Banks have been using digital technologies to help transform various areas of their business. There’s an even bigger opportunity—go all digital.
The digital revolution in banking has only just begun. Today we are in phase one, where most traditional banks offer their customers high-quality web and mobile sites/apps. An alternate approach is one where digital becomes not merely an additional feature but a fully integrated mobile experience in which customers use their smartphones or tablets to do everything from opening a new account and making payments to resolving credit-card billing disputes, all without ever setting foot in a physical branch.
More and more consumers around the globe are demanding this. Among the people we surveyed in developed Asian markets, more than 80 percent said they would be willing to shift some of their holdings to a bank that offered a compelling digital-only proposition. For consumers in emerging Asian markets, the number was more than 50 percent. Many types of accounts are in play, with respondents indicating potential shifts of 35 to 45 percent of savings-account deposits, 40 to 50 percent of credit-card balances, and 40 to 45 percent of investment balances, such as those held in mutual funds.1 In the most progressive geographies and customer segments, such as the United Kingdom and Western Europe, there is a potential for 40 percent or more of new deposits to come from digital sales by 2018.
Many financial-technology players are already taking advantage of these opportunities, offering simplified banking services at lower costs or with less hassle or paperwork. Some upstarts are providing entirely new services, such as the US start-up Digit, which allows customers to find small amounts of money they can safely set aside as savings.
A new model: Digital-only banking businesses
While it’s important for banks to digitize their existing businesses, creating a new digital-only banking business can meet an evolving set of customer expectations quickly and effectively. This is especially true in fast-growing emerging markets where customer needs often go unmet by current offerings. The functionality of digital offerings is limited, and consumers frequently highlight low customer service at branches as a key pain point.
So how should banks think about a digital-only offer?
Because banking is a highly regulated industry and a stronghold of conservative corporate culture, there are tremendous internal complexities that need to be addressed. These include the cannibalization risk to existing businesses and the need to foster a different, more agile culture to enable the incubation and growth of an in-house “start-up.” The good news is that our work shows it is feasible to build a new digital bank at substantially lower capex and lower opex per customer than for traditional banks. This is due not only to the absence of physical branches but also to simplified up-front product offerings and more streamlined processes, such as the use of vendor-hosted solutions and selective IT investment, that reduce the need for expensive legacy systems.
The latest internet activity data from the ABS, to December 2015, shows that both internet speeds and data usage continue to rise. There were approximately 12.9 million internet subscribers in Australia at the end of December 2015. This is an increase of 2% from the end of December 2014. As at 31 December 2015, almost all (99.3%) internet connections were broadband. Fibre continues to be the fastest growing type of internet connection in both percentage terms and subscriber numbers. The number of fibre connections doubled between December 2014 and December 2015 to 645,000 subscribers.
Around half of all internet connections are via a mobile device. DSL has more than 40%, and fibre to the premises is now beginning to register strongly (thanks to NBN roll out).
The year on year changes show that fibre 6 month by 6 month growth is above 50%, making an annual rise of more than 100%. Most other channels were relatively static.
A large number of users now have advertised download speeds of more than 8Mbps – 80% of users in Dec 2015. Close to 20% are between 1.5Mbps and 8Mbps. The ABS does not break out the figures by geographic regions. We think they should. Also, of course, advertised speed and actual speeds delivered are two different things. Data from our digital channels survey indicates that more than half of households experience data rates well below advertised speeds. Those in regional and rural areas had the worst experiences, but we also see a rise in below par speeds in urban areas as service demand rises faster than capacity investment. Slow real speeds have been discussed recently on QandA. Buffering… Buffering….!
For perspective, read this earlier post. We continue to slip down the global rankings. In the report published by Akamai Technologies, Australia fell to 48th place in a global average broadband connection speeds. The report says the average broadband speed for Australia in the fourth quarter of 2015 was 8.2Mbps, down from 46th place when compared to the rest of the world. In terms of average peak internet speeds, at 39.3Mbps, Australia fared badly, dropping to 60th position (down from 46th) in the quarter. This despite Australia’s average and peak internet speeds having increased by 11 per cent and 6.4 per cent year-on-year, respectively.
National data consumption has continue to climb, especially via fixed line broadband. To December 2015, this rose to more than 1,600,000 TBs. The average wireless mobile user consumed around 7gb whilst the average fixed line user consumed close to 250gb. Streaming media services account for a significant proportion of the rise from around 200gb in June 2015.
Facebook has said it does not have intentions to be a financial services organisation, however, the social media giant wants to partner with Australian banks to assist their transition to mobile.
Speaking at the Australian Financial Review (AFR) Banking and Wealth Summit in Sydney yesterday, Facebook’s head of financial services Australia, Paul McCrory said banks can leverage Facebook’s “vast scale” to innovate mobile banking.
He says the social media giant has “built these huge mobile platforms” that Australian banks should use to build a better mobile experience in financial services.
“Banks are mobile businesses as well, except that they have this legacy that sits behind them. So where we’re operating now is how do we help partner with this vast scale we’ve got to help a bank, for example, drive digital adoption,” McCrory said.
“How do we help the banks actually drive more and more people to use mobile services of some description, rather than having to go to a branch… and then over time create the best possible mobile branch experience…”
McCrory says bank branches “in their current form” are “inefficient” for today’s consumers.
“We’re not going to build a financial services organisation. What we’re here trying to do is help these organisations pivot to these more modern mobile type services.”
Whilst McCrory says Facebook has no intention to compete with the banks, the tech platform has dabbled in providing a financial service itself. Last year, Facebook announced a new payments feature for Facebook Messenger users in the United States, allowing users to make person-to-person payments by adding their debit card details on the Messenger service.
National Australia Bank (NAB) says customers have rapidly adopted mobile payments technology with the bank’s new NAB Pay service downloaded more than 18,000 times in just the first month.
The convenience of being able to pay for everyday items like fast food, fuel and groceries using your mobile phone has seen customers make more than 60,000 purchase transactions since the service launched earlier this year.
In just over a month:
· More than 18,000 customers are using NAB Pay to make purchases using their mobile phone.
· More than 150 customers are activating NAB Pay, every day.
· More than 300,000 customers have downloaded the latest version of NAB’s Mobile Internet Banking App, enabling access to NAB Pay.
Compared to Paywave transactions:
· NAB Pay is used more for lunch, coffee and snacks with a higher proportion of transactions at cafes, restaurants fast food and supermarkets (60% of NAB Pay transactions vs 52% of Paywave)
· NAB Pay is used more for lower ticket items ($13 for NAB Pay vs $19 for Paywave)
Top NAB Pay Merchant categories:
Category NAB Pay transactions Paywave transactions Difference
Supermarket 29% 26% 3%
Fast Food 18% 15% 3%
Restaurant 13% 11% 2%
Service Station 10% 11% -1%
Retail 7% 9% -2%
Other 23% 28% -5%
NAB Executive General Manager for Consumer Lending, Angus Gilfillan, said the number of customers using NAB Pay had significantly exceeded expectations.
“Customers love how simple and easy the service is to use, which is why we’re seeing more people using NAB Pay at the register,” Mr Gilfillan said.
“As expected, transactions have mostly been below the $100 mark, with customers using NAB Pay for coffee, lunches, general grocery shopping and petrol.
“Notably, we’ve also seen customers use NAB Pay for larger transactions at electronic retailers, where they purchased the likes of televisions and whitegoods for their homes.”
During the working week, NAB Pay transactions spike at lunchtime, mainly at fast food restaurants, and between 6pm and 7pm, where most spending is done at the supermarket on the way home from work.
Mr Gilfillan said customers were continuing to drive the agenda and we could expect to see more Australians using their mobile phone to make purchases.
“Australians have been fast adopters of contactless payments, with more than 70 per cent of transactions now done in this way,” he said.
“If NAB Pay is anything to go by, it won’t be long before mobile payments become the common payment method for our customers.”
Last week, NAB introduced all consumer Visa Qantas and Velocity Rewards credit cards to the NAB Pay service.
“We’re delighted to bring our most popular credit cards to NAB Pay and will continue acting quickl to make other cards products available as soon as possible,” Mr Gilfillan said.
“We’re focused on delivering the number one cards experience in Australia and look forward to extending our digital wallet offering in the coming months.”
To use NAB Pay, customers will need a compatible Android device, have downloaded the latest NAB Mobile Internet Banking App and have a NAB Visa Debit card and/or eligible Visa Qantas and or Velocity Rewards credit card. NAB Pay is available wherever contactless payments are accepted.
The stand-out feature of Apple’s 40-year rise to become the world’s largest public company has been its ability to convert ideas into designs that have redefined consumer products. It is astonishing that the iPhone only arrived in 2007 but, in less than a decade, has helped redefine communication, computers, music and the internet.
But just as the PC age transitioned into the mobile computing market, we are now seeing the start of a shift to the era of the “Internet of Things”. What is the future for Apple as the focus shifts from computers in our pockets to computers in all the objects around us, from our buildings to our transport to our kitchen appliances?
The greatest sales growth in Apple’s history came in 2015 but we’re already seeing the mobile and tablet markets mature. Apple’s latest releases – the iPhone SE and the iPad Pro – are really just variations on existing products. When a company runs out of new countries to expand into and its new products are just there to fuel replacement sales, it can expect to see less and less growth.
Internet of Things
The technology market is a fickle and fluid world, new devices and solutions can often come from new directions that disrupt products and services. While the PC and mobile market has become a connected cloud of content and apps – such as Apple’s iCloud online storage system and Siri voice recognition program – this design is now shifting into “connected objects and things”.
We’ve already seen the beginning of this movement with the advent of wearable devices that track your fitness levels and allow you to make contactless payments. But Apple’s entry to this market, the Apple Watch, has made far less of an impact than previous new launches. Its first connected device for the home, Apple TV, has had similarly limited success.
Apple has also introduced developer software to allow other manufacturers to connect their home appliances (HomeKit), medical and fitness devices (HealthKit) and even cars (CarPlay) to the company’s technology. But these things remain underdeveloped – early market rather than mainstream.
Can Apple replicate its success?
Apple’s success has been based on redefining existing products, but when it comes to new technology markets it has little to no track record. While Apple Watch and Apple TV are potentially leading products in their markets, they still aren’t radical compositions of technologies that can produce the kind of popularity and “wow factor” we saw with the iPhone and iPad. Even with the firm’s reported move into driverless cars or other possible difficult, high-risk “moon shot” projects, the question remains whether it can create a critical mass for the new category of connected computing.
The other issue for Apple is that the Internet of Things involves connecting many different types of products, appliances and content services from not just one company but potentially hundreds, including rival system manufacturers.says above they are doing this – are the above apps, which he then says below?. This differs significantly from Apple’s previous “walled garden” approach that has involved working with app developers, but making core technology incompatible with that of competitors – right down to its charging cables. The question is whether the firm’s home, health and car development platforms will also remain closed to rival companies, preventing customers from picking and choosing from different systems.
With its past record, the expectation of Apple is sky high. But even the enormous funds of US$160 billion that the company is sitting on – more than the GDP of many small countries – is no substitute for creativity and genius. I believe Apple will be able to position itself at the vanguard as the market moves past this latest inflexion point. But having your own walled garden may not be enough when consumers and enterprise want a multiple-connected experience.
Author: Mark Skilton, Professor of Practice, University of Warwick
Liberty Network Services (LNS), the branded distribution arm of non-bank lender Liberty, has partnered with online lender Moula to better service small business clients.
Through the partnership with Moula, in which Liberty acquired a part stake in last year, LNS brokers will be able to refer any small business customer directly to the fintech lender through an online portal.
LNS managing director, Brendan O’Donnell, said the partnership was formed to meet the growing needs of small businesses that struggle to secure short term finance with the major banks – while also helping brokers to diversify their business.
Liberty supplied Moula with $30 million in funding last year to finance its cashflow loans to small business, however O’Donnell told Australian Broker that the timing of announcing this referral partnership now is significant.
“Business confidence is increasing on the back of Malcolm Turnbull’s push to support more entrepreneurs and small businesses – so we’re seeing business lending growing more each week as well.
“The opportunities for our advisers to sell more business loans has been on Liberty Network Services radar for some time.”
Co-founder of Moula, Aris Allegos, said this partnership marks Moula’s first step into harnessing a broker model.
“We’ve had a lot of success in going direct to customers, and also via referrals through our finance partners, but this is part of a new strategy to harness the broker model and get Moula in front of customers in different ways. It’s going to bring Moula its next level of growth,” he said.
O’Donnell said partnering with a fintech lender will also help keep its brokers’ offering “more attractive and relevant” and is something the group will be open to exploring further.
“As we know there are many fintechs emerging and providing an alternative way of doing business across the finance spectrum. We will continue to explore opportunities with fintechs that are able to enhance our adviser’s proposition and offering in the market – and that can meet our customer’s ever changing needs,” he told Australian Broker.
Virtual currency Bitcoin is much-maligned, partly due to its shady history and its treatment as a trading commodity. However, with the dismantling of Silk Road and the collapse of Mt Gox, Bitcoin is no longer a mere play thing for drug dealers and fantasy gamers.
It has real potential as a means to conduct seamless and secure online transactions. Its role as a key player in our fintech future should be assured.
But in order to achieve this status, its price needs to stop fluctuating so wildly. The main cause of the Bitcoin roller-coaster has been speculation. Speculation has consequences.
In 1720, when the South Sea Company collapsed, Sir Isaac Newton famously quipped, “I can calculate the movement of the stars, but not the madness of men”. Newton was referring to the frenzied trade in South Sea Stock that had gripped England and her neighbours. The collapse of the South Sea Company was the first global financial crisis. When the bubble burst, Newton himself lost the equivalent of almost US$5 million.
In the months leading up to the scheme’s demise, Daniel Defoe published a pamphlet warning against too much speculation. What would these learned gentlemen make of our recent interest in Bitcoin? Newton would be fascinated by the ingenuity of our modern technology and Defoe (himself a tradesmen and very interested in finance) would likely be enchanted by the invention of an unregulated nationless currency.
But what would they think of all the speculation? I think neither would approve. In 2013, the price of Bitcoin soared from US$15 in January to over US$1,000 by the end of November. Bitcoin’s increasing value was loosely tied to its emerging legitimacy, but the biggest surge in price was driven by Chinese investors hoarding Bitcoin and stashing it offshore. For the first time, Bitcoin was serving as both a digital currency and as an investment product in its own right. Whether Bitcoin’s performance in 2013 meets the definition of a speculative bubble deserves a closer look.
Irrational exuberance
Bubbles begin by stealth. The price of any commodity will only take off when smart institutional investors notice the product’s potential value and step in. They buy while the price is still low and sell when it has made a gain over a short period of time. The first sell-off is followed by a dip in price, known as a “bear trap”. Once the investment has the media’s attention, public enthusiasm follows. Demand pushes the price up and then the madness sets in: namely, greed, delusion, fear, panic and finally despair.
In Bitcoin’s early years, its price was even-tempered. In July 2010, one Bitcoin cost 9 cents. For the next ten months, it hovered around this mark. Nothing remarkable happened until April 2011, when the price of Bitcoin suddenly climbed steeply, spiked at US$29.60 and then steadily dipped back to US$13.00, which became the new normal. This lasted almost two years. Then on April 9, 2013, the price soared to US$230, followed by a rapid sell-off and another dip in price.
An article in CNN Money published on April 12, 2013 reported that the Bitcoin bubble may have burst. In fact, this was just the bear trap. Frenzied trading ensued and on December 4, 2013, it peaked at US$1,047.25. It has not been back there since. For the past two years, the closing price for Bitcoin has fluctuated between US$250 and US$450.
The events of 2013 have all the hallmarks of a speculative bubble. What is the problem? All this volatility is giving Bitcoin a bad name.
As we know, economic bubbles are driven by greed, delusion and fear. These emotions impair judgement. Greed lures us to believe in schemes and promises that are just too good to be true. In Bitcoin’s brief and turbulent history, fortunes have been made and lost. Some investors have been unlucky, but most were duped. In December last year, 10,000 investors lost US$19 million in a Bitcoin Ponzi scheme. A number of exchanges have also completely imploded. Some have fallen foul of hackers, while others have been shut down by regulators for running sham operations or laundering the ill-gotten gains of a black market.
Notwithstanding all these shocks and crashes, I would argue that we should not be put off Bitcoin. Our negative impressions are borne of the way it has been used so far, but this will change.
The technology that drives Bitcoin enables almost riskless storage and transfer of value and data. In an increasingly digitised world, this is a really useful innovation. Once the regulators step in and (for example) curb the influence of speculative trading in Bitcoin, its role as a legitimate currency will prevail and the madness will stop.
Author: Philippa Ryan, Lecturer in Civil Practice and Commercial Equity, University of Technology Sydney
The addition of brightday is the latest in a series of acquisitions for YBR. While previous acquisitions have contributed to the business’ scale, this acquisition will provide an important capability for the company’s digital strategy the company says.
Executive Chairman Mark Bouris says Yellow Brick Road’s and brightday’s common partnership with OneVue, an independent investment software platform, allows for a logical and simple integration.
“This acquisition is a key part of our direct and online strategy to be launched to consumers in FY17,” Mr Bouris explained.
“brightday serves a similar customer segment to Yellow Brick Road. Our 2020 customer strategy ensures we can serve customers via the means and channel they prefer: many will prefer face-to-face support which is why we will double our branch network by 2020, while others have a bias towards direct-digital product, and the majority will seek a blend of both. The acquisition of brightday helps enable this.”
Consistent investment in consumer-facing advertising over five years has built a strong brand which Yellow Brick Road intends to leverage in the digital space. Mr Bouris said that this brand awareness is already yielding direct inquiries from many customers for insurance, as well as some funds management and superannuation product.
“This digital push is focussed first and foremost on accelerating our wealth business growth. We want 30 per cent of our customers accessing our wealth services by 2020. Wealth is a real differentiator for us and a major focus over the next four years.”
“Giving customers superior digital access and tools for investments and superannuation is an important tactic in building our wealth volumes. We have already seen great engagement through Guru, our robo pre-advice tool. brightday is the next enhancement,” Mr Bouris concluded.
ASIC has today announced changes to the ePayments Code that will make it easier for businesses to give information to their customers in a digital form.
Under the changes, subscribers to the ePayments Code will be able to give information to their customers by making it available electronically and notifying the consumer. This follows similar changes ASIC made last year to the Corporations Act.
ASIC Deputy Chair Peter Kell said, ‘The changes mean that documents under the ePayments Code can be delivered to consumers digitally as the default option, unless the consumer opts out. This will reduce the costs of printing and mailing for businesses while preserving choice for those consumers who wish to receive paper.
‘Promoting the delivery of information in an electronic form is consistent with ASIC’s objectives, as well as the nature of payments governed by the Code.
‘ASIC encourages industry to harness the opportunities of digitisation and to adopt the use of more engaging forms of communication that can boost consumers’ understanding of financial services and products’, Mr Kell said
ASIC has also released an updated version of Regulatory Guide 221 Facilitating digital financial services disclosure (RG 221). We have made minor changes to RG 221 that:
refer to our modification of the ePayments Code;
indicate that our general guidance on digital disclosure is also relevant to information given under the ePayments Code; and
update our guidance to include recent technical amendments we made to our relief under the Corporations Act.
Background
In July 2015, ASIC published RG 221 and two relief instruments under the Corporations Act (see 15-198MR). Among other things, this work facilitated the use of innovative digital disclosures by:
explaining our view that providers do not need ASIC relief in most instances to use clients’ electronic addresses for delivery of disclosures;
giving relief to create a new method of digital delivery under the Corporations Act enabling financial services providers to publish disclosures digitally and notify the client that it is available;
providing additional good practice guidance for digital disclosure (Appendix D of RG 221) to help ensure that clients continue to receive clear, concise and effective information when disclosures are delivered digitally and that consumer protections are retained in the digital environment.
Following the February announcements, today the Treasurer has further endorsed the development of a thriving FinTech industry in Australia by announcing a series of prospective commitments to the sector. During the launch, which included a number of FinTech CEO’s, several potentially significant issues were aired. Whilst talk is cheap, if they follow through, it would amount to a significant vote of confidence for the growing sector.
Funding: From a funding perspective, the government said that they would look to enable FinTech ventures to receive investment from VC funds who are registered under the Venture Capital Act (currently not possible) and would also examine ways to refine the Crowd Funding regulation to bring it up to par with other leading FinTech markets.
Digital Currencies: the Government will be addressing the double GST currently applicable to bitcoin and other players and will also review the application of Anti-Money Laundering (AML) and Counter‑Terrorism Financing regulations to address the inability of digital currency operators to secure banking relationships.
Regulation: They will create an appropriate regulatory environment for start-up ventures so they can experiment with new models for the delivery of financial services to consumers without having to spend their scarce start-up capital on licencing before even testing their model.
Competition: Acknowledging the barriers to competition which the large financial services players have, they will refer the issue of more open access to financial data to the Productivity Commission. For example, credit data is regarded as a “strategic” asset by some banks, and they do not share positive credit data, despite the new credit regime.
China: The development of funds management passports with China.
This raft of measures if implemented effectively could certainly bring even greater momentum to the FinTech sector, and mark a potential sea change in the competitive landscape in Australia. Beyond that, the broader Asian market might also be addressable, and Australia could become an innovation hub.
The year on year changes show that fibre 6 month by 6 month growth is above 50%, making an annual rise of more than 100%. Most other channels were relatively static.
A large number of users now have advertised download speeds of more than 8Mbps – 80% of users in Dec 2015. Close to 20% are between 1.5Mbps and 8Mbps. The ABS does not break out the figures by geographic regions. We think they should. Also, of course, advertised speed and actual speeds delivered are two different things. Data from our digital channels survey indicates that more than half of households experience data rates well below advertised speeds. Those in regional and rural areas had the worst experiences, but we also see a rise in below par speeds in urban areas as service demand rises faster than capacity investment. Slow real speeds have been discussed recently on QandA. Buffering… Buffering….!
National data consumption has continue to climb, especially via fixed line broadband. To December 2015, this rose to more than 1,600,000 TBs. The average wireless mobile user consumed around 7gb whilst the average fixed line user consumed close to 250gb. Streaming media services account for a significant proportion of the rise from around 200gb in June 2015.
