Mobile phones could be the next big thing for banking and payments.
Sure, executives from both financial companies and technology ventures have been saying that for years. But now it appears that several companies have developed the applications to actually make wireless banking happen, and several observers say next year will be a critical inflection point for this nascent market.
Financial companies are hoping that mobile banking could provide the same kind of customer stickiness as online banking, which has proven to be an outstanding customer retention tool. And companies hoping to make phones into payment devices say that doing so could give them the coveted "top of wallet" position for transactions.
Financial institutions that have recently staked claims in the market include Citigroup Inc., which confirmed Tuesday that it has been working on a mobile banking application it expects to go live next quarter.
Among smaller banks, the $1.7 billion-asset Broadway National Bank of San Antonio has said it is in a "friends and family pilot" test using software from the Vancouver vendor TRG Mobilearth Inc.
These two join Synovus Financial Corp., which last week discussed a plan to provide mobile banking capabilities to customers of Cingular Wireless LLC, using software from Firethorn Holdings LLC.
That project was announced at the Bank Administration Institute's Retail Delivery conference in Las Vegas, where interest in mobile banking ran high, and word circulated that several other companies are preparing offerings.
"Online payments and banking services suddenly, in the past six months, have attracted a massive amount of attention," said Oliver Steeley, the vice president for mobile and wireless excellence at MasterCard Inc. MasterCard is testing a mobile payment service in Dallas that incorporates payment card functions in Nokia Corp. phones.
Bob Egan, the director of the emerging technologies practice at TowerGroup, a Needham, Mass., unit of MasterCard International, said the mobile phone has become an indispensable accessory, making it an ideal mechanism to deliver financial services. "People may forget their wallet or purse and do without it for the day, but if they leave their cell phone at home, they go back for it," he said.
Mr. Egan said vendors are experimenting with three different cell phone technologies for banking and payments: SMS, or short message service, the language of text messaging; WAP, or wireless application protocol, which is used by wireless Web browsers; and proprietary, downloadable applications.
Both Citi and Firethorn are using downloadable applications to let customers check account balances, transfer funds, and pay bills with their phones. Citi spokesman Robert Julavits said the service it plans to offer would also enable people to search for nearby branches or automated teller machines, or call customer service.
He said Citi is building its application internally using a Java software toolkit called mWorks from a Sausalito, Calif., start-up mFoundry Inc.
Tom Llewellyn, an executive vice president and Broadway Bank's chief information officer, said the Broadway Bancshares Inc. unit plans to offer the mobile banking system to customers by yearend or early January.
The service currently offers real-time fund transfers and account history. Mr. Llewellyn expects to add bill payment in the first or second quarter, and eventually wants to enable people to view check images on their mobile phones' screens.
Richard K. Crone, the founder of Crone Consulting in San Carlos, Calif., said that he knows more than 30 vendors trying to get a toehold in the mobile banking and payments market, and that there is plenty of momentum driving financial applications to consumer handsets.
"The question is, What is the best form factor for accessing the demand deposit account? The phone form factor is the preferred form factor for the future," Mr. Crone said.
He compared mobile banking now to online banking a decade ago. In 1995, he said, 80,000 Americans were experimenting with electronic banking services through personal finance management software or Internet service providers. But once banks started to offer banking Web sites, the number of users exploded, to 5 million within a year.
With banks and carriers preparing to introduce mobile banking services, Mr. Crone said, "I think you're going to see the same thing in 2007 and 2008."
Some vendors are already offering mobile payment services. In April, PayPal Inc. introduced PayPal Mobile, which uses SMS messaging to let consumers send money to phone accounts much in the same way they use e-mail to make payments using PayPal's Internet service. PayPal's service also allows people to pay for some purchases with their phones.
Yodlee Inc. of Redwood City, Calif., announced its cell phone banking technology, Yodlee Mobile, in October. Aashir Shroff, the senior product manager for Yodlee Mobile, said the company has about 1,000 users testing it now, and he said he hopes to announce a bank customer in the second quarter of next year.
Yodlee Mobile, which is built using the vendor's core account-aggregation technology, will be offered initially as a hosted service, and Mr. Shroff said a new bank customer could roll it out in just 30 days. The system uses the secure layer of a phone's WAP browser.
Firethorn, which announced its deals with Synovus and Cingular last week, is also working with another bank customer, which the Atlanta company has not named, but it is expected to unveil its mobile banking service early next year. Synovus, of Columbus, Ga., hopes to begin offering its mobile banking and bill-payment services in the second quarter. Firethorn has also signed a partnership with CheckFree Corp., which provides its bill-pay capabilities.
Tripp Rackley, Firethorn's chairman and chief executive, said his company's system could help banks address a significant cost - customers phoning the call center from a retailer's checkout line to see whether they should use a debit or credit card to pay for a purchase. From there, he said, it would be a short step to authorizing the payment over the phone using contactless technology, rather than requiring people to pull out a separate card to complete the transaction.
MasterCard is testing a mobile payment service. In previous trials, radio-frequency identification chips were essentially embedded in a phone's casing, making it a bulkier form of contactless card.
Mr. Steeley said this test uses a chip management system to load information from a prepaid debit account. Mr. Steeley said it would be possible to configure a phone to have multiple payment accounts, and users could select which one they want to use for each transaction. "That's a natural and logical extension" of the technology, Mr. Steeley said. It puts the "top-of-wallet card in the phone."
But that would require phone manufacturers to include programmable contactless chips in their handsets, he said. "Until the stuff starts rolling off their production lines in mass volume, we're never going to get there."
