This would appear to be a tough year to launch a new bank, with economies locked down to combat the COVID-19 pandemic, U.S. interest rates flirting with zero levels, and consumers (perhaps) clinging to the skirts of familiar brick-and-mortar institutions.
The coronavirus has been blamed for several virtual banks to delay launching. In Hong Kong, several licensed banks have not given a launch date and Ping An OneConnect Bank said it would wait until the pandemic had abated. Regulators in Singapore and Malaysia have extended their licensing processes into late 2020.
Mox Bank, which is majority owned by Standard Chartered Group, began live trials in April. Its CEO, Deniz Güven, has told DigFin the coronavirus is essentially arguing the business case for virtual banks, by making clear the need for end-to-end digital services.
“Digital banks will be needed more,” he said.
Virtual banks launched by incumbents have a spotty track record. On May 1, RBS announced it was shutting down Bo, a digital consumer bank it had launched in the U.K. Last November, J.P. Morgan threw in the towel and shuttered its digital bank, Finn.
In both cases the incumbents weren’t able to fully differentiate their erstwhile neo-banks from their parents’ own digital offerings. They weren’t independent enough and in the U.K. Bo was pitted against the likes of Monzo, Starling and Revolut – without ever matching their capabilities.
Güven says Standard Chartered has two goals with Mox: defend its existing market in Hong Kong, including branch-visiting affluent customers, and attack new segments made possible through digital channels.
Digital banks will be needed moreDeniz Güven, Mox Bank
The bank decided it could not meet those twin objectives with its existing digital offer. It had to build a separate brand that was cloud-native and digital from end to end. That meant separating the tech stack from the “mothership”.
He said, “From day one we have operated a standalone bank. Our technology, strategy and culture are separate.”
In his interview with DigFin, Güven recites some of the same lines he used last year on stage when introducing Mox. He rejects the idea of being measured on metrics such as number of users, or KPIs such as profitability. He acknowledges that the ultra-low interest rate environment makes it hard for banks to earn revenues, but spins this as a plus for a new bank that doesn’t have many customers, at least not yet – therefore it doesn’t have to worry so much about finding means to lend out deposits.
A mobile app is not a channel; it’s a serviceDeniz Güven, Mox Bank
These are probably questions he fields constantly from StanChart executives, and DigFin had the feeling that he spends a lot of time defending his moat. The failures of Bo and Finn make clear his need for breathing space. He is adamant that Mox is not riding on the infrastructure or coattails of Standard Chartered, which owns 65% of the virtual bank.
“A virtual bank is not just a mobile app,” Güven said. This is a mistake that traditional banks make when they think “digital transformation”; to them, the app is just another channel to reach their customers.
Güven says this approach won’t work for a virtual bank. “A mobile app is not a channel: it’s a service. We are offering real-time solutions. With incumbent banks there is a huge disconnect between products and digital channels. Mox is real-time and connected.”
The bank’s shareholders are integral to this idea of service: they are Hong Kong Telecom, PCCW (another telco) and Ctrip, the mainland Chinese travel-tech company. These are meant to provide both customers (Ctrip has 210 million users worldwide) and daily touchpoints.
The travel angle was a big part of the Mox concept. COVID-19 has upended that, for now. Guzen says travel will come back; in the meantime, he argues COVID-19 has only expanded the opportunity for a digital bank, now that more Hongkongers are spending money online for e-commerce and other needs. He calls this “real inclusion” into the digital economy, as opposed to financial inclusion, which was supposed to be the Hong Kong Monetary Authority’s purported goal for licensing virtual banks in the first place. But financial inclusion is a difficult target for a consumer bank in a city of about 8 million largely affluent people.
Along with the bank’s joint-venture shareholders, Güven says Mox is open to partnerships with fintechs or other third parties. “For e-commerce we are super open to work with everyone,” he said, adding the bank will announce some relationships in the coming weeks.
Güven says just having a sexy app and some attractively priced offers won’t cut it. Our discussion returns to KPIs and what makes a virtual bank sustainable. “It’s not about interest rates. It’s about service,” he said. “Our KPI is heartshare.” This is one of his standard lines. He declined to specify what goes into measuring this, but it’s the priority, from which customers and profits will emerge.
The first manifestation of winning customer affection is a credit and debit Mastercard, with no number, CVC code or expiry date. Güven claims this to be the first numberless card in Asia. He says the prospect of winning one of these, either in its premium metal or standard plastic forms, led to the bank’s first 11,000 applications in 24 hours. (RBS’s Bo never amassed more than 11,000 customers over six months of operating.)
“You don’t need to call our call center with this card, it’s all on the app,” Güven said. “We’re focusing on excitement.”