FINTECH BRIEFING: Online banking should be cheaper - BBVA acquires Finnish startup - Atom Bank makes acquisition

Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in the UK and Ireland, the Continent, and beyond, produced by BI Intelligence.

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DIGITAL BANKING SHOULD BE LESS EXPENSIVE FOR CONSUMERS. Providing online banking isn't as expensive for banks as offering the traditional branch-based model. While consumers are using digital more often, the savings still aren't being passed on to consumers, according to the BBC. Part of the problem is that as long as some customers still visit a branch, much of the branch cost remains fixed. However, banking services could come down in price more substantially if consumers move exclusively to digital, or if banks go digital-only.

• 84% of UK consumers use online or mobile banking, while branch traffic continues to decline. HSBC, for example, has seen a 30% drop in branch footfall .
• Only one UK bank significantly lower fees for digital-only customers. Of the two banks which have separate digital brands in the UK, only the Co-operative's Smile offers significant savings on overdraft rates. It charges £7.34 ($10.46) on a 500-day overdraft compared to the main brand's £17.4o ($24.79) fee. HSBC charges £87.52 ($124.67) for the same overdraft terms while its telephone and digital-brand First Direct offers only a £5 ($7.12) discount on that fee.
• An opportunity for digital-only banks. Despite changes in regulation and government campaigns to encourage UK consumers to switch banks, the number of people doing so is still low. 1 million people switched bank accounts in 2015, down 11% from the year before. In France the number is higher - the result of consumers switching to the digital brands of major high street banks, which offer a better value, according to John Lyons from PwC.
• Different propositions for different consumers. UK bank accounts are generally best suited to consumers with good credit, while those who often overdraft face high fees. This has prompted an investigation by the Competition and Markets Authority (CMA) into overdraft charges.

Digital-only Atom bank expects to be more competitive than many traditional banks when it comes to some charges and costs, according to founder Mark Mullen. Digital-only providers like Atom can pass cost savings onto consumers and make the subject a marketing point. However, the fee differences between digital-only banks and traditional banks may not be significant enough to be the sole reason people switch accounts, according to Mullen. Instead digital-only banks will need to incorporate lower fees into larger value propositions which differentiate their services.

BI Intelligence

BBVA ACQUIRES FINNISH BANKING STARTUP. The Spanish banking giant has acquired Holvi, a provider of banking services to small businesses, continuing its strategy of investing and acquiring in fintech and related industries. Holvi customers get a current account, a business MasterCard, the technology to build an online store in minutes, and bookkeeping and invoicing services.

BBVA has invested in fintech across the globe:

• It took a 29.5% stake in UK startup Atom in 2015.
• In 2014 it acquired Spanish data and cloud-computing firm Madiva Soluciones.
• The same year it also acquired and absorbed US banking startup Simple.
• In 2015 it bought US-based user experience firm Spring Studio.

The bank leads in exploring new ways to provide its customers with cutting-edge technology and is open minded about how that's done. By making local acquisitions it offers its customers in those regions tailor-made products, and by letting the firms continue to have some independence it doesn't risk upsetting existing clients.

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STARTUP BANK ATOM ACQUIRES DIGITAL AGENCY. The UK digital-only bank has acquired Grasp, a digital design agency; terms of the deal have not been released. Grasp specialises in building user interfaces for the gaming market, according to Finextra. Atom bank has yet to launch, although its website suggests it hopes to go live later this year. Given Grasp's specialism, it is possible Atom is planning to introduce a gamification element to its user experience.

The startup banking market in the UK is getting crowded. Besides digital-only/first banks like Atom, Starling, Mondo, and Tandem, there are also numerous smaller digital-focused banks following a more traditional model (e.g., Metro Bank, Aldermore and Williams & Glyn). This does not mean startup banks can't succeed - UK customers have products with a variety of financial services providers - 43% hold a credit card from a different provider to their current account, and 25% have a second current account held elsewhere. However, in order to take a share of the market, these companies will have to offer something significantly more attractive than what's available from existing players.

GERMAN POWER FIRM TESTS BLOCKCHAIN. RWE, a German power company, is using blockchain startup Slock.it to develop proofs-of-concepts (PoCs) designed to cut costs. One of the PoCs involves electric car charging stations that "use blockchain-based smart contracts to authenticate users and manage billing", according to RWE blockchain team lead Carsten Stöcker in an interview with CoinDesk. The PoC has a working prototype which charges consumers for the amount of electricity consumed during car charging, rather than the number of hours connected. The theory behind the PoC is that users will save money because they are paying per unit of electricity, which is made possible through the use of Blockchain technology. In turn, electricity will be deployed more efficiently.

Around the world...

Standard Chartered expands iPad account opening. The bank will expand its iPad-based sales and service tool, Retail Workbench, to six new countries across Africa, Asia, and the Middle East. The product enables bank staff to open an account in any location using an iPad, and makes loan approvals and credit card issuance paperless. It allows staff to travel to clients in areas where there are no branches and offer customers services, without the need to return to a branch for manual processing of paperwork. In areas where branches are difficult to establish or maintain, technology like this gives people access to formal bank accounts they wouldn't otherwise get. Standard Chartered has said that due to differences in local infrastructure, turnaround times and other features of Retail Workbench will vary across the six markets following the global launch.

Square launches in Australia. Australia will be the mobile point-of-sale (mPOS) company's 4th market after the US, Canada and Japan, and it's first overseas expansion since 2013. The card reader will be chip-and-pin based. The company's contactless device was deemed too large and expensive to appeal in the market. This could hinder adoption amongst larger merchants in a country where 60-70% of Visa and MasterCard transactions are now contactless, and Square's major competitors offer contactless solutions. For smaller merchants, the appeal is more obvious, as Square is cheaper than competitors and doesn't require a PIN for transactions under $AU35 ($US 26).