American Banker  |  Thursday, December 11, 2008

By Steve Bills

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Seeking new markets for mobile banking services, financial companies are turning their attention to small-business customers.

Though these are similar to the services that many banks now offer consumers, early movers in the mobile business say they have added features geared specifically to the needs of commercial customers, notably the ability to authorize transfers and payments and to receive a variety of account alerts.

The opportunity is significant, analysts say; more than one-third of small businesses said in one recent report that they would be interested in using mobile banking services, but less than 5% are actually doing so because few banks offer them.

This has created such pent-up demand that some banks, after introducing mobile services aimed at small businesses, are seeing usage dwarf initial expectations.

"I think the customers were ready a lot faster than the financial services," said Montressa McMillan, a senior vice president at BB&T Corp. "Banks have been behind, quite frankly, in delivering what the market has been ready for for some time."

The Winston-Salem, N.C., banking company introduced a mobile alert service aimed at businesses in March, using the short-message service, or SMS, that is widely available on handsets. "Within three months of the first launch of SMS, we exceeded our annual target," Ms. McMillan said last week.

BB&T expanded its mobile services for small businesses last month, letting people bank through the browsers available in many phones. By yearend it expects to offer a downloadable "wallet" application using the "triple-play" services that include SMS text-messaging, browsers, and downloadable applications that are offered by the vendors ClairMail Inc. in Novato, Calif., and mFoundry Inc. in Sausalito, Calif.

Ms. McMillan said that mobile banking supplies a way for busy entrepreneurs to stay in touch with their finances. "We feel our small-business clients are much like our retail clients. They don't have much time," she said.

The company is developing mobile services for all its customer segments, she said, and "at every step of the way we had our small-business clients in mind."

Wells Fargo & Co., an early leader in mobile banking, introduced a browser-based mobile service for small businesses in September 2007 and added text-message capabilities a month later. James P. Smith, an executive vice president and the managing head of Wells' Internet services group, said that customer adoption has exceeded the San Francisco company's highest expectations.

"We not only exceeded our 'stretch goal,' which is usually unattainable, we exceeded it by 20%," Mr. Smith said in an interview, though he would not disclose the number of active users.

Wells initially expected small-business customers to use the browser service once or twice a month, he said, and did not even project potential use of the text-message feature; instead, users log in 10 to 11 times a month and send or receive 19 texts.

"These are hyper-engaged customers," he said. "I was skeptical of the text-messaging use case. What we have found is that this is a phenomenally popular feature."

The Boston research and advisory firm Aite Group LLC said in a report published last week that 35% of small businesses would be likely to check balances from a wireless handset but only 4% are doing so, mostly because their financial institutions don't offer the service. One-quarter of the respondents said they would be likely to initiate transfers or to pay bills by phone, it said, but only 2% were making transfers and 1% were paying bills that way.

The survey of 149 small-business respondents with annual sales up to $10 million was done in November 2007; Aite said that, if anything, interest in such services has grown since then but that actual use has not, mainly because only about 300 banks, thrifts, and credit unions are offering mobile banking services to customers.

Christine Barry, a research director at Aite Group, said mobile banking in some ways extends from online banking, which more than 60% of small businesses now use.

"The branch and the online channel are pretty much neck and neck as the preferred channel for small businesses," she said. But in other ways, mobile devices' features, such as text messaging as well as Web browsing, make the channel distinctly different.

"What is really going to make mobile banking take off is authorizations," the ability of a business owner to approve a wire transfer or payroll file that has been set up by an office manager using conventional Internet banking, Ms. Barry predicted. "Then you send an alert to their mobile device, and they can approve it."

This is the approach being taken by Salem Five Bancorp. The $2.9 billion-asset thrift company in Salem, Mass., is just ending a test with three small-business customers of its Salem Five Cents Savings Bank unit, using mobile browser technology from MShift Inc. in San Jose, Calif.

Jay Spahr, the senior vice president of e-commerce at Salem Five, said the thrift is about to begin a wider rollout after getting good marks from customers.

"They really like the convenience of the device, especially to access account information," he said. "The small-business guy is like the retail guy. He's time-starved but even more so."

Salem Five, like most financial companies, offers mobile banking to small businesses as an extension of its online banking service. In Salem Five's case, this means the handset uses the same user authentication, account access rights, and account views as online banking so that a business owner could use the device to authorize funds transfers within the bank, pay bills, and authorize wire transfers or ACH transactions set up by someone at a PC, Mr. Spahr said. "This has been well received, as customers — and their administrators — like the continuity it provides."

John R. Barlow, the president of Barlow Research Associates Inc., said text-message alerts are better suited to banking than mobile browsers, mainly because of phones' small screens and cramped keyboards.

"It's not easy to use because you have to sift through a lot of screens before you get where you want to go," he said. "SMS is easier. It pushes information to you rather than the … browser, which requires you to go to the bank and pull it down."

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