Showing posts with label banking and finance. Show all posts
Showing posts with label banking and finance. Show all posts

Tuesday, May 11, 2010

Mobile is changing the banking world - WHY ?

Back in 2004, Someone asked a group of bankers when mobile would take off in banking. They all said: “not in our lifetimes”.

In 2007, Bank of America launched their mobile banking applications and has seen a rapid uptake of users. In less than a year, they reached a million customers on mobile, and saw a further 300% growth in 2008. It took them over a year to get the first million customers; a pregnancy period of just nine months to get the second million; and a short six months to get the third.

According to Doug Brown, the man responsible for mobile banking at Bank of America, the speed of take-up is accelerating even faster in 2009, with 150,000 new mobile customers in September 2009, 210,000 in August and 220,000 in July.

What are they doing?

99% of mobile users’ view balances, 90% view transaction details and about $10 billion of funds have been moved via mobile.

But this is not just for existing accountholders wanting account access. The bank has gained over 150,000 new accountholders from competitors during 2009, just because they wanted mobile banking.

So far so good.

Now jump to Africa.

M-PESA is the story in Africa.

M-PESA is the mobile text service introduced by Vodafone’s subsidiary, Safaricom, back in 2007. Suddenly a country with zero electronic methods for making payments for the masses had an electronic access which has revolutionised the country.

Within a year, one in five Safaricom users were using M-PESA to make payments, and one in ten Kenyans had used the service. By November 2009, M-PESA had become the world’s biggest mobile money service with over 10% of Kenya’s GDP moved by mobile payments. Accidentally, Safaricom had become the biggest bank in Kenya with 8 million users registered and over $2 billion transferred by mobile.

Now M-PESA is being expanded into Nigeria, South Africa and other African countries, whilst banks are saying that customers are actually switching banks to get mobile channel access.

Now jump to Japan.

A bank launched in Japan in June 2008 called Jibun Bank.

Jibun Bank is a mobile only bank. The Bank is designed for access via mobile only. You try to use the bank online, and it’s rubbish. As for branches, forget it. This is a multimedia rich, mobile only bank.

The bank is a joint venture between the Bank of Tokyo-Mitsubishi UFJ and telecom operator KDDI.

Jibun Bank, which means my bank, gained 500,000 account openings in just eight months and, after eighteen months, had Y140 billion ($1.5 billion) of deposits by December 2009, from over 850,000 accounts.

At the start of March 2010, the bank opened their millionth account.

What is the point of these three short case studies?

Well, there are many, many examples of banks innovating with mobile worldwide today, but the lesson is this.

In 2004, bankers believed this revolution would not take place in their lifetime.

One banker actually said to me, in writing: “I think this idea is way out there – ten to twenty years – before this plays out in any sizable way.”

Six years later, the battleground is already defined and being won.

Are you fighting in this space?

Have you lost already?

I wonder ...


Top four technologies in 2010 for banks

MEFTEC 2010,
the sixth year that Bahrain has hosted the Middle East’s largest financial technology conference and exhibition.

This year’s conference has the theme ‘Innovation amidst regulation’ as a result of the imminent implementation of new rules and regulations across the global banking markets. The G20 summits and the never-ending announcements of rules related to liquidity and capital reserves seem to rumble regularly, and yet little has yet been implemented. This will change in 2010 through the next five years or more, as the US Federal Reserve and UK Treasury work closely with the Finance Ministers of all countries to agree the correct approach for future operations.

South Asia, Middle East and Africa – the SAMEA Region – has clearly been affected by this crisis with the visible default on the Dubai’s debt in November, just as the Burj Khalifa opened. Less visible has been the stress on SAMEA banks, with many smaller banks suffering from Non-Performing Loans (NPLs). Ratings agency Standard & Poor has said it believes that 2010 will be another difficult year for Gulf-based banks, for example, due to the issues in cleaning up the loan books. In their most recent figures, about one-third of S&P’s ratings on banks in the GCC have a negative outlook.

"We see a growing disparity in credit quality among banks in the Gulf, between the stronger Saudi and Qatari banks on the one hand and the relatively weaker Dubai, Kuwaiti, and Bahraini investment banks on the other," said S&P credit analyst Mohamed Damak.

Even with Saudi banks being viewed as having strength, it is only the larger Saudi banks. For example, the Kingdom announced in February that the global financial slowdown and the ensuing local debt default crisis have exposed the vulnerability of small and medium banks in Saudi Arabia, as they have chopped off a large chunk of their funds for bad loan provisions.

The result is that NPL to total loans ratios doubled between 2008 and 2009, reaching 5.4% on average by September 30th 2009 compared with 2.7% at year-end 2008.

This change in focus means that SAMEA banks, like Western banks, are cutting back on loans and risk, and gearing towards the new macroprudential supervisory structures the G20 are developing for global management of financial markets. These macroprudential supervisory structures demand change in five areas:

- Liquidity Management
- Bank Corporate Governance structures
- Capital Adequacy Reserves
- Risk Management
- Procyclicality measures

And all of these will have impacts on internal systems and controls. For example, real-time risk management, liquidity management and counterparty positioning will be a clear focal point for next generation systems developments. Equally the whole nature of trade and liquidity reporting, requiring ever increasing levels of bank transparency in processes, will be a key focus.

Alongside all of these regulatory developments are innovations of course, such as the distribution and delivery technologies focused around mobile telephones and particularly the iPhone.

Therefore, in setting the theme of this year’s MEFTEC around “innovation amidst regulation”, there are a number of technologies that we see as key to addressing the regulatory and innovatory requirements of the 2010s.

Specifically, there are four technology areas we have handpicked for focus, namely:

(1) Mobile Services
(2) Social Media
(3) Cloud Computing
(4) Low Latency

These four technology buckets play a critical role in all aspects of society and banking. This is not the say that the list is exhaustive – video, biometrics, security and fraud systems and more are all just as critical. Just that these four are top of mind for 2010.

Equally, this does not reflect the business imperatives around risk management and reporting, Islamic banking, microfinance and remittances, infrastructural change for payments processing and more. But that these technologies can provide support and address the needs for change in these business imperatives.

A brief review of each of these technology areas shows the impact they are having on these business needs.

Mobile Services
When M-PESA launched in Kenya, it transformed a country from zero infrastructure for monetary movements to a wirelessly connected country that now had instantaneous and cheap payments processing. The results have been transformational. Before the mobile remittance service launched, Kenyans could only move monies from Nairobi to the remote villages by paying a driver to physically transport the cash. That was expensive and fraught with dangers of theft and loss. The M-PESA service launched in 2007, in a partnership between Safaricom (a division of Vodafone) and the government. Within a year the service had 1.5 million users and today has eight million. 10% of Kenya’s GDP moves through the mobile remittance service and it makes Vodafone’s Safaricom the largest bank in Kenya.

That’s transformational.

Equally transformational has been the iPhone, where the apps have created a massive new market for microtransactions. The iTunes store saw over a billion downloads across 100,000 apps within nine months of launch, and today has exceeded four billion downloads. These downloads cover everything from entertainment to news, flight times to buying and selling stocks and shares. The result is that a bank is clearly now in people’s hands 24*7 and the phone itself is more important as a lifestyle accessory today than a watch or a wallet.

That’s transformational.

In looking at such transformations, we have to ask: what is your bank doing to exploit these opportunities?

Social Media
In the last five years, along with the mobile transformation, there has been a revolution in communications via technology. The social revolution. This social revolution is reflected in key developments demonstrated by the massive societal move to use Facebook, and its localised equivalents. Facebook has over 400 million users. It is the largest communication, entertainment, news and discussion channel on the planet. It has more influence with more people than their teachers, bankers, politicians and business leaders.

That’s transformational.

Alongside the march of Facebook has been the correlated developments of Twitter. Viewed by many as a transient phenomena, the reason why Twitter hit the news is that it provides the news, in real-time. The typical users of Twitter are actually over 35-yeras of age, and they use it to keep up with the BBC, Al-Jazeera, CNN and other news services, as well as the most influential voices in their business and social communities. The fact that Twitter allowed the world to be informed of the Haitian Earthquake, the G20 protests and the Iranian revolts in real-time demonstrated the power of connections to any individual on the planet in real-time globally.

That’s transformational.

In looking at such transformations, we have to ask: what is your bank doing to exploit these opportunities?

Cloud Computing
For many years, banks have been seeking to maximise the efficiency of operations by leveraging compute power. In the 1970s, the compute power was expensive and much of it required bespoke in-house developments. During the 1980s, it became distributed and more specialised applications could be deployed. The 1990s saw the advent of large-scale client-server systems and the origins of today’s outsourced structures. Throughout the 2000s, outsourcing became more complex with nearshore and offshore management structures and the idea of compute power now being a complicated soup of internal and external resourcing.

Cloud computing merely takes this towards a logical conclusion and, as some folks refer to it, makes the original mainframe in-house service an outhouse service. What they mean by this is that you can now plug into massively scalable compute power with your own applications on a pay-as-you-go basis. You have the control of the mainframe structure, but with the flexibility of usage that is purely based upon compute power being used when and as you need it.

That’s transformational.

It moves capital expenditure for computing off the table, as it’s now just operational expenditure on a variable cost basis,

That’s truly transformational.

In looking at such transformations, we have to ask: what is your bank doing to exploit these opportunities?

Low Latency
During the past few years, the world’s investment markets have revolutionised thanks to algorithmic trading. But it didn’t stop there. Algo trading moved into high frequency trading, and the result has been a massive focus on speeds and feeds and the need for minimal latency, or delays, in the way trades are processed and executed.

This low latency focus led to a battle over speed between execution venues and stock exchanges, with BATS in the USA stealing a march on NYSE and NASDAQ whilst Chi-X in Europe beat the living daylights out of the London Stock Exchange, Deutsche Bourse and NYSE Euronext.

Now all is dark pools, high frequency trading based upon nanoseconds of processing. And if you’re not in the front nanosecond, then you’re dead meat.

That’s transformational.

But it goes way beyond processing trades on city servers to financial markets general. For example, recent legislation in some countries dictate that processing payments must take place in real-time. Elsewhere, risk management reporting and liquidity management positioning must be delivered in real-time. In fact, financial services per se – from consumer’s self-servicing online to corporate cash management positions to treasury management overall – are all changing from batch to real-time.

That’s transformational.

In looking at such transformations, we have to ask: what is your bank doing to exploit these opportunities?