Secrets of Mobile Success: Cost-Cutting Banks Seek Smartphone Customers

Big banks are bringing their fight for new customers from street-corner branches to mobile phones — where they're getting a cheaper fix.

Strapped for new revenue and pressed into waves of cost cuts, the country's largest banks are trying to keep the customers they have, woo the ones they don't and do it all for less. In recent months, they have increasingly found one solution to all of those problems: the smartphones that can let customers deposit checks, pay bills and check their balances without ever stepping into a bank branch.

"It's critically important. We have to be there," says Tracey Weber, Citigroup's (NYSE:C) managing director of consumer Internet and mobile banking for North America. "We find that once customers try mobile banking, it's a very delightful, high-customer-satisfaction experience."

It's also a cheap one. Bank of America (BAC) Chief Executive Brian Moynihan, who is trying to cut $8 billion in costs, has promised that mobile and online technology will help the bank grow business while shrinking everything else. The price tag for that technology has been a relatively modest $500 million "over the past few years," Moynihan said in December.

Better mobile technology is also shaping the strategy of new Citigroup CEO Michael Corbat, who is already closing down 44 U.S. branches as part of sweeping cost cuts. Now executives are debating even more drastic shrinkage of Citigroup's branch network, according to a person familiar with the discussions, who spoke on condition of anonymity.

Citigroup spokeswoman Catherine Pulley declined to comment but pointed out that the bank has also opened five new branches recently.

Banks can potentially reach almost half of their customers with mobile banking: 45% of Americans own a smartphone like an iPhone or an Android, and 25% own a tablet like a Kindle or an iPad, according to Pew Research Centers. These potential customers tend to be young, and less wedded to sprawling bank branches with expensive tellers and empty lobbies.

PNC Financial Services (PNC) CEO James Rohr made the tradeoff explicit in September, telling investors that the bank would be able to lay off 40 to 45 tellers since it was booking 7,000 mobile transactions daily.

Banks are also trying to win the intensifying war for desirable customers, as the economy sluggishly recovers and appetite for new loans remains small. The biggest banks, including JPMorgan Chase (JPM), Bank of America, Citigroup and Wells Fargo (WFC), have all spent years developing mobile banking applications, in the hopes that their investment in that technology will eventually pay off.