Bizum is a service to send money instantly between bank accounts. It was built by banks covering 95% of the market share in Spain. It's currently used by 8 million people, the most used service of this type in Europe. It is a surprising success, which didn't happen elsewhere. This article explains its origin, the reason for its success, how they work to launch new products, and its future challenges.
My interest in Bizum comes from learning different ways of working on a successful product. Bizum has done it, but their way of working isn't standard. They need to align dozens of banks to iterate the product, and the interface, service, and users are controlled by the banks, not by an empowered Bizum product team. They define some guidelines to be implemented by banks. This is the opposite of how I work and what I preach in my articles, which made the conversation very interesting.
LinkedIn did its magic, and I realized I had an old colleague from my master's in Chicago who works at Bizum since 2017. Fernando Rodríguez is the second employee at Bizum, and he is now its Business Development Director. We chatted a couple of hours; this article is the summary of that conversation, my research, and my thoughts, which I will explicitly indicate.
Bizum isn't the first effort of Spanish banks to offer an alternative payment system. Many years ago, they tried to promote bank transfers on e-commerce, but it wasn't successful because users could cancel the transfer after the order was delivered.
Paypal has grown slowly but steadily in Spain, capturing part of the market share in payments to businesses and freelancers, especially in e-commerce. They now have over 5M users in Spain after 13 years. Banks consider it a competitor to beat in e-commerce.
Banks at both sides of the Atlantic were already wary of the growth of Venmo in the United States (peer-to-peer payment app), and even more when Paypal bought it at the end of 2013.
That's why CaixaBank, Santander, and Telefónica joined efforts in 2014 and launched Yaap Money to clone Venmo in Spain. The project didn't succeed, and nine months later, it closed. Six months later, Bizum was born with the learnings from Yaap.
Four reasons why Spanish banks agreed to build Bizum
Many forces can trigger innovation. In the case of Bizum, a mix of regulatory, technological, and competitive factors came together.
SEPA Instant Credit Transfer
SEPA (Single Euro Payments Area) is a payment-integration initiative of the European Union for simplification of bank transfers denominated in euro. It became operational in 2008. We noticed the change when our bank accounts started to have a prefix with a country code like ES91.
The next step was to enable pan-European bank transfers with the funds made available on the account in less than ten seconds. They named it SEPA Instant Credit Transfer (SCT Inst). It officially became available in November 2017. It allows transfers up to 15,000€. From July 2020, the maximum will increase to 100,000€, made available also in less than ten seconds.
This innovation enables, in SEPA's words:
They have the potential to develop in the person-to-person and person-to-business segments in situations where cash and cheques are currently widely used. They may reduce the cost of managing cash and cheques, which are the most expensive means of payment at the level of the entire economy. They further facilitate electronic and mobile commerce payments.
The EPC Report on instant payments (June 2015) lists many examples of expected use cases for instant payments, such as the payment of a share of a bill, services requiring on-the-spot payment, online purchases, and the purchase of high-value goods between two individuals.
Bank of Spain
Interestingly, Fernando shared with me that "in our case -Spain-, the regulator decided to define a framework and timeline which triggered that the whole banking industry would join the new scheme (SCT Inst) at a coordinated pace". As all banks had to implement it, they wondered what to do with it?
This legal movement didn't happen in other countries. Each central bank has its rhythm. For example, the U.K. only has 19 banks that support SCT Inst; the Netherlands has 9, Ireland has 2, Sweden has 1, etc.
GAFA is the acronym for Google, Apple, Facebook, and Amazon. Big tech companies are targeting the banks; they are making movements to enter into the payments space. Banks realized five years ago that they needed to move faster to compete with them. They needed to create defensive mechanisms to have engaged clients.
Build an alternative to Visa and Mastercard
Yves Mersch, Member of the Executive Board of the European Central Bank, said in this interesting keynote, "The credit cards area is dominated by non-European players, with international card schemes taking the lead. European players are lagging behind, not least because of the lack of a pan-European card scheme or even interoperable card networks. In this context, we should strive for a truly pan-European instant solution rather than repeat past shortcomings."
In summary, the European Union created SCT Inst. to make instant bank account transfers, the Bank of Spain compelled all Spanish banks to integrate with it, banks were wary of technology companies entering the payments area, and they wanted to build an alternative to not depend on U.S. credit card companies. The result is Bizum.
Spain is the only case in the world where so many banks have agreed to create a unique payment solution.
How Bizum was built
27 Spanish banks joined efforts at the beginning of 2016, and they created a company under the legal name of Sociedad De Procedimientos De Pago S.L. with an initial investment of 2.8M€. They cover 95% of the market. Their original social object was "The creation and operation of a common directory in which IBAN numbers of bank accounts are linked to an identifier".
They hired Ángel Nigorra, former General Manager of Euro 6000 (a payment platform owned by Spanish banks), to lead Bizum and to be the only full-time employee for several months. They contracted Accenture to coordinate the efforts and align all the banks. And they chose Redsys (another payment platform owned by Spanish banks) to develop the platform, host it, and certificate the banks. Redsys was a great option as it already had the integrations with the banks, which made it easier and faster to launch Bizum.
How do you align 27 banks?
This is the question that triggered my interest in talking with someone from Bizum. On my job, I have to align people from different countries so we can develop one product which is 95% the same for all. We all work for the same company, and sometimes alignment isn't so easy. What do you do it when you have to align 27 different companies?
"The consultant and the banks decided to organize themselves in working groups to align and make the proposals to the board. They created the legal, business, operational, marketing, and technical working groups. Each group had employees from different banks. Many things had to be coordinated on each of them to launch the product. The board ended up deciding if and how something was done". Fernando shared also that they continue working like that, with ad-hoc working groups depending on the new products they are launching.
What's the Bizum product?
The social object of the company describes well Bizum in fact: "The creation and operation of a common directory in which IBAN numbers of bank accounts are linked to an identifier". The phone number is the identifier.
Simplifying, Bizum is a database of IBAN <> Phone numbers with an authentication platform. Banks are the clients of Bizum, and they are the ones that offer Bizum service to their customers, to all of us. They use the phone number as a proxy to transfer money instantly between bank accounts. If I'm going to send a Bizum from my BBVA account to my friend's account in Santander, BBVA asks Bizum to translate my friend's phone number to his bank account number, and it sends him the instant transfer.
Fernando shared that "the technical group defined what the basic service requirements were, what information our directory would store, how those queries were made... Then, Redsys prepared a technical document, and banks worked with Redsys to implement the integration of their systems."
Our conversation reached another interesting challenge, how to make sure the implementations of dozens of apps are uniform. They solve the problem by doing a technical certification and brand checks with each bank. "Banks have to do a technical certification which is validated by Redsys. Then, Bizum validates the brand in the bank's app (logo, messages)".
Apart from that, banks can integrate Bizum with their colors and discoverability inside the app. Fernando told me an anecdote "from the beginning there were banks which showed Bizum on the first level of the menu and others, which made it less accessible, which added complexity to the user. When Bizum started to grow, those entities that previously saw it as one of many services, realized it as a key element in their commercial acquisition and digitization of their clients."
Learnings from the first months
Fernando recognized that the beginnings weren't easy. They did focus groups, and they learned three things:
- Some people didn't know what Bizum was. They thought they had to download an app instead of using their bank's app.
- Other people thought it only worked with their bank, not to send money to bank accounts in different banks.
- Many people thought that Bizum was a startup created by three kids in a garage which banks had started using it.
"We had to learn on the fly to adapt the messages. One of the things that we realized is that people were sending money with Bizum. They needed to perceive security to use the service. Initially, we wanted Bizum to be a fresh, dynamic, and young product not associated with the status quo. However, when you are moving money, you want to know that your bank is behind. It is something we learned. We leveraged security on the banks, we made the logos of the banks much more evident, we made it very clear in the messages that it was a project of banks, and that it was universal so you could send money from and to any bank."
After that change in the messages, Bizum started to go viral. Without any hesitation, he admits that word of mouth has been the key to growth.
Bizum has reached 8M users because people have sold it to each other, not because we pushed it to users through excessive marketing.
Bank's intention with Bizum has always been to cover all payment use cases. The first idea four years ago was to launch with everything: payment between individuals, e-commerce, and physical payment. However, they made the great decision of going out just with payment between individuals first. They would grow a strong user base, which would serve as a hook for shops.
This was the second use case to be implemented, and it wasn't foreseen at the beginning. Each NGO has a 5-digit Bizum shortcode on which people can donate money. It's working well, Bizum users have donated over one million euros in the last six weeks.
First, they went through the cycle of working groups to align the solution. Then, the board approved the final details. But, to launch and announce the product, each one of the 27 banks had to implement changes in their apps to integrate the new product. That coordination is the challenge and the success of Bizum.
The third use case is more relevant to banks because it allows them to start charging money to merchants since payments to individuals is still free for the end-user.
At this point in the article, it's relevant to remember that the user of Bizum is not their client; he is the client of the bank. The same happens with businesses. The ones who enroll them in Bizum are the banks. That's why the work of banks is vital in the adoption of Bizum as a different revenue stream in online payments.
Banks have to contact their merchants with virtual POS to activate Bizum on their websites, so their clients can choose to pay with a credit card or Bizum. The more users choose Bizum, the more banks gain traction offering a national payments scheme bringing more competition in the same line as Yves Mersch words.
Fernando couldn't discuss it. My take here is that Bizum and the banks still have a long way to go, so 80% of e-commerces in Spain accept Bizum. They have a huge opportunity in their hands.
The obvious next step is to go after payments in physical stores or to self-employed people. Businesses already contract the POS with the banks, so that it would be quite a straightforward move. Another attack to cash (80% of all physical payments) and credit cards, and a defensive move towards tech companies. In an article, Fernando comments that they are testing a solution with a dynamic QR code to pay and receive money.
I would suppose Business to Business payments would be the latest use case. It would also be interesting, although the challenge is that businesses in Spain tend to pay at the latest date they can (60 days) or even later. Instant payments isn't a strong value proposition to them.
Will Bizum expand to Europe?
Several countries already have services like Bizum. Some of them are MobilePay (Denmark), Swish (Sweden), Vipps (Norway), MB Way (Portugal), Bancomat (Italy), Paylib (France), Pay m (UK), Kwitt (Germany), Twint (Switzerland) and Blik (Poland). However, none of them has the collaboration of all the banks in each country. That's why Bizum is different and has been more successful than their European look-a-likes.
Fernando considers this a massive opportunity because "Bizum has the opportunity to be interoperable in Europe. Within this European scheme, why not consider that Bizum can be used as the base? Bizum is highly regarded in Europe. There are countries that could adapt an existent solution rather than creating one of their own. The technological capacity exists; it can be launched in any country."
European banks have the opportunity to build a European solution. Launching Bizum in Europe would help make something truly pan-European interoperable. They have the technology, they have the regulation, they have the users, they have the clients, but will they have the will to work together as the Spanish banks did?
Launching Bizum in Europe would help make something truly pan-European interoperable.
If they don't agree on a common solution soon, it's a feasible possibility that Google, Amazon, Facebook, Apple, Stripe, Transferwise, or any other fin-tech start offering instant payments. They can connect to SCT Inst., build their directory of phone numbers/emails to bank accounts, and provide the payment solution to users and businesses. As it's a standard, they don't need to agree on anything with the banks.
This can play out like following the marketplace dynamics of winner takes all. Each solution has its own demand and supply. The one with more users wins. Big tech companies are better at playing that game than banks. So, if they don't move fast, the key to the pan-European payment system could be un-officially controlled by a U.S. company.
My thoughts on their future challenges
Until a year ago, Bizum only had three employees. The rest of the people, especially the engineers, either worked for Redsys or the banks. With that schema, they will reach 12 million users in Spain by the end of 2020.
The main challenge of Bizum employees is to coordinate everyone and inspire, so all banks agree to deliver the product improvements by a specific date. This way of working has allowed them to grow fast because they leveraged the apps and users of the banks. People didn't need to download a new app nor create a new account. This implementation fueled its growth. However, my impression is that it could act now as Damocles' sword.
When any big tech company decides to launch a payment system through SCT Inst., they would have some empowered product teams working on it for the whole of Europe. They can decide on their own; they only need to modify one app; they can launch and iterate fast, looking at data and talking to users.
However, Bizum needs to agree on iterations by consensus, and most banks need to implement the changes or new products before the general announcement can be made. They don't have an app they can improve fast. They don’t have a direct relationship with the user, so every message is channeled through banks. And that's only for Spain. Every Bizum-like app in Europe would need to do the same. That way of working isn't optimized for speed.
Bizum is leading, and that's usually the best time to reinvent yourself. Do the banks want to drive the payments in Europe? Or will they want to play catch-up in a couple of years? My suggestion to them: Make the move, reinvent yourself again.