Creating a New Digital Finance Experience - from online service to online sales & e-commerce

Special for P.World event

– 3rd International Banking Forum, Belgrade, Serbia

Alexey Kazakov

Head of Electronic banking, OTP bank, Russia

RETAIL BANKING. WHERE ARE WE NOW?

Russian retail banking: Current state

3

- Overall retail credit portfolio volume >9 700 000 000 000 rubles (~225B Euro). Y2Y growth: 23%

- 205 000 000 cards issued overall, >26 mln – credit cards. Y2Y growth: 6%

- Major players: Sberbank (>30% market share), VTB24, Tinkoff CS (online bank), Alfa bank, Russian standard bank

Russia market overview

OTP Bank Russia – TOP 15 retail bank

Sources: - official data from Russian Central Bank - market review from Frank Research Group for OTPbank

Russia market overview

OTP Bank Russia – TOP 15 Retail bank

- holds 2nd position in POS landing segment. Market share is about 20%. Credit portfolio is almost 50 Bln rubles (Q2’13) –more 1,1B EUR - holds 6th position in Credit cards segment. Market share is 4,1%, portfolio more then 40 Bln rubles (Q2’13) – more 0,9B EUR

- Presence and network: 3 700 cities, 157 branches, 32 000 POS locations

Online retail banking in Russia: Key figures

4

Sources: - J’son and Partners market research, Apr 2013

42

135

188

674

40

107

158

740

3198

9870

13744

42558

1 10 100 1000 10000 100000

2008

2011

2012

2017F

Internet-bank SMS-banking Mobile bank

0,7 1,9 2,4

8

9,9

22,2

0

5

10

15

20

25

2012 2017F

Mobile bank SMS-banking Internet-bank

Online banking USERS, mln

Online banking TURNOVER, mln EUR TOP-5 most USED online functions

Mobile, internet payments Utility payment Transfers to e-money (PayPal, QIWI, etc) TP2G payments (traffic police, taxes) Domestic transfers (VPP, MCMS)

TOP-5 TRANDS in online banking

E-invoicing \ online shopping Direct debit from other cards UX \ interface re-design Expenses categorization \PFM Credit registry request

TOP-5 most GROWING online areas

Online request for a card delivery-at-home Online deposits and loans Mobile applications with geo-locations P2P transfers (on phone#, card#) Individual pre-scored offers

OTP RU online retail banking: Key achievements

5 Sources: - Own data sources, Oct 2013

User activity dynamics, units/quarter

Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13

Unique logins

Transactors

Transaction ,units /quarter

Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13

Service payment

Intraclient transfer

Domestic transfer

Intrabank transfer

TOTAL

Q1' 12 Q2' 12 Q3' 12 Q4' 12 Q1' 13 Q2' 13 Q3' 12

Templates & oths KURS

DEPOSIT REKV

LIST UP

CARD BAL

CREDIT

SMS bank ussage /quarter

OTPdrekt - Internet, Mobile and SMS banking

According to “Markswebb Rank and Research” agency report in 2013, OTPdirekt is:

• TOP-10 in mobile banking (IOS, Android)

• TOP-30 in internet banking

+113%

+540%

+424%

+130%

61%

21%

13%

4% 1%

Phone call Physical locations

Internet, Mobile, SMS Social media

E-mail, internet site \ chat

48%

23%

20%

5%

3% 2%

it is too expensive for me

it is not enough secured

No reason/need

I don't know how to use it

It is not a convinient for me

I don't know what is it

Lack of “online” culture

13% - of Russians uses online banking services

Russia population is about 143 000 000 people … BUT, only

6

Sources: - National research agency (ФОМ) , 2012 - Statistical data, OTPbank RU, 2013

Major challenges

• Inconvenient and unfriendly user interfaces, too many legal and official terms in forms. Too many fields should be filled

• Personal visit to bank is always needed, difficulties with

generating (recovering) passwords, scratch cards (OTP, token )should be in a pocket, too much of security, etc.

• Online service is unstable (not really 24/7/365), incorrect fin info (not up-to-time), visible bugs, too many hidden restrictions, no relevant feedback from service (Is my transaction proceeded?)

• “It is better to call to a bank than to navigate inside”, not all browsers are supported, no mobile version\application

• no (or late) feedback from a bank support, irrelevant help on problems resolution, no demo and education materials, unfriendly user manuals (papers, terms …)

Sources: - Markswebb Rank & Report, «Internet Banking Rank 2012»

Lack of Usability

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Lack of Convenience

Lack of Trust \ Transparency

Lack of Productivity

Lack of Customer care

What prevent people from getting online banking experience?

Case Study #1 – Yandex. Dengi & Sberbank

Short PIN for login under same device (no pword)

Well organized menu –all functions on “finger tips”

Navigation is adopted to particular platform & UX

Most convenient type of keyboard for each task

Fast launch - most required information on main page

8

Usability: Everyday payments go much simple

Structured service payment catalog

with contexts search

Custom and pre-set templates

“Favorites” and Last payments

Pre-delinquency reminder

Visualization of selected payment

source

Add note or capture to a payment

Geo-location service: Bank’s and Partner’s

places

1

Recently used amounts

9

Usability: E-invoicing for forced e-commerce

E-invoicing – bank fills up a payment bill, and client just may to accept or decline it in one click in web or mobile! • Utilities, internet, mobile payments • P2G payments (taxes, police) • P2P transfers (money sharing, sending money to

relatives or friends) • Calendar based notification and recurrent

payments • Payment confirmation by web, SMS or via Mobile

bank (push)

• Online and even offline purchases - Merchant sends payment request to a client web\mobile bank via integration provider (aggregator) or directly

Client should not think about payment \ transfer requisites …

Схема процесса

10

Convenience: Balance b\w security and usability

Templates

Mobile bank

Management Transaction

limits

Management

Creation

Control

Control

Access

blockage

Access

blockage

Mobile phone

management

Pa

ym

en

ts, tr

an

sfe

rs, re

po

rts, fin info

rma

tion

• Single combination of login\password and phone number for all channels

• Templates sharing between web, mobile, SMS and even kiosks\ATM

• Card\account or even online banking channel itself could be blocked on similar way in any channel or device

• Transaction limits for one channel, could be adjusted in other channels

Think about clients’ insights, when you start to expand online banking:

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Case Study #2 – RSB and Alfa-bank

12

Online services should NOT be sold offline way …

• Login\password delivery on air (SMS) – NO tokens, NO scratch cards … • Access recover \ block with SMS\Mobile or on web interface (card number and key-word are

required) • Using SIM-card and device data for harmonization b\w usability and security:

No need to re-authorize for fin info enquiry, but you have to do

it for payments\transfers

Mobile payment on internet bank templates without

mandatory authorization

Transactions on small amounts (or “one-more payment”) without mandatory SMS

confirmation

Transparency: Electronic wallets

Electronic Wallet (EW) – technical “account” in IT systems, with prepaid “balance”, which might be opened, filled and debited without KYC

• 10% of Russians uses EW, 34 mln. EW are issued • EW is mostly used for instant payments, P2P

transfers, online shopping • Max limit\transaction – 15 000 RUR (350 EUR), Max

monthly turnover – 40 000 RUR (930 EUR)

• In 2011 e-wallets became get a legal basis (161FL) • in 2012 e-wallets top-up come closely to 300B RUR

(7 000 mln EUR) • In 2012 Russian banks start to open own e-wallets

with a target to e-commerce expansion and new client acquisition from online and via kiosks\ATMs

How to attract new clients from online and … by online process:

Sources: Market data, 2012

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Case Study #3 - Sales model for “walk-in” clients

Usage of e-wallet technology could convert 100% visitors of bank’s locations – to online product users (and Bank’s clients!):

• “Short – scale” based on e-wallet • “Full – scale” based on regular account\card online access (Internet, mobile, SMS)

Client submit application to

loan, card, deposit, etc.)

Open contract to ACCOUNT \ CARD

Client is interested in using Payment \

transfer services OBLY

Open online contract to

ELECTRONIC WALLET

SHORT-SCALE functional

- E-wallet balance - Payments - Transfers - SOME features

Push clients to Identification in Branch or

POS via

individual pre-scored offers

Approved !

Not approved Client scans QR at POS location \branch and download Mobile application!

FULL-SCALE functional - Payments \ transfers form ANY source - Credit funds usage - ALL fin info for ALL products - ALL features

individual pre-scored offers

OTP - New sales scheme - to be launched in 2013 - 2014

OTP - Existing sales scheme

Simple authentification

Branch,

POS

location

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Case Study #4 - “invite a friend” sales model

Client #1 log-in to Mobile App or use

Web page

Client #1 choose “Send funds to a friend” and add

participants from Address book

Client #1 Fill up transfer form with amount and push

“Send”

Friend #2 receive SMS with transfers details and links to

App Stores and Bank Web page

Friend #2 goes thru simple registration

process for contacts data validation

Transfer is done. Friend is able to open\download

Mobile App and get access to funds

Approved !

Approved !

Your client already

Friend #2 open E-wallet, and become

a Client #2

Confirmation

SMS/email/notification Welcome SMS, e-mail

Friend is #2 able to download App or go to web form by

following link

Not your client yet

• Alias for access (simple

enough to remember)

• Demographic data

• Contact data (mobile

number, email - to be

validated)

• Password \Code (simple,

but secure)

- Amount + Amount

Usage of e-wallet technology could push your existing clients to spread\share money with their friends (not banks’ clients yet) and give an opportunity to turn them to new clients in a minutes!

New clients on boarding process

15

Customer care: Single-entry-point support

Online chat

Social medias

Branch

Co

mm

un

icat

ion

ch

ann

els

Level 1:

Customer

support team in

Contact center

(24/7/365)

Training &

educational

materials

News about

functional

changes

Incentive

programs

for usage

increase

Online products team

Contact Centre

E-mails

Level 2:

Professional

support team in

IT OPS

(24/7/365)

You can not control customer satisfaction, w\out communication management …

Cooperation in issue

resolution

Cooperation in customer satisfaction News \ updates

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Case Study #5 – TCS, RSB, Alfa,Sberbank

Route calculation - find a way and arrange proper time is simpler

Issue with smth just – call to bank directly from Mobile app

Find closest point of loan repayment (partner) or a place with special offers

Rotate, resize filter a map objects for better result

Check branch open hours and query online

Get a welcome wizard on first launch, shake device for help screen

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Customer care: Social media

Social media is not about direct sales, because there are no BUYERS in SM …

“Help, Care, Entertain” – use different social medias for appropriate tasks: • for being transparent and getting more respect • for teasing and getting customers to be involved • for education and advertising

Know your customers, be aware where they are and be a friend to them, especially, when advice is needed.

Gamification – is a power tool to explain complex things (or products!) on a most simple language for widest audience

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Case Study #6 – Ubank (AUS)

1. Type down info about themselves on website (6 steps)

2. Obtain information - how many people like you on your neighborhood

3. Learn how much money they spend and how much is transmitted to deposits

4. Choose a personal financial plan

5. Share your accomplishments with a friends on Social Media

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People like to be “not worse” than neighbors. Let’s monetize it …

Case Study #7 – Westpac bank (NZL)

1. Download the application to your Smartphone 2. Open deposit account remotely 3. …. 4. Press the RED button, and top up you deposit

on $5 instead of "impulse buying“ during shopping

5. Share your success with friends thru Social media

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How to get new clients and sell deposits widely - make a “virus” App

“The future has already arrived. It's just not evenly distributed yet”

William Gibson

E-BUSINESS. WHAT IS THE NEXT?

Digitality - is today's reality!

45%

22m

- of Russian people goes online at least once a 24 hrs. Monthly figure is even higher - 57%

National research agency (ФОМ) , June 2013

- overall number of active Smartphone users in Russia. BTW, in first half of 2013, >7 mln devices have been sold

J’son & Partners Consulting, for Google, 2012 Market research done by “Svyaznoy” retail network, June 2013

Russia population is about 143 000 000 people, again, and …

… it is a proper time for mobile payments innovations!

22

Cards – are “granny's payment too”

Now it is matter “Who?”, but not “with What?”

Plastic cards are enough expensive (to accept) for a Merchant

… Inconvenient for a Customer (how many card do you have in your pocket?)

… low protected - In e-commerce world all traditional card protections (PIN\Chip\EMV) are zero

Cards' branding is disappearing. If a Card linked to electronic wallet (QIWI, PayPal) or to online shops account (AppStore, Google play) - all money are in one secured place

Customer just need ONE password to access them all

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Merchant – a major “customer” for payment innovations

“On-air” banking: less infrastructure and 3rd parties – minimum costs and fees

Merchant resists to payment innovations in acceptance, if there isn't long-term and transparent value (lower MDR, loyalty features, etc.)

Any equipment for acceptance brings freedom restriction for a Merchants and exchange it to a dependency on external factors (internet connection, physical damages, etc.)

Customers Merchants

Banks Banks

Devices (HW)

Devices (HW)

Issues Acquirers

Apps (SW) Apps (SW)

Card systems

Banks

MS, Chip, NFC

Alternative PS

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Digital world brings more opportunities

Rapid adaptation, best UX, scalable technologies – key features of digital banking

Mobile technologies allows to implement the best user experience (UX), constantly adapted to suit the needs of specific customers;

Delivery speed of innovation to gadgets and Apps is a maximum.

In online world various technologies could be used to ensure a balance between security and usability.

Digital security provides the necessary speed and stealth design in response to (or even ahead of the curve) to fraud activities

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!!!!!

Payment service, bases on QR codes

Ideal for the Customer - quickly and safely - just one click to start the application

Beneficial to the Merchant – low (and most importantly - a transparent) merchant discount rate without additional fees

A great opportunity to do experiments with a customers loyalty - merchant can configure, run, and analyze a promotional company himself

QR reading from smartphone\tablet or from cheap, modern-look and completely secure device

2%

Case Study #8: Extra convenience with

fee

1M users

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Payment service, bases on direct debit from Customer account

Extremely beneficial to the

Merchant and still - no cash;

Convenient for the Customer - confirmation with a single password;

Fast growing network - all acceptance places on the interactive map;

Can be used as mobile applications or being integrated with a traditional cash-desk solution

Additional free services - P2P transfers, etc.

10K merchants

0%

<10$

.25$ >10$

Case Study #9: Extra profit with

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!!!!! Case Study #10: Purchase as a tweets with

Online purchases with Twitter and AmEx

Register a card on AMEX Sync;

Find special offers from partners of

American Express on Twitter;

Place a #hashtag with the name of the special offers (eg # AmexFlowersShop);

Get a discount on next purchase with AMEX cards in this store

OR

Pay off the full purchase (confirmation comes from @ AmexSync). Goods will be delivered right to a home

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Case Study #11: Why NFC IS DOA (“dead on arrival”)

Payment application + "beacon» (beacon) base on BLE (Bluetooth low energy) technology

• Easy to start: no additional equipment - "beacon" is connected to USB (and Bluetooth exists in each Smartphone);

• Hands-free payments – it is enough verbally confirm a payment from PayPal account

• Individual offers and discounts – right at a time when they may excite the customer (based on inside-building geo-positioning)

• Safe, it's PayPal iBeacon в IOS 7 - payments standard from

Apple is close? 29

Case Study #12: Converting loyalty to payments innovations

Pure loyalty – The Customer returns to a particular Merchant for personalized service and special benefits: • Tie a Starbucks card to the mobile

application;

• Proceed payment by barcode on the screen:

• Apply instant discounts and gifts from payment application (coupons are stored in the Apple Passbook);

In U.S. Starbucks mobile application integrated with Square Wallet

- Check-in in a shop - Let a system to recognize you - Say your name to a cashier - That is ALL!

7K locations

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Payments should be invisible

Come in – Choose – Take away …

Nobody really like to DO a payment. Ideal purchase:

… Some settlement stuff (which nobody really doesn't want even to think about)

31

О группе ОТП

Дирекция розничных бизнес - технологий, ОАО

«ОТП Банк»

Thanks for your attention!

Alexey Kazakov, a.kazakov@otpbank.ru