Eaton Family Credit Union had been interested in deploying mobile banking for some time, but its initial research into the channel turned out to be little more than expensive window-shopping.

"It was just way beyond our means," says Fred Siegel, business development manager for the 11,000 member Cleveland-area credit union, which has about $39 million in assets. "But [the cooperative approach] made a lot of sense. The people who have signed up for it seem to love it. The co-op was the deciding factor for us."

A division of CO-OP Financial Services, CO-OP Mobile, allows credit unions to deploy mobile banking with minimal upfront expense. The service has been gathering steam over past couple of months, signing seven new clients in early August alone, with a total of 20 signed contracts. Additionally, the vendor also recently signed six reseller agreements.

For the CO-OP, which first hired mFoundry to provide mobile banking in October 2008 and announced CO-OP Mobile in February, the new deals suggest growing demand among credit unions, which are starting to view mobile banking as a "must have" application. The model also provides a possible alternative for community banks seeking a low-cost entry into mobile banking.

Siegel says that as the credit union's base of customers have gradually moved out of the Cleveland area, it has become reliant on the shared branching and the mobile channel services offered by the cooperative to compete with banks. "We need to be where our members are. We're a small credit union with three branches that are rather close to each other," Siegel says.

CO-OP Mobile integrates into CO-OP Financial's proprietary Next Generation Network switch. Members of credit unions participating in NGN can use the CO-OP Mobile app on mobile devices to verify balances, view transaction history and transfer funds. Credit unions do not have to make any changes to their host or home banking system. "What we have going for us is our approach to implementation. [With CO-OP Mobile], you don't have to license software from a online banking or core system provider," says James Hanisch, evp, CO-OP Financial Services.

The cooperative's shared branching participants, which include more than 3,000 locations and 20 percent of the nation's credit unions, use a standardized ISO 8583 message to achieve interoperability. ISO 8583 - a standard traditionally utilized by credit card POS and ATM networks - enables different systems to exchange financial transactions - including withdrawals, deposits, balance inquiries, payments and transfers.

It's also part of the framework for the credit unions to deploy a cooperative mobile banking service. "Instead of the member data going to a branch, the account information is being sent to a mobile device," says Doug Burke, president of the Credit Union Service Network, a firm that resells the NGN switching technology.

Hanisch says the CO-OP's members pay a set up fee he called "modest" (compared to the $100,000 sources say community bank-sized financial institution would have to pay to build out a mobile solution on its own) then pay on a transaction basis. Credit unions that still need to deploy the NGN can access CO-OP's mobile service at a lower installation fee than the full-on deployment cost.

CO-OP Mobile, which sources say is unique in both the credit union space and the larger financial services industry, is also a potential blueprint for banks, particularly community banks, looking to reduce the financial risk of tapping mobile banking. The appeal of the cooperative model is it replaces an upfront capital expenditure with an expense that's based on transactions. "It's hard right now to get funding for an IT capital outlay, especially if there's no mass usage," says Marc DeCastro, a research manager at Financial Insights.

Banks have pooled in the past for services such as surcharge-free ATM networks. "It's not unprecedented for small institutions to say, 'We have to do this; we have to be in defensive mode,'" DeCastro says. "But from a branding standpoint, how much flexibility do you have? With shared services, you do lose a bit."

Another hurdle is the culture of banks versus credit unions. "The coop is attractive in the credit union space because of the nature of credit unions in general. They're non-profit and work closely together," says Christine Barry, a research director for Aite. "If the coop model were to happen in the banking industry, it would be in the community bank segment. There's a lot of pressure on small institutions to deploy [mobile technology.] Smaller financial institutions and credit unions are competing head-to-head with larger institutions more so today than ever before."

Cary Whaley, director of payments and technology policy for the Independent Community Bankers of America, says the coop model could be a means to increase adoption of mobile banking among smaller banks (an ICBA survey in 2008 said about 11 percent of community banks were active in the mobile channel, while another 32 percent were budgeting to tap the channel). But Whaley also says there are challenges. "The inhibiting factor would be strong vendor relationships that community banks already had, whether it's with the online banking vendor of the core systems vendor," Whaley says.

And the coop's transaction-based fees would also not necessarily address uncertain future revenue from end users, another ROI concern that's curtailed mobile banking. "In North America the model is to copy the functionality of online banking and migrate existing online banking users to mobile devices," says Stessa Cohen, a research analyst for Gartner. "If I'm not paying for online banking, how are you going to convince me to pay for it on a mobile device?"

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