GXS Bank must incentivise usage to chart its path to profitability

IN AN unpopular move, GXS Bank last week slashed interest rates for its savings accounts, called Savings Pockets, to 2.68 per cent – an 80 basis point drop from 3.48 per cent previously.

The digital bank also raised its interest rates for Main Accounts to 2.38 per cent from 0.08 per cent, and upped reward points that GXS account holders receive for using Grabpay or Singtel Dash.

But with interest rates expected to remain on the uptrend, the cut in interest rates for savings accounts was much to customers’ chagrin.

The hefty interest rates dangled by GXS had made saving with the digital bank an attractive proposition; there is no lack of personal finance articles that extol the benefits of saving with GXS. But for a bank to hold money is expensive – all the more so when it has to pay an interest rate of 3.48 per cent.

Traditionally, banks are loath to hold on to cash; and use customer deposits to fund loans – which GXS has done.

While unpopular, GXS’s move is a significant one. Most importantly, it signals an intention that GXS wants to be more than just a bank that customers save their money with.

Unlike other banks, GXS has held off using tiered interest rates in order to incentivise customer usage.

Trust Bank, the only retail digital bank with a full banking licence, has gone down this route.

Trust customers get an extra 0.5 percentage point interest rate for their savings account if they have five card transactions a month. An update in May indicated that this has helped Trust to get customers to clock 15 credit card transactions per month.

By facilitating financial transactions via credit or debit cards and PayNow transfers, banks also take a cut of the transaction. Any path to profitability for a digital bank will require its customers to use their bank accounts for more than just savings.

Payments is an important part of a bank’s operations, and GXS is hamstrung in this regard. It has no credit or debit card products, with only PayNow as an option for payment. In comparison, Trust has had a credit and debit card product ready from day one.

Customers who were specifically using GXS as a pure savings account have taken to the Internet to voice their displeasure. Some have declared that they will move their money to other accounts with higher interest rates.

Ironically, this might not be bad for GXS, as the digital bank can shed customers who are not likely to use their accounts anyway.

But in highly banked Singapore, where 97.2 per cent of the population have a bank account, GXS will have to do more for customers to use their bank accounts for more than just savings.

Relying on the e-wallets of parent companies Grab and Singtel will not be enough to move the needle for the digital bank.

What GXS really needs to improve its usability is to, at the very least, offer a debit card product that can be issued immediately to its current customer base.

While credit card margins are higher for banks, the regulatory requirements would be a barrier for some of the digital bank customers.

With a debit card, a GXS account becomes more accessible for use by its customers. It is one of the most common methods of payment outside of cash, which would help with the digital bank’s utilisation by customers.

Debit cards can be used for everything from public transport to most retail and dining places. Moreover, online purchases can also be paid for by a debit card.

GXS has managed to boost its customer base through attractive interest rates, but the digital bank race is a long one.

Boosting usage will complete the last segment for GXS to monetise and chart its own path to profitability.

Until a card product is launched, the digital bank will find it tough to incentivise usage among customers.