Monday, January 21, 2013

From Passbook to Mobile: The Evolution Of The Bank Account

"Some might argue that nothing replaces a face-to-face relationship. That assumes that a digital, mobile experience is inferior to face-to-face. And while that may have been true in the past, that's not going to be the case in the future. Welcome to the total disruption of retail banking".

By Brett King, Bestselling author of Bank 3.0 and founder and CEO of Movenbank.

In 2009, I was visiting the head of retail for a major retail banking brand headquartered in Asia, and with a growing presence in the Middle East. This was 2 years after Apple's phenomenal launch of the iPhone, and by this time the iTunes store already had close to 100,000 apps and had surpassed a billion downloads. 

People were clamoring to get the iPhone, with unlocked 'grey market' phones available everywhere you looked in Hong Kong, Dubai, Shanghai and Singapore, because to that point, Apple had not launched the iPhone anywhere outside of countries like the U.S. But sitting in this executive's office, you'd never realize it.

I spoke about the impact that mobile and social media was having on consumer behavior, and how dominant apps would become in respect to the way consumers would do their banking over the next 3-5 years. I discussed the breakout success of Bank of America, the first bank in the US to launch mobile banking, with millions already using the bank's app daily to access their bank (and with 10,000 mobile users currently being added each day). 

This executive didn't buy my message. They insisted that nothing they were seeing was showing a shift in behavior. If anything, they believed the branch was getting stronger and the Gen-Y segment was just like any other demographic.
Within 3 years, this bank would be in serious trouble with their mobile positioning. Well behind the competition on the mobile and social front, shrinking acquisition statistics and lagging cross-sell results on the retail side would all be early warning signals that this bank was not only out of touch, but that their entire historical business model was under threat.

This was not an isolated experience. In 2009, just 3% of all banks in the US had mobile banking propositions. And, while the number of banks with mobile has increased to 80% of the 100 banks today, as an industry in flux we just can’t afford to wait 5-6 years before technologies like mobile are widely adopted. 

Today, we see tablet computing growing at 3 times the rate the iPhone grew in its first 3 years. Through the success of phones like the Samsung Galaxy III and others, Android smartphones are now growing at 6 times the rate the iPhone did during it’s early dominance of the industry. 

The problem facing the banking industry is that this technology shift is really only just getting started. What comes next is going to change the way we do banking forever. How can I make that claim?

Prior to the launch of the iPhone we’d never even heard of apps, and yet today, just four and a half years later, here are a few of the phenomenal stats in relation to mobile computing platforms like the iPhone, iPad and Android phones:

        • 1,000,000 Apps for Apple and close to 700,000 for Android[1]
        • Approaching 50 billion downloads for Apple, and already 25 billion for Google Play (previously known as the Android Marketplace)
        • Daily downloads 48.6 million per day - Apple

In the past, it might take years for new technologies like the first PCs, Mobile Phones (Feature Phones) or even Internet adoption to become mass market and to have an impact on the way we do business. Today, new technologies such as the iPad and new interaction platforms like Facebook and Instagram are being adopted by consumers en masse in a period measuring just months.

To illustrate that this change is speeding up, here’s a great stat from Apple. In 2011 alone, Apple sold more iOS devices than all the Macs it had ever sold in the 28 years prior.

“This 55m [iPads sold to-date] is something no one would have guessed. Including us. To put it in context, it took us 22 years to sell 55 million Macs. It took us about 5 years to sell 22 million iPods, and it took us about 3 years to sell that many iPhones. And so, this thing is, as you said, it’s on a trajectory that’s off the charts…”  -Tim Cook, Apple CEO during February 2012 reporting call

In Q1 of 2012, Apple then went on to sell more iPhone 4S devices than in the entire preceding 12 months. Samsung has recently done even better with the Galaxy SIII smartphone.

The reality is that over the next 3-5 years, mobile will not only continue to dominate changes in retail positioning and consumer behavior, but will become increasingly accessible to all parts of the economy. 
By the end of 2014, smartphone adoption is expected to reach 80% of the population in markets like the US, UK, Australia, Singapore, Hong Kong, UAE, and other developed economies. But this is not limited to developed economies and the mass affluent or middle and upper-class.

By 2016, low-end smartphones will cost less than $20, and Gilder’s Law dictates that basic Internet access will come bundled in your monthly plan at no additional cost. Today, Internet access via mobile devices has already surpassed wired internet access[2]. Put these trends together, and by the end of the decade, 80-90% of the world’s population will have access to the Internet via a smartphone.

This adoption of mobile will fundamentally change how retail banking and payments work in our economy going forward.

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For 60% of the world’s population that today does not have a bank account, their mobile phone will likely be their very first banking experience. In markets like Kenya and the Philippines, the majority of the population has had their first electronic payments experience via their phone, and their first deposit account was simply a balance carried on their phone. 

The fastest growing use cases for mobile in emerging markets like these have been payments and remittances. In markets like Kenya, this has changed the day-to-day flow of cash in the economy. The same will soon be true for India, China, Indonesia and other such emerging markets.

By 2020, the world’s bank account will be indistinguishable from the functionality you find on your mobile phone. Your mobile device will allow you access to your money (in the form of an available balance), send and receive money, pay at a store, pay online and to exist fluidly in the world of commerce. 

In the past, we have tended to characterize our bank account by its physical form factor. Initially, a passbook was our ‘bank account’. Then in the 80s, the checking account was the primary form of banking relationship. Today, our debit card (attached to an online account number) is how most of us do our day-to-day banking. Very soon, however, banking will be dominated by the mobile phone.

2013 will be a big year for mobile payments. Many of the mobile wallet projects currently in development will hit the market. The first mobile-only banks, such as Movenbank, will go live with products and interactions designed for an enhanced customer experience around the mobile device. ISYS will launch, and other players like Google Wallet, PayPal and Square will duke it out for merchant dominance in mobile payments space. 

NFC deployment will start to be highly visible, and more banks will announce PayPass and v.Me (Visa) deployments to capitalize on this emerging mobile trend. When we look back on 2013, we’ll recognize it as the year the biggest players realized that mobile was the game changer it was projected to be.

By 2015-16, mobile banking use will dominate day-to-day banking interactions in most developed economies, being the preferred channel for the majority of customers. This is unlikely to have a significant impact on Internet banking utilization, however, since tablet computing will still be widely used for managing day-to-day portfolios, bill payments and transfers. In fact, comfort levels with digital interactions will rise such that consumers will manage most of their banking relationships entirely through digital devices, with more than 60% of retail banking revenue coming through non-human channels. 

This mobilization of banking will put extraordinary pressure on branch systems. Initially, many banks will move to reduce their branch network by up to 20-30%, retooling and retasking remaining branches to focus purely on sales and service as transactional activity moves digitally. Branches that remain will either be brand flagship and showcase stores, or smaller footprint stores designed to support sales and service metrics without the large network expense. 

Financial analysts watching bank stocks will start to discount retail banking brands who aren’t aggressively dealing with excess capacity in the branch network. For the first time, we’ll see stock markets penalize banks for having branches.

Mobile has been consistently underestimated in terms of its impact on retail banking since the emergence of the “app” phone. The lack of enthusiasm and adaptation by major banking players, and the over reliance on traditional physical distribution, is opening up many doors for new non-bank players to own emerging banking and payments experiences on the mobile device. 

With the certainty that mobile will dominate the future of banking, it’s clear that banking won’t look much like it looks today in a decade’s time. It’s also clear that bankers like the one I mentioned at the start of the post, may very well be casualties of this disruptive change.

About the Author

Brett King is the bestselling author of 'Bank 3.0: Why Banking Is No Longer Somewhere You Go, But Something You Do' and the founder and CEO of New York-based Movenbank, the world's first direct mobile-only retail bank. King was voted American Banker's BTN Innovator of the Year for 2012 and is a strategic advisor on the future of financial services to clients like HSBC, Citigroup, Commercial Bank, UBS and Emirates NBD.

Additional Resources

Two Big Predictions: Banking 4 Tomorrow (January 2013)

The Future Of Banking Is All About Context: American Banker (January 14, 2013)

Bank of America Is Adding 10,000 Mew Mobile Users Each Day: Bank Innovation (January 2013)


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  1. Siri, can you order me a new debit card please?

    1. Dave,

      It might be more like "Siri, Request an increase in my credit limit from XYZBank please?"

      After all - the debit card is just an "App" once you do away with the physical artifact.


  2. Great post, Brett

    Isn’t this still – and won’t it always be – about choice?

    Clearly, mobile will be the choice for most customers moving forward, but it seems to me the most successful banks will be able to strike that delicate balance of delivery channels to serve all of their customers.

  3. Bob,

    Right now it is about choice, you're right. But at some point even though you as an individual might really like buying books at a bookstore, you'll have to cope with the fact that there isn't a book store on every corner anymore and the cost of buying a physical book may be considerably higher than buying an e-book. Some of your favorite bookstores may also have gone out of business because they couldn't adapt when the majority of customers changed their buying behavior.

    Right now it is about getting the balance right, but in 3-5 years the balance will not be so delicate and if you are too reliant on branches it could very well kill your business. No use waiting until then to start thinking about this.

    Those wanting the choices you speak of are already a shrinking demographic, and I believe will remain so from this point forward. If you want enough pipeline for the retail business to thrive you need to enable revenue and acquisition primarily through digital by 2015/2016.