Following two years of work, Bank Leumi (TASE: LUMI) today finally launched Pepper – a digital banking venture that has the entire banking system transfixed. "I know that our competitors are saying that Pepper is a gimmick. Were it a gimmick, it would be irrational to invest so much in it for two years," said Bank Leumi first executive VP and digital banking division head Tamar Yassur at a press conference held for the launch. Yassur also commented on the delay in the launch, which was originally planned for 2016, saying, "Everyone who works in technology told us that we had set an insane target for ourselves."
Bank Leumi digital adventure is not cheap; among other things, it involves investment in designing core systems and the hiring of over 100 employees, many of them in the technological professions. Estimates are that Bank Leumi has spent NIS 300 million on Pepper to date, and it will obviously have to invest more later. "We started two years ago with eight employees, and today we already have 150," said Pepper CEO Lilach Bar David. "Quite a bit has been invested in Pepper, even by Bank Leumi standards. We expect to have several hundred thousand customers within five years."
Pepper is Bank Leumi president and CEO Rakefet Russak-Aminoach's pet project. She pushed it forward with all of her might, giving interviews and appearing before the foreign media on the subject. Today, however, the press conference for the official launch featured Yassur and Ben David. Russak-Aminoach was there for only a short time, and did not speak about the venture or answer questions about it.
"Customers are indifferent to banking"
Pepper does not have an independent banking license, but Bank Leumi is branding it separately from the bank itself. Swiss company Temenos has built a new computer system and core for it that enables Pepper to provide advanced technological capabilities and a user-friendly interface. In fact, it is a bank that exists only on a mobile phone; it has no branches, nor even a website. With the launching of Pepper, every person (not just Bank Leumi customers) can download the app from app stores on their phone and open an acount.
At this stage, the digital bank offers mainly basic current account services, such as use of credit cards and checks, deposits, and credit. Pepper expects to later take up capital market, securities, and mortgage activity.
Since Pepper works only on mobile phones, only an individual account can be opened on it, not a joint account. According to Ben David, opening an individual account provides a solution for most customers, especially the generation Y customers that the bank is aiming at. Bank Leumi believes that opening a joint account will be possible next year. As of now, the main advantages emphasized by Pepper are price and availability.
At the same time, Bank Leumi also knows that recruiting customers will not be an easy task. "Customers are indifferent to banking," says Yassur. "A customer usually changes banks as a result of a negative experience. We don't plan to wait for people to accumulate negative experiences. We want to make customers realize that there's something new and different here. In the past, a bank could use an aggressive marketing campaign to sell a mediocre product. Today, customers choose and switch with a click, and we have to offer them the best product around."
Profitable within 2-3 years
Asked about Pepper's business model, Ben David said, "Pepper will make a profit by selling banking products such as deposits, credit, securities, and others. The customer expects basic banking to be free of charge. Keep in mind that our expenses structure is very lean, so we can afford it." She expects Pepper to make a profit within two or three years.
Concerning its technological capabilities, Pepper says that building a new core system for the bank will enable it to offer customers technological development quickly. "First of all, the system is a real time system, meaning that the customer can conduct a transaction and see it in his account immediately," says Pepper VP products and services Gal Bar Dea. "The technological capabilities enable us to monitor the customer's activity, study him, and make him suitable offers. In this respect, Pepper is a little like Waze."
Published by Globes [online], Israel Business News - www.globes-online.com - on June 26, 2017
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