Banks Accelerate Mobile Banking Innovation

The acceptance of mobile banking has grown more quickly than most financial institution futurists could have imagined. The impact of channel migration is changing the foundation of banking as we know it, with banks now being carried in customer's pockets and handbags wherever they go.

This seismic shift in consumer behavior is prompting banks around the world to innovate their mobile offerings at breakneck speed. The question is . . . what will the next generation of mobile banking look like? And how should banks respond?

In the new insight report entitled, "Mobile Banking 2013 - Are You Following or Leading?", Mapa Research provides an in-depth quantitative and qualitative review of the mobile banking offerings of 67 banks in 14 countries to find the best of recent innovations in the industry. Using a panel of live bank accounts from around the world, the report has close to 100 visual examples of mobile innovations including reviews of 15 additional offerings that put the best and most recent mobile banking developments under the microscope.

The report debunks a number of myths that seem to be prevalent both inside and outside of the financial services industry:

• The largest banks have been hampered by legal constraints and legacy systems meaning ‘risky’ or innovative ideas have been shelved. Innovations are coming from large traditional banks as well as nimble mobile centric disruptors
• Few banks let customers make payments to new payees in mobile banking. In fact more do than don’t
• Payments to mobile/email services have been pioneered only by the most innovative banks. Again, the banks who don’t provide this functionality are now in the minority
• Meaningful customer support and advanced functionality such as PFM and share trading are hard to deliver on mobile. In fact more and more banks are proving that these features can be deployed successfully

Preview of Mapa Research report available for free download here. 

Optimistic Forecast for FinTech Providers

A new report, being released today by the William Mills Agency, reveals that spending by financial institutions is recovering as the economy and industry rebounds. The tenth annual ‘Bankers as Buyers’ study shares indepth insights and research from more than thirty individuals and organizations regarding what technology, services and solutions banks and credit unions are expected to invest in 2013. 

This report is a compilation of viewpoints from many of the most influential research and fintech support institutions in the country and is available as a free download here.

In this year's report, IDC Financial Insights projected that technology spending is expected to increase to $57 billion, with much of the spending expected to occur in the ‘second tier’ of financial institutions ($1 billion - $10 billion) as opposed to the largest banks.

"As technology continues to be central to customer interactions and an improved customer experience, we are constantly reminded that technology in not a banking department, but is everywhere . . . including in the hands of consumers”, states Scott Mills, president of the Williams Mills Agency. “Demographic and behavioral changes, combined with changing technology preferences and the need for improved trust and brand loyalty will force banks and credit unions to evaluate the role of technology in the delivery of services", adds Mills.

Additional findings of this year’s ‘Bankers as Buyers’ report include:

• A total of 14,210 financial institutions make up today’s depository landscape, which is down 3.7 percent from 2011 according to the FDIC and CUNA.
• While much of the focus on payments technology is on mobile, organizations are also looking at improvements in online payments, ACH, P2P and prepaid cards to attract customers.
• Mobile banking gained a stronger foothold in 2012, as FIs strived to meet increasing consumer demand for anytime, anywhere financial services.
• Consumer mobile banking is now used by 33% of mobile consumers according to Javelin Strategy and Research.
• According to the 2012 KPMG Community Banking Outlook Survey, 47 percent of responding institutions identified regulatory and legislative pressures as the most significant barrier to growth over the upcoming year.

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.

Monetizing Mobile Banking

As consumers are becoming more comfortable with mobile banking and mobile payments, financial institutions and technology providers are beginning to develop and deploy more innovative solutions with a focus on gaining market share, reducing costs and realizing new sources of revenue. It is clear that the question is no longer whether mobile banking and mobile payments will be important to a bank's business (84% of respondents to a recent KPMG survey said that it is). The question has become, can banks realize the full potential of the channel from a customer development and revenue perspective.

To this end, one of the best sessions I attended last week at the BAI Retail Delivery Conference was around the opportunity for banks to monetize mobile banking. Presented by Matt Wilcox, senior vice president of eBusiness strategy for Zions Bancorporation and Drew Sievers, CEO of mFoundry, the session focused on the opportunity for mobile banking to move from simply reducing costs to actually being the foundation for revenue generation. 

Mobile Banking Evolution

At the beginning of the presentation, Wilcox presented an overview of the mobile banking evolution that has occurred over the past several years. According to Wilcox, mobile banking has evolved from being simply a channel innovation to providing the potential for significant channel migration cost savings as shown below. He noted, however, that banks should not build business cases around 1:1 transaction displacement, since many consumers increase their overall transaction volume as they move to more automated channels. This is similar to what occurred with ATM volumes that increased at a much higher rate than branch transactions decreased in the past.

Source: TowerGroup and Fiserv (2010)

Banks Slow to Embrace Potential of Tablet Computing

One year ago yesterday, Apple announced it had shipped it's first million iPads. Since then, it sold 14 million more in 2010 and is expected to sell between 30 and 40 million units in 2011 despite supply challenges in Japan. New research from Gartner predicts that global tablet sales will increase from 17.6 million in 2010 to nearly 70 million in 2011 and close to 300 million by 2015. During this time, the average price should fall to about half of the current level, which is just under $500 for entry level models.

Given this growth trajectory, and with banks continuously touting their desire to 'enhance the customer experience', how has the industry completely fallen asleep at the developmental control switch when it come to leveraging the tablet computer for engaging the customer? Given the demographic profile of the early adopting tablet owner (higher income, technology savvy, business traveler), and the retention experience found with mobile banking, it is even more surprising that only a handful of banks have even introduced iPad banking applications.

DDA Under Siege

As part of the planning committee for this year's BAI PaymentsConnect 2011, I would love to take credit for the great title of this program track, but I am not sure even the great minds at the BAI could have foreseen how apropos "DDA Under Siege" would be for bankers attending this year's conference that wraped up today in Phoenix.

If there was a unifying theme from the many sessions I participated in this week, it was that revenue lost from last year's Reg. E and this year's Durbin amendment can not be completely recaptured through repricing. Instead there needs to be a stronger focus on targeted customer acquisition, share of wallet growth strategies, retention, product innovation and cost containment. While everyone at the event seemed to be interested in what others were going to do around checking repricing, the energy was definitely focused on building a stronger platform for the future.

Checking Changes Make Onboarding and Cross-Selling More Important

Over the past several weeks, many of the larger banks across the country have announced significant changes to their checking account continuum, including elimination of traditional Free Checking, discontinuation of rewards programs, ceasing reimbursement of foreign ATM fees, as well as potential fees and transaction limits on debit cards.

While each of these strategies are intended to reduce costs or generate revenue in response to Reg E and the Durbin Amendment, these changes could also present a challenge to banks as they seek to increase engagement and gain share of wallet. This is because debit card use and rewards program enrollment were two of the more important account engagement criteria and basis for a broader relationship growth.

Alternatives to Online Bill Payment May Drive Stronger Engagement

Research has shown that one of the strongest engagement tools for new and existing checking customers is to have the customer set up online bill payment. Unfortunately, even with aggressive 'switch' programs, the success banks have had trying to get customers to sign up for online bill payment has been less than overwhelming.

To try to simplify the signing up for online bill pay (and reduce first year attrition), some banks have moved to promoting the payment of bills using debit and credit cards. In the case of using a debit card, the payment still is taken from a customer's checking account and the process for signing up can actually be easier than with a traditional biller. In addition, using a debit card for bill payment can generate interchange income for the bank, rewards for the customer, and if the payment is recurring, it will not be subject to the new Reg E stipulations.

Use of Online Banking and Bill Payment Continues to Grow

According to the 2010 Consumer Billing and Payment Trends survey published this week by Fiserv, the number of households that use online banking increased more than six-fold between 2000 and 2010, and the number that use online bill payment increased nearly eight-fold. In fact, 72.5 million U.S. households (80 percent of all households with Internet access) use online banking, while 36.4 million households (40 percent of all households with Internet access) use online bill payment.

Illustrating that online bill payers are not just the youngest and wealthiest demographic, in 2010, consumers age 21-34 made up 28 percent of online bill payers, consumers age 35-54 made up 48 percent, and consumers over age 55 made up a surprising 24 percent of all online bill payers, while more than a third of online bill payers had a yearly household income of less than $50,000.

Is Cash Really King?

The competition is again heating up in the checking account cash wars. In addition to banks that have traditionally offered cash incentives to open checking accounts such as JPMorgan Chase, Capital One, Fifth Third and PNC Bank, banks that in the past have offered premiums for the opening of new accounts like KeyBank are now also joining the money for checking acquisition game.

While incentives with some institutions are still $50-$75, many of the more aggressive institutions are offering rewards of $150-$200 to new customers that open accounts and meet some qualifying stipulations such as signing up for direct deposit, online billpay or a minimum number of signature debits. A recent program by Capital One offering $300 for a new account was the highest premium seen in years.

New Checking Plans Emerge in Response to Reg E

Already experiencing loss of fee income due to lower transactions and lower OD/NSF fees resulting from higher balances, banks are beginning to develop and introduce new checking products that can supplement these lost revenues.

In place of traditional free checking accounts are value-based accounts that allow customers to customize their account for a fee. Features such as identity theft, rewards and even enhanced OD/NSF protection can be selected from a menu of enhancements that allow a bank to replace some of the fee income that already has been lost or will be lost in response to Reg E.

One of the first to build a new array of checking accounts was BBVA Compass which introduced Build to Order Checking more than two years ago.

Online Customers Aren't the Only Target for Mobile Banking Services

While attending the 2009 Mobile Financial Services Congress in Miami a little over a month ago, there was a consistent message from almost all of the speakers that a mobile banking customer is less likely to attrite, more likely to use additional engagement services such as bill pay, and less costly to serve.

Interstingly, it was also emphasized that while most banks have promoted the use of mobile banking to their current online banking customers, the real financial benefit is realized when a customer who is not as heavy a user of online banking is converted to the mobile channel. In other words, it makes stronger financial sense to try to segment offline customers and implement a proactive channel migration strategy to convert channel usage.