2007

Mobile banking experiencing increased adoption 12/23 banktech.com After lying dormant for 5 years, mobile banking is causing a flurry of activity in the US financial industry. Now, many of the nation’s top 10 banks are up & running with their own mobile banking solutions, & financial institutions of all sizes are busy assessing their places in the mobile banking world. But each bank has to decide if, in fact, mobile banking is a good bet for it, & if so, which strategy it should pursue. Mobile banking in the US did not come out of the gate running. It first appeared a little before 2000, but when it failed to catch on over the following few years, most banks abandoned their original efforts. As an example, Wells Fargo shuttered its original mobile banking operations in 2002. It had 2,500 users at the time. But the bank relaunched its mobile banking solution in July, though it declines to disclose the current number of users. There are several reasons why banks are having more success with mobile banking this time around, says Stessa Cohen, Gartner. ‘One is the uptake of mobile phones in the US, more smart phones & newer phones. Consumerization of IT is the other trend.’ Because consumers, mostly in younger generations, are comfortable using their cell phones for a variety of functions - including sending & receiving text or SMS messages, checking game scores & purchasing ring tones - they are more accepting of new mobile activities, such as banking & making payments. These factors have led to increased adoption of mobile banking in the past 6 years. Forrester’s Catherine Graeber says US mobile usage is up 58% in the past 6 years, & the numbers are trending even higher. According to Forrester, US mobile phone ownership will grow to 121m households - 88% of the US household population - by 2012. Banks have some options when it comes to mobile banking technology. There are 3 mobile banking formats: text messages/SMS, Web browser & downloadable application. Many banks have decided to hedge their bets by offering more than one option, or a combination of functionality, to their customers. For example, BofA’s mobile banking service, which launched in May, is a browser-based system. But customers can receive customized alerts via text message, according to the bank. ‘I think a combination of all 3 is the ultimate solution,’ says Brandon McGee, Huntington. ‘You are targeting Gen Xers & boomers with the browser, SMS is for Gen Y’s & the downloadable application has a number of big benefits. Each one has just a little something special.’ Graeber expects demand to increase for all 3 formats. ‘There will be a push for vendors to offer more than one type of platform.’ Last year, mFoundry & ClairMail formed a partnership to offer a combined solution that integrates ClairMail’s SMS capabilities & mobile Web access with mFoundry’s downloadable application. In October, BB&T became the first bank to purchase the combined solution. ‘MFoundry’s feature-rich application combined with the ClairMail messaging, mobile Web & 2-way capabilities will give BB&T a clear & easy solution,’ says mFoundry’s Drew Sievers, who asserts that every bank in the mobile space is using at least 2 of the different platforms. McGee expects momentum to build around browser-based solutions. ‘You might be more likely to see more announcements around a browser-based solution because it’s an inexpensive way to get into the game,’ noting that Huntington has not yet unveiled its own mobile banking plans. ‘A higher % of banks start from that route. That would be a good Phase 1.’ Some vendors, such as Firethorn, are looking at the next generation of mobile banking applications. The firm, which was acquired by wireless-technology provider Qualcomm, is the leader in preloaded solutions. In addition to enabling bank customers to download its application from banks’ Web sites ‘through the air’ to a mobile phone, Firethorn partnered with AT&T & Verizon to preload Firethorn’s mobile banking application onto the carriers’ new mobile phones. ‘When you walk in & get the new AT&T phones, there is a flyer in there that says, ‘Enroll in mobile banking,’ relates Tripp Rackley, Firethorn. But it wasn’t easy to convince the carriers to include the mobile banking application on their phones. ‘If you think about the real estate value of the screen on the phone, as many people that touch it & look at it each day, I think it’s the most valuable real estate in the country. To get AT&T & Verizon to see the vision of m-commerce as something for which it is worth giving up real estate was a major endeavor.’ The preloaded option is set to outpace other mobile formats by leaps & bounds. ‘If you talk to any of the carriers, they will tell you that with an application that is readily available on their Web site as compared to preloaded, adoption of the preloaded application is 30:1.’ Banks that have joined the Firethorn network include Wachovia, SunTrust, Regions, BancorpSouth, Synovus & FirstBank. Without users, no mobile banking program will be successful. So who are banks targeting with their mobile services? ‘I think everyone’s natural assumption is to target the Internet banking customer. But there is a contingent of people that doesn’t do Internet banking that will do mobile. Not everyone sits in front of the computer, but they all have cell phones.’ Even though the functionality may be similar, banks should not look at mobile banking as an extension of Internet banking on the phone, Cohen adds, noting that the proposition of moving a customer completely from online banking to mobile banking is limited. ‘Why go from paying your bills at your desk to paying them while you are walking down the street?’ In addition to younger customers who have shown an affinity for cell phone-based services, banks should look to market mobile banking services to new customer segments, including those whose lifestyles or occupations keep them away from a computer, such as blue-collar workers, agricultural workers, those who travel frequently & students, Cohen suggests. ‘A bank has to understand their customers & their segments,’ she continues. ‘What are their needs & wants with the mobile phone?’ The underbanked may want to do more robust activities, such as transactions & loan payments, while other segments may just want alerts, reminders & rewards management. BofA built up awareness of its mobile banking program through campaigns online, in its branches & through mobile advertising. ‘There was no particular demographic targeted at the time of the launch,’ says Doug Brown, BofA. The early adopters are self-selecting & ‘tend to skew much younger’ than the bank’s overall Internet banking customer base, noting that 23m customers currently use BofA’s online banking offering. Since its 5/22/07, rollout, BofA’s mobile banking service had attracted 500,000 active mobile banking users by early December. Brown says the bank defines active users as those who have accessed the platform in the prior 90 days. BofA’s mobile banking customers have the ability to view balances, drill down into transaction details, pay bills via accounts previously established online & transfer funds to another BofA customer. The bank has integrated into its offering Microsoft’s MapPoint technology, which allows mobile banking customers to find the closest branch & ATM locations. MapPoint is the 2nd most common function used by the bank’s mobile banking customers, behind core banking services, of which balance checking is the most-used function. It’s not only the largest banks in the country that are launching mobile banking services. With less than $1b in assets, Irwin Union Bank began implementing its mobile banking solution in 11/07 with a pilot program. It chose the goDough product from Jack Henry because of a long-standing core banking relationship with the vendor. ‘We wanted a solution that would help us leverage our existing technology platform investments,’ says Debbie Cox, Irwin. ‘While there are different approaches & options offered by the various mobile banking providers, we prefer the goDough application because our clients won’t have to download any software to their PDAs, cell phones or other hand-held devices.’ Despite the growing mobile banking push from banks, however, not everyone is convinced of the service’s value. ‘I’ve been watching my bank clients get all worked up over mobile. But where is the time out to say, ‘Does anyone really want this technology?’ relates Graeber. ‘There is a lemming effect out there. If the big guys do it, everyone else does. But the big guys don’t really know how to make money off of it.’ Most vendors & bankers point out that there was no real demand for Internet banking in its early days - a fact that didn’t seem to affect its eventual widespread adoption. ‘Adoption is never going to happen as fast as optimists would like & always faster than pessimists would like,’ says mFoundry’s Sievers. ‘I had the same discussion about Internet banking,’ Firethorn’s Rackley adds. ‘No one is sitting around saying, ‘If I could connect to my financial institutions via mobile, life would be great.’ They probably weren’t thinking that they needed bottled water or satellite radio, but look at how those products have taken off. ‘I love seeing newspaper & TV commercials for mobile banking,’ says McGee. ‘All of those pieces will help consumer awareness.’ According to McGee, 30% to 35% of users of online banking have shown interest in mobile banking. Among the factors that may be holding back customers from adopting mobile banking are concerns about security. ‘Security is one barrier to adoption, so we embrace that challenge,’ says BofA’s Brown. ‘We ensure that it is a secure device & a secure connection.’ Brown notes that the bank maintains a list of 450 allowed & supported mobile devices, & utilizes its SiteKey online banking authentication tool for the mobile channel. Beyond building consumer demand & securing the mobile channel, banks are challenged to build the business case for mobile banking, mostly because the ROI is impossible to pinpoint. ‘It’s a way to attract a younger audience,’ says Sievers. ‘A good retention point.’ While Graeber concedes that retention & deepened relationships can come from ‘electronic hooks,’ she does not consider that an answer to the ROI question. Graeber says firms have used up all those benefits with online banking & bill pay. But that doesn’t stop mobile banking’s proponents from touting customer satisfaction as a measure of ROI. ‘It’s a service, convenience, another feature in our cap to keep customers happy & keep them with us as long as possible,’ says McGee. ‘Being early adopters of mobile banking among financial institutions of our size will help us establish a foothold with more clients,’ says Cox. ‘It’s an opportunity for us to be more active with people in managing their finances,’ adds BofA’s Brown. Though he acknowledges that mobile banking has not & will not displace other banking channels, Brown stresses that it complements existing channels. ‘The phone is becoming such an integral device. It’s right in the sweet spot of what people are asking for.’ Regardless of the debate over demand for mobile banking, banks will continue to test different solutions to find the ones that fit their customer bases. ‘We’ll continue to see the big guys test & learn.’ Graeber worries about the smaller institutions. ‘I worry about smaller banks & CUs - do they even have a customer base that matches up to the sweet spot?’ adding that the next year will reveal a lot about the mobile banking trend. According to Cohen, some projects will start to show their faults, new vendors & acquisitions will reshape the space & the ROI race will heat up. ‘Banks can expect more of the Firethorn/Qualcomm deals. In some ways that’s going to be good because Qualcomm for example has deep pockets & mobile device expertise.’ Sievers says that while some technology providers will continue to grow, many will get acquired by payments companies & general financial services technology providers, such as Metavante or Fidelity. ‘It’s inevitable that there will be consolidation’ in the vendor landscape, he asserts. & despite skepticism from some experts, banks will continue to pursue mobile success. BofA, which has more mobile banking users than all other US banks combined, is ‘bullish on the prospects for mobile banking. We want to demonstrate that this is the real deal with customer usage. We won’t be rolling back this model.’