Launching in Europe earlier this year, Auka, the first fully Google Cloud hosted mobile payments provider, says that brave banks are the key reason Scandinavia is leading the way when it comes to mobile payments.
AliPay announced in April that it would launch in Europe during the summer – which is now here. The arrival of the second payment services directive (PSD2) in January 2018 will crack open bank accounts to allow anyone with a licence to access bank account data and initiate payments. The biggest tech companies in the world, such as Apple, Facebook and AliPay are all examples of companies who are likely to swoop in and take advantage of this. Being a retail bank right now isn’t easy and will only get harder.
So, what can banks do to gain a competitive edge?
Online banks are helping to accelerate the attitudinal shift and acceptance of digital and mobile payments. CaixaBank, through their mobile-only imaginBank, are already allowing users to see their account balance and recent transactions through an integrated Facebook app. The January 2016 launch of Samsung Pay in Spain, the first country in Europe to launch the contactless payment service; has put further pressure on banks without a mobile payments strategy.
A recent survey undertaken by MasterCard in February found that 10.4 per cent of digital users* – a proportion of the population – in Spain use their phone to pay in-store. This figure showed an increase of 4.2 per cent compared to the same time the year prior.
This might sound like impressive growth on paper, however in Scandinavia more than half the whole population actively use mobile payments. Further, in Spain the main form of mobile payment is near field communication (NFC) payments as a result of investments in NFC card issuing and new payments terminals. This has been a massive investment and is limited to newer phones that have the correct NFC functionality and it has to be used with new POS terminals. In Scandinavia, people have skipped being limited to NFC and pay using QR or Bluetooth Low Energy (BLE) initiated payments which require minimal investment from retailers and works on all smartphones for all customers.
Auka’s CEO, Daniel Doderlein, will be at MoneyConfin Madrid on 21 June and can talk about how Scandinavia has managed to become the world leader in public mobile payment adoption and why other countries are failing to catch up.
Daniel Doderlein, says:
“There is a clear gap between what expert analysts are recommending and what consumers actually want.
Many analysts are advising banks to launch a mobile wallet whilst consumers – those who’ll end up being the deciding force when it comes to the success or failure of retail banks – are saying they don’t think they want or need this.
A bank can only be successful when it leaves its preconceptions at the door. The whole point of PSD2 is that what used to work is just not cutting it in the innovation stakes now. The banks who’ll come through are those who are willing to accept they don’t have all the answers right now but are willing to do what it takes to stay relevant and succeed.”
With standard mobile wallets failing and consumers sitting on the fence, how has the Scandinavian market been able to see more than 50 per cent mobile wallet adoption – a figure that continues to grow?
If the north can do it so can the south and this is how they can achieve it.
Winning the market “The Scandinavian Way”
Originally, in Denmark, one retail bank decided to address the market alone. Danske Bank introduced a mobile payment app (MobilePay) and made it separate from their traditional mobile bank app. They enabled the new app to address the whole market, including customers from other banks. This would become the app that today, almost everyone in Denmark has downloaded.
The MobilePay app enables you to charge your card when you send money to mobile numbers. The recipient is invited to join the free to use service, asked to enter a bank account number to where money will be forwarded and then asked to add their own card to complete the loop.
In this way the system addressed the market of private transactions, replacing the need for cash, for free.
This system was evolved and replicated by two of Scandinavia’s other leading banks in quick succession. DNB bank in Norway built their own mobile payments offering. Sparebank 1, also in Norway, recognised the need to rapidly compete and entered into an exclusive arrangement with existing mobile payments powerhouse, mCash (now Auka) who had recognised the clear need for mobile payments many years prior.
Key learnings from Scandinavia for European banks introducing mobile payments to a market:
- Create a new brand that allows access to anyone – not just existing customers
- Build trust by powering the brand with the known bank name
- Add a viral spread element (sending money to new customers drives enrollment, for example)
- Do massive, nation wide advertising, building awareness and trust to support the viral spread
Besides the lack of marketing, this might seem on the surface identical to several other mobile wallet services, such as Pingit by Barclays. But there are differences. The main one being that the next new feature of Pingit was introduced more than one year after its launch, so the great success of 120,000 users in five days was quickly superseded by a lack of consistent innovation. People get bored, fast.
The next step: It’s not about retail payments
In sharp contrast to what Apple, Google and most other mobile and contactless payment initiatives have been focusing on, the actual success from mobile payments comes from addressing a different payment situation altogether.
As long as the solution actually does not provide any real and sustainable value to anyone, there is no reason for the customer to build a new habit.
Solving problems for the underserved merchants
Scandinavian banks started to address payment situations that were plagued by two main problems; cash and scaling issues.
The merchant doesn’t need hardware or cash, they can just validate the payment on the screen of their customer’s phone and hand out the product. It’s all accounted for digitally and you can focus on generating revenue.
Key learnings about introducing mobile payments to underserved merchants
- Offer super easy merchant enrollment
- Enable 100% self service solutions
- Build best practice use-cases with known merchants
- Do massive, nation wide advertising, focus on the benefits for both sides (no cash, no hardware, no standing in line)
Key learnings about introducing mobile payments to retailers
- Introduce fast tracks and pre-purchase
- Introduce one click online payments
- Incorporate loyalty schemes
- Introduce clickable print ads
So what’s in it for banks?
With consumers and merchants clearly enjoying the new ways of paying, what’s in it for the banks?
When a bank succeeds in getting its app on the devices of half the population and more importantly, it enjoys high frequency of use; they have successfully secured a new revenue stream from merchant services (that they alone are providing).
Furthermore, the bank has built a sales channel filled with potentially millions of customers. This channel is the best and cheapest way to acquire new customers. The customer acquisition cost is unbeatable since the channel is the bank’s own.
Take on more risk or taper? BOJ faces tough choice with REIT buying
By Kentaro Sugiyama and Leika Kihara
TOKYO (Reuters) – The Bank of Japan (BOJ) is under pressure to relax rules for its purchases of real-estate investment trusts (REITs) so that it can keep buying the asset at the current pace, highlighting the challenges of sustaining its massive stimulus programme.
The fate of the rules, which limit the central bank’s ownership of individual REITs to a maximum of 10%, could be discussed at the BOJ’s review of policy tools at its March 18-19 meeting, with an industry estimate putting nearly a third of its REIT holdings at close to the permissible threshold.
Given Japan’s fairly small REIT market, the BOJ may struggle to keep buying the asset unless it relaxes the ownership rule or accepts REITs with lower credit ratings, analysts say. The BOJ currently buys REITs with ratings of AA or higher.
“There’s a good chance the BOJ could tweak the rules for its REIT buying at the March review,” said Koji Ishizaki, senior credit analyst at Mizuho Securities.
The issue underscores the tricky balance the BOJ faces at the March review, where it hopes to slow risky asset purchases without stoking fears of a full-fledged withdrawal of stimulus aimed at weathering the prolonged battle with COVID-19.
As part of its stimulus programme, the BOJ buys huge amounts of assets such as exchange-traded funds and J-REITs.
It ramped up buying last March to calm markets jolted by the pandemic, and now pledges to buy at an annual pace of up to 180 billion yen ($1.68 billion).
The BOJ last year bought 114.5 billion yen worth of J-REITs, double the amount in 2019, bringing the total balance of holdings at 669.6 billion yen as of December, BOJ data showed.
The surge of its portfolio has led to the BOJ owning more than 9% for some REITs. An estimate by Mizuho Securities showed the BOJ owned more than 9% for seven out of the 23 REITs it held as of January, including Japan Excellent and Fukuoka REIT.
The BOJ did not immediately respond to a request for comment. The central bank normally does not comment on policy, besides public speeches and briefings by its board members.
BOJ Governor Haruhiko Kuroda has said the review won’t lead to a tightening of monetary policy.
But many BOJ officials are wary of relaxing rules for an unorthodox programme like J-REIT purchases, which critics say distorts prices and exposes the bank’s balance sheet to risk.
“Unless markets are under huge stress, it’s hard to relax the rules,” said an official familiar with the BOJ’s thinking.
($1 = 107.0200 yen)
(Reporting by Kentaro Sugiyama and Leika Kihara; Editing by Muralikumar Anantharaman)
German watchdog puts Greensill Bank on hold due to risk concerns
By Tom Sims and Tom Bergin
FRANKFURT/LONDON (Reuters) – Germany’s financial watchdog warned of “an imminent risk” that Greensill Bank would become over-indebted on Wednesday as it imposed a moratorium on the lender making disposals or payments.
BaFin’s move is another blow to the bank’s owner, Greensill Capital, which said on Tuesday it is in talks to sell large parts of its business after the loss of backing from two Swiss asset managers which underpinned key parts of its supply chain financing model.
Greensill, which was founded in 2011 by former Citigroup banker Lex Greensill, helps companies spread out the time they have to pay their bills. The loans, which typically have maturities of up to 90 days, are securitized and sold to investors, allowing Greensill to make new loans. Greensill’s primary source of funding came to an abrupt halt this week when Credit Suisse and asset manager GAM Holdings AG suspended redemptions from funds which held most of their around $10 billion in assets in Greensill notes, over concerns about being able to accurately value them.
Two sources told Reuters on Wednesday that SoftBank-backed Greensill Capital is preparing to file for insolvency, adding that the sale talks were with U.S. private equity firm Apollo.
Greensill and Apollo did not immediately respond to requests for comment on Greensill’s insolvency preparations, which were earlier reported by the Financial Times, or on the sale talks.
Japan’s SoftBank, which has invested $1.5 billion in recent years in Greensill, also declined to comment.
BaFin said an audit found that Greensill Bank could not provide evidence of receivables on its balance sheet purchased from mining tycoon Sanjeev Gupta’s GFG Alliance. GFG did not respond to a Reuters request for comment on BaFin’s findings.
“The moratorium had to be ordered to secure the assets in an orderly procedure,” BaFin said in a statement, adding that the Bremen-based bank would be closed for business with customers. It declined to elaborate.
Greensill Capital said in a statement that Greensill Bank always “seeks external legal and audit advice before booking any new asset.”
Greensill Bank had loans outstanding of 2.8 billion euros and deposits of 3.3 billion euros at the end of 2019, rating agency Scope said in an October report, which did not detail the bank’s exposure to GFG.
The bank is a member of the Compensation Scheme of German Banks which means deposits up to 100,000 euros ($120,740) are protected. The German regulator said withdrawals were not currently possible, but gave no further detail in a statement.
Prosecutors in Bremen said earlier they had received a criminal complaint from BaFin regarding Greensill Bank, but did not provide further details on it.
In Britain, meanwhile the financial regulator took action against GFG’s own trade finance arm Wyelands Bank. The Bank of England’s Prudential Regulation Authority said it had ordered Wyelands to repay all its depositors. It said in a statement that it had been engaging closely with Wyelands, but did not say why it had taken the action.
GFG said Wyelands, which had over 700 million pounds ($979 million) of deposits according to its latest annual report, would repay deposits and planned to “focus solely on business advisory and connected finance”.
A GFG spokesman declined to comment on the BoE statement.
Credit Suisse said on Wednesday it is looking to return cash from its suspended funds dedicated to supply chain finance, which is a method by which companies can get cash from banks and funds such as Greensill Capital to pay their suppliers without having to dip into their working capital.
“Given the significant amount of cash (and cash equivalents) in the funds, we are exploring mechanisms for distributing excess cash to investors,” Credit Suisse said in a note to investors on its website.
Credit Suisse said that more than 1,000 institutional or professional investors were invested across its funds.
($1 = 0.8282 euros)
($1 = 0.7153 pounds)
(Reporting by Tom Sims and Patricia Uhlig in FRANKFURT and Tom Bergin in LONDON; Additional reporting by Brenna Hughes Neghaiwi and Oliver Hirt in ZURICH; Editing by Alexander Smith)
Britain to review surcharge on bank profits
LONDON (Reuters) – Britain’s finance minister Rishi Sunak has said the government will review the surcharge levied on bank profits, in a bid to keep the UK competitive with rival financial centres in the United States and the European Union.
Sunak said in his Budget statement on Wednesday he was launching the review so that the combined tax burden on banks did not rise significantly after planned increases to corporation tax.
Leaving the surcharge unchanged would make UK taxation of banks “uncompetitive and damage one of the UK’s key exports”, the government said in its Budget document.
Changes will be laid out in the autumn and legislated for in the forthcoming Finance Bill 2021-22, the document said.
The surcharge on bank profits raised 1.5 billion pounds for the government in 2020, the document showed.
It is separate to the more lucrative bank levy on bank balance sheets, which raised 2.5 billion pounds.
(Reporting by Iain Withers, Editing by Huw Jones)
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