Israel’s digital and online market is booming and the financial sector is taking note. Despite a slow start for banks, (consumers could only open an account online from July 2014) Bank Leumi is tackling this challenge head on to become a fully digital brand. Patrick Brusnahan investigates
Internet penetration within Israel is increasing. The number of internet users in the country grew from 4.6 million in 2009 to 6 million in 2013, a huge percentage of the 8 million person strong population. This is set to increase rising to 8.4 million in 2018. Banks are set to take advantage of this rise in usage.
In addition, m-payments increased sharply from ILS16.9m ($4.3m) in 2009 to ILS293.2m in 2013 at a CAGR of 104.2%. This is expected to increase even further to ILS2bn.
Bank Leumi is getting ready for the technological wave. It has selected Swiss vendor Temenos to overhaul and replace its legacy core banking system as part of a multi-year renovation programme. This is expected to save the Israeli lender millions of dollars in savings on IT maintenance costs each year.
When asked about the change by Brusnahan, Dan Yerushalmi, COO of Bank Leumi, said: "There is never a good time to do a transformation of core systems. I joined the bank almost three years ago and at that time.
"At that time, because of the changes we’ve seen in the market, we thought we should start dealing with two other strategic areas: mobile and digital, and CRM and cloud. As a result, we started a consolidated Cloud CRM initiative and we’ve built a new upgraded digital wallet that includes a lot of capabilities that you can do today on the mobile if you are a retail, or even SME, customer."
Yerushalmi believed that this is a necessary step for the bank to be able to move forward.
He said: "You can understand that at some point, the core capabilities are serving as a glass ceiling for every new initiative in the bank and impacting time-to-market significantly. We’ve implemented this in several of our entities in Europe in the past and there were two considerations.
"One, we were about to embark on a transformation in North America, but due to the lack of experience in the regulatory environment in North America, we decided to continue with our existing partner there and upgrade the current environment and move forward in a more straightforward direction. In the bank in Israel, we agreed that after we will be far into the CRM programme and the digital wallet, we will reconsider the decision."
Change is needed in the Israeli market as it develops. This month, the Bank of Israel asked Bank Hapoalim and Bank Leumi to sell off their credit card operations in an attempt to increase competition in the marketplace. These two banks hold over 20% of the retail credit business and with that going, some other road to turnover needs to found.
To combat this, as well as updating the core, Bank Leumi saw an opportunity to create something else: a digital sub-brand under the bank.
Yerushalmi explained: "We put together a plan; however, we said that this by itself would be risky and the benefits may not be as expected. Then we felt we should build a digital channel i.e. a digital sub-brand under the banks. It has made a lot of sense to connect the two programmes together.
"So basically, the first phase of the programme is to build a digital ecosystem. This is what we have embarked on and we’re planning to launch it next year. Then, build our core capabilities gradually and replace the old capabilities with the new ones with some overlaps in the programme. As you can understand, today, it is very hard to forecast and plan for a few years ahead. Things are changing so fast."
This development is with three strategies and three priorities in mind. This is to make sure that the overhaul is worth doing and it is done right. Most importantly, that these changes actually make a difference to how the bank services its customers.
Yerushalmi added: "Firstly, everything we do should bring significant business value. The second objective is efficiency. We would like to build a place where everything that we do tomorrow will take half of the time and half of the money. The third thing is that everything we do must improve the employee and customer experience.
"We have also set three priorities. Timeline and speed are our number one priorities, then cost and then scope. We will be pushing the envelope and budget, but we will not compromise on timeline and we must deliver. We are implementing the strategy in the programme and in a year’s timeframe; we will launch these digital capabilities and channels. There is a new landscape which is agile in new technology."
One of the key components of this shift is Bank Leumi’s new digital channel, which the lender hopes to launch within a year. But is that enough time to launch anything, never mind a whole new channel?
He said: "We’re not going to ask for a license for a new bank, we’re using our own banking license; this is just a digital channel. We strongly believe that one of the roadblocks in our timeline is the inability to crystallise what we want to offer in a digital bank. If you want to define very clearly and specifically a unique offering, the process should be simplified and we don’t see an issue in building this within a year."
How this ‘digital channel’ will form is still up in the air. Yerushalmi conveyed that it ‘might be mobile-only’. The important thing is that it has to be intuitive, something that the lender has struggled with in the past. This is particularly with regards to security and identification, a part of the online and mobile experience that many banks struggle with. However, the COO believed that the new digital overhaul would change all of this.
He said: "The kids when they get a smartphone, they don’t need instructions. People such as me may need instructions from time-to-time so the whole idea has to be self-explanatory. One of the real customer frustrations is requests to add identification and information. Here we will try to do that for the customer. We will not ask them ten times to identify themselves."
Yerushalmi concluded: "Right now, our bank is definitely leading the whole digital space in the local market. I will say that all the large banks in the market are geared towards digital. All of them understand that the main differentiator today is technology. It’s not pricing. We see a lot of the boundaries between business and technology blurring and therefore the collaboration between the two is critical, otherwise you will not be able to make significant strides ahead."