As U.S. bankers fear losing the primary relationships with their customers to technologically nimble outsiders, a South African bank is showing how financial institutions could conceivably return the favor.
First National Bank, the republic's third-largest bank by assets, began offering cellphone service to its direct-deposit accountholders last month. Customers who buy the bank-branded SIM cards for their phones can sign on to a single FNB site for their financial and mobile accounts. There they can pay their phone bills, buy data service packages, and activate international roaming. FNB resells the airtime from Cell C, a mobile operator.
"We bring new customers into our ecosystem and keep existing customers within the ecosystem," said Ravesh Ramlakan, CEO of FNB Connect, the unit that offers the mobile service.
The offering, unheard-of from a bank in the U.S., aims to give customers another disincentive to leave FNB, beyond the usual hassles of changing banks (such as updating direct deposits).
"While we switch customers from other banks, we have to retain our customers," Ramlakan said. "The more we link them to other products we have, the more that helps with stickiness. We try and do things that the other banks don't have."
The bank's incursion into the telecom business inverts the situation in the U.S., where traditional financial institutions are preoccupied with threats from nonbank providers.
"That is the biggest risk that banks have to worry about right now," says Daniel Van Dyke, a research specialist at Javelin. "Not only how they differentiate against one another but how they keep nonbank technology providers at bay as these providers seek to move into the traditional banking space."
Indeed, U.S. crossovers have tended to run from telecommunications to banking, not the other way around. Sprint and its Boost Mobile subsidiary have joined with mobile banking startup Wipit to offer bill pay, international money transfers, and prepaid debit cards primarily to unbanked customers who visit the companies' wireless stores. T-Mobile markets a prepaid Visa card and app that allows users to deposit funds remotely and tap a network of roughly 42,000 ATMs.
Prospects for an FNB-style offering in the U.S. may be slim for the time being. By law U.S. banks may engage in activities that are incidental to the business of banking. But attorneys who specialize in financial regulation say that, particularly following the 2008 financial crisis, regulators would probably not allow banks to sell SIM cards or smartphones, though regulations may evolve to reflect the reality that people will be doing a lot more banking on their phones. The Office of the Comptroller of the Currency has on at least three occasions the most recent in 2006 authorized banks to offer customers Internet access.
FNB, based in Johannesburg, was already in the business of selling broadband connections and smartphones. The bank has sold roughly 285,000 devices since 2011, along with more than 100,000 cellphone contracts.
Its move to launch a virtual mobile network began three years ago, when the bank set out to refresh its offering, which included free messages and calls over the Internet for users of its mobile banking app, the ability to send money and airtime, and to earn rewards for purchases such as groceries, gasoline and electricity.
As the bank saw it, a mobile network made sense in part because two million people were already coming to the bank each month to top up airtime and data.
"We started migrating customers out of branches onto those electronic channels by using [the ability to] check balances, prepaid airtime and other value-adds as a hook," explains Ramlakan.
Nearly every one of FNB's customers has a mobile device. More than 4 million of FNB's 7 million customers have registered for mobile banking. Another million each have registered for its banking app or bank online. Ramlakan notes that middle-income customers with children can have as many as eight or nine SIMs in the household.
There's precedent for FNB's move in other parts of the world. Rabobank launched a mobile network in 2006 that the Dutch institution hoped might speed adoption of payments, in part by facilitating customer authentication. Rabobank discontinued the service last year.
Market conditions in the U.S. may favor similar combinations. As in much of the world, a larger share of the population has a mobile device than have a bank account. Banks, meanwhile, continue to shed branches. Fifth Third Bancorp said recently it would sell about 100 branches about 7% of its network to cuts costs and better accommodate customers who are moving to mobile. JPMorgan Chase plans to close 300 branches by the end of next year.
"I think you can't necessarily say that because it worked in market A it's going to work in market B," said Gareth Lodge, a senior analyst in the banking group at Celent. But "I think perhaps there are some interesting times coming ahead in the U.S. where there are some opportunities, both for banks and also for mobile operators."
The mobile industry may offer lessons for banks about customers' expectations. "The mobile industry has introduced consumers to platforms that change as frequently as every year," said Lodge. "Consumers are used to a pace of change that the banking system has been unused to having to respond to let alone figure out having to respond."
Part of the discrepancy stems from the evolution of the two industries. In the 1970s, when banks formed the Society of Worldwide Interbank Financial Telecommunication, its messaging system "was the leading edge of technology in any sector," says Lodge. But a change to one field in that system can affect thousands of companies and financial institutions. "You've got to take an entire nation with you as well. That's why compromises have been made. You've got to work to the lowest common denominator"
Though FNB's network adds a competitor to South Africa's mobile marketplace, the bank hopes to distinguish itself by the quality of the experience it can offer customers. "We have our own billing platform that's integrated into many systems in the bank, including the platform for electronic channels, ATMs, branches, credit scoring, sales, distribution systems, etc.," says Ramlakan. "It's a very deep integration to give the customer the best possible experience."
FNB also has recruited employees from the telecommunications industry. "The focus on being digital is the way to the future and what everybody wants," said Ramlakan. "Nobody wants to go to a branch anymore for anything."
Brian Browdie is a freelance writer in New York.