Who Will Launch an Online-Only Bank?
The first branchless bank could be set up in Belarus in the next few years
Banking industry is very responsive to all sorts of innovations. In the fight for customers, financial institutions make their services more user-friendly and more convenient, bring them closer to customers and expand the range of online services. It is not surprising that corporate clients and individuals choose online services over traditional banking. What does the Belarusian online banking market look like today? What will it look like tomorrow taking into consideration the recent regulations to promote digital banking? Drivers of Growth in Non-Cash Payments
Cashless payments have been gaining momentum in Belarus thanks to the banks themselves and to the government and its policy towards the digital transformation of the economy. Over the past fifteen years a number of national and regional programs have been implemented in Belarus to develop online banking and cashless payment systems. Since 2007 the share of cashless money in retail rose 12 times to reach 25.4% of the total turnover as of 1 January 2016.
Payment cards are the fastest growing cashless means of payment in Belarus. As of 1 April this year 23 banks issued cards in Belarus. The number of cards in circulation was approximately 12.4 million, including 5.1 million Belkart cards, 5.2 million VISAs, and 1.8 million cards of the MasterCard payment system. About 200,000 were co-badged Belkart/Maestro cards.
As of 1 April 2016, 22 banks provided online banking services to individuals and 25 banks to corporate clients.
The above-mentioned banks provided services to approximately 13 million retail customers (one person can be a customer of several banks). About 3.7 million used online banking services. The most popular services among individuals are Internet banking (about 3 million users), SMS banking (more than 1.18 million) and mobile banking (846,000) (one client can use several online banking systems). Some 412,000 retail clients were users of other digital banking services such as TV banking, USSD banking, and automatic payment for recurring bills.
Today individuals can use such online services as deposit, clearing and settlement services, currency exchange, lending and payment card operations, electronic money transfer, operations with precious metals and stones, commemorative banknotes and coins, and also information and consultation services.
The aggregate corporate clientele of Belarusian banks was more than 450,000 as of 1 April 2016 (one person can be a customer of several banks). Over 286,000 were users of online banking services. The main online banking service for legal entities is the Client Bank system, with 213,200 users (one client can use several online banking systems). Furthermore, 85,600 used Internet banking, and 9,600 took advantage of mobile banking. With regard to other online banking services (such as USSD, SMS banking, e-commerce), there were 13,800 users.
Corporate online services include deposit services, clearing and settlement, currency exchange, electronic funds transfer, lending and card services, transactions with precious metals and stones, documentary and trade finance services (bank guarantees, letters of credit), factoring, cash collection, and other operations.
“However, we cannot say that the Belarusian market is mature in part of electronic payment instruments, products and services offered through Internet for both
individuals and legal entities,” believes Alexander Sotnikov, the head of the directorate for digital banking technologies at the National Bank of Belarus.
Despite the fact that the list of online services seems pretty complete, in practice every bank decides on its own what services to offer to its clients. When it comes, for example, to online banking for individuals, according to the latest data (1 October 2015) only six banks offered deposit services and only three issued payment cards. Individuals can apply for a loan remotely in six banks, but will still have to visit a bank office to receive it.
When Distance Brings Us Closer
However, banks have recently started using online banking more actively. In fact, for small banks this is a way to attract new customers without expanding the network of outlets. For big business this is a way to optimize, reduce costs of running a network of offices and improve the customer service.
The banks actively developing their online network include Priorbank, Belgazprombank, MTBank, Alfa-Bank, Bank BelVEB, Belinvestbank, Belarusbank, Belagroprombank, BPS-Sberbank, Technobank, Belarusky Narodny Bank, BSB Bank, Bank MoscowMinsk, and Fransabank.
Belinvestbank offers such online services as Internet banking, mobile banking (native mobile applications developed for Android, iOS, Windows Phone), TV banking and SMS banking. Client Bank and Internet Bank systems are available for corporate clients.
Clients may open a deposit account and order a plastic card online, fill in an online loan application, make various payments, transfer funds between cards/accounts, limit operations for security purposes, activate banking services and pay for them.
“The most popular online banking services are Internet banking and mobile banking, with the latter gaining momentum at a rapid pace,” Director of Belinvestbank’s Card Center Vadim Golovchits said. “For instance, the number of individual users of the Internet banking system increased by more than 40% in 2015. The number of mobile banking users soared by 36% in Q1 2016 alone.”
Priorbank’s online service comprises the Internet Bank Prior Online system for individual customers and the Client Bank system for corporate clients. The Internet Bank Prior Mobile version is available for users with Android, iOS and Windows Phone mobile devices.
Online customers can take advantage of the ERIP system (the common payment and information space) and also repay loans, fill
Today individuals can use such online services as deposit, clearing and settlement services, currency exchange, lending and payment card operations, electronic money transfer, operations with precious metals and stones, commemorative banknotes and coins, and also information and consultation services
up deposit accounts, transfer funds between cards of different banks, receive bank statements, block/unblock cards, and apply for cards. Services such as automatic payments and push notifications are available as well. The Prior Online system also provides information about the nearest ATMs and the current exchange rates.
Mobile applications allow corporate customers to register in by using their corporate Internet banking login and password, view balances and monitor account transactions.
“The bank has chosen a multichannel principle in servicing its clients. We aim to integrate various channels: Internet, mobile banking, SMS banking, ATMs, payment terminals, call centers. We also encourage our customers to go digital,” Priorbank Executive Director Dmitry Volchek said.
Prior Online system has more than 155,000 users. In 2015 the number of the Internet Bank Prior Online users rose by 45%. The number of mobile banking users shot up by 60% in comparison with 2014.
Alfa-Bank Belarus online retail customers access its services via two channels: Internet Bank Alfa Click and Mobile Bank Alfa Mobile, with SMS Bank Alfa Check among the available services. The bank places a special emphasis on the development of its mobile banking.
With the help of Internet/ mobile banking, users are able to pay for more than 55,000 services within the ERIP system. Alfa Click also allows making payments outside the ERIP system.
With its e-channels Alfa Bank provides transactional services to its clients (regular payments, money transfers, foreign exchange operations, and so on), and also promotes other products such as loans and deposits. The focus is on providing a full range of online services. For instance, if a deposit is opened online, it may be closed distantly as well.
“In Q1 2016, the total number of the bank’s online users rose by more than 17% from the start of the year. Today almost every second Alfa Bank client uses the bank’s online services on a regular basis,” Director of the Alfa Bank Electronic Business Department Alexei Kornikov provided the statistics.
Alfa Bank’s ёCard has been recently gaining popularity. This virtual card can be ordered through the Internet Banking service. The card has no physical carrier, thus it cannot be lost. It is also almost 100% fraud-safe. According to Alfa Bank experts, in some four years’ time nearly 25% of online transactions in Belarus will be made with virtual cards.
Bank BelVEB also offers a wide range of online services. The bank’s retail customers are able to make payments through the ERIP system, repay loans, fill up a deposit account and e-wallets.
Online banking services related to the opening and management of deposit accounts are particularly popular today. Online banking systems also enable clients to send remittances and transfer money from one card to another. Besides, customers can get account balance information, keep track of their transactions, and obtain other kinds of data.
The number of individuals subscribed to online banking services is increasing, so is the size of online transactions and the number of payment cards. For example, in 2010 only 4,400 bank cards, or 3.1% of the total number of cards issued for individual users, were connected to the service. In 2015 the figure stood at 49,300, or 18.2% of the total.
As for corporate entities, Bank BelVEB offers Client Bank and Internet Bank services. E-banking is popular with businesses. As of 1 April 2016, online banking was actively used by 96.7% of the bank’s corporate clients.
“Like many experts, we believe that the number and size of transactions handled online will be growing over time. This is why we attach so much importance to the development of online banking systems,” Bank BelVEB representatives explained.
“We expect that in the near term more Belarusians will manage
their finances through the use of mobile banking and financial apps developed by banks and other participants of the financial services market,” representatives of the National Bank said.
The mobile app Banka is considered one of the most promising software solutions in this sector. It is the first unified mobile banking platform developed by the Belarusian company Alseda Consulting. The app enables the user to simultaneously manage all payment cards, accounts, deposits and loans from different banks. Today it can be used by clients of BPS-Sberbank, Belagroprombank, Zepter Bank, BTA Bank, Trustbank, and Technobank.
Decree No. 478 “Concerning the development of digital banking technologies” and the digital banking development strategy for 2016-2020 are aimed at accelerating the digital transformation of the financial and banking services market in Belarus. For example, they provide for creating an interbank client identification program, introducing APIs (application programming interfaces), and developing payment aggregators, contactless technologies, mobile payment solutions, and the digital money market.
The establishment of the interbank client identification program in Belarus is an important innovation that will enable mutual exchange of identification data. The system will be put into operation in October 2016 and will be based on the Raschet system and the identification systems used by banks.
It will provide clients with online access to the services offered by different banks at any time regardless of their physical location. All they will have to do is make one in-person visit to a bank office and undergo the identification procedure. This system will be used by state government bodies and in the long term by business entities, the National Bank representatives said.
It is worth noting that such practice is already common in some countries. For instance, Austria, Canada, Estonia, and Sweden use a similar interbank identification system BankID. It was originally developed by a consortium of large banks and today is used by individuals, government authorities, businesses, and banks. BankID enables access to online banking, online shopping and tax declaration. In Sweden, they have a similar identification system and the Swish mobile payment app to transfer money from one account to another within ten seconds. All they need is to indicate the amount of the transfer and the telephone number of the receiver.
Biometric identification technologies that reduce the risk of fraud in online transactions are projected to experience a major boom. Such technologies are used across the world to identify individuals as they withdraw cash from ATMs, make phone calls to banks, log on to mobile banking apps, or use online banking services.
For example, Slovakian Tatra Banka deploys a voice biometrics technology to authenticate users of contact center services. Priorbank introduced a similar service in 2015. Customers of Russian Standard Bank can log on to the Mobile Bank application using Touch ID-enabled smartphones. Belgazprombank and Belinvestbank enabled such solutions in 2015.
Standardization and application of banking API technologies will enable banks to offer uniform products and services as well as to engage outside organizations in the process. Plans have been made to deploy open APIs (for example, exchange rates, news, tariffs, the locations of the bank’s outlets and ATMs, loan and deposit calculators), APIs for providing statistics to public administration bodies, and secure payment APIs in Belarus.
By the way, the United Kingdom has launched the Midata program which provides customers with access to their transactional data held by public and private companies, including banks. For this purpose, outside financial companies can get open data of consumers and create useful services using open APIs. Open API technologies are widely used by Ukrainian banks.
Belarus is also going to develop the network of payment gateways which are very popular worldwide. Plans have been made to prepare a bill on payment
services in the coming years. In other countries there are many payment platforms enabling vendors (webshops, service providers) to process customers’ payments using various electronic payment systems (for example, WebMoney, PayPal, Yandex.Money, RBK Money), payment terminals (QIWI, Elecsnet), mobile commerce services (Megafon, MTS, Beeline).
Payment gateways help vendors to save their time and money as it is enough to get access to one service of an organization instead of using various services. Besides, such platforms offer a wide range of payment options to consumers.
“The increase in the share of cashless retail payments involving bank cards and their billing details made by the population and the application of cutting-edge payment technologies and methods will be the key priorities in developing the system of cashless retail payments,” the developers of the strategy emphasized.
As far as retail payments are concerned, the indicative target is to raise the share of cashless payments in trade to 40% by 2021. For this purpose, online transactions in Belarus involving all kinds of plastic cards shall be authenticated with a 3D Secure technology starting from 2017. Interbank card-to-card transfers are to be launched in Belarus in 2018. There is a need to produce more co-branded cards combining banking and discount functions, expand the lineup of credit and debit cards, including cards meant for specific categories of clients such as school and university students, welfare recipients, etc.
It is also important to develop contactless technologies which will significantly accelerate cashless payments and make them more transparent. This not only pertains to contactless cards but also to payments involving mobile devices and applications, including QR code generators and HCE technologies. It is projected that contactless cards will account for at least 30% of Belarus’ card emission by 2021. As of 1 April 2016, these cards accounted for 7.2% of the total. The share of payment terminals, self-service terminals and contactless cash machines will reach at least 90% in the bank equipment infrastructure. The share of this equipment was 16.1% as of 1 April 2016.
Belarus will keep up with the trend as experts forecast an explosive growth for the global market of contactless and mobile payments. It will be possible thanks to the progressive development of mobile wallets involving contactless NFC technologies. American Express, Apple Inc., MasterCard, VISA, AT&T, Sprint, First Data, BlackBerry, Samsung, and Google will be the most active players on the market.
Digital transformation of the financial services market will be also spurred by the establishment of organizations providing alternative financial services, including organizations producing innovative software solutions. These include payment systems for mobile micropayments, P2P providers, crowdsourcing organizations, and innovative financial software developers.
“The cooperation between banks and organizations providing alternative financial services is a pillar of the banking sector as it helps expand the lineup of bank products and services, reduce operational costs, devise alternative approaches to the comprehensive evaluation of insolvency risks in the banking
The establishment of the interbank client identification system in Belarus is an important innovation that will enable mutual exchange of identification data. The system will be put into operation in October 2016
sector,” representatives of the National Bank said. “As a result, new packages of financial services can be created to support small and medium-sized businesses in Belarus. An adequate level of transparency and security can be ensured, losses of financial services providers can be minimized.”
By the way, there are some good examples of mutually beneficial cooperation between banks and crowdsourcing companies in Belarus. For example, Belgazprombank is a partner of Ulej.by, a crowdsourcing platform designed for financing charity and commercial projects. Besides, the bank has recently launched the WikiBank crowdfunding platform aimed at supporting SMEs. Investors can finance projects listed on this platform by making an online deposit on the website of the platform.
The strategy sets indicative targets for banks regarding the share of their clientele that should be provided with online banking services by 2021: at least 60% of individuals and 80% of corporate clients (28.7% and 63.6% respectively as of 1 April 2016). In other words, at least 80% of banking services rendered to corporate clients should be available through an online banking facility (this figure averaged 64% as of 1 April). At least 75% of services provided to individuals should be offered through e-banking (the average of 60% as of 1 April).
The establishment of the Belarusian Financial Technologies Center is on the agenda now. This center can become a negotiating ground for financial market players.
The security of online services remains in focus of the National Bank. Unified security standards in the field of electronic interaction, including the use of biometric data will be introduced; the single financial security incident response center will be set up. This will enhance people’s trust in the country’s financial institutions and its financial system in general, reduce crime in the banking sector and cut down bank fraud expenses.
The strategy contains quite a number of new ideas and promises revolutionary changes in the field of financial services. It will help expand cooperation between banks, their customers, authorities and commercial organizations by means of electronic communication channels, make this interaction transparent and safe for all its participants and eventually foster digital transformation of the Belarusian economy and raise its competitiveness.
Who is the First?
What about online banks? Although such banks are gaining ground abroad (Tinkoff Bank in Russia or mBank in Poland are a case in point), Belarusian banks are still reluctant to fully go online.
The problem is not one of technology. Belarusian banks have the adequate technological capacity and Belarusian IT developers are ready to provide the necessary software. It is not about the absence of potential customers, either. Almost 30% of individual customers use various online services, which is quite enough for at least one bank.
“It is likely that banks are not yet psychologically ready to become Internet-only banks. There are also a number of legislative restrictions, but they will be removed by the strategy,” Alexander Sotnikov explained.
Total digitalization will be the dominant trend in the banking sector for years to come. A testimony to that is the scale of digital transformation across all walks of life and the increasing demand for online services on the part of customers.
As far as Internet technologies are concerned, a number of market players are hard on the heels of the banking sector. IT companies, mobile services providers, a variety of financial and engineering startups and other competitors would be happy to steal the thunder by offering their customers online banking services. For example, the mobile carrier velcom offers a number of payment services, like the mobile application v-banking, the Mobile Bank services, the EasyPay text messaging service, the iPay system.
Therefore, branchless banks are likely to become reality in Belarus within the next five years. Indeed, the expert community suggests establishing an online bank where IT companies would
implement and fine-tune new digital financial technologies. Anyone could become a founding member of this bank on subscription through a crowdfunding platform.
“This will not be a traditional brick-and-mortar bank. All transactions will be conducted online without human input; all the data will be ‘in the cloud’; technological processes will be outsourced,” Alexander Sotnikov explained.
Such an e-bank could cater for IT companies and their personnel first and foremost. However, experts believe that the bank’s services will be popular with several millions of smartphone owners, too. This is the kind of opportunity one should not miss.