Mobile Banking

Mobile banking, in my opinion, is often the sad step-child of the mobile banking world. Insurance has all of these neat image capture capabilities, enterprise has all of the retail shiny objects- QR codes, targeted coupons! Mobile banking...well, for a long time all you could really do was download an app so that you could check your account balance online. But all of that is about to change.There's already been some leaders in the mbanking space: one of which, the Commonwealth Bank of Australia, has recently released an app that allows users to overlay an augmented reality layer to show property information like past sales history, current property listings and recent sales. These functionalities, although just a ploy to promote the bank's Property Guide iPhone app, definitely shows the road that the mbanking community is moving down.

In a recent survey, comScore found that there was a 54% jump between December 2009 and December 2010 in the number of people accessing their bank or brokerage accounts on their mobile devices. (Percentage-wise it seems impressive, but when we see the numbers, it seems that the number went from 19.3M to 29.8M users.) Of all the channels though, it's interesting to note that access through a mobile application has increased by 120% (going from 6.0M to 8.1M)....indicating that consumers are beginning to embrace all the smartphone abilities available to them!

And finally, my demographic is becoming known for something more than just that "aimless generation"- "the lazy generation". There's even been some interesting statistics around the demographic breakout. Now the Gen Y-ers are the most desirable emerging demographic for banks. A recent Javelin report states that 28% of Gen Y-ers have used mbanking in the past 30 days, compared to the 18% of everyone else. Moreover, other studies show that the Millenials are approaching $1 trillion in aggregate income. Although they currently only make an average income of $24K, predictions say that the aggregate income for 18-29 year olds will be $1.2 trillion in 2015, for a cumulative growth of 18% during 2010-2015.

What does all of this mean to banks? Well, as players like Mint.com and PayPal continue to hedge in on functions that were historically a banks domain (i.e. checking balances, tracking spend, viewing transaction history, transferring money, paying bills, sending checks, etc.) it seems natural that banks would begin to search for ways to supplement their diminishing powers. One suggestion that I believe is quite feasible is charging for mobile banking. The argument is that, if customers are willing to pay the $2-almost $4 fee per ATM transaction at a non-bank ATM, they would most likely be willing to pay $1 for mobile banking transactions like paying bills or transferring money. USAA launched their mobile deposits feature in 2009, and deposited more than 1.5 million checks in less than a year. If they had charged $1 per check deposit, they could be $1.5M richer, and that is a compelling business case (esp.for mobile transactions, where the initial build is the real expense, we're talking about increasing profitability per use!).

However, with that idea, I will also leave with a word of warning. Although mbanking is growing, I'm not convinced we've hit the tipping point where charging for basic services won't kill mbanking before it gets started. Forrester research claims that mbanking is definitely still not used by the majority of the population (there are contesting reports of this- apparently, the majority of people have used mobile banking to check balances, etc. but are rarely using more than once a month and not commonly for setting up bill pay or transferring money). A Forrester report from 2008 claims that ~40% of online adults feel that there is a lack of urgency with banking functions, and that is what's making them hesitate. Although dated, I can see the logic here- no one ever says things like "Good god! I need to see my past 5 transactions right now!!". In that same report ("Consumers Are Apathetic About Mobile Banking") 35% don't see the point of it and 33% don't think it's secure.

Studies done by Deloitte ("Mobile Banking: A Catalyst for Improving Bank Performance") suggest that ~10% of mobile users conduct banking transactions on the phone (~4.2M users if we're counting smartphone users only!). We know that Gen Y tends to be much more heavily drawn to mobile functionalities than other and a report by Cisco and IBSG ("The Next Growth Opportunity for Banks") suggests that this same demographic is also the most willing to switch banks (26%). That combination suggests that the potential for great bank gains is there, but with customers already wondering the value of mobile banking, it is highly possible that charging fees will actively drive consumers away.

My prediction? Banks will continue to offer these free services for the time being until a tipping point has been reached. Once the "standard" banking interactions come to include the mobile channel more frequently, banks will begin charging for premium services (urgent bank transfers/same-day bill payment) and then will offer flat fee packages ($10/year for any mobile banking services). Why?

1. It is in their best interest to encourage users to adopt at least basic banking functionalities, as it is much cheaper to service through mobile than through a call center (TowerGroup estimates a mobile transaction to be ~$0.14, whereas a call center transaction is ~$3.75)
2. In the future, they can get away with "premium services" particularly around rushing payments, because there is a legitimate sense of urgency around those transactions (Forgot to pay that bill? Do it now before you forget on your phone!)
3. Normally, the "merchant" (in this case, the bank) would charge a smaller fee for more basic functions. However, I think that the "packaged" method is more likely to be deployed because it directly correlates "premium services" with a sense of savings to the consumer (You're spending on average $5 a year on rushing payments? Pay $10 for a whole year!) and skipping over the "nickel and diming" perception that lowers customer loyalty and satisfaction (My bank charged me a $1 for a rush payment, but $0.05 for checking my account balance? Seriously? Why bother charging me five cents?)