At the recent Mobile Banking Summit in Miami, a question bankers raised several times was, how do we make money off mobile banking? Mobile app development projects can cost $1 million to $5 million, and often boards and executive committees want to see some kind of return on investment before approving such projects.
The obvious answer is fees. Some in the industry feel it's reputationally risky to charge fees for mobile banking services. Some believe mobile banking initiatives pay for themselves because the channel is much lower cost than branches.
"You don't need to start charging fees in order to monetize mobile," says Andres Wolberg-Stok, global mobile and tablet banking director, Citi Consumer Banking. "Our data shows customers who adopt mobile banking increase their balances on deposit, decrease their attrition and see their overall profitability rise very clearly. Compared over time to other customers who had identical profiles but did not go mobile when they did, they become more profitable."
Yet evidence is starting to mount that retail banking fees, so unpopular in areas like checking accounts, may be palatable for mobile banking services. U.S. Bank has been charging 50 cents per mobile check deposit since 2010 and the bank has said its adoption numbers are strong.
Regions Bank, a $120 billion-asset bank based in Birmingham, Ala., is gradually monetizing many of its mobile banking services.
Like U.S. Bank, Regions charges for remote deposit capture. "It's a clear value-added service," says Stephen Lamar, senior vice president of e-business product and channel management. "Most of our product roadmap for mobile is monetized, and will continue to be. We're getting quickly to the point where it's not just a lower-cost channel, but a channel we're looking to make overall profitable," Lamar says.
Regions lets its prepaid customers load funds onto their cards through the mobile channel, by selecting from a range of funds availability options. The funds can be available immediately for $5, overnight for $3, or after the standard processing time for 50 cents. The immediate-availability option is provided through a branch check-cashing relationship Regions has with Chexar.
"As a bank we've been focusing on our underbanked customers — we focus on check cashing and prepaid cards," Lamar says. Regulations require that such customers have immediate access to their funds; they can't overdraw. "So while these prepaid customers are getting instant access, why wouldn't our typical deposit account customer like that option also?"
The bank has seen a gradual increase in prepaid customers using mobile banking, according to Greg Melville, product owner — mobile products and payments. "I expect that to continue to grow."
The bank has gotten little backlash from customers over these fees.
"Obviously, customers aren't going to be happy with any kind of cost you throw out there," Melville points out. "But if you offer a value-added service, such as immediate access to their funds, they have shown that it's something they are more than willing to accept."
There was some negative feedback in the beginning. During launch, Regions tracked the ratio of complaints to positive interactions on Twitter, Facebook and calls to the bank's contact center. "You might see your App Store ratings drop, but it's a very vocal minority. We're getting positive feedback," Melville says.
"We were very concerned about that going into it," Lamar says. "We wanted to be prepared from the get-go to have that operational data behind it, because if we had just looked at App Store reviews and our Twitter feed, we would say, wait, back this out, back this out." But very few customers who did complain about the fees actually left the bank. And more than a third of customers are choosing options that cost $3 or more.
Technology-wise, getting these options in place "was a Herculean effort," Lamar says. "It was probably the difference between having mobile deposit ready in six months versus 18 months. We had to create an entire new 'brain' to hold these different tiers of logic for fraud, customer profitability management and limit management. Then we also had to work with Chexar, NCR and our mobile vendor, Kony, and ask them to do things they never did before." The "brain" or rules-based engine is controlled in house, so it can be easily adjusted. Several plans are in the works for additional fee-based mobile services.
One is the ability to raise mobile deposit limits. When some competitors' customers complained about not being able to deposit enough per day, with limits as low as $800, Regions execs saw opportunity. "We thought, we'll be pretty aggressive and let customers pay a dollar to raise their daily limit up to $3,000," Lamar says. The bank has already implemented this fee.
The bank charges $1 for its person-to-person payment service, called Regions Personal Pay, which runs on Fiserv's PopMoney platform. It plans to implement that on mobile.
"Some of our competitors offer that for free, but the simplicity of being on your mobile app and pay someone is worth $1," Lamar says.
Regions Ready Advance, which provides customers an advance on a direct deposit for a fee, may be being mobilized. Through a partnership with Western Union, the bank allows same-day expedited bill payments and money transfers — this, too, may be mobilized.
Another source of revenue is the bank's relationship with Cardlytics, in which the bank gets a percentage of the cash-back rewards customers get. These card offers are offered via mobile device.
"With Cardlytics, our offers are based exactly on our customers' previous spending habits," Lamar says. "We rarely hear complaints that the offers are not relevant or worthwhile and our opt-out rate is very low."