Digital Future for Banks
Belarus launches a large-scale project to promote digital banking
Today digital banking is obviously in trend. Customers like to pay for purchases and open savings accounts with a couple of clicks at any time of day. Banks are eager to grow their business without investing in construction and maintenance of branches. Governments, in turn, encourage digitalizing of banks in view of increased transparency of virtual operations and accessibility of financial services. The advantages are countless. Therefore the number of digital banking proponents has been rapidly growing. To stay ahead of competition, banks and other players offer their customers more convenient and more efficient services. Belarus is also getting ready to take a leap towards the digital future. A relevant draft decree has been elaborated and by the end of the year a development strategy of digital banking technologies for 2016-2020 will be presented.
Cards as Growth Drivers
Virtualization of banking services in Belarus is an integral part of the way towards creating an information society and e-government. Today the country’s banking system is almost paperless. Belarus is among the leaders in the CIS in terms of accessibility of financial services and penetration of non-cash transactions. Every fifth retail purchase of goods or services is paid with plastic. According to the plans of the government and those of the National Bank of Belarus, the number of non-cash transactions will keep on growing.
“Information technologies change our perception of many segments of the economy and, first of all, of the financial market. Last century, Bill Gates voiced a thought that was not noted by many people then, but nowadays it is becoming increasingly relevant: ‘The world is not interested in banks. The world is interested in bank products.’ Another question is how to provide a customer with this or that bank product,” said Sergei Dubkov, Deputy Chairman of the Board of the National Bank of Belarus.
The guidelines and the next step towards the “cashless” society in 2013-2015 is a joint action plan of government agencies and financial market players on the development of a retail payment system with the use of modern e-payment tools and means. Over the period various regulatory acts were adopted to facilitate the gradual transition to chip cards and extend the list of retail outlets and service providers with ATMs. The zero responsibility principle is now guaranteed by the state. According to the principle, banks are obliged to refund a card holder if he/she loses money as a result of fraud. The payment limit was set at 1,000 base amounts. Thus, Belarus laid the legal groundwork for the growth of cashless payments and enhancement of their security.
Operations with bank cards are the main drivers of the digital banking technologies development in Belarus. In Q1 2015, as many as 152.2 million cashless operations were made with bank cards to the total amount of Br21.8 trillion. Today the bank card market of the country has reached a certain saturation phase with the vast majority of employers depositing wages to their employees’ bank accounts. A total of 12.3 million bank cards are in circulation in Belarus (including 2.1 million chip cards and 147,000 proximity cards). Of them 7 million cards were issued by the Visa and MasterCard international payment systems while 5.3 million by the BELKART national payment system. This year American Express and UnionPay will start issuing bank cards in Belarus.
Card holders of 22 banks enjoy branchless banking services. In 14 banks the share of such services exceeds 25% of the total services provided. They are Belagroprombank, Belinvestbank, Alfa Bank, Priorbank, Belarusbank, MTBank, BPSSberbank, Technobank, BNB-Bank, Belgazprombank, BTA Bank, BSB Bank, Bank Moscow-Minsk, and Fransabank. Belarusian consumers use such types of branchless services as online banking (1.9 million individuals), SMS banking (1.1 million), mobile banking (263,000), USSD banking (118,800) and TV banking (11,600).
As we can see, most people use online banking and their number keeps on growing. The regulator has recommended banks to increase
the number of online users by 50% of the total number of card holders. Very popular all over the world, mobile banking has just started to gain ground in Belarus. To pay for breakfast in a cafe or to fill a car at a gas station by a smartphone equipped with NFC technology is expected to be possible within a year or two.
Today various channels of branchless banking are used to pay bills, apply for payment cards and loans, open accounts, deposit and transfer funds to other accounts. Customers can remotely control the limits and restrictions on payment card operations, turn on and off such services as SMS notification and 3D Secure, extend the list of functions of their bank products.
A convenient solution for people using mobile banking is Banka application. It allows customers of several banks (BPS-Sberbank, Belagroprombank, Zepterbank, Technobank, BTA Bank) to check all their bank accounts and make various transactions via their mobile phones without having to use a separate application for each bank. Experts believe that the future of digital banking is in integration technologies as they standardize and facilitate customers’ access to multiple accounts.
In general we can say that thanks to the government policy, the
initiatives of the commercial banks and payment systems, Belarusians are pretty well familiar with the remote services today and are their active users. However, there is still a significant market potential for both extensive and intensive development, the National Bank believes.
“The banks have covered the vast majority of customersinnovators, clients who understand what remote banking services are and what benefits they bring,” head of digital banking technology at the National Bank Alexander Sotnikov said. Now the banks need to focus on customers from the more complex and more expensive in terms of costs segments of their customer bases.
Meanwhile, the global market of digital financial services is developing fast today. According to some experts, 95% of all retail transactions will be carried out with the help of virtual technologies by 2020. Among the leaders are Canada, Sweden, the United Kingdom, Belgium, France, the United States, Singapore, and South Korea. The variety and quantity of innovations are amazing. However, the general trends are easy to trace.
The most common remote financial service is Internet banking – a system of remote servicing of bank payment card holders, the owners of current and deposit accounts through the Internet. Today online shopping accounts for more and more virtual transactions, given the growing e-commerce market. For example, 25 online purchases are made every second in France.
Atthesametime,thedevelopment of mobile technologies has led to a rapid increase in the popularity of financial services based on them: not only payments but also mobile insurance, savings or lending. Half of adult Europeans who own a modern mobile device, for example, a smartphone or a tablet, are ready to use it to make payments in retail networks and the Internet. In Q1 2015 over 1 billion transactions were made with the help of these gadgets. In the future this figure is predicted to increase as the generation Z becomes the main consumers of financial services. The speed and the ability to operate accounts literally “on the run” are very important for them.
More and more owners of mobile devices manage their finances using mobile and SMS banking services,
various payment applications. The NFC technology which allows making contactless payments is gaining popularity. Business, in turn, chooses mPOS terminals due to their portability and an attractive price. It is expected that in the future the smartphones and tablets with the connected mPOS terminal will completely replace cash registers.
According to experts, mobile communications have a great potential for making financial services more available and increasing the amount of cashless payments. Here’s why: in 2013, 2.5 billion people in the world did not have access to formal financial services while the number of mobile phone accounts was over 6 billion at that time. For people in developing countries, where banks are unpopular and difficult to access, mobile payments can become an alternative to all other electronic payments, whether by way of payment for goods or services, or the transfer of funds.
A clear confirmation of this is the M-Pesa mobile service, which has 16.8 million active users worldwide today. Initially, the system was designed specifically for Kenya but later due to the popularity the project was scaled up and offered by the mobile operator Vodafone in other countries, notably Tanzania and Afghanistan. Non-bank payment service allows placing money into a deposit and withdrawing it using a dealer network of mobile operators, making P2P transfers, paying bills, buying goods and services. In fact, it fully replaces the banking system. Banks Will Need to Adapt
In general the market of traditional banking services is becoming increasingly crowded as different companies start to develop their own financial services. Active are not only mobile operators (Telecom, Vodafone, O , MTS, Beeline) but also the players of the Internet market (Apple, Google, Facebook, Amazon, Alipay). Among the competitors of banks are also electronic and card payment systems (PayPal, QiWi, RBK.Money, MasterCard, Visa, Amex), various Internet startups (Simpe, Square, Movenbank).
For example, Facebook announced the launch of its own free money transfer system for users of Facebook Messenger on Android, iOS, and web. A subsidiary of China’s largest online retailer Alibaba-Alipay actively promotes its mobile payment service Alipay Wallet. In 2014 $151.3 billion worth of mobile purchases was made in the trading system.
Various non-bank financing platforms are also gaining popularity. According to experts,
by 2025 loans totaling $1 trillion will be issued through P2P platform (online lending platform without traditional financial intermediaries). The volume of the international crowdfunding (a voluntary pooling of money or resources for a variety of purposes) amounted to $16.2 billion last year and expected to double by the end of this year.
With a rapid emergence of new competitors,i.e.ITcompanies,mobile operators and retailers, more banks understand that the development of online services is inevitable due to a wide spread of digital technologies and gradual changes in users’ preferences. According to the research and consulting company Ovum, by the end of 2015 the global banking IT investment will make up $131 billion. This will represent a 4.3% increase over the previous year. With the macroeconomic situation improving, the sum will be increasing in an accelerated pace.
In the future online banking will focus on the integrity of services and an omni-channel customer service. The world’s leading banks have already introduced additional services for their online users such as electronic document management, e-filing, cloud accounting, and private wealth management. This means adding ancillary products to their mobile banking service systems. Omnichannel banking, in turn, means an integration of various online services. Customers can start their online activities in one channel and complete them in another. Switching from one channel to another does not require the performance of the same operations. Internet banking,
mobile applications, call centers, and ATMs are united in this case to represent the access to the single banking system.
Taking into account rapid development of the market of online financial services, their security comes to the forefront. According to specialists, the future is in biometric technologies. For example, Sberbank of Russia launched a project under which students may pay for their school meals even if they have lost their payment cards. A biometric scan of the palm makes it possible. The necessary amount is written off the student’s account and the parents receive the relevant notification. The first Belarusian bank to introduce biometric technologies was Belgazprombank that offered its clients to confirm mobile payments through fingerprint scanning. This service is available to smartphone users at iOS with a built-in fingerprint scanner (Touch ID).
“Belarusian banks are in anticipation of global changes,” said Sergei Dubkov. “We have been gradually integrating into the international economy, the global banking sector, including within the Eurasian Economic Union. Banks should be mobile and technology friendly in order to be competitive.”
Government Sets the Tone
Banks are well aware of the current trends and understand that they need to act. Over the past two years the budget of the banking IT sector in Belarus has almost doubled. The National Bank is busy developing online banking, playing the role of a regulator in the banking sector, leasing and microfinance activities. The country’s central bank is also taking steps towards the regulation of the forex, insurance and stock markets.
The National Bank has set up a corresponding working group that comprises representatives of banks, government bodies, mobile operators, Internet service providers, and the biggest online shops. In order to support banks’ efforts in promoting remote banking a law has been drafted on the development of online banking technologies and the introduction of amendments and additions to some decrees of the President of the Republic of Belarus.
“The document has already passed the first stage of finalization and approval,” Alexander Sotnikov said. “It includes measures to remove obstacles in banks’ virtual activity, lift legislative and infrastructure restrictions for remote banking.”
The key novelty is a mechanism of interbankclientidentificationand authentication without the need to visit a bank office. The information on primary identification in one of the Belarusian banks will make the basis for creating a unified banking system of client identification under the aegis of the National Bank. It will foster the development of the markets of identification and interbank remote banking services. The local Single Settlement and Information System (ERIP system) can be considered as a platform for setting up a unified identification system.
Thus, an identification (authentication) matrix will be created in which every banking operation and service will require a minimal identification level. Everything will depend on the importance of a transaction, its complexity, amount and so on. For example, a user name and a static password will be enough to access account information, make payments, block and unblock cards. To make a deposit, open and close an account, arrange an overdraft line and a consumer loan a person
will have to use onetime passwords and security tokens, electronic keys, for additional authentication. Complex services and products such as mortgage lending, large sum transactions will be possible only with the use of a digital signature.
There are plans to switch all the entities conducting works, selling goods and services and using payment acceptance services of third parties to online banking. Their services should become available to the population through the ERIP system. It is especially important to enable the acceptance of payments online as well as the acceptance of budget payments and payments in favor of small businesses. At present payers have to apply to bank departments to make such payments.
The main priorities and target indicators of developing digital transformation in the credit and finance fields will be very soon included in the strategy to develop digital banking technologies for the period of 2016-2018 which will be designed and submitted to the National Bank in December 2015.
Thus, a large-scale digital banking project is in the pipeline in Belarus. Plans have been made to launch it in mid-2016. Apart from banks, the project will involve microfinance organizations, leasing and forex companies and, possibly, insurance companies which are to withdraw from the Finance Ministry’s system and to be incorporated into that of the National Bank by the end of the year. The main advantage is that these companies will be able to use identification services within the framework of a new interbank identification system.
But it is the matter of tomorrow. At present the National Bank has given a number of instructions to banks regarding cashless
payment promotion. First of all, banks were advised to refund a certain percentage from the cost of goods and services to clients if they use plastic cards to pay for them (cashback), introduce loyalty programs, promote distant banking systems, develop mobile acquiring and infrastructure for the use of contactless banking cards.
Banks have stepped up efforts in these areas. The number of mPOS terminals is increasing in Belarus. Projects in this field are implemented by Belarusbank, Belagroprombank, Belinvestbank, BPS-Sberbank, and Priorbank. Cashback cards have been issued by Technobank, MTBank, Belarusky Narodny Bank, IdeaBank. The number of loyalty programs is increasing.
Taking into account all the plans and current projects, the future of digital banking in Belarus is quite optimistic. There is no doubt that the development of distant banking services will benefit all participants of financial relations. The main advantage for business is the possibility to work with a bigger number of clients with lower costs because online services are dozens of times cheaper than services offered in bank offices. People, in turn, will enjoy 24/7 banking services without queues. Moreover, residents of small towns and villages will be able to take a loan or open a deposit account in any bank of the country even if there are no bank offices nearby.
“As for the benefits for the state, apart from the increase in the number of cashless payments and growing competitiveness of the country’s financial market, the use of digital technologies will be an important step towards the e-government and information society,” the representatives of the National Bank are convinced.
It is quite possible that in the near future Belarus will develop a full-fledged network of online banks. Many countries already have online-only financial institutions which conduct all operations in the Internet. But at first customers of these banks should come to accept such innovations.
An interesting area of digital banking is the development of the “Internet of things” and financial applications for wearable electronics. The main objective is to create an invisible system of payments. For example, one bank has launched an application for watch that shows colorcoded visuals of how close users are to their credit limits. A provider of technologies for banks in San Francisco is already testing automobile banking. This innovation will allow recognizing a car at filling stations and automatically writing off money for petrol from the account of the vehicle owner.
Development of the digital finance environment
has led not only to the evolution of various banking services but also to the emergence of alternative money. This pertains to the so-called cryptocurrencies, the most popular of which is bitcoin. Belarusian experts study the future of cryptocurrencies, however, the use of them is currently prohibited by the Belarusian legislation.
One of the most debated and promising technologies in online banking is cloud computing which gives dynamically scaling access to external computing resources in the form of an online service. Cloud computing offers virtually unlimited resources to banks for raising their functional capacity and business efficiency without tapping into internal reserves. However, skeptics say that this technology will not take hold in the near future because banks are still not ready to place confidential information in a public computing cloud.