Pepper, Bank Leumi's (TASE: LUMI) digital banking venture, has launched Pepper Pay, an open app for the bank's customers that makes it possible to transfer payments to liaison personnel using a debit card. The main part of Pepper - opening a bank account - has not been officially launched; it is still in the experimental stage, and is available only to specially selected customers. It is believed that the process of making Pepper's app available to the general public will take from several weeks to several months.
Meanwhile ,it appears that instead of waiting to launch all the products together, Bank Leumi has already launched Pepper Pay. The app is similar to the bit app launched nearly three months by Bank Hapoalim (TASE: POLI). The two apps make it possible to make payments between people through a simple user-friendly interface. Bank Leumi has also added a gimmick to the process - a gif animation addition to the notice of payment. The main point of these apps, however, is not just the interface and simplicity; it is the fact that they are free of charge; the customer does not pay anything for transferring the money.
In effect, the bank is subsidizing the cost of the transactions and clearance, while providing what amounts to a line of credit to customers from these transactions. The money transfer to the customer receiving the money takes place within one business day, while collecting money from the party making the payment takes place only on the first of each month, when the credit card is billed. The bank also does not charge for this credit. What this means is that insofar as these apps become popular, with more and more transactions being conducted, the bank is liable to find itself losing more money.
Subsidizing customers is not typical behavior for the banks, to say the least. The banks, however, realize that banking in general, especially payments, is on the verge of a technological revolution that will culminate in the technological giants offering financial services at lower prices than the banks. As a defensive act, it therefore appears that the banks prefer to get in ahead of their potential competitors by themselves offering the subsidized service, so that they can control the process and its magnitude. Furthermore, while the banks have no revenue from these apps at this stage, it is reasonable to assume that in the future they will develop additional services for which payment can be charged, such as payment services for businesses.
The large banks have invested a good deal of effort and resources in launching the payment apps. What about demand from the public? The number of downloads of the Bank Hapoalim app is believed to have exceeded 100,000, although there is no way of knowing how many users are actually using the app.
Such applications are only beginning in the rest of the world. There are very few cases in which apps of this time have become gone viral and grabbed a substantial share of the payments market. Nevertheless, it is clear that this phenomenon is only beginning. It is likely that just as the technological revolution has thoroughly changed many sectors extending from music to hotels and cabs, it will also reach the payments market.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 21, 2017
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