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Can CBA’s digital bank go full service?

Coen Jonker outlines challenges to the bank’s virtual arm, TymeDigital – and what it needs to launch in Hong Kong.



Coen Jonker, TymeGlobal

Commonwealth Bank of Australia has launched TymeDigital, its digital bank, in South Africa and is rolling it out in Indonesia, and looking for a third market to enter. To survive, though, Tyme needs a far broader offer to its retail and small-business customers.

There are already plenty of fintechs worldwide providing money-transfer apps. Other banks are launching digital versions. And competition from Chineses and American internet giants is looming. So for Tyme and others, the race is on to provide as complete a service as possible.

“Unless you offer full service day to day, with all the functions of a consumer bank – including credit cards and lending – I don’t think you’re in the game,” said Coen Jonker, group executive at CBA International Financial Services in Hong Kong, who is heading its digital businesses.

No-frills debut
But digital banks are nowhere near that. TymeDigital by Commonwealth Bank, as the business is formally named, soft-launched last year in South Africa as a money-transfer app, and will debut in mid-2018 as a bank, with a broader suite of products. CBA declined to say how many people have signed onto the app, but says it is widely available at kiosks placed with retail partners (see below).

For now the offering is limited, however, to money transfers and a financial wellness app. In Indonesia, where it is also available at kiosks, TymeDigital is also pioneering personal loans.

The bank has put its efforts on onboarding customers, making the process via mobile phone simple, easy and compliant; and in letting users turn cash into digital money.

To achieve this required convincing regulators (and CBA’s shareholders) that TymeDigital’s cyber-security measures were robust, that its hardware of servers and undersea cables were resilient, and that outsourcing the computing to cloud vendors was safe.

Regulatory barriers
But regulatory and technological challenges remain to introduce more advanced, but necessary, services, Jonker says.

Regulations must come first.

Customer onboarding is far from solved. Some governments still require wet signatures or chops. Digital KYC remains hampered by the lack of centralized digital identity databases. Many regulators still insist on face-to-face meetings for customers to open bank accounts.

Although some of these issues are being solved for basic services such as money transfer, it remains a hurdle for providing loans and other more complex services. Regulators still require banks to collect paper-based financial data before granting a loan.

“These rules assume the bank needs to ask the customer” for such information, rather than using data to arrive at a decision, Jonker told DigFin. “This makes lending costly and complex.”

He is optimistic that regulators with a mandate to support financial inclusion are open to reviewing these provisions. Assuming these get addressed, there remain some technical or operational challenges for digital banks.

Operating-model barriers
For traditional banks looking to offer digital versions, it’s hard to ignore the internal problem of existing core-banking systems and on-premise technology (for disseminating credit cards, say).

“Legacy tech systems are poisonous to the pure digital plan,” Jonker said, both out of a sense that ops departments want to get their money’s worth after spending millions on their I.T., and because it’s costly and hard to get that infrastructure to work with new tech.

This is why CBA opted to acquire Tyme in 2015, a fintech founded by Jonker in 2012, and run it as a separate business as TymeDigital, rather than attempt this as an in-house initiative.

But even for players without legacy infrastructure, or traditional banks that work out a digital solution, distribution (or cost of customer acquisition) remains another obstacle. Pure-play digital can’t get around the need for customers to initiate cash into the system, or hand over a document for compliance purposes, or take custody of a card.

Tradeoffs: just how digital?
In other words, there are strategic tradeoffs: how pure can a digital player be?

“There are limits,” Jonker said. “What physical things you decide to do, and how, have profound consequences on the business. This is where digital banks fall down.”

For TymeDigital, CBA decided it would never open a branch, manage customer cash, or collect paper. But it still needed some form of physical presence, so it teamed up with a retailer in South Africa present nationwide, and set up kiosks in the stores. (It has kiosks live in Indonesia too, where it is working with multiple partners.)

This is where people go to set up an account, provide data or biometric information, collect debt cards, and deposit or withdraw cash.

“It’s a light footprint,” Jonker said, musing that in countries that eventually abandon credit cards, the kiosks might one day disappear. “Our ambition is to be purely digital, so the kiosks are a stepping stone,” he said.

Hong Kong horizon?
Meanwhile, CBA is reviewing markets for Tyme’s third debut, be it another emerging market or something else – perhaps a place like Hong Kong, where virtual banking licenses will become available this year.

Jonker says the bank wants a market with predictable regulators, and with eager and capable partners (such as retailers, mobile operators or data analytics companies).

Although he says China is not on the shortlist (“We’d try to learn from them, not compete with them”), Hong Kong could fit the bill. It lags emerging markets in payments and banking tech, the virtual bank license regime will open the door, and it offers high-quality regulatory standards.

Jonker says the decision could come down to how the territory’s regulators facilitate digital customer onboarding and loan origination. For example, the HKMA might issue good regulations, but little details such as other government departments insisting on physical chops on documents can hold up well-intended reforms.

“Customers are less tolerant of roadblocks,” Jonker said. “Both regulators and businesspeople tend to underestimate the extent to which small barriers will undermine the customer’s willingness to try something new. I hope regulations here will evolve with this level of detail in mind – not just for virtual banking, but for KYC.”

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