Banking Distribution Overview

Banking Distribution & Channels
Physical & Virtual Distribution Overview, Trends

A brief overview of banking distribution scope and limits,
as well as some emerging trends and case studies.

11 November 2012
Sandton - Johannesburg
South Africa

Dan Armstrong
dan.armstrong@takashimobile.com
+31 652 085 071

Contents

 A personal note on paradigm shifts
 Conference programme highlights
 A few (perhaps useful) ways to sketch the spectrum of physical
vs. virtual distribution
 Some notable shifts in traditional banking distribution …

Distribution Conference 11/2012 – Dan Armstrong – page 2

marketplaceMCI (1994-96)


1-800-MUSiC-NOW (1996)


… however, modern e-commerce ended up being something different

 Many shifting paradigms. However, once the supply chain and
logistics business matched people‟s awareness, appetite and
feelings of trust for e-commerce settled.
 Clear winning business models emerged :
• Improved Efficiency
• Huge Product Selection
• The Long Tail
• Monetising Clicks in Finding Everything


A few notable shifts in the traditional banking value chain

Area … Pertains to … Some Examples …
New payment models – e.g. mobile, prepaid credit MyOrder, NFC, cardless payments,
cards, NFC for micro-payments, P2P ATM cash-out
Changing usage of bank branches How to shift banking business from
„transactional‟ to „personal‟
Internet-only, Mobile-only distribution Direct Banking, Mobile-only retail,
savings and direct banks
VAS moving strongly into basic banking Loyalty programmes, discounts, social
transaction business media links
MNOs, payment scheme providers & Dwindling revenue with old services &
intermediaries seeking new roles & partnerships some new ventures, positioning
Agency banking, correspondent banking, retailers, Lowered investment via partnerships
MNO agents, branches-in-stores with MNOs, retailers, SACCOs, etc.


Channels

“Physical” Banking Channels “Virtual” Service Channels
 Branch Networks  IVR Banking
 Account Management / Client Visits  Call-Centre Support / Banking
 Self-Service Machines (ATMs, teller  Internet Banking (incl. Internet
machines) Banking Kiosks)
 Partnership Models & Agency  Mobile Banking
Banking  SMS Banking and Information
 “Branchless” Banking with Bank- Services for Consumers, Farmers,
Owned Channels/Personnel Business
 Vehicle Banks  Merchant and Retail Payments,
 Container Banking Support for the Supply-Chain
 Flash and Capacity-Management  Email Banking
Service Channels  Physical Mail
 Doorstep Banking (e.g. ICICI Bank)  Television Banking
 Other Value-Added Services


How to sketch the spectrum of physical vs. virtual distribution?


Signing-Up for Products & Services vs. In-Life Service
Using Services In-Life

Some banks moving to mobile
sign-up for services, without
?? requiring internet banking log-in.

?
Signing Up (Sales)

Some banks are having success with
this in the mortgage market

Outbound sales, usage-stimulation
programmes, etc. (e.g. bank
callcentre programmes)

Physical Virtual


Traditional vs. Alternative

In some markets, this is “business
as usual‟ (e.g. Zambia, Kenya,
Alternative

Brazil, Columbia, The Philippines)
Traditional

Physical Virtual


Personal vs. Transactional (also can be seen as „Strategic vs. Financial‟)

Transactional

??

?

How can we ensure that our
electronic channels also remain
“personal‟ where possible?
Personal

Normally the „Bread and Butter‟ for
high-net worth individuals and
profitable products.
Physical Virtual


Owned vs. Outsourced

Also depends upon whether there
are partners available to perform
these tasks in specific markets.
Outsourced

Although core banking platforms
remain with the bank, VAS
platforms could be outsourced.
Owned

ATM services outsourced in many
markets; ATM switching, UI/screens,
policies, etc. remain in-house.

Physical Virtual


Zooming in on mobile …

CallCentre Banking SMS & Calling Alerts Transactions with Teller or
IVR Banking & Payments (spending, ATM usage, fraud, etc.) Agent using Mobile Devices

Mobile Banking & Remote Payments & MNO “Mobile Money”
Payments Electronic Wallets

Mobile Remittances Mobile Contactless / Advertising-led Models
Proximity Payments

= banks deploy = bank-led models = cooperative models = public transportation-led models

= mobile operator-led models = mobile operators deploy = third-parties deploy


Banks, Intermediaries & MNOs vs. Value-Storage Products

some MNOs offer banking (pass
through) services via STK or
Traditionally MNO
USSD Core Operational
MNOs

Space (“Prepaid
Airtime Storage”)

these do not “hold” consumer value
Intermediaries

Agency Banking Airtime & Mobile
Money Dealers
Banks, SACCOs, MFIs

Traditionally Bank‟s Core
Operational Space (“Mobile
Banking”)

Loans Savings Accounts Current Accounts (Remittances) E-Wallets Prepaid Airtime Wallets

Saving Money, Loans Payments Payments Payments

financial services products “transactional‟ products

Parties are Pushing “Up” the Value Chain – 9 overviews

 MNOs launching banks or 1
setting up joint-ventures to
start mobile-only banks. (In
Traditionally MNO
some countries this is Core Operational
MNOs

explicitly prohibited. e.g.
Nigeria) Space (“Prepaid
Airtime Storage”)

2
 MNOs becoming
„intermediaries‟ in Agency
Intermediaries

Banking, cash-in/cash-out
locations, signup of new
customers, etc.

 Third-parties issuing
value cards (traditionally
3
bank business)
8 9
4
Banks, SACCOs, MFIs

 MNOs issuing cards  Banks issuing Prepaid products  Banks launching their
(traditionally bank & E-Wallets own mobile providers
business)
7
 VAS in banking
 Partnerships with banks
to launch NFC wallets
5 6
 Mobile-only banks

Loans Savings Accounts Current Accounts (Remittances) E-Wallets Prepaid Airtime Wallets

Saving Money, Loans Payments Payments Payments

financial services products “transactional‟ products

mBank (Philippines)
1

 (24 October 20120) mBank is a new (fully-
licensed) thrift bank in The Philippines,
wherein SMART has taken a stake.
 USSD banking menu, familiar interface for
all SMART Money dealers, and independent
of MNO data network and reliance on smart-
phones.
 This bank offers loans & savings accounts,
accepts deposits, loan re-payments through
the SMART Money dealer network.
 Enables SMART to expand financial services portfolio as a
shareholder, and strategic partner (network assets), but not to
have to acquire a banking license on it‟s own or partner with a
bank using their existing license.
 Expansion planned to enable mBank Customers (SMART Money
dealers) themselves to offer loans, take deposits regionally in later
phases.


MNO Collaboration
2

 See presentation on DAY 2


Third-Parties Issuing Value Cards
3

 Prepaid Value Cards have traditionally been
used for:
• Low-value payments tokens
• Gift cards, vouchers
• Regular value disbursement (monthly food
allowance, healthcare)
 Over time, prepaid cards issued in payments
schemes have evolved to target:
• High-risk individuals / those with bad credit
• Youth
• Travel-oriented cards for payment aboard
• Remittances
 Coupled with the advance in mobile payments
(remote or proximity), making payments seem to
be increasingly lower-value business – and less
and less locked to a traditional „Current Account‟.
 Although banks are issuing prepaid cards, the
volume of third-parties issuing them is
substantially higher.

Third-Parties Issuing Value Cards
3

 Cards are seen as a requirement for most of our
retail partner banks, but are: Dan: What I am currently paying
directly from my current account?
• costly
• at risk of fraudulent activity
• potentially loss-making in markets that cannot charge
for transactions
• not necessarily part of core business in the future <?>
 In some markets, card inter-operability still an issue my wallets are funded ..
and/or control of card base not possible.
 What are the options in our markets to maintain
the relevance of the Current Account and
encourage savings, given that cards may be non-
core …
• Fight for bank-driven model? Make CA more relevant
(beyond salary disbursal) to include easier remittance
products, integration with other parties, interest/credit-
scoring (bank relevance)?
• Increase / decrease tariffs?
• Enabling all sorts of cards and payment tokens?
• Providing white-label services to business partners?


MNO Issuing Cards (Philippines)
4

 SMART has ~65 mln mobile phone users in
The Philippines (72% market share)
 SMART Money introduced in 2001 (own
wallet system), offers mobile banking access to
most banks too. ~10 mln sign-ups, ~3 mln
active users.
 In addition to retail payments, bill payments
and remittances, SMART began issuing a
MasterCard-branded card against their mobile
wallet system.
 This card allows them to provide balance inquiry @ ATMS, global acceptance of
their wallet balance, ATM withdrawal – without involvement of a bank.
 Why?
• Float, fee-based revenues, increased mobile usage
• Additional customers, reduced SIM card churn
 Regional distributors control liquidity issues, CIT (3-day supply is the policy)
 SMART & MasterCard have formed a new joint-venture to sell these
services to other MNOs (specifically starting with South America).


Partnerships between MNOs & Banks to Launch Mobile NFC
5

 Given the “natural fit‟ between financial and telco services required to
deliver mobile NFC (Near Field Communications), there have been a
large number of partnerships discussed between banks and mobile
operators about how to jointly deliver / support this ecosystem.

TRAVIK

 However, how many of these partnerships will survive commercial
launch?
• MNOs control the handset market in most countries
• Banks, other transaction brokers face higher costs in the near-term
• Retailers/loyalty/other VAS parties love the technology, but find it hard to
derive tangible business value (cost savings or increased sales or loyalty)
to-date.
• Public transport usually works with closed access and control
systems anyway.


Direct Banks – Mobile Only?
6

 There are many virtual banks world-wide,
although most are traditional direct banks,
leveraging internet portals and callcentre
support – and focusing on savings products.
 Many direct banks offer payment services (e.g.
credit cards) and some also offer checking, etc.
Many are moving into offering „perks‟ and VAS
along with their accounts as a differentiator.
 Defining features relevant to mobile for a
savings-only banking product was a
challenge. Checking balance, occasional
transfers, secure inbox, news, … ?
 Only a handful of banks world-wide have
moved to “fully mobile”, although they also offer
web-based support and information.

Mobile Bank: Jibun Bank, Japan
6

 As we know, the Japanese use the mobile phone for every
aspect of their lives : )
 Jibun Bank was launched in July 2008 as a venture between
Bank of Tokyo-Mitsubishi UFJ (BTMU) and MNO KDDI.
 Features self-service account opening via mobile (photo of
ID), but also BTMU & KDDI act as agents.
 Cash in/cash-out via BTMU‟s ATMs, Seven Bank and the
Japan Post Bank.
 Access via all MNOs (au, NTT DoCoMo, and Softbank Mobile),
the back-up website and IVR/operator.
 Targeting hugely-growing online banking market in Japan, but
also a major differentiator for KDDI phone service.
 Services: Yen deposits, funds transfers, forex deposits, loans,
credit cards, electronic money, e-shopping payments, financial
planning tools and insurance.
 The only manual processes are printing the forms and
dispatching account information (outsourced to a printing
company).
 Core banking system: Flexcube. Recharging Suica public
transportation card


Another sort of Bank/MNO collaboration: Union Mobile Pay, China
6

 (not a bank)
 Launched as a venture between MNO China
Mobile and China Union Pay bank in August
2003 Union Mobile Pay provides mobile
finance and e-commerce services to other
banks, retailers, online webshops, etc.
 Provides mobile-only transaction facilities e.g.
SMS, IVR, USSD, WAP, etc. and is primarily
focused on payments collection and acting as a
clearing and settlement switch for:
• Payments (only, bill payments, etc.)
• B2C, B2B, etc.
• Inter-bank settlement
 Also providing financial alerts and messaging Banks using the service ..
services.


What about social media-only banks? (ASB Facebook Branch, NZ)
6

 More than 18,500 “likes” on
Facebook page
 The majority of Facebook page fans
downloaded the Virtual Branch
Facebook app
 The bank reaches 1% of its
customer base via Facebook (vs.
0.2% via Twitter)
 The only chat provided by the bank
is on Facebook
 99% of Virtual Branch users would
recommend it to friends and family


Loyalty & shopping are already in core banking business
7

 Differentiation in basic retail
banking in many markets is
increasingly challenging for banks.
 Many retail banks are pushing into Bijenkorf Card: #1 consumer
credit card for a number of
more “value-added services” to years in The Netherlands

stand-out.
Hong Kong
 In some markets (Singapore, Hong shopping

Kong, Japan, South Korea), it’s discounts

virtually impossible to compete
in issuing without some sort of USA gas
rebates card
rewards or discounts plans.
 Many other markets seem to be
heading that way (Australia, USA,
United Kingdom, Canada, many
European countries).


Taking Rewards Further: Citi Australia
7

 Moving even further
beyond rewards/discounts
through credit card usage,
Citi Australia has put
together a whole lifestyle
programme around
cooking, wine, recipes, etc.
to create differentiation.
• Free wine each time the
card is used at a
restaurant
• Card usage rewards
• Exclusive contests (dinner
with famous chefs)
• Free cookbooks, online
recipes, offers


At the same time, loyalty & shopping moving into telco / app business …
7

 In general, in many markets traditional loyalty, discount and
shopping products are not only becoming more connected
with payment products, but also more “virtual‟ as well.
• Japan‟s NTT DoCoMo offers ToruCa (loyalty, discounts and
replacement for paper coupons) as well as Osaifu-Keitai mobile
payments (NFC, wallet system, and loyalty points in one).
• CardMobili, Rippl, FidMe, CardStar, etc. are all attempting to
move loyalty cards, barcodes, discount programmes into apps.
• Apple iOS6 Passbook is aimed at integrating loyalty cards,
boarding passes, movies and other ticketing, coupons in one app.
 Mobile phone-based programmes for these value-added
capabilities are superior to card-based capabilities in that
the mobile phone has processing power and connectivity,
so can often give customers better and more
unique/customised experiences than cards (relying on
acceptance infrastructure and server-side logic only).


Some attempts to add value to basic payments …
7

 The Google Wallet originally proposed as an independent e-value
system, now loads commercial credit cards – combined with Google
Offers, NFC, and „PayPal/MiniTix-like‟ purchase behaviour.
 The strategy behind Apple Passbook as well, as it has a billing
relationship with customers via the iTunes store.
 US MNO AT&T has launched the ISIS Mobile Wallet for Android (22 Oct
in Austin, Salt Lake City) as a “safer way to pay‟ with benefits like offers,
events and deals.
 Square Wallet enables credit card acceptance with new payment and
retailer models.
 Dwolla is an e-value platform that seeks to avoid credit card fees.
 Amazon Payments leverages Amazon‟s reach to move other products,
from electronics to cloud-based hosting. “1-click‟ and the content in their
single shopping portal are very successful.

What do we expect from a wallet? What do we expect from a transaction device?
• A place to store cash? • ID of myself, my rights, capabilities, memberships
• A place to store payment tokens & other cards? • ID of myself, an authentication tool for payment
• A personal object? A private object? Portable? • Secure, multi-factor, tamper-resistant/evident
• … but … do we need a physical object? • Personal and private
• Easy to use
• … but … do we need a physical object?


Banks issuing E-Wallets & prepaid products
8

 MiniTix holds customer information
safely in the cloud, under one MiniTix
identity.
 In Rabobank, you can pay directly
through MiniTix the prepaid balance,
iDEAL (Dutch online payment product),
PayPal or a credit card.
 MiniTix powers: MyOrder, mijn iD,
Cashless Betalen, SMS Betalen, Hyves
Afrekenen, others
 In addition to the thousands of prepaid
credit cards available today, many other
banks have launched an offline e-wallet,
to varying degrees of success and with
different motivations.
 In other markets, the success of MNO
MM wallets (e.g. MPESA, SMART
Money, MTN Money, Airtel Money, Tigo
Cash), have overshadowed the potential
benefits of a bank-led e-wallet system.


Dynamics ePlate (US)
8

 Mobile / computer app-controlled,
battery-powered magstripe card (re-
writable) that enables physical two
buttons to be assigned to separate
“experiences” for loyalty, charities,
earning rewards, bonuses, etc.
 Instant collection of or redemption of
these experiences at the point-of-
sale.
 Primary focus on “earning” these
experiences with purchases, in an
attempt to add value to standard
online and POS moments.
 Launched October 2012, with UMB
Bank, Kansas City / St. Louis
(http://www.dynamicsinc.com/)


Rabo Mobiel
9


Rabobank GSM MVNO & Value-Added Bank Product
9

 Great, Core Mobile
Telecommunications Product
 Rabobank Values – trust,
security, quality, easy-to-use
services, cooperative value
 Transparent Pricing
 Online Self-Care Environment
 Secure Mobile Banking
 Telecommunications Spending
Alerts
 Commitment to Applications
Innovation (Mobile Financial
Services)


Rabo Mobiel in the Marketplace
9


Rabobank GSM MVNO Value-Added Bank Product
Telecommunications Services Banking “On the Go”
Mobile Internet Access Premium Product / Combination
Mobile Content, Information & Media Communications Channel for Local Banks,
Portals and Self-Care Members & Customers

Mobile Incubator Mobile Knowledge Centre
NFC, Consumer Behaviour & Usability
Product/Business Development for Mobile Encryption, Mobile Business Rules
Financial Services and Products
Mobile Low-Value Payments
Launch of Remote & Contactless Payments and
Partnerships Standards, Retail/Consumer Acceptance,
Security, Sustainability


Thank You


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