An untapped market

Mobile banking is at the center of attention in the US financial services industry. Many industry observers point to 2008 as the year for mobile banking to take off. There is a great deal of provider activity including the major banks, regional and community banks, and credit unions. Vendor announcements of product solutions, platforms and enhancements are frequent. Industry analysts regularly make predictions regarding growth and penetration. In fact, so much is happening and at such a rapid pace, keeping up to date on developments and announcements is a challenge. With all this activity, it is valuable to step back and look at the consumer’s perspective on mobile banking.

SYNERGYSTICS has monitored developments and examined the consumer perspective on mobile banking for the last several years. In a recent research study, 1013 Internet interviews were conducted with consumers ages 18 or older across all income groups. The study examined consumer usage and demand, target markets, advantages and disadvantages, and positioning.

Infrastructure in place
The infrastructure for mobile banking is in place, with widespread ownership of various types of electronic devices. Among Internet households, nine in 10 have a desktop computer. More than eight in 10 have a cellular phone. A majority of consumers report owning a laptop computer, and slightly more than four in 10 have an iPod, MP3 player or other device for downloading music. Close to thirty percent own a personal digital assistant, BlackBerry, Palm Pilot or some other type of organizer. Ownership of these devices increases as household income increases.

Internet households perform a wide variety of online activities. Sending and receiving email is nearly universal and is widespread among all age and income segments. More than eight in ten have purchased merchandise online. Three-fourths are online banking users and close to that number pay bills online. Slightly more than four in ten have filed tax returns online and almost one in four trade investments online. The likelihood of performing most of these activities increases with household income. Younger online users are more likely than other online users to report performing these activities. Consumers spend an average of 28.8 hours per week online.

Online banking
There is some discussion regarding targeting the online banking user for mobile banking. Some believe that the market is broader than current online banking users. Nevertheless, it is worthwhile examining this segment of online users in more detail. Online banking users report using a personal computer nine times per month to perform various banking activities, including reviewing account information, doing customer service activities, or paying bills.

Monthly online banking activity is now more frequent than branch visits. Monthly branch visits average 3.3 and average frequency does not differ significantly based on household income. Monthly online banking usage is three times higher and increases with household income, as well as being higher among mobile banking users. Research by SYNERGISTICS since 1981 has shown a steady decline in branch visits before stabilizing in the late 1990s at approximately four visits per month or once a week. For various transactional activities, online banking is used more frequently and is preferred. In fact, in a recent survey of the general population, its was found that consumers prefer online banking when compared to branch visits, ATMs, and call centers.

The types of activities performed by online banking users should, to some extent, mirror the activities that will be performed using mobile banking. Consumers that access their checking accounts online perform a variety of activities, primarily related to account information. At the top of the list is checking account balances. This is followed by viewing a summery of account information, verifying cleared checks, checking transactions and making transfers between accounts. At the bottom of the list are customer service activities, such as ordering checks, requesting attention to a problem and stop payments, as well as activities such as downloading account data and transfers to someone else’s account. Current users of mobile banking are more likely to report performing the customer service activities, as well as making transfers to another person’s accounts and downloading account data when they use their personal computer to access their checking account.

Online bill payment is another application that is part of the menu of mobile banking services. Seven in ten consumers report paying bills online. The average number of bills paid per month online is 7.3. Online bill payment activity, including the incidence and number of bills paid, is higher among younger consumers and current mobile banking users.

The current base of online users is strong, with a significant proportion of Internet consumers indicating that they perform online banking and bill payment. These consumers are attractive in terms of age, household income and financial activity. When online banking users are compared to nonusers, it is found that these consumers are more likely to be current users and prospects for mobile banking. Online banking and bill payment users should be targeted for mobile banking through marketing communication programs.

Mobile Banking
What is the potential for mobile banking? Overall, one in ten online consumers report that they currently use their cell phone or PDA for some type of banking activity. Some of this activity may be a direct call to the voice response system or staffed call center of a financial institution. Usage is stronger among younger consumers and increases with household income. Current PC or online banking users are more likely to report using a cell phone or PDA for some banking activity. In terms of demand, one in five indicate that they would be likely to use a cell phone, PDA or some other type of organizer for financial activities. However, only one in 20 would be very likely to do so. Again, younger consumers and those with higher incomes express the strongest interest.

Currently, the activities being performed by mobile devices include checking account balances, paying bills, and sending and receiving financial email. However, only checking balances is mentioned by close to half. Prospects express the likelihood of performing similar types of activities.

Advantages, barriers and priorities
When consumers are asked about the advantages associated with using their cell phones or PDAs for mobile banking, the key advantages are those associated with time and place convenience. Being available 24/7, while out of town, and for emergency purposes are the major advantages identified for mobile banking via cell phones and PDAs. Saving time and saving on postage are secondary benefits.

Consumers are somewhat more likely to identify the disadvantages or barriers associated with using cell phones and PDAs for mobile banking activities than they are to identify advantages. The top three disadvantages include identity theft, concerns about hackers gaining access to accounts and privacy issues. Concerns about the reliability of the technology are secondary when compared to other security issues.

SYNERGISTICS also measured the priority of mobile banking among current users. Both those who use cell phones and PDAs for financial activities were asked whether they consider this to be a primary, secondary, or emergency method of handling financial activities. One-quarter of cell phone users indicate that this is their primary method of performing banking activities. More than one-third say this is their secondary method, while close to four in ten do so only in an emergency. Among PDA users, slightly more than one-third report it is the primary method, while four in ten indicate it is secondary and close to one in five only use their PDA for emergency purposes.

Clearly, there are a number of obstacles that will need to be addressed in marketing mobile banking to consumers. While consumers see a number of advantages, their perceptions regarding disadvantages and barriers to adoption are strong. In addition, the fact that so many consider cell phones and PDAs as secondary and even emergency methods for conducting banking indicates that, at least initially, mobile banking will be a complementary and additive channel for financial services.

Strategic marketing implications
SYNERGISTICS believes that mobile banking is an emerging and potentially significant channel for online financial services. While a great deal of activity is taking place at a frenetic pace, financial services providers need to pause, take a deep breath, and carefully evaluate what is going on in the mobile space. There are a number of key issues that need to be addressed.

First and foremost, providers need to define their objectives. Certainly, it is an advantage to be an innovator, but the field has become so crowded in such a short time that this advantage can no longer be considered a strategy for differentiation. Few today can remember what institution installed the first ATM or what organization was first to offer PC banking or online bill payment. Revenue objectives are not realistic, as most consumers do not pay for online banking and bill payment. Revenue potential is believed to be more likely to exist with the mobile payments space. SYNERGISTICS believes that the primary objective should be the ability to add value and enhance the consumer financial relationship by offering as many endpoints as possible to access and conduct financial activities.

Given the rapid advancements in technology, devices, and platforms, it is clear that providers will need to accommodate all types of devices and methodologies in today’s marketplace, as well as those that are soon to be developed. Consumers will want options and may use a cell phone one day, a PDA the next and also use PC or online banking. All types of platforms will need to be offered. At the same time, providers will need to accommodate all channels and recognize that mobile banking is one of many channels including branches, ATMs, call centers and online or PC banking. There remains a great deal that needs to be done with the online or PC banking channel in terms of consumer adoption of more advanced interactive applications.

What is clear is that providers need to focus on marketing strategies and building consumer awareness and adoption of mobile banking. The concept of “build it and they will come” is not realistic. Aggressive marketing is needed. Providers need to target the first wave of users, including current online banking users, younger and upscale consumers, and aggressively promote mobile banking. Potential also exists among ‘underbanked’ and ‘unbanked’ segments of the population, as well as emerging ethnic groups. Security concerns must be addressed in marketing and communication programs, while stressing the advantages of time and place convenience.

Industry analysts who believe that 2008 will be the year for mobile banking may be expecting too much too soon. SYNERGISTICS believes that consumer adoption and usage of mobile banking will be steady and gradual. The adoption of mobile banking will continue the evolutionary process that began with consumers moving from going to the branch, to ATMs, to online banking and to mobile banking via cell phones and PDAs. It will then continue, as mobile payments become the next step in the evolution of mobile financial services.

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