of downloads of the iPhone app, CommBank extended Kaching to Android. In 2013, after AU$4 billion of payments on the app, Commbank withdrew Kaching and offered the same services though its regular app, signalling that what was revolutionary had now become normal.
The takeaway: Because CommBank struck quickly, NFT mobile payments remain in the hands of banks in Australia where elsewhere in the world the mighty Apple holds the whip hand.
Bank of America builds a win-win-win ecosystem
Bank of America’s BankAmeriDeals is an example of a bank generating a value ecosystem for its customers, its merchants and itself that has generated multi-million dollar value in just two years.
Launched in 2012, Bank-AmeriDeals analyses credit card transaction data to give customers tailored discounts on transactions at shops and bars they use a lot. Users pay full price at the till and receive monthly cash back rewards.
There are no outward signs that a customer is using a BankAmeriDeal, so you can use it on a date without looking cheap. Since launch, Bank of America’s BankAmeriDeals have served 1.5 billion offers to 30 million online customers and 14 million mobile banking customers.
The result: It has helped customers save more than $20 million since the programme began in 2012. BofA has retained 30 million online banking customers since January 2012, and the number of mobile bankers increased by 4 million since May 2012. BankAmeriDeals generated $200 million worth of spend for merchants during the past two years.
The takeaway: Merchants get more business from the right customers as well as better value advertising, while the customers get deals that are relevant to their everyday spending. And the bank profits too. Win-win-win.
Videobanking is taking off in Hong Kong and Turkey
In 2013 Standard Chartered Hong Kong opened its first ‘digital’ branch, in which customers were greeted by giant screen TVs, the bank’s mobile apps in a special experience zone, and QR code scanning on an iWall, as well as e-signature pads and virtual queuing.
The takeaway: According to a spokesman, the aim was to provide an interactive experience that is “as much about entertainment as it is about banking”.
That‘s where the Video Teller Machine (VTM) comes in. Ziraat reckons it is a world first.
Ziraat has installed lots of them in areas that don’t have Ziraat branches, especially in the small towns that can be found across Anatolia, as well as in large cities, shopping centres, airports, and bus, metro and petrol stations. Once inside the booth, which is open 24/7, the customer deals with a human bank employee over videoconference software. They can withdraw funds, pay bills, buy foreign currency and make investments.
The takeaway: as a state-run bank, Ziraat has a greater responsibility than private lenders to provide a service like this. As banks use more and more technology to make banking increasingly mobile, they also must remember that they will leave some customers behind.
E-commerce giant Amazon launches its loan service around the world
Internet giant Amazon is rolling out an invitation-only lending service to thousands of the sellers that use its market place.
It should allow sellers to expand their stock and diversify. It is a win-win strategy. As Amazon takes a cut on sales, if its customers increase profits, Amazon’s profits go up too.
Amazon has lots of capital but it also has excellent relationships with its vendors. So while banks spend serious time and money on lead generation, Amazon has a captive audience, as well as all the data it could ever need to model the risk in those businesses.
But it’s also cheap. An Amazon loan will cost 5.9% plus a 1% arrangement fee. There’s no early repayment fee and no admin — repayments are taken directly from monthly sales proceeds. It’s going to be cheap and it’s going to be easy. The loans will be offered in China, the UK, Canada, France, Germany, India, Italy and Spain. It already offers the service in Japan and the US.
The results: Too soon to tell.
The takeaway: Online lending currently accounts for about 3% of the roughly $1 trillion of outstanding personal and small business loans in the United States. But it is growing.
Amex encourages a “social takeover” to gain 10 million social media impressions in two weeks
US credit company American Express staged a “social takeover” to gain 10 million social media impressions in two weeks. The company launched #MyAmex in 2015, when six influencers took control of the company’s Instagram account. The key “influencers” showed on Instagram how they regularly used the card, including buying morning coffee and using free air miles for business trips. Amex says Instagram is the social media platform most used by its customers.
The results: According to Amex, the #MyAmex posts generated 23% more engagement than the brand’s other Instagram pictures. Amex also doubled its average number of daily Instagram followers for two weeks. In total, the campaign generated more than 10 million impressions and 40,000 engagements.
Amex began using social media “influencers” in 2014. That’s when artists such as Andy Hau and Supermundane created Instagram, Facebook, Twitter and Vine posts, and during New York Fashion Week, fashion bloggers posted sketches on the brand’s social accounts.
The takeaway: Turning a profit is getting harder for Amex. Card issuers are providing bigger rebates for purchases, more frequent flier miles and longer interest-free periods for those willing to transfer from other cards.
If dealing with the disruptive innovation caused by cheap mobile computing wasn’t enough, the banking sector might well be hit by another tsunami. The Blockchain.
Blockchain is the digital ledger that makes Bitcoin work. While the mechanics are complicated, the result is simple. It is a method of creating an accurate, reliable and constantly updated record of every Bitcoin transaction. As this record is publicly available and reliable, it has turned Bitcoin from an interesting idea into a credible alternative currency.
Blockchain can, and will, be applied beyond Bitcoin and some commentators see it as an innovation on a par with the internet itself, one that could spell doom for banks as it seems to do away with the need for a trusted third party to clear payments.
Unsurprisingly, banks are growing increasingly interested in how it works and researching how they can adapt it into their own operations.
Blockchain is an innovation that goes beyond digital. It redefines payment, clearing and money, and therefore it redefines everything that banks do.
Just like the iPhone, “this will change everything.”
Mobile banking will soon double the number of bank accounts in the world. And it’s going to happen very fast indeed.
The time it took Alibaba to become China’s largest seller of money market funds.
The time it took Alibaba to become a $16billion lender
$4BN AUS DOLLARS
The amount of payments made on CommBank’s Kaching app by 2013
The increase in mobile bankers at Bank of America since 2013 thanks to BankAmeriDeals
Generated by AmEx’s #MyAmex social media campaign
Percentage of traditional bank revenue eroded by competition from non-banks by 2020 (Figures from Accenture)
The ratio by which smartphones outsell personal computers
The number of times the average user checks their phone a day
Percentage of people who check their phone within 15 minutes of getting up
Percentage of people who currently own a smartphone
Percentage of people who will own a smartphone by 2020
The increase in GDP per person generated by adding 10 mobile phones per 100 people
Cost of an African smartphone
Number of Africans estimated to have a smartphone by 2016
This story is taken from the third issue of Poppy. Our print run is strictly limited but, if you are based in the UK, you can request a printed copy via the ReadPoppy.com website.
This feature was created by Andy Pemberton, Andy Cowles and James Lumley of London-based agency Furthr. Andy Pemberton edited Q magazine in London, launched Blender magazine in New York and also edited Spin. He has written for the New York Times, GQ, Esquire, The Sunday Times, The National (Dubai) and The Times of India. Andy Cowles worked for nine years as Editorial and Creative Director for IPC Media, the UK’s biggest consumer publisher, was art Director of Rolling Stone and Creative Director of Mademoiselle in New York. James Lumley spent a decade at Bloomberg News reporting on, amongst other things, financial crime, regulation and legal matters. He also spent three years as a writer at FTSE 100 insurer Aviva Plc.
If you found this feature thought-provoking, please take a moment to hit the recommend button and share it with like-minded readers.