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

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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.

"We are seeing a lot of customers starting to use mobile as their primary channel, and I think we'll see that trend increasing," says Ravi Acharya, senior vice president of digital services for JPMorgan's consumer bank. "The power of digital is that for the first time, we're able to improve the customer experience while being able to potentially reduce the cost."

JPMorgan was one of the first big banks to unveil many mobile features, including the popular remote-deposit technology that allows customers to deposit checks by snapping digital photos of them. While some of these features still have the occasional glitch, they are increasingly popular with bank customers and available now at several banks, including smaller, regional companies.

Mobile banking boosts customer satisfaction, which translates into longer relationships and more sales to existing customers, Acharya says.

"Mobile customers are more engaged and tend to stay longer," he says. "People underestimate the value of keeping the customer … but customers who stay longer tend to be more profitable, they're more engaged, they tend to buy more services from us."

These are customers whom the banks want to keep. People who use mobile banking "tend to be younger and richer than the typical consumer," and about 45% of them have at least $50,000 in investible assets with their banks, according to a November report from Javelin Strategy & Research, a unit of Greenwich Associates. The report also found that 43% of people using mobile banking earn at least $75,000 per year.

Mobile technology is increasingly popular with banks' existing customers. Wells Fargo's Armin Ajami calls the bank's offerings "the fastest-growing channel in the history of the bank" and says that mobile banking usage has grown "twice as fast as online banking in the same time period, in the first five years" of its existence. The San Francisco bank saw a growth rate of about 30% in 2012, he adds.

"This opens up new conversations with the customer," says Ajami, a senior product manager for Wells Fargo's mobile banking. "Retaining customers is really key, and as you move forward, you're deepening the relationship. Then you can have the conversation" when customers want more financial products.

Wells Fargo now has more than 9 million customers using mobile banking, while Bank of America and JPMorgan have about 12 million each. Citigroup would not provide specific customer numbers, but Weber called mobile "our fastest-growing channel" and said that mobile banking usage grew 81% year over year in 2012.

Mobile banking is available beyond the four largest banks; many industry members named U.S. Bancorp (USB) and USAA as two of the more pioneering banks in the mobile-banking industry, and regionals including PNC and KeyCorp (KEY) have also emphasized mobile banking in the past year.

But Bank of America has been the loudest convert to mobile in recent months, as Moynihan tries to convince investors that the bank has a future beyond retrenchment. This month he tied the bank's 31% year-over-year growth in mobile banking customers to its branch closures, telling investors that the bank has "optimized" its branch network as "online and mobile banking numbers continue to increase."

There are signs that this strategy is working. Bank of America was the most successful at wooing customers away from other banks last year, followed by JPMorgan, Wells Fargo and U.S. Bancorp, according to the consulting firm AlixPartners. Its June survey also found high adoption of mobile banking by customers who switched to B of A.

The past two years have been "a turning point" in the bank's multiyear efforts to build up mobile, says David Godsman, head of online and mobile solutions at Bank of America.

"We believe that mobile's growth will eventually transcend online banking's use in the not-so-distant future," he says.

He adds that customers who use mobile "interact with us more frequently, viewing transactions, banking on the fly. … Our customers like banking with us more, and it drives increased customer satisfaction."

JPMorgan's Acharya says that beyond increased customer retention and greater cross-sales, "as we move forward, we're going to start to see [customer] acquisition increase."

Customers are not yet leaving banks because they lack mobile features — but when they decided to switch banks for other reasons, mobile banking is a must-have at their new financial homes, executives and consultants say.

"The customers who are changing banks, they're looking for what could really differentiate the next bank … and mobile can really make a difference," says Bob Hedges, a managing director at AlixPartners. "It's less that people are saying, 'I'm going to change banks to get mobile,' but when they change banks for the traditional reasons, what's attracting them in their next decision is the mobile capabilities of the banks out there."

Analyst Mary Monahan of Javelin agrees: "Mobile services are important to the overall perception of a bank. … It's becoming an increasingly important criteria. It helps you create a distinct identity," she says.

As a result, advertising what mobile features banks offer is almost more important than developing them in the first place. Banks including Capital One (COF) have increasingly emphasized mobile in their marketing.

"It's clear there's an acquiring war. There's a success formula. It's about setting the dials to really promote mobile as something you're doing," Hedges says. "The advertising investment is probably more than the technology investment."

None of the bankers interviewed would discuss specific spending, but they agreed that marketing mobile banking is crucial. Citigroup has invested in advertising its mobile features, Weber says, because "we think [they are] really important in how customers decide who they bank with and how they bank."

JPMorgan's Acharya agreed that "marketing for us is super important." But execution also matters: "One of the big things is not just what we tell customers, but what customers tell their friends," he says.

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