The recent frenzy of large institutions to acquire deposits by purchasing small rivals should raise questions about the organic growth opportunities of the U.S. banking industry as a whole.
Growth, it seems, is increasingly hard to come by, and though retail revenue accounts for almost 60% of global retail banking revenue pools, it is increasingly under pressure as market share erodes and expenses climb.
Forrester Research reported that average banking margins in this country declined 16% between 1995 and 2005. And no wonder — it is no secret that the United States is reaching market saturation when it comes to retail banking. About 85% of the population is "banked," and the unbanked population is low-margin and high-cost-to-serve.
So where do U.S. and global institutions go for growth? The Internet, via mobile technologies, will allow U.S. banks to make reasonable margins on unbanked consumers and will even allow them to reach out to global populations in ways previously unimagined.
According to Boston Consulting Group, $137 billion of retail banking revenue will shift by 2015 to the Asia-Pacific-Middle East region, where currently 60%-70% of the population is unbanked.
This is a tremendous opportunity in both size and scope, but reaching the next billion retail consumers at reasonable margins will present bureaucratic challenges. Branch-building is expensive, and many of these countries have limits on physical distribution and foreign bank entry. In addition, since the costs to serve these people may far outstrip the revenue generated, margin challenges will be significant.
Enter the mobile Internet. Global Internet adoption will reach a billion consumers by March 2010, according to comScore, and almost 50% of those users will come from Asia and the Middle East. In fact, the United States now accounts for less than 21% of global Internet activity.
Much of the international traffic is coming from mobile phones, which today offer bigger screens, better usability, and increasingly affordable high-speed data transfer. By 2011 more than 40% of new mobile phones will be equipped with a 3G broadband connection. Better technology allows smoother transactions, and the faster speeds will jump-start consumer adoption, much the way broadband access did with the Internet.
Mobile is on the way to fulfilling the original promise of the Internet: providing 24/7/365 access to your bank accounts. The truth is, a PC-Internet model did offer ubiquitous access, as long as you were in front of your PC. Mobile breaks that PC tether.
So technology, via 3G/4G connections and mobile browsers, offers up the delivery mechanism for reaching the next billion banking customers.
A well-executed direct banking model can deliver an operating expense advantage of as much as 100 basis points over physical distribution models. A financial analysis by a large banking institution determined that an average Internet transaction cost 4 cents, compared to 14 cents for an automated teller machine transaction and $2.51 for a call center transaction.
The Internet and mobile phones provide compelling product and service opportunities, too. Japan provides a crystal ball into the future of mobile banking. In that country, phones not only provide Internet access to bank balances, transfers, and account lookups, but they also serve as mobile wallets for everyday transactions, including retail purchases, vending machine transactions, and transit passes.
Imagine U.S. phones enabled with chips and connected to networks that enable consumers to use their phones as E-Z Pass, subway, and bus tokens and even to send money to each other using near field communications. Global remittances where customers can send money to phone numbers are in the works and will be here within the next five years.
The next billion — be it consumers, revenue, margin, or reduced operating expenses — can be achieved in the next decade with the mobile Internet.