Bank Leumi announced last Thursday to tens, if not hundreds of thousands of customers of its payment app Pay, which starts this April, that they will not be able to use it even if they do not have an account with Leumi or Pepper. Apparently this is a large customer base, but in practice the volume of users of the app launched in 2017 has dropped to less than 1% of the volume of transactions.
Leumi defined the decision as part of the strategy to transfer the app’s customers to use the bank’s services. In practice, however, it is a matter of leaving the field to the two competitors operating in the payment transfer market – Beat Hapoalim Bank, which controls about 80% of the market, and Discount and Shufersal’s Facebook, which controls about 19%.
Data obtained by Globes shows that Facebook recorded its best year ever in 2021 with a 28% increase in the number of app downloads, a 80% jump in the number of active customers and over 50% in the activity cycle.
The main conclusion: must offer something else
From Leumi’s point of view, this is an economic move designed to prevent the loss of millions of shekels a year, since the service is free for the customer, but involves payment for the bank, which has to bear the money transfer fees. Leumi tried to find a model that would allow the information of customers who use the app to be channeled to profits, but were unable to do so and decided to transfer the payment activity between people (P2P) to the bank itself.
In retrospect, the combination of Pay’s activity, which remained limited to the transfer of funds between people, and the timing of its launch, is the main reason why it did not rise. The app was launched a few months after Hapoalim launched Beat and offered no significant change.
“We take from Pay’s case one significant insight – it’s impossible to be an ‘I have one too’ player absolutely, we have to offer something else,” said a payments market executive. “The market is ready to adopt digital solutions that solve a problem or meet a particular need, but Pay has come up with functions that already existed.”
As mentioned, Bank Hapoalim is also trying to find the right business model and reduce losses estimated at hundreds of millions of shekels a year. The bank tried to offer loans to Beat users, but it has not succeeded so far, partly due to the relatively high interest rates offered by the workers. At Discount, they preferred to join Shufersal and offer added value to the 2 million customers of the retail chain. Among other things, they focused on the joint venture in providing value to groups, and establishing a Facebook box as a wallet for anything that allows the customer to avoid paying commissions by keeping the money in the Facebook box account, or using the wallet in Shufersal customer club coins.
“Banks are working to maintain the current situation”
Beyond leaving the field to competitors, Leumi’s decision also marks a focus on existing customers, at least when it comes to payments. The use of Pay was for the bank the fastest and widest way to gain access to customers of other banks. However, the bank decided to give it up and would have to replace it.
At the same time, Leumi’s conduct so far around the reform raises concerns about how much it really wants its success, and this was stated explicitly by the competition commissioner, Adv. Michal Cohen. Competition, “Cohen claimed.
This statement is also relevant to obtain profits from payment services in particular and from open banking in general. Leumi, Poalim and Discount will have to step on the fingers of their current banking activity, or in simpler words, do “self-cannibalization”. For Leumi and Hapoalim, who each control more than 30% of the banking system, such a decision can be difficult. For Facebook, 85% of its customers are not his, and this is an opportunity.
To all of these must also be added the new destination to which the payment services operated by Leumi – Pepper – have moved, which still manages to recruit customers and offers them a convenient platform for trading as well. Although the scope of activity carried out through it is still limited, when Pepper’s profit potential is compared to that of Pay, it is clear why the decision makers at Bank Leumi chose to reduce the source of losses from their sons.