Banking on SMS

Andrew Dark, CEO of mBlox, looks at how the financial sector can leverage a tried and tested technology for improved customer services.

“SMS is the driver for interactivity in mobile banking and it can engage customers with online tools and a host of other self-service options and new products”
-Andrew Dark

The financial sector is usually cautious about the technologies they offer, historically preferring tried and tested solutions over leading edge services. This is understandable for an industry in which competition is stiff and the nature of the business sensitive. However, when it comes to the area of mobile services, financial institutions are moving ahead with innovations at a fast rate. Banks in particular have realised the massive potential provided by mobile phones for reaching their customers and they are looking to exploit it.

Not surprisingly, financial institutions are increasingly looking to the iPhone and other touch-screen-based handsets in order to deliver mobile services to their customers. Drawn by the success of online banking, financial institutions want to replicate the approach on the touch-screen format. However, they are often doing this at the cost of an equally important mobile application - SMS.

SMS is one of the oldest mobile applications on the market - second only to voice. And according to Nielson Mobile, SMS is now more popular than voice, with Americans sending and receiving more text messages than phone calls. In the US, one of the slower global regions to catch the SMS messaging bug, 1 trillion messages were sent in 2008 and this is expected to rise to 1.3 trillion messages by the close of 2009 [Source: CTIA & MDA, 2009]. The success of the technology is down to its simplicity, ubiquity and usability - three reasons why the banking sector should be looking to utilize the technology for financial services.

Mobile is the communications channel of choice in the US, where penetration stands at 87 per cent compared to 31 per cent for broadband connections [Sources: Point 2009 and ICT Penetration Rates 2008]. While mobile internet data plans can be expensive, and the user interfaces daunting for the less technologically inclined, SMS is simple and intuitive - understood and appreciated by the majority of phone users. Moreover, the introduction of mobile banking and SMS alerts has also been shown to increase the 'stickiness' of customers to banks with one financial sector client reporting a 5 per cent increase in retention. It is clear that banks should be looking to exploit this technology as a key component of their mobile strategy - they can connect with a much wider audience than all of the smart phone applications combined.

Beyond the reach advantage, another benefit of SMS over iPhone  or other smart phone applications is that the flow of information operates on a two-way basis more easily. Applications are very adept at specific tasks and users can do a multitude of things - but the user has to proactively log on to the application for the service they require.

Fraud prevention is one application of text messaging that illustrates the interactivity and simplicity of a mobile alert. If a bank suspects a fraudulent transaction, a real-time message can be sent to the card-holder's phone to validate the transaction, allowing the customer to respond only moments after the transaction has occurred, if there is an issue. SMS is also proving highly useful in 2-Factor Authentication approaches to combating fraud. For card-holders purchasing goods or services over the phone or internet, a card issuer can send a one-time, time sensitive password to the user's mobile phone, adding an additional layer of security to the transaction.

The interactive element of SMS communication also helps financial institutions improve their payments and collections processes. A text message has been shown to be a very effective payments tool when used as a 'trigger' for a payment via a prepaid account or an account transfer. Customers can instantly authorise payment with a few simple keystrokes on the phone, whenever and wherever they receive the text message. Analysis from one mBlox customer found that 26% of customers paid their bill within 30 minutes and only 12% took longer than one week to pay.

Because a text message is far less confrontational and less costly than a phone call, SMS has also become similarly effective as a collections tool. New Free To End User (FTEU) services have recently been launched in the U.S. which allow the cost of the text message to be assumed by the financial institution or the debt collection agency, so that the mobile operator charges do not fall on the consumer. To quote Alan Berrey, VP of market development for SoundBite Communications: "We have consistently found that banks who use text messaging for collections purposes obtain up to 117% improvement in collections over voice-only communications."

SMS is the driver for interactivity in mobile banking and it can engage customers with online tools and a host of other self-service options and new products. These benefits can be achieved as a stand-alone offering or coupled with mobile web/downloadable application products. Sure smartphones are seen as an enabling technology, however it should be noted that smartphone users actually send more text messages than those with standard feature phones. [Source: Nielson Mobile, 2008]

For example, a customer about to exceed their overdraft limit would be able find this information out if they logged into their mobile phone banking application and checked their balance, but this involves a level of timely proactivity that cannot always be relied on. The story is very different with SMS. In this scenario, the customer would be alerted to his balance statement by the bank as soon as they approached their limit. They could then access their mobile application and take the necessary measure to ensure there are enough funds in the account in question. Here we see that SMS is the basis and enabler for other applications. It is the foundation stone for all forms of mobile banking.

SMS reaches a greater audience than other technologies, it is often easier to use and easier to deploy than other technologies and enables other banking services. As banks clamour to rollout iPhone-style applications, they must take great care not to overlook this technology and the benefits it will provide them and their customers.