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September 12, 2008updated 04 Apr 2017 1:14pm

An m-banking experiment

Former First Direct and Egg executives Steve Townend and Dominic Keen are setting up one of the first mobile-only banks, claiming the channel can redefine transaction banking

By William Cain

Former First Direct and Egg executives Steve Townend and Dominic Keen are setting up one of the first mobile-only banks, claiming the channel can “redefine transaction banking”. But critics believe banks that restrict themselves to one channel will struggle to compete. William Cain reports.

Riding the wave – some might say ‘bubble’ – of mobile phone-based financial services, two senior UK banking executives have developed what they say is an innovative mobile-only bank that is targeted to acquire 100,000 customers in its first year. According to the founders of the start-up – called MoBank – such mobile-only banks are simply and logically the next phase in the evolution of the global retail banking industry.

Steve Townend and Dominic Keen – who had roles in the development of UK internet-only bank Egg and HSBC’s pioneering First Direct – are working towards a March 2009 launch date.

Townend told RBI: “The service and design have to be brilliant because the product is all about convenience and choice… We are using mobile because it is a manifestation of being new and different. There are a lot of companies in the payments mix, but nobody is designing for customers from a mobile perspective – [these other products] are an addendum to what they already do: shoe-horning what they do into their existing proposition.”

The “bank in your pocket” product will offer a savings account, person-to-person payments, account aggregation, bill payments and a virtual prepaid card. Its payments function will allow customers to book cinema tickets, order fast food and purchase other goods and services through the phone’s specially designed m-payments platform. There are no plans, yet, to include contactless payments technology.

Townend said MoBank’s proposition was based on customer convenience and choice. He said its user-friendly interface improves on current bank offerings which are “awkward and difficult to use”. The revenue plan is for the business to make money out of m-payments: users are to be charged £1 ($1.76) per four transactions in the start-up phase to cover the business’s costs.

M-banking expert Richard Crone, owner of US-based Crone Consulting, said the development of mobile-only banks was similar to how internet banking evolved in the mid-1990s. But he said it was hard for start-ups to survive without the backing of a big institution. Security First Network Bank and NetBank.com were the pioneering internet banking businesses in the US, but both of them eventually failed.

Institutions continued to invest in branch networks because they were useful for opening accounts, cross selling and generating fee income, Crone stressed.

Peter Simpson, chief marketing officer of IT company Monitise, also said MoBank would struggle to compete by operating through a single channel. It would face credibility issues early on if it wanted to establish itself as a bank, he added. UK-based Monitise makes its money by providing the technology for banks to offer m-banking on mobile phones.

The more channels you have…

Simpson told RBI: “First Direct worked on the principle that the more channels you have, the happier your customers are. I think there is a real challenge in a single-channel approach and it will be quite tricky to get right. The banks that work with Monitise have an m-banking system which is in addition to their other channels.”

Steve Townend, MoBank co-founderMonitise is currently expanding its business from the UK into the US and is in talks with several banks in the country. A recent RBI lead story showed how there was a wide disparity in m-banking uptake between the largest banks in the US – Bank of America had over one million active internet banking users in June 2008, while Citi had just 20,000 (see RBI 594).

Crone at Crone Consulting said Jibun Bank, a 50:50 venture between Japanese telecom KDDI and Bank of Tokyo-Mitsubishi UFJ, Japan’s largest bank, which began taking customers in mid-July (see RBI 595), could probably lay claim to be the first mobile-only bank.

It allows consumers to open accounts without signatures over the internet through their mobile phones, although they can also sign up at Bank of Tokyo-Mitsubishi branches or KDDI offices. Products available include yen deposits, fund transfers to other accounts, ATM withdrawals and payments through a virtual prepaid card function.

Jibun is projecting that the service will be profitable by 2011 with some 2.4 million people signed up and deposits of ¥1 trillion ($9.3 billion). A bank spokesperson told RBI: “Jibun Bank will remain competitive with higher deposit rates and lower fees than traditional banks. We do not see the customer number targets as ambitious. We will focus marketing on the 30 million customers of KDDI and the 40 million of Bank of Tokyo-Mitsubishi.”

Banks across the world have established mobile banking and payments products as an extension of their distribution offering. The most high profile launches have been in India, where people are more likely to have a mobile phone than a bank account in some areas of the country, according to a recent VRL KnowledgeBank report (see RBI 579). It has also been a means for foreign banks to gain customers in spite of branch restrictions employed by the country’s government.

This year in India, Barclays launched Hello Money, Standard Chartered launched Cardless Cash Withdrawal and ICICI introduced iMobile. In South Africa, another market where there is a large unbanked population, Absa launched CashSend, while Gulf Bank introduced Mobile Plus in Kuwait. All of the products include fund transfers between customers via text messages which can then be withdrawn at ATMs by entering security codes.

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