Retail Banking Loyalty and Digital Lending

Bank of America doubles down on loyalty as consumers look for value

US banks are famed for their credit card loyalty programmes, to the extent that the airline industry relies heavily on consumers using loyalty points. Now banks are turning that focus to their retail customers. In the search for deposits, Bank of America has expanded its loyalty programmes and has seen a surge in customers joining up. “More than 3 million customers have enrolled in Bank of America’s no-fee rewards program since it launched in late May, and nearly one-third of those clients have engaged with deals,” reports Banking Dive. “That is almost three times higher than the level of engagement Bank of America saw in the past, according to Shikha Narula, head of consumer deposits and rewards. For Bank of America, it is a sign of success. Its core loyalty strategy revolves around deepening relationships with its clients, Narula said. ‘What I will share is anecdotally what we are hearing from the branch,’ she said. ‘We’re talking a lot to our financial center associates, and we’re hearing a lot of stories of clients bringing in more assets because you know that’s how you can advance from member tier to preferred plus, preferred honors’.” The bank removed the minimum asset threshold of $20,000 and opened up eligibility to anyone who has an eligible checking account, changes that were designed with Gen Z in mind. Narula told Banking Dive that the US is “becoming a rewards economy”, as consumers look to maximise the value of their spending. “The bank provides deals on retail, gasoline, entertainment and food, with retail making up 45% of client engagement and gasoline 20%. ‘Consumers are leaning on rewards not just as a perk’, she said. ‘They’re not just viewing it as a perk, but they are viewing it as somewhat of a way for them to meet their financial needs and part of their financial plan’.”

Macquarie’s retail bank picks up steam

In Bloomberg this morning there’s a long interview about Greg Ward’s ascent to the top of Australian asset manager Macquarie, which has a retail banking division, and its got its sights now on a market long dominated by four big players. Greg Ward is former CFO of Macquarie, notes reporter Joe Henderson, but his roots are retail. “Most recently, though, for the past 13 or so years, he's been with the retail banking division, and he's made it a big success by growing market share in Australian mortgages. That's a very steady, stable business,” says Hendersen. “It's very different from the volatility of the commodities market, which can be really lumpy. Some years are great, some years aren't, and it can be quite expensive to support those opportunities and pursue them. Greg Ward's success in the retail banking business has created a lot of momentum, and investors see that as a good story. I asked Chairman Glenn Stevens what attributes got Greg over the line because, obviously, there would've been a number of very capable candidates at Macquarie. Why Greg Ward? One thing that stood out was Glenn's emphasis on Greg's grasp of technology. He said that was one of the attributes the board really valued. When I speak to mortgage brokers, Macquarie's technology comes up a lot. They're often able to process applications faster because of the systems they've built, and that's obviously been a key driver of the success of the retail banking business.”

Lloyds: Tradition plus tech is a winning formula

Applying technology to the traditionally paper-heavy mortgage market is also a major ambition at UK lender Lloyds, even as it moves to diversify away from its traditional lending business. “Under its new strategy, the bank said it wanted to grow in core markets and use technology to simplify the group and ‘reimagine money for our customers’,” CEO Charlie Nunn told the FT. “The UK’s biggest mortgage lender will also deploy AI and tokenisation technology to cut the time it takes to buy a house ‘from weeks to days’, he added. The new strategy builds on Nunn’s 2022 pivot to focus on generating more income from sources that are less closely tied to the interest rate cycle than its traditional lending business. Since then Lloyds shares have risen by nearly 130 per cent. Lloyds’ first-half results were buoyed by higher income from operations outside its traditional lending business, such as fees for managing client pensions, insurance and investments. Nunn has championed expanding these business lines to diversify the lender.” Lloyds is among the banks that have significantly upgraded its core banking systems and is banking on its improved technologies to enter new markets. “The group will take on HSBC with its own unit to lend to nascent fast-growing businesses. HSBC bought its own ‘innovation banking’ division from the collapsed American lender Silicon Valley Bank in 2023. In another move, Lloyds will launch a smart wallet to compete with the likes of Apple Pay, Revolut and Monzo using technology it gained after buying troubled fintech Curve in a cut-price deal last year.”

Brazil’s fintechs leverage Pix for BNPL offering

Two Brazilian firms are combining their expertise to offer instalment payments through the country’s highly popular Pix system. Fintech Pagaleve that says it offers AI driven credit assessment which so far is providing higher approval rates than its competitors with a delinquency rate of two per cent. EBanx is a payments platform that connects 500 merchants to local markets with a focus on digital platforms such as booking.com, Spotify and Ali Express. As their promotional material notes, Brazil has a long history with instalment payments, long before buy now pay later became popular, and the companies will now offer the service as Pix4, operating through the Pix system. “For global merchants, Pix 4x sees shoppers pay the first of four biweekly instalments immediately at checkout. Sellers receive the payment, with Pagaleve assuming 100% of the default risk,” says Finextra. Sebastian Fantini, director of product at Ebanx, said in statement that the partnership would serve millions of consumer who have been “locked out of installment payments due to credit barriers”. Not only are credit cards are less common in emerging markets, but US card schemes have been lobbying hard against Pix because they perceive it as a threat to card fees.

Wise setback to US licence over AML and banking experience

Wise has failed in its initial bid to acquire a US national trust bank charter, after the Office for the Comptroller of the Currency cited poor money laundering controls and a lack of banking experience. “Rejecting Wise’s application, the regulator noted ‘longstanding... deficiencies’ in the British fintech’s anti-money laundering and counterterrorist financing systems,” the FT reports. “The OCC said Wise would need to address these shortcomings before it could be deemed to have an effective compliance programme in its US business. The watchdog also raised the lack of experience of Wise’s proposed US management team as a factor in its rejection. ‘Wise US has no historical experience with fiduciary activities, and proposed management and directors failed to demonstrate sufficient experience with the fiduciary activities of national banks,’ it said.” Wise said it had upgraded its controls since making the application last year, adding that it would re-submit the application in light of the Genius Act, which it believes will help it achieve its goal of accessing the US federal payments network. However, the rejection is just the latest setback for the group. Its fine of $4.2 million in the US last year for lax money-laundering controls was followed by a fine this year in Belgium.

Kenya’s digital lenders fail to get court support

Kenya’s digital lending market has been re-shaping consumer expectations as digital lenders use technology and data to deliver instant loans, and consumers prizing speed of access over pricing. But only one-quarter of the 800 or so lenders are regulated. This month, Kenyan courts dismissed challenges taken by digital lenders operating without a licence in a case that was closely followed by the hundreds of unlicenced digital lenders operating in the country. “Digital lenders operating without a Central Bank of Kenya (CBK) licence cannot enforce unpaid loans through the courts, a Nairobi magistrate ruled in a decision that could reshape the risks facing unlicenced fintechs,” writes Techcabal. “In two judgments delivered on July 17, Resident Magistrate Gladys Kiama struck out debt recovery claims brought by Tri-State Capital Limited and Mombo iCapital Limited, ruling that the digital lending companies lacked the legal capacity to enforce their loan agreements because they had not demonstrated they were licenced to conduct lending business.” The magistrates ruled that it would not make a judgement on enforcement since the businesses were unregulated and were undermining public policy objectives of financial supervision. The Central Bank has been trying to bring digital lenders under supervision, and there have been complaints over social media shaming and excessive interest rates. “Since licencing began in 2022, the CBK has approved 252 digital credit providers from more than 800 applications, leaving hundreds of applicants either awaiting approval or outside the regulated market.”