A More Mobile Future For Banking

In some ways, mobile is like a religion in the banking industry. It even has evangelists, who spout off statistics like a preacher does Bible verses as they make their impassioned pleas for banks to prepare for a mobile future.

But figuring out the right strategy is a complex proposition. There is forecasting involved, about where technology is going and what consumers might do. And there are goals to settle on. Can enough routine transactions be moved to mobile to justify closing branches? Can branches, free of the foot traffic from deposits and checks, be reoriented around sales to boost revenue? Can't we just wait on all this to see what happens?

"We did some back-of-the-envelope analysis and for banks just to break even—and by break even I mean just earn their cost of equity of 13.5 percent—they would need to either close half their branches in the U.S. or increase their revenue per customer by 18 percent," says Gerard du Toit, a partner at Bain & Co. "Neither one seems possible."

He sees mobile as banks' salvation.

Bain's research shows lots of room for shifting basic deposits, withdrawals and transfers into the mobile channel, with the opportunity to improve customer loyalty in the process. Those who use the mobile channel are far more likely to have products beyond just a checking account and are more likely to recommend their bank to a friend, according to a Bain survey.

Such data points do little to sway the nonbelievers. "Don't give me this loyalty stuff," grumbles card industry veteran Andrew Kahr, now a principal in the financial product development company Credit Builders (and a frequent blogger on AmericanBanker.com). He says he has yet to see a study showing a real impact from mobile on the bottom line.

Even if new mobile services take off—as analysts predict will happen with photo bill pay, for example—Kahr expects they will end up as just another freebie, rather than a revenue generator. "Are we supposed to get excited just because some consumers get more without paying more?" he says. "How altruistic!"

Kahr is also skeptical about the potential for closing branches, as a top consideration for people switching banks is still proximity. Yet perhaps this is one way mobile represents a paradigm shift.

Guggenheim Securities analyst David Darst says consumer trends like mobile banking adoption already are having an impact on banks' willingness to shed branches. He predicts branch closings will accelerate this year, not purely out of economic pressure, but also because of customer migration to electronic channels.

Gary Webb, executive vice president of operations for First Financial Bankshares in Abilene, Texas, says his company rolled out a mobile banking app last March, for the sake of customer convenience. He says 17 percent of checking account customers already use it. (Online banking is at 47 percent.)

Significantly, 4 percent of mobile customers use that as their only electronic channel. "I think that's a pretty big number," Webb says. "So I expect in the future we'll see a much larger portion of our bank customers going to a mobile only channel."

He agrees with Kahr that whatever mobile services the banking industry introduces are likely to end up being free. "I think we'll find, if it's not free, customers will not adopt the technology, or they'll go somewhere where they can get it for free," Webb says.

But unlike Kahr, he is fine with that. "My question back to you is, 'What's a customer worth?'"

The $4.5 billion-asset First Financial does save money when a customer forgoes the call center and uses a mobile device to make a balance inquiry or transfer funds, Webb says. But call center volume hasn't dropped since the app's release. Instead, overall transaction volume is up, with mobile accounting for 10 percent to 12 percent of the total. Webb says this is partly because mobile customers are so active. They make more frequent balance inquiries than the average person, for example.

As mobile matures, Webb expects more savings and revenue opportunities to come along for banks, though.

Here's how some of the believers in mobile banking see the future taking shape.

More features make mobile more useful and more popular

Mobile growth is a virtuous circle. As more bank customers migrate from online to mobile, they'll want more functionality. And as banks roll out new capabilities, more people will gravitate to mobile.

Though some bankers think the hype around mobile is excessive—it's mostly a lot of balance inquiries after all, isn't it?—others see a sea change already underway.

Tom Trebilcock, who oversees mobile strategy at PNC Financial Services, says the explosive growth of mobile deposits is a signpost of the future.

"The number of texts we send out a month is growing at a rapid pace. Today it's mostly about balances, but as it evolves, it'll be more into bill payments and transfers—the bread-and-butter of banking," says Trebilcock, PNC's vice president of ebusiness and payments.

The mobile app for the PNC Virtual Wallet launched person-to-person payments late last year, and it had "great traction" just within a few weeks, Trebilcock says.

Mobile at its best is for engaging customers, not just serving up information. And looking ahead, features like person-to-person payments, expedited payments, and the ability to manage receipts will help banks differentiate themselves, says Forrester Research's Peter Wannemacher.

But many banks still need to work on the basic necessities. For example, when it comes to showing customers their account information via mobile, a component often overlooked by banks—including one of the three largest in the country—is the credit available to those with a credit card, Wannemacher says. Customers can see that information online, but not on their phones. So banks are missing a huge opportunity to help customers in context, wherever they may be.

Over the next 18 months Wannemacher expects bill pay and fund transfers to become table stakes for mobile. And in the next 24 months, the same for the ability to receive and manage alerts in a mobile app. Alerts are more common via texts and emails now, with customers setting them up and making changes to them online.

Mobile bill pay is a feature many bankers consider promising, including First Financial's Webb.

In January, First Financial became the first bank in the country to roll out Picture Pay, which allows customers to pay a bill by taking a picture of it on their mobile device. Webb thinks the convenience will help attract customers to mobile.

Though the bank initially considered charging users, the service is free, unless customers request an expedited payment. "I don't see it as a moneymaker, as much as I see it as building customer loyalty through convenience," Webb says.

The next new feature First Financial plans to introduce—likely in the second quarter—is an on/off switch for debit cards. This will allow customers to easily deactivate their card whenever they want. Then if the card is compromised, nobody will be able to use it.

Webb expects the feature to help reduce fraud expenses and give customers peace of mind, especially when combined with mobile alerts that can go out any time the card is used, a feature the bank already offers.

Other changes ahead in mobile have to do with how banks interact with customers, not just how customers interact with the bank.

Vikram Gupta, a vice president at Oracle Financial Services who heads strategy, development and management for its Flexcube software, says mobile is helping transform how origination occurs and enabling banks to be more flexible in providing service to customers. "A banker can visit you at home with a tablet and complete the origination there."

Voice and gestures replace typing—eventually

To Steve Ellis, executive vice president and group head of Wells Fargo Wholesale Services Group, voice recognition is nirvana.

He looks forward to the day when he can call up the bank and say, "Hey, this is Steve. I need to move money to my younger son again. Please take that out of my normal checking account."

The system would recognize him based on his voice and his phone, and it would be so quick to understand what he wanted to do that the reply verifying his request would come as soon as he finished speaking.

Best of all, Ellis says, "that nirvana isn't that far away."

For years, Wells has used a "text dependent" system for employees who call internal help lines, in which they say a number sequence "0" through "9" to authenticate who they are, Ellis says. "But I like 'text independent' more, where we just talk and it figures out who you are."

Wells is piloting this type of voice recognition in its wire room.

Pilots are essential, Ellis says, "because there are a lot of things to learn here and you don't want unintended consequences."

Voice functionality would be transformative for mobile banking. Not everyone is as enthusiastic as Ellis, though. First Financial's Webb says he tried Siri on his iPhone for a while, but ended up turning it off because he found it annoying. But "when the technology gets there, it'll be great," he says.

Technology vendors are at work on mobile banking apps that would work with voice commands and use biometrics to verify a customer's identity, eliminating the need to remember a password.

Some analysts say the shift from touch to voice is likely to take several years to play out. Others envision a tighter timeframe. Oracle's Gupta says he thinks voice-command technology could mature within a year.

Meanwhile, Ellis already is thinking beyond just voice commands. He sees huge potential for integrating rich media and live video into the online or mobile customer experience.

Though such options would require more infrastructure, "I can't imagine not heading that way," he says. "When we look at the way we do things on the Internet today, it's very wordy. It's things you type, as opposed to things you say and do."

Mobile is for money management too

Money management is evolving from a feature of digital banking to its core function, Forrester's Wannemacher says.To keep pace with customer expectations, plan to better integrate spending snapshots, budget tools and calculators into online and mobile offerings.

This is farther down on the to-do list for those that still need to roll out the basics. But some are already moving in this direction, including PNC, BBVACompass, USAA and Citigroup.

What these banks are doing—and others should, too, Wannemacher says—is using simple data visualizations like pie charts to present information, whether it be on the account management homepage for online banking or on the home screen for tablet or mobile phone apps.

"Customers love easy-to-understand graphics," Wannemacher says.

Bankers in general need to think more like consumers when designing mobile offerings. The ideal is for consumers to intuitively know where to click to do what they want to do.Regardless of whether a payment is an Automated Clearing House transaction or something else, "consumers simply think of it as moving money," Wannemacher says. Chase's mobile app smartly groups these functions in a "payments" category, under which it lists different subcategories, he says.

Wannemacher also cites two features offered through the app for the PNC Virtual Wallet that he says are the kind of tools that help the company stand out in mobile.

One is a "money bar," which is a simple visual that allows users to see at a glance how much they have in different accounts and easily move the money around.

The other is "shake the pig," which makes use of the accelerometer on a smartphone. Users can shake their phone to transfer money into a savings account, with each shake moving $1 at a time. "It's more fun than critical," Wannemacher says. "I wouldn't advise that every bank needs to add a shake-the-pig feature. But I do think it's a next-gen use of money management via mobile that uses device-specific functionality."

PNC's Trebilcock says the idea behind the Virtual Wallet it introduced years ago—before the "wallet" nomenclature became synonymous with payments—was to help people better manage their money. Its early move worked out well, with the wallet becoming a strong differentiator for PNC.

Wannemacher says PNC can make the effort to add nifty extras now because it has most mobile basics covered already, including offering some alerts management in that channel.But others who are not as far along can still start laying the building blocks for a more engaging experience."What matters is strategic choices for tomorrow," Wannemacher says. "And I think that what it will look like—the landing screen on your mobile website and mobile app-matters a lot."

Mobile wallets multiply

Look for banks to start rolling out mobile wallets in force this year, either building their own or going the white label route with technology vendors such as FIS.

Three of the large Canadian banks reportedly are working on wallets now, in their case with Visa and Mastercard. All this activity will foster more consumer awareness of mobile wallets, even if adoption starts slowly.

"I don't think we're going to see a dramatic shift in usage," says Forrester's Wannemacher, who points out that his firm, in talking to consumers for its research, often has to explain what a mobile wallet is first. "It will grow, but not by leaps and bounds."

But be ready for wallets, whether from banks or outsiders like Google, PayPal and Isis, to become more popular and more useful in coming years.They'll evolve to actively help consumers make smarter choices. "If you think of a mobile wallet as simply a screen where you select a credit card, I think you are missing the implications of what mobile wallets could be," Wannamacher says. "The role of mobile wallets is not simply a virtual version of your physical wallet, and digital strategists at banks need to think about that."

What will help make the mobile wallet—and the mobile channel in general—more powerful is context. Analytics are improving, allowing banks to better predict customer needs based on the transactional and behavioral data that accumulates.

But in the future, the use of context will go far beyond just marketing.

"You will tell the user, 'We suggest you use your Discover card to pay for this because it's going to give you the best rewards,' and 'This purchase is in your budget,'" Wannamacher says. "It is using my transaction history. It's using the budget that I set up with the bank. It's using information about my Discover card, which is integrated into the wallet. All of that is part of giving contextual, relevant, value-added services."

This means banks will need to allow customers to have all their payments options in the mobile wallet, including credit cards from competitors. They'll also need to refrain from showing favoritism in recommending which ones to use for a particular purchase.

Ellis at Wells Fargo agrees that wallets need to be bank agnostic. He pulls out his wallet and starts rattling off the cards inside—not just for payments, but loyalty cards, frequent flyer cards from three different airlines, health insurance cards, and a driver's license.

A wallet is not just for payments and a digital wallet shouldn't be either, he says. "It should have whatever cards somebody wants to use."

Payments have been the main focus in the development of wallets to date, and mobile payments are still minor enough that a lot of bankers are content to wait and watch.

Their reserve is curious to Oracle's Gupta, who is convinced that wallets herald big changes for the consumer, and thus for banks. "I think nobody'll be carrying credit cards or ID cards," he says. "I think your phone will be your ID card."

Forward-thinking banks have an opportunity to grab market share now, because Forrester research shows consumers would trust a mobile wallet from their bank more than one from any other provider. It is an advantage that banks, slow movers that they are, could lose more quickly than they expect.

"Not too long ago, Mapquest seemed like the best place to go for maps. Google was a search engine. But Google quickly cleaned up in that area," Wannemacher says. "So it's possible for a third party to beat banks before they get a chance."