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Is it all over for internet banking?

Have we seen the peak of internet banking in South Africa? Although the banks are quite tight-lipped about their usage numbers, I suspect that the number of customers using a desktop computer to do their banking is declining.

We know that the majority of logons come from office workers, but we also know that the number of employed people (including government workers) in South Africa is stagnant. While many up-market homes have a desktop PC or a laptop, and fibre services have been introduced in certain suburbs, the growth rate of fixed broad-band internet (at less than two million connections) is very low.

Mobile apps

The smaller screens are where the action is — banks have been marketing their mobile apps aggressively over the past few years, and now collectively claim that 11-million customers have adopted this channel. This adoption of the mobile phone for banking marks the fastest and most pervasive technology adoption in the history of banking.

Standard Bank recently confirmed that the number of in-branch transactions has declined, clearly as a consequence of mobile banking.

Further into Africa, in Kenya the number of payment card payments has halved over the past three years. The volume of mobile money transactions over the same period has doubled, and the value transacted is now more than twice that of card payments. The success of M-PESA in Kenya has not yet been replicated in other countries, but it is a striking example of how customers change their payment behaviours.

High fixed costs

For most banks, the business case for launching internet banking was based on the assumption that user numbers would just keep growing. There are high fixed costs (dollar-based software licenses, servers and staff) that banks have to keep investing in, even as internet banking usage declines.

It could be argued that some IT staff could be cross-skilled into app development, but typically the mobile banking IT platforms run on different software and infrastructure and mobile banking infrastructure is also costly. The SMS notifications that banks have been providing to customers have become a massive expense for them — they are the single biggest customer of mobile telco operators.

User experience design

The switch from big-screen (desktop internet) to small screen (mobile phone and tablet) also requires a change in user experience design. You simply cannot fit all the functionality of a high-resolution monitor screen into a mobile phone or smart watch. You certainly can’t fit all the marketing messages, phishing warnings and terms and conditions!

The design paradigm for mobile phone apps is to cleanly offer a single function (i.e. hail a taxi, send a message). That lesson has not yet been learnt by some award-winning banks, with apps that require you to scroll down on the first page and take three separate screens to delete a message. With so many competing internal business units (very appropriately called ‘divisions’) and having built so much functionality over the years, they are challenged to simplify their interface to what most customers need.

We are starting to see a ‘re-fragmentation’ of the mobile banking channel — a wide range of distinct apps from the banks, each focussing on distinct activities.

Cut backs on human-centred service

Can the banks continue to afford to offer customers this buffet of channel and device choice? Will they aggressively direct customers into the most appropriate self-service channel or device and start really trying to use their staff to generate sales?

There are signs both locally and abroad that banks are starting to cut back on human-centred service. Royal Bank of Scotland in the UK and FNB locally are both cutting back on branch staff, and several financial institutions are exploring using robo-advice (algorithms or ‘bots’) to handle simple queries. Could this be an opportunity for a savvy digital-only bank without the legacy cost-structures and plethora of products?

There are indications that more than one new offering will launch in 2017.

  • Petar Soldo

    Great article Angus. I do think that traditional internet banking will be with us for a long time to come though. Just as when internet banking started to gain traction, people also forecast the demise of branches and that never happened. Internet banking became an AND not an OR to branch banking.

    I think the same will happen with mobile banking / apps — it is becoming an AND to internet banking.

    The reality is almost all online banking activities are easier to do on a laptop / desktop than via a smart phone or tablet.

  • Fred Baumhardt

    Not sure I agree with the conclusions in this article. M-pesas success in Kenya, and failure in other countries as well as Kenyan card performance is not about the form factor, but clearly about the acceptance question. When M-Pesa hits the fortress of Visa and Mastercard acceptance in South Africa it failed as it didn’t gain enough traction to subvert the card machine presence everywhere in SA. Their approach calls for a low acceptance of alternative solutions (like Union Pay, Mastercard, Visa) and so far anywhere those acceptances are high M-Pesa has struggled to gain traction.

    Technically speaking Mobile devices are using IPV4 or V6 driven web services calls secured over SSL are also “Internet Banking” if we define this article as “Browser Banking” the then conclusions are bourne out by the evidence as browser entry points are inflexible, and have been replaced fundamentally by apps given their higher flexibility, driver support model for things like GPS, Cameras, sensors, and other solutions that are hard to implement in Browsers (even HTML5) find it harder. Many more advanced solutions like QR payments, Geo-Tag and Escrow unlocks, and generation four payment solutions cant use browsers and depend on IOS and Android internal APIs, helping to accelerate the decline of browsers.

    The really interesting points raised in this article are about mobile money in Africa and why the limited base functionality they provide work in this market, and not in others. In our opinion this is because the average cost of a full banking suite per user in Africa is about 20-35 dollars a month in fully allocated IT costs- and thus Banks have not fully targeted the market Mobile money exploits due to infeasibility. Mobile money is somewhere between 3 and 5 dollars a month per user. So even though the solutions in mobile money are very basic, and operate as a simple value store, and payment mechanism only – they are enough to live in the gap where traditional banks don’t operate (for the reasons discussed by Angus above) This is a distracting fact. If you could drop the cost of providing full cost banking solutions to 3-5 dollars a month, tackle the commercial models of overly expensive fees and charges in the acceptance and acquiring markets, and provide a card rail (even virtual cards and tokenised services) – as well as higher value services like credit, buying selling marketplaces and trust – you would quickly decimate mobile money wallet platforms. They fit a very specific problem, for a very specific timeframe, and to a very specific demographic. If you change any of their underlying assumptions they can quickly be relegated to a one of, for a decade solution for Africa, that didn’t take off in the rest of the world (as it hasn’t), and exploited a gap in the market for a while. FinTechs, banks, and even the associations themselves understand these dynamics and shouldn’t be discounted as they will strike back, and soon

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