Learning from mBank’s branch channel investment

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 .  

The challenges of the new neo bank

The challenges of the new neo bank
Since the launch of neo-banks like Moven, Simple, and GoBank, financial institutions in the US have been avidly monitoring their popularity. Some have written them off as non-starters; others have praised them as disruptors. In recent months, however, the neo-bank model has hit a few stumbling blocks that call into question the promise of the digital-only model, and gives credence to the sceptics. GoBank recently announced that it was going to stop allowing account opening via the mobile device. Users will now have to purchase an account opening “kit” from a store, adding significant friction to the process. Simple has experienced a number of issues related to payment scheduling, the “safe-to-spend feature,” and service outages or delays. Moven received $8 million to begin moving their app overseas in an effort to garner higher adoption. The promise of these new start-ups was a drastic improvement on customer experience, ditching traditionally stale financial services with improved digital offerings, social media integration, and a familiar/casual communication style. Yet these recent issues serve as a reality check for the neo-bank model—when your value proposition is customer experience, technical issues look 10x worse. It´s far from clear what will happen to these new market players, but Celent envisions a couple of different paths over the next few years.
  • Neo-banks are acquired and rolled into larger digital channels offerings: I wrote earlier this year about banks acquiring technology companies, thereby acting more like tech companies than traditional banks. The neo-bank model and acquisition of innovation are not that dissimilar, and BBVA´s acquisition of Simple is the conflation of both strategies. Through acquisition, BBVA is able to jump the steps of creating a culture for digital channels innovation, establishing a customer base (albeit small), and aligning internal resources required to launch a new service. There aren´t many neo-banks, but digital channels start-ups are numerous. This could be the way forward for institutions that are struggling with adapting the existing operating model to digital financial services.
  • Traditional institutions begin offering their own neo-bank, digital-only services: Fundamentally, there`s nothing truly disruptive about a neo-bank. There´s no secret algorithm, intellectual property, or disruptive idea at work, and many banks are more than capable of offering similar levels of service. Indeed some of them have already begun offering digital services through a separate digital brand. Examples globally include NAB´s UBank, ASB BankDirect, Banamex´s Blink, Hello Bank by BNP Paribas, and Customer Bancorp’s new mobile brand. With new brands, and often new platforms, these banks are testing the digital model. This should satisfy a growing number of digitally driven consumers, as well as provide a clear path for banks looking to move accounts to more digitally-focused services.
  • Neo-banks never become viable stand-alone business models, but they influence the way banks think about digital channels: Currently, most neo-banks aren´t banks–they rely on other institutions to handle the deposits, making them simple prepaid services with additional functionality. The reliance on third-parties is becoming a bottleneck for delivering the value neo-banks have come to represent. Without diversified financial offerings that encompass the entire financial need of the consumer, these “prepaid” services are pressed to create enough value to validate adoption. This is a major question when assessing viability.
There´s even a fourth scenario that could play out over a longer period of time: neo-banks become the primary way digital natives interact with financial institutions as they mature into adulthood. No matter which scenario plays out, neo-banks have undoubtedly moved the conversation around user experience and digital channels forward in a way that would not have happened otherwise. They are setting the bar high, with the big question being whether they will be able to gather the adoption needed to make their services sustainable. What do you think? Will the concept of neo-banks have a place within traditional banking?

What Does the BBVA Acquisition Mean for Simple?

What Does the BBVA Acquisition Mean for Simple?
The financial world is abuzz about the recent acquisition of Simple by the Spanish banking giant BBVA.  The news is surprising, but not unusual for a banking group that has invested in other innovative companies such as Freemonee, SumUp, and Radius.  The deal also legitimizes a financial start-up that has garnered quite a bit of skepticism among some in the industry, despite a small yet dedicated and growing customer base.  Banks are clearly considering these innovators to be significant enough to validate their acquisition.  Simple is a brand, not simply a product offering. It has recognition outside of the industry, and the effect on existing customers makes this acquisition different from the norm. As the relationship unfolds, it will be interesting to see how Simple responds to the following:
  • Will Simple really remain independent? The statements released by both parties claim it will. Recent acquisitions of Nest by Google and WhatsApp by Facebook also made similar claims of maintaining autonomy, but that doesn’t mean it will remain the case.  Yahoo acquired Flickr in 2005 with similar promises of independence, yet in the subsequent years drove an up-and-coming innovator straight into the ground.  The fear for Simple customers is that the unbeatable user experience and exceptional customer service that made it so appealing will slowly be lost as the two companies integrate. Accounts will remain at Bancorp bank for the time being, but the inevitable move to BBVA must be graceful, or a once innovative product is liable to lose the only edge it had in the market
  • Does this deal allow Simple to become more complex?  The big attraction of this deal for Simple is that it gives them access to the resource of BBVA, a massive multinational financial institution with a clear penchant for funding innovation.  The main complaint with the start-up since launch was the limitations that came with not actually being a bank.  Simple didn’t do mortgages, it didn’t do investments, and there were no credit cards.  For the PFM features to be truly useful, users would have to go ‘all in’ with Simple.  More resources could allow for more development into a more diverse set of products and financial offerings, increasing the potential of the already well designed PFM platform.  The test will be the following: will Simple be allowed to continue its own brand with its own products, or will it simply become (pun intended) a funnel to push BBVA’s core business?
The acquisition of Simple, no matter what happens, is a good sign for financial start-ups, especially those that compete directly on Banks’ turf.    The industry could learn from the way BBVA has taken a page from tech giants and big pharma. There are hundreds of innovative Fintech companies out there, and great ideas don’t always have to come from internal development—in fact for large banks they rarely do. But Simple has now become part of the traditional banking world they used to decry.  Will the financial services industry’s challenging record of financial innovation rub off, or will the resources of a megabank allow Simple to grow into a true disruptor?  Only time will tell.