2010 will be remembered as the year that implementing mobile banking moved from being a get-on-the-bandwagon trend to table stakes in the American retail financial services market, the year that big banks began to recognize the channel's own legitimacy, and the year that most mid-tier and community banks put mobile banking on their short list of things to get done.

For banks, the good news is that, relative to other pressing technology investments like enterprise risk management or core replacement, mobile banking is relatively cheap to bring to market. The challenge is that there are many moving parts to consider: basic banking functionality, security, back-end integration, payments integration, NFC, and marketing and loyalty plays. The bigger challenge is that many consumers are already steps ahead when it comes to adopting a mobile lifestyle, so every month that lagging banks spend deliberating on all these options is another month that competitors grab mindshare as the mobility-focused brand.

To get a snapshot of the market in the spring of 2010, BTN asked Celent analyst Red Gillen and Mercatus Advisory Group's Bob Hedges to offer their views of where the market is, and where it's going. Here's what they had to say.


BTN: What is the state of mobile banking in the U.S. today?

Red Gillen: We at Celent have talked to a lot of the larger banks in the last 60 days. Based on those discussions, my assessment is the mobile banking market is growing very rapidly in terms of consumer adoption and bank implementation. Where you see relatively slower growth is the pace of the rollout of new enhancements, or feature functionality. So a lot of what we see today is what we saw back in 2007.

That's not to say it's static, but the real exciting growth is the number of new adoptions. All the banks I've spoken to say the adoption numbers by their clients have exceeded their expectations. This appears to be mostly organic growth, in the sense that the adoption numbers are rising without the banks having to do a whole lot to promote the mobile channel. Many banks we talk to will thank the iPhone for this....It's almost like the growth is going on thanks to a larger mobile macro trend, more than what the banks are themselves doing.

Bob Hedges: I would agree. Statistics in [our] tracking study show adoption in 2007 was two percent, in 2008 it was seven percent, in 2009 it went to 11 percent. So we have the hockey stick of growth starting to take off. It is being driven by a general mobile wave that is driving consumer behavior right now and that's really important because it's less that consumers are demanding mobile banking and more that consumers are using their mobile device for everything and mobile banking is a use case that is getting swept up in that.

I think the thing that is interesting in that trend is that the large banks are beginning to properly understand that that is what's going on. They see that there's A) pent up demand that can be capitalized on, and B) they need to position mobile as just part of what they do as opposed to a discrete mobile application or product that they're selling to their customers. ... So we have the acceleration and the interest which is great, we have the pent up consumer demand, which is great, and organizationally the large institutions are really starting to take it seriously. We've gotten to this point without them really-most of them-taking it seriously as a mainstream application and it absolutely is becoming a mainstream application.


BTN: What about the smaller banks?

BH: I think the small banks are all incredibly fascinated by the opportunity this could be for them. I think they understand that it has the potential to be incredibly playing-field leveling capability. And I think they all also understand there's ways to get in and deploy that are not onerous in terms of time and investment cost. So it's something that six months ago, 12 months ago, that they wouldn't have considered as being an important part of what they're doing and now they are. It's part of the 2010 development calendar for most of the medium sized and small banks, to bring out some type of capability.


BTN: What's the coolest thing you've seen in the way of new technology developments in mobile?

RG: I would say one of the things I think is more interesting in terms of new features coming out is the pursuit of the offline population. Wells [Fargo] came out with a way to do text banking for folks who didn't use the online channel; most banks require registration through online banking. Well, what you're doing [with that approach] is giving your relatively low-cost customers, your online customers, another way to access the bank, which is great. But what you really want to do is get people who are going into the branches or calling customer service out of those two channels and into something else, mobile phones. I thought that was very, very interesting and I expect to see more banks doing that. Wells was a pioneer on that one; it was a good move on their part.

Another thing that was interesting to me in the last few months is going back to January when the Haitian earthquake took place, the amazing popularity of text-based donations. I think it's a sign of things to come in terms of mobile payment adoption by consumers. It was really easy to do, and people took to it.

There have been some other things on the radar screen, things like mobile P2P and mobile deposit capture. Professionally I'm interested in them, I'm not sure how much impact they're going to make on the market. I think one of the more interesting things I've noticed is sort of subtle: the recognition of the mobile channel as its own standalone channel, not an extension of online. This is table stakes now, this is part of doing business in the banking world.

BH: I'll tell you what's not cool, then I'll tell you what's cool. What's not cool is the discussion in banks of all sizes that we need to make a business case for investing in mobile banking. "If we don't get enough revenue from the alerts function we shouldn't roll it out."

I start there because that's not cool, that reflects that they don't get it. ...I think we're transitioning from an era where the energy was all around the business case for a specific feature function to an era where it's table stakes and the agenda is going to be driven much more by strategic marketing functions. In that context, the cool things become really important.

I think mobile RDC is really cool, and the reason it's cool is because consumers think it's cool. And consumers thinking it's cool means that it's a powerful proof point of a bank actually having mobile capability. I think you pivot from the mobile RDC example to on-the-drawing-board m-commerce capabilities that people are working on. You can create GPS mapping capability with loyalty program capability and discount couponing capability and all at the point of sale, now you have something that's really cool. That will really resonate to consumers and makes for a provider and deployer [with] a really differentiating capability for the period of time that your institution is one of the few that have the capability.


BTN: Let's talk about mobile payments. There are so many different competing mechanisms out there. Will one eventually carry the day? Or will we see a number of models that have a measure of success?

BH: From our perspective that question is focusing on the wrong issue. I think the real competition right now is among the financial services competitors, who ends up being the most mobile. And that if you're the most mobile you'll get the payment business.


BTN: So if I'm a financial institution that hasn't yet made my play, does it matter which vendor or model I choose when it comes to payments?

RG: That payment space is for the banks to lose, they've got to protect that. How do you keep your cards relevant in all this? How do you integrate marketing, couponing and loyalty-that are mobile based and these are coming out today-but they tend not to be integrated with a bank's card program.

I think the 800-lb gorilla in the room is NFC. I'm a bit of a curmudgeon in this area. The issue, the question the industry has to ask itself, is NFC going to lift sales on a per-account basis, or is it just a change in form factor and possibly a more expensive form factor?

By the way, we're years away, there are still serious infrastructure issues to deal with. But the more people jump in with both feet, and from a bank perspective ask what is it doing for sales lift, is it valuable or not, [the better]. I think everyone agrees it's really cool, and interesting, no doubt about that, but let's talk about dollars and cents....Theoretically there's no reason why you couldn't have that phone give you information about coupons and discounting and loyalty and still use the plastic card [to pay for a purchase]. Why not?

BH: Let me build on that question: For a bank, which one should I care about? And my answer is you should care about which ones you can do as fast as possible in a broadbrush way. I think you should understand what's going on in the marketplace is a gold rush for relevance in the mobile space. And what you want to do is get out broadly in a high profile way with capabilities that position you in the marketplace as being a bank or financial services provider that's committed to being mobile, that you establish top of mind awareness in consumers minds, that you're committed to mobile capability.

What you don't want to do is be excessively deliberate or adopt a point of view that you can be a fast follower, that you can study the thing until true industry standards emerge. ...If you spend your time trying to engineer the economics before you do deployment, you're going to miss the turn in the road because this time it's happening so fast.


BTN: What advice would you give to a bank looking to deploy mobile in the near term?

RG: What people do when they first look at mobile banking is they're attracted to the bright shiny objects, the whistles and bells first. It's really important to think about how am I going to integrate this into the back end for further growth. Yes you can bolt it into an online banking system and that will get you so far, but is there a way to more closely or more deeply integrate into the rest of the bank so you're touching back-end core systems, the deposit system, some of the card processing systems, at the same time you're also touching the ancillary back end systems, things like fraud monitoring systems, could be administrative systems, sales and marketing systems. ...The back-end considerations have to be brought to the front, and avoid the temptation to be mesmerized by the whistles and bells.


BTN: Any vendors you'd put on the short list for banks to look at?

BH: Rather than commenting on individual firms, as people look at firms they should make sure that firm has the ability to lever out and meet the full suite of capabilities, the baseline that consumers want. They should talk to firms that are driven by an impassioned focus on the use cases that consumers want to have solved and people who understand that the quality of the UI and the ergonomics of consumer usage is what the real basis of competitive differentiation. If you use that criteria you'll end up with a set of firms to talk to who "get it" as opposed to a set of criteria that might lead you to absolutely fine and solid technical solutions but not ones that are going resonate in a sincere way with consumers.

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