Wednesday, February 12, 2014

Tomorrow's Checking: Built For The Mobile-First Consumer


The checking account is the foundation of a customer relationship and has withstood the test of time even as electronic payments and debit cards have replaced checks, online banking has eliminated the need for paper statements and remote deposit capture has made a trip to the branch a rare occurrence.

But all that we have become accustomed to is about to change as we enter the era of the downloadable bank account.

The downloadable bank account differs from today's checking account because it is built specifically for Customer 3.0. This customer manages much of their life on the go from their smartphone, wants access to real-time information about their finances and wants the ability to transact business without checks or plastic. They are the type of customer who pays for their coffee with their Starbucks mobile app, and uses mobile deposit capture instead of going into the bank or credit union branch.

Tomorrow's checking is not just having mobile access to a traditional checking account. It is a bank account built for mobile.

It is a downloadable mobile banking application that provides the basic money storage and money management capabilities of today's checking as well as integrated payments, contextual insight and an overall customer experience not being provided by traditional financial institutions today. It is easy to open and manage using a mobile device, and is similar to the products offered by Moven, Simple GoBank, Bluebird in the U.S. and mBank, FidorHello, CommBank and Soon overseas. Tomorrow's checking may not have any associated plastic card, but may be able to store alternative currencies as was recently announced by Standard Bank.

Both Moven and Simple Provide Exceptional
Mobile Banking Contextual Insights

While the traditional checking account may not completely go away anytime soon, the risk of not meeting the needs of the mobile-first customer is increasing. This is because more new players are entering the marketplace such as T-Mobile's Mobile Money, with the potential of providing a downloadable bank account to a much broader audience than just the underbanked, unbanked and debanked. With either an already established physical presence or no bricks and mortar, these services can be provided at a lower cost than traditional banks.

Combining the attributes of a prepaid card and a traditional checking account, new checking disruptors can provide FDIC insurance, the ability to make direct deposits and electronic payments, accessibility to nationwide surcharge-free ATMs, mobile deposit capture and even branch access, checks and integrated rewards.

Attacking on a different front, players such as Google, PayPal, Amazon, Apple, Isis and others are hoping to control the digital wallet processing component of the payments ecosystem, leaving traditional banks with only depository functions.

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Demand for a Downloadable Bank Account

There is already a demand for a low cost, easy access checking alternative as has been seen from the explosive growth of prepaid debit cards. According to PEW Research, the amount of money loaded onto prepaid cards has more than doubled in just three years, suggesting that more consumers are turning to them. As more prepaid cards have recently come into the market, the defining lines between traditional checking accounts and prepaid cards are beginning to blur. This is especially the case with those providers that offer mobile access to these accounts. 

While prepaid cards to date have been primarily targeted to the lower demographic segments who are less likely to use traditional banking services, the segment is still large and the banking needs are not significantly different from those of Customer 3.0.

According to the research:
  • 5 percent of adults, or about 12 million people, use prepaid cards at least once a month.
  • A large majority of prepaid card users are experienced with other financial products: 7 in 8 have or previously had a checking account, and 2 in 3 have or previously had a credit card.
  • Most customers’ primary motivation for using prepaid cards is to gain control over their finances. The top four specific reasons they use the cards are to:
    • Buy things online.
    • Avoid credit card debt.
    • Avoid spending more money than they have.
    • Avoid overdrafts.
  • 2 in 3 prepaid card users would welcome features that make it easier for them to save money.
Several recent research studies indicate that consumers overall would prefer to use a traditional financial institution (bank or credit union) for their primary financial relationship. There are many reasons for this affinity including trust, familiarity, local availability (yes, branches) and security. Additional studies show that consumers would also prefer to use their current bank for mobile payments.

Celent research found that 75 percent of consumers would like to view all of their finances within a mobile application and 63 percent would like to pay merchants directly from their bank account. Other features of a downloadable bank account desired by the respondents to the Celent research include mobile deposit capture (63%), the integration of rewards (55%), direct payment capability (52%) and photo bill pay (43%).
Source: Celent Research on U.S. Mobile App Preferences, July 2013

Based on the consumer requirements discussed above and the offerings of competing organizations, it is clear the checking account of the future (the downloadable bank account) will need to have the following features:

  • Simple Design: From being able to open a new account using the camera functionality of a smartphone to being able to make payments, transfer funds, deposit checks and make purchases, the focus of tomorrow's checking will be on simple design, ease of use, and a focus on the customer experience. 
  • Contextual: Using real-time transaction data combined with customer behavioral insight, tomorrow's checking will seamlessly integrate personal financial management (PFM) within the mobile application, providing a look into the future as well as into the past.
  • Transactional: As opposed to relying on apps from outside providers or being reliant on specific merchant technology, tomorrow's checking will allow customers to conduct transactions anywhere with their mobile device. Further down the road, there may need to be the possibility to fund purchases from multiple currencies.
  • Rewarding: Related to the contextual nature of tomorrow's checking account, personalized rewards will need to be provided to the customer based on their demographics, transaction activity and even their location.
It is clear that the checking account must evolve to remain relevant in today's digital world. One benefit to the bank or credit union for building a new downloadable banking account is the ability to retain the primary relationship with the customer at a time when competition is attacking from several fronts. 

More importantly, however, may be the ability for the financial institution to collect and act on behavioral insight that is associated with payment transactions. This insight is the Holy Grail of the entire banking relationship and the key to future growth (or existence).

Challenges to Providing Tomorrow's Checking

Beyond building the actual application, the primary challenge for traditional banks are the back office systems that support all banking services. Large banks usually lack the flexibility and innovativeness of a virtual-only start-up, according to Dan Latimore, senior vice president of Celent's banking group. "Big banks aren't as nimble as the start-ups," he said. "An incumbent bank offering virtual banking has to integrate the channel into a lot of legacy back-end systems and processes, which is cumbersome and expensive."

Another challenge to moving to a mobile-first downloadable bank account is that customer service issues arise that are foreign to most banks. "With today's checking account, customer service usually involves relatively simple issues such as account balances, status of a payment or deposit and address changes," says Beth Merle, director of business development for banking and financial services at Sutherland Global Services, an experienced provider of mobile wallet customer care. 

Merle continues, "If a bank is going to be offering a mobile-first bank account, the customer service calls could include questions about the mobile device or mobile application itself, which is usually significantly more complex, especially when dealing with different mobile devices. The call type is not a traditional one for the bank customer call agent. Banks entering into this space need to recognize this and consider the best way to assure the highest level of customer care may be to utilize a provider with expertise in these calls."

According to Celent, banks will most likely need to rethink the value proposition of the checking account and the interrelationships of current stakeholders within the organization. “Banks have to consider many issues before building these new capabilities, such as, how to manage tensions between new and old sources of value, and what would happen if mobile payments were to lead to fragmentation and re-emergence of the domestic payment solutions,” says Zilvinas Bareisis, Senior Analyst with Celent’s Banking Group. “However, we strongly believe that the core bank account must evolve to maintain its relevance in the digital world.”

One advantage the traditional banks have on their side is a huge consumer inertia when it comes to switching bank accounts. Even as banks have tried to improve switching processes in the U.S. and the U.K., a surprisingly few customers ever move their bank account. “Despite switching services of various forms over the last 10 years, switching rates have never fallen below 2% but have never exceeded 3% during that time", according to Gareth Lodge from Celent. "Hundreds of thousands of dollars have been spent on improving switching processes by many banks, with heavy advertising across all mediums used to promote the use of it. The result? Switching peaked at just over 4%.”

A challenge faced by the upstart 'neobanks' is that it has been notoriously difficult to make money from a basic current/checking account proposition. And with interchange pressures everywhere, the challenge is not getting easier. "It is no secret that many banks cross-subsidise checking account customers and try to sell them additional products, such as savings, loans, credit cards, mortgages, and the like", says Bareisis from Celent. "I appreciate that the cost structure for the new competitors is very different, but finding alternative revenue sources is likely to be important for them in order for them to succeed as a business in the long term."

My Personal Experience

For more than a year, I have been actively using mobile banking accounts from Simple, GoBank and Moven. During this time, I have become a fan of many of the features and functions of each of these accounts, most of which I don't have with my traditional checking account at Wells Fargo. The customer interface with each of these accounts is far superior to what I have with my Wells account and each is actually fun to use.

What is probably most interesting is that there is virtually no difference between how I view these accounts compared to my traditional checking account despite the fact that each of the newer accounts is actually built upon a reloadable prepaid debit card. How soon will it be before other mobile-first consumers also realize there is almost no difference?

In the past two weeks, each of my accounts has been tied to my new LoopWallet FOB. This has allowed me to do cardless transactions at EVERY merchant terminal that would normally require a card swipe. This has made an already excellent customer experience with my Moven, Simple and GoBank account (and even my Wells checking account) that much better. It provides me a glimpse of what is possible in a world where I can do all of my banking with a mobile device.

Nobody knows what exactly what the future holds for checking accounts or payments. However, it seems clear that the traditional checking account — which until now has been the foundation of a bank’s relationship with its customers — will soon evolve to maintain its relevance in the digital world. The major question will be...who will own this relationship?

Additional Resources

The Rise of the New Bank Account? - Celent Research (Sept. 2013)

Why Americans Use Prepaid Cards - PEW Research (Feb. 2014)

Consumers Continue to Load Up on Prepaid Cards - PEW Research (Feb. 2014)

Jon Wilk Presentation of Chase Liquid Account Customer Base - Chase Bank (May 2013)

2011 FDIC National Survey of Unbanked and Underbanked Households - FDIC (June 2011)


  1. Good story. Who will defy me stating that in future retail banking (by then probably called something else) there will be no relationship to own, only convenience to execute?

    1. I love that quote! I may use it in the future if that is OK.

  2. What if the future bank (from a customer perspective) is not a bank at all, but something that helps me with my money, putting it wherever it's best (tuned to how much risk I want to carry)? The greatest grief with retail banks is that the bank's and the customer's interest is at odds now - I need something that's doing well when I do.

    Current mobile accounts - while far better than the traditional ones - are still the same model, albeit with a leaner cost structure thus less fees.

  3. Great article. I liked your insight about traditional "customer care" for banks or credit unions having to change as traditional banking channels change.