What are the opportunities in messenger-based banking?

With the major­i­ty of high street banks’ dig­i­tal trans­for­ma­tion well under­way, cus­tomer engage­ment met­rics cen­tre firm­ly on the mobile apps they con­tin­ue to iter­ate and not the branch­es being shut down. In Jan­u­ary, HSBC revealed just 10 per cent of cus­tomer con­tact hap­pens through its branch­es.

But dri­ving cus­tomer engage­ment on a bank­ing app isn’t easy. It’s a hur­dle both incum­bents and dig­i­tal dis­rup­tors face on a dai­ly basis. As Sil­via Mens­dorff-Pouil­ly, bank­ing solu­tions head for Europe at FIS, points out: “Nine­ty-five per cent of the pop­u­la­tion glob­al­ly just doesn’t want to think about bank­ing.”

But what if banks didn’t only offer their ser­vices to cus­tomers through a closed-loop app? Mes­sen­ger ser­vices is one com­mu­ni­ca­tion chan­nel a small, but grow­ing, num­ber of banks and fin­techs are explor­ing. And the tech­nol­o­gy is already tak­ing a num­ber of forms. 

French bank­ing chal­lenger Zelf inte­grates with the likes of Face­book-owned Mes­sen­ger and What­sApp, dis­play­ing “bal­ance” and “send mon­ey” but­tons at the bot­tom of the apps. Mean­while, Israeli fin­tech PayKey embeds banks’ ser­vices into con­sumers’ key­boards, work­ing a lot like a GIF (graph­ics inter­change for­mat) or emo­ji key­board. 

Oth­er play­ers have intro­duced the two ser­vices side by side, as opposed to blend­ing them. Japan­ese mes­sen­ger ser­vice LINE, as well as Russ­ian dig­i­tal bank Tin­koff, have divid­ed mes­sen­ger and bank­ing ser­vices between dif­fer­ent tabs in their apps.

New space to challenge customers

Unlike bank­ing apps, mes­sen­ger ser­vices own much larg­er por­tions of people’s atten­tion spans. Sheila Kagan, PayKey’s chief exec­u­tive, esti­mates that “a user spends up to 30 min­utes in a bank­ing app each month ver­sus up to three hours a day with­in mobile-mes­sag­ing envi­ron­ments”.

Accord­ing to Face­book, 100 bil­lion What­sApp mes­sages were being sent each day by the third quar­ter of 2020. That’s equal to 69 mil­lion a minute. In the UK, reg­u­la­tor Ofcom’s data from 2019 found 49 per cent of the pop­u­la­tion use instant mes­sag­ing com­mu­ni­ca­tions week­ly.

“Mes­sen­ger-based bank­ing gives you an oppor­tu­ni­ty to chal­lenge the con­sumer,” says Mens­dorff-Pouil­ly. “Banks can use mes­sen­ger-based bank­ing inter­ac­tions to real­ly trig­ger cus­tomers to think about the bank­ing aspect of what they’re doing at that point.” If a cus­tomer used a key­word, such as “owe” or “broke”, banks could use this as an entry point to sug­gest how their ser­vices could help.

Cur­rent­ly, the tech­nol­o­gy isn’t enjoy­ing huge invest­ments from incum­bent banks in the UK, beyond in-app chat­bots designed to replace cus­tomer ser­vice call cen­tres. Experts, instead, point fur­ther afield to South­east Asia, Latin Amer­i­ca and Spain as areas exploit­ing the poten­tial of mes­sen­ger-based bank­ing inno­va­tion.

How the technology is being used

Despite still being in the embry­on­ic stages of devel­op­ment, ear­ly movers in the mes­sen­ger-based bank­ing indus­try have already man­aged to col­lect insights on which ser­vices cus­tomers are using. PayKey, which licens­es its tech­nol­o­gy to banks, includ­ing Stan­dard Char­tered Korea, lists pay­ment trans­fers as the most used fea­ture, short­ly fol­lowed by account bal­ance checks and then billing. 

LINE, which launched its dig­i­tal bank LINE BK in Thai­land, with the help of Kasiko­rn­bank in Octo­ber 2020, now receives 20,000 per­son­al loan appli­ca­tions a day. The Japan­ese mes­sen­ger giant has per­suad­ed two mil­lion of its Tai­wanese users to inter­act with the inte­grat­ed bank­ing ser­vices so far. For approx­i­mate­ly 30 per cent of its approved loan appli­cants, this is their first cred­it line from a finan­cial insti­tu­tion.

Dig­i­tal bank­ing chal­lenger Zelf, which is live in France and gear­ing up to launch in Spain, cur­rent­ly facil­i­tates trans­ac­tions between the £15 and £20 range. “Users are exchang­ing mon­ey through the same medi­um they dis­cuss their gigs,” says Zelf’s chief exec­u­tive Elliot Goykhman, point­ing to the ease of pay­ing invoic­es via mes­sen­ger plat­forms. He sug­gests the tech­nol­o­gy offers a route into busi­ness cus­tomer demo­graph­ics, as well as peer-to-peer spaces.

For Tin­koff, its mes­sen­ger fea­ture, launched through its bank­ing app last year, serves as an indi­rect mar­ket­ing chan­nel. “I don’t think any­one at Tin­koff thinks we have the next What­sApp,” says Neri Tol­lar­do, the Russ­ian neobank’s strat­e­gy direc­tor. “We see it as a viral mech­a­nism through which cus­tomers can rec­om­mend prod­ucts to each oth­er.” Cur­rent­ly 1.3 mil­lion cus­tomers use Tinkoff’s mes­sen­ger ser­vice, some 10 per cent of its over­all cus­tomer base.

Weighing up the pros and cons

As Zelf’s offer­ing proves, mes­sen­ger-based bank­ing isn’t nec­es­sar­i­ly a suit­able solu­tion for high­er trans­ac­tion-based ser­vices. “At some point, you have to step out of it and take it seri­ous­ly,” says Mens­dorff-Pouil­ly. “I can’t imag­ine, you know, agree­ing to a mort­gage on mes­sen­ger-based bank­ing.”

Con­nect­ing bank­ing ser­vices with mes­sen­ger apps also fuels con­cerns around cus­tomer pri­va­cy. Back in May 2020, Chi­nese mes­sen­ger giant WeChat announced its inten­tion to offer cred­it scor­ing to its 600 mil­lion users. It raised con­cerns over how users’ mes­sages might be used. For exam­ple, if a user sends some­thing “anti-state”, can WeChat use this to neg­a­tive­ly impact a cred­it score?

More gen­er­al­ly, the link­age between Big Tech plat­forms and banks sparks wor­ries around trust. “If only Face­book man­ages it [inde­pen­dent of the banks], there would be a prob­lem,” says Kagan. In July 2019, the US Big Tech paid a record $5 bil­lion fine to set­tle pri­va­cy con­cerns. In the same breath, Kagan acknowl­edges “banks need to be in front of cus­tomers, regard­less of the plat­form”.

Ulti­mate­ly, it seems banks will have to weigh up the poten­tial for increased prof­it against the like­li­hood of new data risks. As LINE BK’s chief exec­u­tive Tana Pothikamjorn explains: “The poten­tial of social bank­ing is the abil­i­ty to analyse finan­cial and social activ­i­ties in a sym­bio­sis.” This, in turn, enables banks to get more per­son­alised lend­ing, invest­ment and insur­ance prod­ucts right in front of the cus­tomer. Pri­va­cy issues aside, the busi­ness case of mes­sen­ger-based bank­ing is com­pelling.