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Wait for the mobile payments business case to develop, or go for it now?

Three new surveys provide perspective


 In one form or another—text, web-based, or app driven—mobile banking has become almost de rigeuer for banks of all sizes, according to a feature article in the May issue of Banking Exchange, currently on its way to subscribers. Yet mobile banking—checking on balances or cleared checks, low-balance text alerts, rate information, even billpay—is a quite different animal from mobile payments in which the smartphone takes the place of cash or card-based payments at the point of sale or person-to-person.

Three recent surveys about mobile banking highlight this distinction and provide grist for bank executives contemplating aggressive investment in mobile-related technology and marketing.

In one survey, financial institution executives acknowledge having mobile payments  strategies in place but also are waiting for a clear business case to develop before committing significant resources. In another survey, mobile banking use in general is seen as surging very quickly among smartphone users. In yet another survey, today’s Gen Y members show promise of being extremely lucrative in terms of using mobile banking.

In general, the surveys conclude that financial institutions ought to get on board fairly quickly, before third-party providers grab market share, particularly in payments.

The wait-and-see payments survey
Fiserv Inc. recently commissioned an in-depth survey of 15 top U.S. banks and credit unions that revealed a “wait and see” attitude toward mobile payments. While most of these financial institutions have clear-cut strategies for mobile banking, they indicated that the market will need to mature further before they make any sizable investments to support mobile payments. A white paper that outlines the survey findings, including how the most forward-thinking financial institutions are building a business case for mobile payments, is available at

The Fiserv survey, conducted by independent research firm Forrester Consulting, found that through the remainder of 2011 financial institutions plan to enhance the value of mobile banking by enabling support for newer operating platforms and devices and adding more robust functionalities. In contrast, very few of the surveyed financial institutions have clear mobile payment strategies in place, leaving them at risk of falling behind other companies that are rapidly entering the space.

“Mobile payments were a hot media topic in 2010, but not all mobile payments are created equal,” writes Brad Strothkamp, principal analyst, eBusiness and Channel Strategy, Forrester Research, in the March 2011 independent report, Ten North American Retail Banking eBusiness And Channel Strategy Trends To Watch In 2011.  “In 2011, bill payment and transfers via mobile devices will undoubtedly increase as availability and utilization of mobile services grow. Contactless payments will not have the same success…these types of mobile payments have major impediments to success, including technology, merchant, consumer, and issuer issues.”

Banks are keeping a close eye on these variables and want to make sure they have a business case in place before committing to significant mobile payment investments. The factors that would prompt banks to act more quickly and increase their investments include more defined technology and process standards, merchant readiness, increasing competitive pressure from other companies or financial institutions, and the emergence of a clear value proposition.

“While financial institutions are reluctant to invest heavily in mobile payments today, this is the right time to be developing a strategy for the future,” said Erich Litch, division president, Digital Channels, Fiserv. “Waiting for all the pieces to fall into place before starting to think about mobile payments will leave the door open for third parties to take business away from financial institutions. Taking the time to map out a strategy will ensure that decisions and infrastructures being put in place today will support a broad range of mobile payments in the near future.”

While there are distinct challenges associated with building a business case for mobile payments, several of the survey respondents recognize the potential of mobile payments and have moved to put a strategy in place. When building a business case, these respondents considered the impact mobile payments would have on business lines beyond the typical online and mobile channels. Factors evaluated across these business lines included customer retention and profitability, cost reduction, revenue generation and retention, increased customer engagement, and competitive parity.

The surging-use survey
In a recent mobile banking research study commissioned by FIS, results show that 50% of all smartphone owners used mobile banking within the last 30 days and that 76% of mobile banking users were satisfied with their experience—a 16 percentage point gain in satisfaction from 2010.

Conducted in February 2011, the online study surveyed a random sampling of 4,000 adults, split evenly by gender, who own mobile phones. Its purpose was to determine the impact of mobile devices on consumer behaviors related to financial transactions such as accessing accounts, paying bills, depositing checks, and making purchases.

Results of the survey reflected the following trends in mobile banking adoption and satisfaction:

Mobile banking from smartphones nearly doubled in the past year, with 50% of all smartphone owners using mobile banking within the last 30 days. CTIA, the wireless industry association, reports there are 78 million smartphone subscribers in the United States.

Smartphone owners represent 76% of all mobile banking users while standard phones and web-enabled devices made up the remainder.

More than half (56%) of mobile banking users are members of the Gen Y demographic.

Downloadable app mobile banking users represented the most satisfied segment of mobile users, with 88% satisfied with their primary bank’s mobile banking service, a 9% increase from 2010.

Of consumers who had downloaded apps for their smartphones, 37% had downloaded banking applications—making banking apps among the most popular types of applications.

The top 10 U.S. banks account for 52% of all mobile banking users.

Further data revealed the following consumer preferences:

57% of mobile banking users with smartphones expressed an interest in using remote deposit functionality, but only 7% of them are certain they have access to a remote deposit application for their bank.

Smartphone mobile banking customers were three times more likely to use contactless or near field communication payments than nonmobile banking customers.

For those not using mobile banking, 38% preferred to access their accounts online through their computer, 28% cited security concerns as their reason for not adopting mobile banking, while 19% cited small screen size as a barrier.

The improvements in smartphones and the availability of downloadable mobile banking apps have helped fuel the interest in mobile banking. Apple iPhone, Google Android and RIM BlackBerry smartphones provide ease of use for customers in a compelling experience wherever customers are throughout the day.

While mobile banking usage and satisfaction is on the rise, financial institutions are encouraged to accelerate the adoption of mobile. Creating awareness of the availability of mobile banking offerings is a key challenge for financial institutions. Of the respondents surveyed, nearly half did not know if their bank offered mobile banking. In addition, overcoming obstacles such as consumer wariness over security, adversity to fees associated with the service, and simple disinterest will need to be addressed by financial institutions looking to grow their mobile banking presence.

Increasing mobile banking adoption is important for institutions that wish to attract and retain customers in the gen Y and millennial demographics. These customers tend to be more early adopters and therefore are not only more willing to try mobile banking via their smartphones, but also will likely be on the forefront of new services such as near field communication. With an NFC-enabled smartphone, users can tap or swipe the phone at check-out instead of using a credit or debit card.

“We are seeing mobile deployments by banks accelerating in 2011, with our clients growing mobile users by 35% monthly,” said Douglas Brown, senior vice-president, FIS Mobile Financial Solutions. “The momentum is driven by unprecedented consumer demand.”

“The results of our research clearly indicate that the adoption of mobile banking in general, but particularly with smartphones, will continue to gain momentum,” said Anthony Jabbour, executive vice-president, FIS Financial Solutions Group. “The survey shows that mobile banking users in all generational levels tended to have more in liquid assets, such as checking and savings accounts, CDs, or money markets, which makes them desirable as customers to financial institutions.”

The Gen Y survey
A Javelin Strategy & Research report studies the growing Gen Y market (ages 12-32) and examines how financial institutions can connect to Gen Y, opportunities and challenges in developing profitable consumer relationships, and the critical services financial institutions must offer to attract and retain Gen Y customers.

“Gen Y is an attractive consumer group notable for being among the first to try mobile banking, personal finance management, P2P and other innovative services,” said Mark Schwanhausser, senior analyst, Multi-Channel Financial Services. “But financial institutions face a tough challenge about when to woo Gen Y—now, when they’re not as profitable—or later, when they might have imprinted with a rival.”

The report notes that Gen Y will earn more than all other generations, eclipsing Gen X (ages 30-50) within 10 years. By 2025, Gen Y will be responsible for $8.3 trillion or almost half (46%) of total personal income.

Javelin found that mobile banking is a requirement for Gen Y consumers. About 28% of Gen Y consumers have used mobile banking in the past 90 days, compared with 18% of all consumers. Gen Y consumers switch banks for mobile banking, use it frequently, and value it. Javelin’s findings have critical implications for financial institutions and their marketing strategies as they race to meet Gen Y’s needs for real-time and secure data, mobile communication preferences, and downloadable apps.

In addition to characterizing the Gen Y market, Javelin identified a number of factors that will have a major impact on the profitability of this market. Javelin research shows that Gen Y consumers have a lower satisfaction rate than that of all consumers, which produces a higher switching rate and increases customer retention costs. Since Gen Y shows a strong preference for electronic and mobile interaction, financial institutions have an opportunity to guide Gen Y consumers toward less expensive electronic channels, such as personal finance management through online banking and online bill pay.

“In light of the recent instituted and proposed regulations that cap fees, FIs need to re-examine their account profitability and pricing structures,” said Mary Monahan, managing partner and research director of Javelin Strategy & Research. “Our research shows that revenue from Gen Y customers will be disproportionately affected, because 43% of Gen Y consumers prefer to use debit cards as their primary method of payment for any type of purchase or bill payment versus 34% for all consumers. Since interchange and overdraft revenue from debit card transactions has subsidized such services as free checking and free direct deposit accounts for the past decade, FIs will need to determine—from a profitability standpoint—what to do about these free services.”
John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected].

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