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December 13, 2012

Is it really that Simple?

Posted by Balwant C Surti (View Profile | View All Posts) at 10:53 AM

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Banksimple, a website whose name says it all.  Now renamed Simple.com. All part of the value proposition of making banking simple, I guess.

For the benefit of those who are not yet familiar with Simple.com, it's a cool front-end service that simplifies banking for customers. It connects with them through social media and eases money management. Which is something that banks have not yet been able to achieve. Will these types of services spell the end of traditional banking? Certainly (Bank) Simple thinks so, judging by its aggressive tag line - "get ready to leave your bank." What can banks do to counter such threats?

Firstly, accept that customers do want banking to become simpler, right from depositing money, to cashing a check, to paying a bill. They want less procedure when opening an account or availing of a loan. They want to know the real cost of banking minus the suspense of hidden charges and fees. They want payment to be quick and efficient, whether through card, check, mobile phone or any other new means. Customers want easy, instant access to their bank at all times and places.  And they want all this simplicity free of cost, or at a nominal price, like any other essential service.

Are customers asking for too much? Not from their point of view. But putting up the infrastructure to support this demand isn't that simple. Just think, seamless access across channels with 30-year-old legacy applications at the back end? Mobile phone operating systems, which change every year? And what about compliance with hundreds of regulations and privacy and security norms? Each year, the cost of running a bank goes up but margins don't change much. Hence, banks are looking at new sources of revenue, one of which happens to be additional fees on consumer banking. When customers finally get wise to this and protest, regulators step in with protective laws, which again increases the legislative burden on banks. This is not the only problem. Security breaches are leading to risk mitigation mandates, like multi-factor authentication. Rising card and payment fraud is forcing banks to bolster fraud prevention systems to detect and stop the incidents in real time. Competition is forcing banks to acquire new analytical real time systems to lure customers away from rivals. Big Data is the new Big Brother.

If you visit Simple.com, read the FAQ section. It quickly clarifies that Simple is not a bank in itself, but only the storefront of an FDIC insured bank which sits at the back end. You can access the site today from a web browser or an iPhone app (iOSv.5 and above); an Android one is in the offing, but mind you, for the ICS version and above only!. Simple doesn't offer joint accounts yet. It claims that it's only a little bit like Mint.com, because while it offers similar money management services, it stops short of aggregating bank accounts. By the way, you can see your Simple account on Mint.

Customers can access 40,000 ATMs for free, but are charged for using an outside network. Domestic transactions are free; international ones are not. Most things are free including a Visa debit card and bill payment, but not everything, and I like the fact that the site is upfront about it. So how does it make money? Firstly, by limiting investment and cost. This means no high interest deposits and no rewards. Simple also shares the margin and fees with the banks and makes its money. 

Simple is currently available only in the US. You can see that it hasn't got everything that is needed to make a customer's life simple, but it's getting there. Certainly, it has enough to open shop.  So how does one get on board? Currently "by invitation only", but here's the thing - you can ask them for one! Simple?

I am quite confident that Simple - or similar offerings - don't pose a threat to banks just yet. But if they are able to keep their simplicity promise, they might acquire a following large enough to make them consider building their own bank. That could shake things up a fair bit! Having said that, I don't believe it will actually happen. Simple isn't as path breaking as say, the iPhone; it's just a nifty banking innovation. If it does succeed, it would be on the back of a change in banking services delivery, wherein banks choose to stay at the back end and let the front end be worked by the likes of Simple. Did I hear you ask what would happen should Simple succeed and then be acquired by a bank? That would be a happy ending, for the bank mainly!

December 11, 2012

Mobility, where are you headed?

Posted by Chandramouli Kundagrami (View Profile | View All Posts) at 10:46 AM

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Mobility, as a concept, has captured the collective imagination of the tech savvy populace.  CEOs and CTOs wax eloquent on their grandiose plans in this domain. A lot has been written about NFC device use, smart kiosks, mobile banking etc., projecting these as the next big thing in mobile and banking technology.  However, I feel the ground reality is far removed from this.  Every time I glance around in stores and malls, I notice that very few people use mobile banking.  I initially wondered if this was unique to India, as we are not a very tech savvy people.  On probing further, I have come to believe that it is a worldwide phenomenon, with even advanced countries yet to warm up to mobility.  Africa, however, is an exception, where SMS-based mobile payment and money transfer is quite popular.

In India, branch transactions have decreased by 45% over the past 15 years, thanks to ATMs, Internet banking and mobile banking, and my guess is that a miniscule 5% of these are via mobile devices - including tablets.  Current data also indicates that the average transaction value is less than Rs. 1,000 and also, at 5 million transactions per month, mobile banking constitutes less than 3% of the total electronic and clearing transactions through the Indian Payment System.  (The RBI report on Payment Systems reports 2,558 million transactions a year, at a monthly average of 213 million transactions).

Mobile banking first appeared on the banking scene 5 to 7 years ago but is still considered the 'new kid on the block.' After the initial wave of enthusiasm, the concept has not quite clicked.  I would attribute this to the following:

Security Concerns:  Despite technological advancements, popular perception is that mobile transactions are not secure; hence people prefer PCs/laptops to mobile devices, especially for conducting higher value transactions, a sentiment which reflects in the average mobile transaction value. A cultural peculiarity in the Indian context is that financial transactions are taken very "seriously", almost revered, and therefore not to be trifled with on mobile!

Need for Huge Investment:  Significant investments made by Visa and MasterCard, popularized card payments even in developing countries. Similar investments can give impetus to mobile and contactless payments, which are already quite popular in a country like Singapore.  Mobile payments using the Visa or MasterCard networks are a possibility, and merging these networks can further reduce transaction costs.  Mobile instruments equipped with new generation NFC capability must be complemented at the merchant end as well for mobile payments to gain wider acceptance.  Research indicates that various collaborative projects in this realm, involving banking and technology bigwigs are underway, which could yield positive results in the coming years.

Cultural Aspects:  A vast majority of the developing world still perceives money as paper on hand and cannot relate to its virtual or electronic form. This is especially true of the unbanked population. A significant change in this mindset is required if mobile banking has to gain credence in these emerging economies.  Low literacy levels also contribute to this traditional outlook, and we still see people in rural and semi-urban areas hesitant and even unable to use ATMs.

Conclusion:

Mobile banking has huge untapped potential, and as per a BCG report, can generate a whopping fee income of $4.5 billion in India alone by 2015.  However, a multi-pronged approach is required in order for mobile banking to reach the masses, cutting through socioeconomic barriers. Apart from addressing core issues in mobile banking, promotional strategies involving mobile applications integrated with banking and payment applications can go a long way in popularizing it.

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