Learning from mBank’s branch channel investment

The recent article in Finextra, mBank to spend EUR17 million on new network of ‘Light’ branches, prompted this post. At first read, I thought this was a story about a celebrated direct bank building a branch network. Well, not exactly. About mBank mBank is no stranger to Celent. It has received two Celent Model Bank awards. In 2014, Celent recognized mBank’s digital platform redesign and in 2015, Celent recognized mBank’s Bancassurance initiative. For those unfamiliar, mBank is a Polish direct bank brand established by BRE Bank in 2000 as one of the first of its kind in the country. Thanks to the mBank’s business achievements and potential of the brand as first and the biggest internet bank in Poland, BRE Bank Group decided in 2013 to change company name to mBank. Thus mBank became a mature brand with an offer addressed to mass customers, affluent personal and private banking clients, as well as businesses, from microenterprises to the biggest corporations. Through 2014, mBank has grown to more than 4.7 million customers, 6318 FTEs, and deposits totaling $20.6 billion. It’s currently the fourth largest bank in the country. Before It’s Time Long before the Simples, GoBanks, Movens or Hello Banks of the world sought to capitalize on the shift in consumer behavior, there was mBank – serving customers where they want, when they want and through an innovative direct approach that, in its day, was one of the first of its kind. Rather than copying other financial institutions, mBank sought to deliver a best-in-class digital experience inspired from the world’s best retailers. For example: • Its Virtual Store inspired by Zappos • Advanced search functionality inspired by Google • Merchant funded rewards inspired by Cardlytics • Research and advice inspired by Amazon and Mint • Video banking inspired by Skype and Google Hangouts • Gamification and social media integration inspired by Foursquare, Like and Love In 2014, seeking further growth, mBank leveraged its new digital platform to introduce a complete digital transformation of insurance delivery to retail and SMEs, under its Bancassurance model. The platform is offered under an omnichannel environment, accessible through online, mobile, phone, video, or branch, all supported by a real-time, event-driven CRM engine. mBank enables the entire process to be handled electronically, while decision making and purchasing can be started and completed through different channels at the customers convenience. As a result of its efforts, the bank built the 5th largest insurance business in Poland aimed solely at existing checking account holders. Considering this represents only 7% of the market, the result is compelling. Starting from the overhaul of its digital delivery in 2013, and then extending into insurance services, mBank is a model for how digital can transform an institution, enabling innovative applications that can substantially grow the business. A Branch Network – Really? An undeniable digital success story, this celebrated “direct bank” wants a branch network? It already had one…sort of. Bart of the BRE bank family of brands, mBank had always been a direct bank. But in 2012, BRE bank announced it would simplify its branding and brand all its banks as mBank. That initiative effectively made mBank a universal bank franchise. In my opinion, this is itself significant – a universal bank operating in three countries adopting a direct bank’s brand for the enterprise? Imagine BBVA adopting Simple as its global brand. You get the picture – except mBank grew to many times the size of Simple. So, this isn’t really a story about a direct bank building branches. But, it is a story about a fabulously successful universal bank investing heavily in its branch network. To some, that still may seem nonsensical. mBank knows that point of sale is important and needs to be done right. Its’ new “light” branches will no doubt be right for its brand and its markets. Retailers across most all segments get this too. The latest published statistics from the US Census Bureau (November 2015) tells the story with great clarity. Despite two decades of steady growth, industrywide e-commerce comprises less than 10% of total retail sales. ecommerce trendsAs important as the digital channels are, the branch will remain central to retail delivery for some time. Celent’s Branch Transformation Research Panel gets this too. In its first survey (June 2015) we asked panelists how important branch channel transportation is. After all, the topic was virtually all talk and little action for years. But, 81% of the panel confirmed that branch channel transformation is not simply important, it is imperative. Branch Imperative Because of this, Celent intends to thoroughly research the topic over the coming year. One initiative is our Branch Transformation Research Panel. Celent is accepting additional requests for membership in panel and expects to field ongoing research through 2016 at semi-monthly intervals. To request to be on the panel, visit: http://oliverwyman.co1.qualtrics.com/SE/?SID=SV_cx9ir9zpWcRgyix .  

Digital Wallets: Crossing the Chasm Between Online and Offline Payments

Despite increasing online-offline convergence in retailing, there is still a chasm between online and offline payments which today’s digital wallets are struggling to cross. It remains a challenge today to use secure element-based payment credentials online and cloud-based credentials at the physical POS, although various solutions to bridge the divide are emerging. The above statements form the central thesis of my new report to be published early next week under the same title as this blog post. With my report, I sought to address the following key questions:
  • Given the proliferation of solutions, how to differentiate between various digital wallets in the market today? How best to think about the solutions, economics and implications for various players?
  • Is there any consensus in the market on what is important in order to succeed? What are some of the big unknowns which could significantly influence the market? What are some of the key challenges that the industry as a whole needs to address?
  • How should financial institutions respond to these market developments?
During my research, I have been studying a number of digital wallets (or their announcements), including Google Wallet, Isis, LevelUp, O2 Wallet, PayPal, PayPass Wallet Services, QuickTap Wallet, Serve, Square Wallet, V.me by Visa, MCX, Apple Passbook, Micosoft Wallet Hub, and FIS & Paydiant wallet, all of which are discussed in the report, along with a number of other solutions and ideas around mobile and digital payments. I am also proposing a framework how to analyse digital wallets, which should help banks and others understand the impact of wallets on the economics as well as customer and merchant relationships, availability of data, risk management and other key areas. If you are a Celent client, don’t forget to visit our website (www.celent.com) next week to download the new report. I hope you will find it interesting, but do let me know what you think. And to our American readers, a very happy Thanksgiving!

Payments and the 2010 holiday season

As we all know, Thanksgiving is not only an important holiday in North America, it is also a start of the retail bonanza in the run up to Christmas. Black Friday and Cyber Monday have become one of the biggest shopping days of the year. And the phenomenon is spreading outside North America – Cyber Monday is also used as a marketing term in the UK, Germany and a number of other European countries. Others might be using a different name (e.g. Play.com in the UK is promoting today as ‘Mega Monday’), but the concept is the same. So, is there any difference in how consumers shop and pay for the holiday purchases this year? Well, it seems that three trends stand out in particular, all of them related. The overall levels of spending are likely to be reduced from previous years, and ever more consumers will use Internet and “pay now” or “pay before” payment methods. There seems to be little optimism among the US consumers this year. According to a survey by Citi, many Americans expect to cut back both on the number of people to whom they give gifts and on the cost of those gifts. In addition, 78% plan to avoid traveling to further keep the costs down. As consumers count their dollars and cents, they are attracted by convenience of the Internet, the ability to compare prices and the deals that are only available online. According to American Express, more than 78 percent of consumers say that the Internet will play an important role in their holiday gift shopping. And sometimes, they get additional incentives – for example, the UK consumers have a chance to win a “year’s salary” of £40,000 every week for six weeks in the run up to Christmas by simply shopping online with PayPal. Finally, “pay now” and “pay before” methods are gaining further ground as a result of consumer concerns of getting into debt by using a credit card. GreenDot, a prepaid card provider, says that according to their survey, 69% of shoppers plan to primarily use available funds, such as debit cards, cash, checks, gift cards as well as prepaid cards to pay for holiday gifts this year. Also, while debit cards allow customers to use their available funds, historically they didn’t protect the cardholders from unplanned bank fees – according to the same survey, 45% of Americans have been charged unplanned bank fees in the past year, most commonly, overdraft fees (51%), followed by ATM fees (47%), finance charges (32%) and late payments fees (29%). Surely, this picture will be different this year, as Reg E limits the bank’s ability to charge unplanned fees, such as overdraft, but prepaid cards are certainly going mainstream – in the 12 months ended September 2010, Green Dot alone issued over 6 million new prepaid card accounts to Americans, who over that time loaded more than $9.5 billion of deposits. Of course, just like pre-election polls, survey results are not always accurate. It will be interesting to see the retail results and whether consumers managed to maintain their proclaimed financial prudence or if the temptations of the holiday season have in the end won them over.

Who says there is no competition in the cards world?

The European Commission has continuosly stressed the need for a pan-European card scheme as an alternative to Visa and MasterCard. The chief argument goes that the existing duopoly of the two giants limits competition and choices for the European banks. There was a time perhaps when the association status of both schemes used to colour their commercial judgement. I also remember their own messages at a time, which went along the lines “we are not competing against each other, we are both competing against cash”. Sure, cash remains an important target for both Visa and MasterCard, however, since their respective IPOs, I am seeing an increasingly fierce competition between these two firms. Both of them have been very active in staking the ground in contactless (Visa with payWave and MasterCard with PayPass) and mobile services. My UK bank has recently replaced my Maestro debit card with Visa debit – a clear sign that the competition between the two for bank accounts also remains strong. However, a number of recent announcements indicated that we might be entering a new phase in the “battle of giants”. It didn’t take long after Visa announced its intentions to strenghten its position in e-commerce with the acquisition of CyberSource, for MasterCard to follow with its own acquisition of Datacash, a European e-commerce service provider. And while MasterCard’s announcement on August 30th to partner with Borderlinx, a company that helps facilitate cross-border e-commerce, is still fresh in our minds, we should also note that Visa has done a similar deal with Borderlinx for its customers in the GCC region back in April 2010. Who says there is no competition in the cards world?

Paying to online merchants via your bank?

In the last couple of weeks, there have been a few announcements in the US and the UK about new ways to pay for e-commerce goods – via your online bank account. SafetyPay announced its formal entry to the US market and eWise, a company behind Secure Vault Payments in the US, announced a partnership with the UK’s VocaLink to develop a similar offering. They both promote a payment method, which takes the customer from an online merchant site to the customer’s online banking site, from which the customer can make a payment to the merchant. The attraction to the customer is that they don’t have to disclose the card details and they are safe in the knowledge that their payment has been authenticated by their bank. The merchant receives a guaranteed payment and in return pays a processing fee, which is shared between the payment provider and the bank. Such payments are reasonably well established outside of the US and UK – iDeal in the Netherlands and giropay in Germany are just two very popular examples. So, surely, the US and the UK must be ripe for these types of payments? I am not so sure though. I think these solutions will face a two-fold challenge: 1. Consumer adoption. Both the US and the UK have well established card markets, both debit and credit. Add PayPal into the mix and the consumer has a decent range of payment options online. Will they trust another unknown brand, even if it’s backed up by their bank? Just as some might be reluctant to enter the card details online, will they find it equally unnerving to type in their online banking credentials based on a link generated by an unknown online merchant? And will they find the whole process more convenient than paying by card? I doubt it… 2. Bank adoption. iDeal succeeded because the Dutch domestic debit card (PIN) had zero interchange and most of the cards could not be used online. Here, the new providers will have to convince the banks that it’s a good idea to cannibalise their card interchange fees for an alternative revenue source. Having said that, in the post-Frank-Dodd act world, these alternative revenues might actually be quite attractive. I would love to hear your thoughts on this. What do you think about payments online and specifically these new products?