Banking on Digital: Products from a different realm

  • Increasing trend of banks and telcos coming together to deploy converged mobile financial services
  • The gamification of learning provides an example of how banks and telcos can create synergy

Banking on Digital: Products from a different realmBANKS and telcos operate on opposite sides of the same consumer High Street, sharing the similarities of owning capital-intensive infrastructure and having a considerable consumer base that cuts across all segments.

Another glaring similarity is the fear of becoming dumb pipes, with the Internet leveling the playing field and giving over-the-top (OTT) players access to their customer base through the very infrastructure they have built and maintained at significant cost.
 
Consumers are largely conservative in their banking habits and trust banks to help them manage and grow their wealth, pay their bills, transfer funds and hold their most trusted of personal financial information.
 
Banks, however, are conservative when it comes to introducing new non-core banking products which go beyond the limits of traditional financial services.
 
Telcos, on the other hand, are experts at customer acquisition, wielding the power of marketing influence for customers to discover, adopt and pay for digital services using their already established billing relationship with customers.

Additionally, the proliferation of mobile devices and their usage as a primary device to access Internet-based services place telcos in a good position to deliver mobile financial services.

Consider also that within five years, a significant number of today’s smartphone users will be using their phones and mobile wallets as their preferred method for payments.
 
Telcos, however, lack the level of trust and comfort consumers have with their banks when it comes to managing their financial portfolio.
 
Over the years, there has been an increasing trend for banks and telcos to come together to deploy converged mobile financial services which aim to leverage the strengths of both parties – attempting to go beyond mere product bundling and joint marketing initiatives of existing products already offered by either party.
 
Ironically, it is the very similarities between the two of being generally risk-averse, bureaucratic and having a valid concern over who gets to own the customer that would make collaborations on a converged product challenging.
 
Below is a brief example of a ‘synergised’ bank-telco offering which leverages the potential of trust customers have in banks to manage a financial scheme and the potential of influence telcos have to drive the adoption of digital services along with the Internet connectivity they are able to provision and manage for devices on their network.
 
While the merits of the example are arguable, the environment banks (and telcos for that matter) foster for their teams to workshop product ideas which do not necessarily fit the traditional mould of a banking product is the key ‘take-home’ here.
 
Banking on Digital: Products from a different realmInculcating the ‘Culture of Saving’ via games
 
Kids today, no matter the age, gravitate to their parent’s touchscreen devices to play games or watch their favourite programmes. A well designed iPad game can be more engaging than a children’s book or the traditional TV screen as the place on the screen that a young child touches is where the action happens.
 
Whether you think it is acceptable for kids below a certain age to have their attention warped into a ‘screen’ or not, more than half of young children today already have access to a touchscreen tablet or smartphone, and they are undeniably interacting with technology at a younger age than ever before.
 
Specialised early learning and childhood development companies have introduced digital publications and game worlds to capitalise on this as an alternative for children to learn while being entertained – the ‘gamification’ of learning for toddlers and young children.
 
These learning tools typically require the in-game purchase of a level to advance the child’s progression in the ‘world’ or to enable a particular virtual good that can be used as part of the ‘learning’ experience, with these items typically being of micro-value (i.e. less than US$5 per item).

Instead of parents having to buy these in-game credits for the child, usually after incessant nagging, the child can earn their in-game credits on their own by saving any money they receive from ang pows [traditional Chinese gifts of money), festivities, birthdays or that occasional gift from adoring grandparents.
 
All the child has to do is deposit the money in a bank-branded savings box which comes with an embedded data SIM from a partnered mobile operator. This connectivity, which parents pay a monthly data subscription for, enables the child’s wallet in the virtual-world to be immediately credited with the equivalent amount the child has saved in his real-world savings box.
 
The micro-savings are then deposited to a children’s savings account at the bank, activating the child (and parent) early on within the bank’s fold. The bank helps parents instil an appreciation for the value of money and inculcate the ‘Culture of Saving’ in their kids, whilst acquiring new customers who will eventually come of age and require their own savings account, credit card or car loan in their later stages of life.
 
Again, the approach to thinking about product innovations outside the traditional banking paradigm, rather than the feasible merits of the product example illustrated above, is the highlight here.
 
Now, consider this quote again for the bank aspiring to be the digital bank of choice in the future:
 

“The bank of the future will be a technology company with a banking licence.” – unknown source at a recent financial services technology event.
  • Mint.com which provides financial tools for consumers to track their spending and grow their wealth according to set financial goals is now seeing customer adoption for financial services outside of a bank's reach.
  • Square, which provides small devices that attach to smartphones and allows small businesses to accept credit card payments, has already acquired over one million customers since launching in 2010. Square has gotten between merchants and acquiring banks in the markets they operate in by capturing and serving the needs of SMEs (small and medium enterprises) previously deemed unprofitable by banks on an individual merchant basis, but which are proving to be profitable in aggregate when the merchant is serviced with lower cost-to-serve structures.
  • Over three million Starbucks customers globally, and 10% of all transactions in US Starbuck stores, now use their mobile prepaid card to pay for their coffee and not their bank or credit card directly.
  • Two web giants, Google and Paypal, have also already secured banking licences in Holland and Luxembourg respectively

Against this backdrop, it may be necessary to look deeper and discover alternative ways to reach and serve a customer’s evolving financial needs outside the paradigm of a typical financial banking product.
 
The point is that non-traditional financial players are already showing how to take a focus on a customer problem and solve it with actual digital functionality, as opposed to just more messaging and more noise.
 
Dinesh Lal Kumar is a former telco executive. An entrepreneur at heart, he is currently in transit to new ventures. In the early days of the dotcom buzz in KL, he was part of a promising startup that eventually flamed.

Banking on Digital Part 1: The confluence of IT and marketing

Banking on Digital Part 2: Where conversion matters

Banking on Digital Part 3: The largest branch
 

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