After speaking at a mobile commerce summit this year, I received an e-mail from one of the bankers in attendance wondering why there were no bank or credit union core processors there.
"Are they all clueless?" he asked. "I would think mobile banking and commerce would be a very important and strategic initiative that they would need to be building toward."
In the mid-1990s core bank servicers faced what Harvard Business School professor and author Clayton M. Christenson describes as the "innovator's dilemma" — they almost missed the new functionality and revenue streams created by Internet banking.
Start-ups created the online banking functionality that the core bank servicers did not provide or effectively promote.
The online banking providers were essentially economic "free riders" that gained compensation from the core bank processors' financial institutions despite being completely dependent on the information processed and contained in the core banking system.
When Internet banking was coming of age, I helped numerous financial institutions and core bank servicers define their online banking strategies. I even took my own advice along the way and led the introduction of "homebanking" for what was then the largest savings bank in the nation, using Microsoft Money and Intuit's Quicken. It went on to meet its first-year projections in the first two weeks of its release.
But this bank's early success paled by comparison with the financial services companies that chose to do more than just buy placement rights in popular software and instead offered customers a material incentive of $50 or more for opening an account through the Money and Quicken programs. One financial institution in our market that year was the fastest-growing bank in the West; it credited more than 40% of its growth to the accounts opened through the Money and Quicken online channels.
As successful as this move was for the first 21 banks that participated in the Money and Quicken programs, the market directly after the initial release moved very quickly to yet another electronic channel: the Internet.
Now fast-forward to 2007, with Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wachovia Corp., and others introducing mobile banking services. These early moves once again challenged financial institutions of all sizes to quickly develop "protect" and "extend" strategies for the mobile channel.
With many eerie parallels, this year looks a lot like the evolution of Internet banking in the mid-1990s; yet again, many bank processors are ignoring or being slow to react to the fervor in the market for the "mobile" channel.
With more than 67 well-funded start-ups in the mobile financial services space that we track, the stage is once again set for history to repeat itself. A new set of "free riders" is poised to create value from the core processors that do not provide mobile access. The stage is also set for financial institutions to move market with the channel.
Lest history repeat itself, it is important that financial institutions and their core data processing suppliers move quickly to define their strategies and adopt solutions for riding what we characterize as the three waves of mobile financial services:
Mobile banking consists of customer self-service extensions that are typically available through the Internet or voice response unit, optimized through a mobile subchannel such as text-based, simple message service, or SMS, and mobile browsers using the wireless access protocol, downloadable proprietary applications loaded on the phone, and several other options under development.
Mobile payments enables cell phones to initiate payments in the physical, point of sale, and virtual worlds such as tap-and-go situations using near field communications technology, person-to-person via SMS, and many other novel ways being developed.
Mobile marketing uses two-way, interactive functionality for what Javelin Strategy and Research calls "review and release" transactions, alerts, loyalty programs, instantaneous location-specific offers, electronic coupons, and the like.
