Mobile banking: a tipping point

Mobile banking: a tipping point
Tags: Bank / Credit Union, Bank Automation, North America, Other, Trends / Statistics
December 25, 2007

Lynn Walford is a free-lance writer who has covered financial-industry news for numerous trade publications, including ATM Marketplace. To submit a comment about this article, please e-mail the editor.

Mobile banking is starting to catch on, says Boston-based consultancy TowerGroup, which estimated that just more than 1 million consumers were mobile banking by the end of 2007.

And other analysts in the field agree that the time is ripe for mobile banking.

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"Mobile banking is taking off," said Nick Holland, a senior analyst at Aite Group based in Boston, "Most of the major 20 banking institutions have either launched mobile banking or are in the pilot phase."

Long story short, U.S. financial institutions are adopting mobile-banking practices because they enhance the customer experience, and mobile banking is convenient.

"Don't assume that mobile banking is something off in the future. It's a brand new banking channel that can attract certain demographics and be part of customer retention and services," said Red Gillen, a senior analyst Celent LLC, also in Boston.

But are consumers going to buy into the technology?

Jean M. Garascia, an associate analyst with Javelin Strategy & Research, based in Pleasanton, California, says mobile-banking adoption rates, in general, remain relatively low. SMS/text messaging, which has been well received, is expected to be the first step toward more wide spread mobile-banking adoption.

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Once users are acclimated to SMS banking services, they will understand the value of mobile banking and will more easily adopt WAP and downloaded applications, Garascia says. In a recent Javelin study, 28 percent of the U.S. FIs surveyed said they offer SMS alerts.

Gillen says text messages offer great marketing potential for numerous services, such as mortgage-interest rate alerts. The user, for instance, receives a text message with the latest mortgage rates and decides he wants to refinance. After he gets the message, he sends a response text message, at which time a sales associate is notified and a phone call is initiated to the user's mobile phone.

SMS technology is said to be the easiest mobile option, since it can reach massive numbers of users and doesn't require Web access. SMS is the bread and butter of mobile banking, TowerGroup's Holland says.

What is mobile banking?

The major functions by mobile banking include account-balance checks, the ability to view transaction histories and remotely locate ATMs and branches. More advanced features, such as bill payment and account transfers are not as popular, Gillen says.

To date, three mobile banking methods are dominating the FI market. They include downloadable client applications, mobile Web browsing (via Wireless Application Protocol — a simplified browsing protocol used on mobile phones), and text messaging. Some FIs offer only one or a combination of services.

"Most major-bank deployments are either WAP or downloadable applications," said "Charul Vyas, an analyst at the TowerGroup, who says about 85 percent of U.S. handsets are equipped to handle mobile Web browsing.

But Vyas warns that consumers may not be as quick to adopt mobile banking if they don't deem it secure. To allay those fears, Vyas says FIs need to promote their mobile services and assure their customers and members of security.

Bank of America is a prime example. The banking giant, with $1.1 trillion in assets based in Charlotte, N.C., has heavily promoted its mobile-banking technology through various media, including television advertisements and online video demonstrations. In fact, B of A set the mobile-banking benchmark on Nov. 28 when it announced that its Web-based mobile-banking service had 500,000 users.

Citibank in March launched a downloadable mobile application that is limited to certain phones. For institutions like Citibank, the advantage of downloadable solutions lies in branding, Holland said, since the bank's logo appears on the screens of phones that have the downloaded application.

In the Web-mobile-banking arena, Wells Fargo launched its WAP service in May, 2007 followed by a two-way text banking service in October. Internet bank, Ing Direct based in Amsterdam launched a Web-based service in July.

JPMorgan Chase & Co. chose to offer in September 2007 mobile banking through SMS messaging. And Winston-Salem, N.C.-based BT&T is the latest to join the mobile bandwagon, announcing its rollout of mobile banking with two-way mobile messaging, Web access and downloadable applications in early 2008.

AT&T announced Nov. 13 that it is preloading mobile-banking software for Wachovia (which was already offering a mobile Web application for Windows Mobile and BlackBerry supported devices) and SunTrust Bank on its mobile phones and devices. AT&T also provides a mobile-banking platform for BankcorpSouth and announced it will provide mobile banking for Kansas-based First State Bank & Trust.

AT&T's platform was developed by Firethorn Holdings LLC, which was recently purchased by phone-chip maker Qualcomm. Firethorn provided application-based mobile banking for Synovous Bank in Altanta and Augusta Georgia.

The target

At the moment, FIs are concentrating their mobile marketing efforts on converting online banking users. TowerGroup's Vyas says that approach could cause many FIs to miss many opportunities, since mobile banking should be open users who don't have computer or Web access. In fact, she predicts that by 2012, 25 percent of consumers who use mobile banking will not be online banking users.

As customers adapt to new ways to access banking information, it could create a drawback for independent ATM operators since banking at your fingertips makes locating branches and non-fee charging ATMs easier on the go, Gillen said. Consumers may avoid fee-charging machines. And Vyas suggests that other ATM functions, such as non-cash transactions like balance inquiries, may also take a hit, once consumers grow accustomed to performing those types functions on their mobile devices.

Overall, the need for cash could decline.

Although analysts don't predict mobile payments or wallets that use near-field communications taking off anytime soon, over the course of the next five years, a great deal is expected to change. Holland says mobile payments could replace the need for cash from an ATM.

Vyas concludes, "The question is no longer if mobile banking deployments will happen, but rather how quickly mobile banking adoption will take place."