Retail mobile banking rollout and adoption rates have suffered along with the rest of the industry during the recession, but this does not change the inevitability of mobile banking's becoming ubiquitous.
First the bad news: Current customer use statistics do not paint a bullish picture of mobile banking. Customers have been less likely to upgrade their mobile devices or get unlimited data plans during the down economy. Businesses, too, have cut back on providing smart phones to their employees. And within many banking institutions, cost-cutting has put projects such as mobile banking on hold. All these factors combined have produced a lull in mobile banking adoption.
Yet innovation marches on. These days many community banks are leading on mobile banking, taking advantage of their faster decision-making cycles and freedom from worry about scale. For example, many of the institutions that have adopted the Monitise mobile payments system offered by Metavante Technologies Inc. are community banks or credit unions.
Innovation is also occurring outside the traditional vendor pool. The number of nonbanks offering mobile payment systems or applications through wireless carriers or simply on their own have burgeoned in the last year to include names like Boku, Zong, Obopay Mobile, and PayPal Mobile.
Finally, the success of the iPhone has provided a stable and attractive platform for the introduction of mobile banking and payment applications. Indeed, nearly all the major mobile banking providers now have an iPhone application or are close to having one. Conveniently, social networking, which is exploding in popularity, will continue to drive smart phone adoption.
And when it arrives in full force, the global economic recovery is likely to help kick-start sales of mobile devices and data plans. Combined with the maturing of browser-based and text message-based mobile banking, the industry will have the conditions for rapid adoption. Banks should prepare themselves for the inevitable mobile wave.
How to Get Ready
Banks should ensure that they take a strategic look at mobile banking. Viewing mobile banking as simply an extension of online banking and bill payment, although convenient, could be a mistake. Look at the available platforms, listen to the vendors and listen to your customers before making the investment. Despite the rocky start, mobile banking will be an important channel for your retail customers.
Mobile strategy must incorporate a long-term view about mobile banking and look at all three platforms (short message service, or SMS; mobile browser, and downloadable application) as a single solution. However, mobile payments may require a downloadable component; therefore, even if a bank does not plan to offer a downloadable application for pure online banking and bill payment, it may eventually have to do so to play in the mobile payment space. It would appear that SMS/text messaging currently would offer the largest general audience; SMS plans are generally affordable, and the technology is easy to use. The ability to add two-way text messaging is beneficial, allowing banks to offer custom alerts and a way for customers to give instructions in response. It could be as simple as transferring funds, authorizing a payment or enabling convenient mobile bill payment.
Platform Choice
When looking at platforms, the primary considerations are reach, usability and total cost of ownership. When it comes to reach, or availability to the biggest audience, text messaging is the clear leader, followed by browser-based and then downloadable applications. To reach the largest potential market, SMS must be part of the solution. Integrated browsers are standard with smart phones and require nothing more than adding the appropriate URL for the bank's mobile solution. Downloadable applications have the largest hurdle and require the end user to manually download an application.
Usability is about the end-user experience. Here, downloadable applications have an edge over browser-based because of the ability to add content within an application over a mobile browser. The browser experience, while satisfactory, has to keep things simple and uncluttered. SMS provides no graphic or branding capabilities.
Total cost of ownership is the final consideration. Browser-based technologies over the long run have the lowest cost but pose challenges. Upgrading browsers on smart phones is not easy and often requires upgrading the phone's operating system. Development to the lowest common denominator is important to avoid constant browser upgrades.
SMS development costs are relatively low, but delivery costs between the carriers adds expense and complexity. Delivered text messages may be billable, regardless of whether the message is even opened by the customer. Therefore, active SMS users may be defined as users that get an alert every day, even if they are no longer viewing.
Downloadable applications have much higher development costs and are likely to be delivered to the fewest number of customers. Ensuring that the application works with multiple devices or can be deployed on popular handset Web sites requires consistent modifications, though this problem is diminishing due to market convergence on platforms like the iPhone and BlackBerry.
Many threats could impede mobile banking's march to critical mass. Current economic conditions, which have limited the expansion of affordable data plans, are the biggest hurdle today. In addition, generally slow acceptance in the U.S. market, nontraditional players' stealing market share from banks and banks not marketing due to cost-cutting are also significant threats.
Lack of standards is not a significant problem for mobile banking, primarily because the standards set by SMS and wireless application protocol for the browsers allow access from most devices. However, it could be a significant problem for mobile payments because of the need for interoperability among payment systems and networks, as well as a common security model.
Mobile banking for retail customers will become a staple no different than online banking. Just as with online banking, the justifications for offering mobile solutions will be customer retention and cost reduction, but mobile banking will offer few revenue opportunities. The real opportunity comes from driving payments through the mobile platform, particularly expedited bill payments (which work well with text message alerts) and payments for digital content and games. If banks can work with existing mobile payment providers to connect directly to their credit card and deposit account systems, they can take a cut of each transaction in return for the convenience of direct access.
Banks should not focus on a solution that only works within their online banking platform but rather should look for solutions that can be used by any customer, particularly when it comes to payments. With penetration rates for online banking hovering below 50%, banks miss out on a significant portion of their customer base by focusing on a solution just for online customers. Mobile banking may also be a great way to provide banking services for the unbanked and underbanked, many of whom are willing to buy a mobile phone but lack regular access to the Internet.
Mobile banking has gotten off to a slow start. However, with Apple Inc.'s latest iPhone, Research In Motion Ltd.'s BlackBerry platform, Google's Android operating environment, and the Palm Pre's recent reentry into the smart phone market, increased adoption of smart phone technology is likely.
As more smart phones are deployed, downloadable applications may, in fact, become preferred — something that probably would not have happened had the iPhone not achieved such success with its applications. This does not mean that the market should not offer Web-based and SMS platforms; these will continue to see growth in use and acceptance. Mobile banking and payments have the potential to reach more customers than online channels, but this will not happen overnight.
Marc DeCastro is research manager for consumer banking and credit at Financial Insights.
