Optimizing the mobile customer experience

By Bob Homer, Vice President Product Management, CheckFree Corporation

Financial institutions face greater challenges today than ever before as consumer demand shapes the way they attract and keep customers.

Consumers expect to be able to conduct business when they want, how they want and where they want. They also desire to do everything they can do inside their local branch quickly, easily, securely — and remotely.

In the evolution of the online banking channel, the next logical step toward optimizing the customer experience is leveraging the mobile banking channel. Financial institutions that embrace this technology have the potential to grow market share and enhance profitability through increased customer satisfaction and loyalty, particularly among coveted younger demographic groups. With cell phones and handheld devices becoming an integral part of everyday life and business, mobile banking will only grow in popularity. In fact, research shows that 49 percent of people polled in a recent survey would potentially adopt mobile banking and payments as a means of conducting their financial affairs.1

This same survey also found that 70 percent of consumers had an overwhelming preference to signing up for a mobile banking and payments service via their primary financial institution versus their cell phone provider or an alternate payment provider such as PayPal. The opportunity to market mobile services to this large segment of the consumer population should not be ignored. Today’s consumer demonstrates a high degree of loyalty to institutions that offer them choice, security and convenience — and this customer loyalty can translate into superior market share, increased brand awareness and greater profitability for the financial institution. Offering customers the ability to use their mobile device to check account balances, monitor credit card spending and availability, transfer funds, and receive and pay bills can further strengthen the relationship.

Providing mobile services can also be viewed as a long-term cost reduction strategy. By utilizing “self-service” mobile banking for checking account balances, making payments and transfers, customers are reducing the costs associated with maintaining a customer contact call center. And with costs in the range of $2.50 and $3.00 to support a single customer call, the savings associated with offering mobile banking has the potential to be significant over time.

Adoption Time is Now for Mobile Banking
The majority of Gen Y is already onboard with cell phone use; current numbers suggest over 70 percent actively use their phone or PDA for text messaging.2 Most financial industry analysts expect this consumer segment to quickly adopt the mobile banking channel and utilize their phones to access account information and make payments. The members of Gen X, and even Baby Boomers, represent similar opportunities for marketing and adoption of the mobile banking channel. The ability to check account or card balances quickly before purchasing items or services (thereby reducing the chance of incurring overdrafts) could be a strong selling point for the mobile banking channel.

The mobile channel is definitely growing in acceptance. The World Bank estimates there are 3 billion mobile phones in use, equaling the total of the world’s landlines (1.5 billion) AND personal computers (1.2 billion) combined; the mobile reach is also 1 billion higher than the total number of worldwide Internet users (1.7 billion).3 While the U.S. hasn’t adopted this mobile technology quite as extensively as the rest of the world, the U.S. counted 233 million mobile phone users at year-end 2006, up 25 million from a year earlier and up 150 million since 2000.4

Numbers like these suggest what many analysts already believe — the mobile banking channel could be a crucial battleground for financial institutions as they compete for market share.

Growing the Brand
The mobile channel is fertile ground for financial institutions looking to enhance their brand visibility in the marketplace. By offering both mobile and online services, the financial institution actually makes the relationship with their consumers “stickier,” as customers are far less likely to switch banks when all of their needs are being met. And contrary to initial concerns, the growing popularity of the mobile channel hasn’t been detrimental to online business. In fact, research shows that today’s consumers seem to be comfortable using both mobile and online services depending upon their needs and the situation.5 Diverting customer traffic to this low cost, high impact channel is a win-win for financial institutions; they meet customer demand and potentially reduce operating costs simultaneously.

Customers who embrace the mobile option for transacting business are highly likely to recommend the service to their peers.6 This word-of-mouth recommendation can be viewed as an incredible asset for the financial institution, with a strong potential upside and virtually no investment. In fact, many consumers today, especially Gen Ys, are far more likely to try a service like mobile banking if it’s recommended by a friend than if they read about it in an advertisement.7 And the “on-the-go” aspect of mobile banking appeals to today’s tech-savvy consumers, who are looking for ways to simplify how they handle their finances.

Offering Mobile Banking May No Longer be Optional
Mobile banking may quickly become a mandatory offering for financial institutions in order to remain competitive. In fact, mobile banking can serve as a key attractor for reaching the coveted 25 to 34 year old customer segment. Today’s consumers are more focused than ever on balancing their busy lives, and financial institutions that offer “just-in-time” content to customers at their preferred touch points will only strengthen their position within the markets they serve.

Convenience will always be a major factor driving consumer decisions, and mobile banking takes the “anytime, anywhere” accessibility of the Internet to a new level. Consumers can now manage their finances from virtually anywhere with the same convenience and security they experience online. And for the financial institution, mobile banking may ultimately lower the cost of doing business while increasing consumer mindshare and account profitability.

Financial institutions also understand the importance of targeting younger customers for a longer customer/bank relationship lifecycle. By offering mobile services, they are tapping a vast market of younger customers who regularly use mobile devices for much more than conversation and are more than willing to utilize mobile banking services. By attracting these customers early, the financial institution has the potential to grow the relationship through college years, into marriage, mortgages, savings and education accounts, and ultimately, retirement planning. Cultivating this customer relationship early is vital to establishing a long term relationship.

The Security Factor
Security is a non-negotiable consumer expectation for any financial transaction, online or mobile. This could present a challenge to the ultimate adoption of mobile banking, as a recent survey of online consumers conducted by Javelin Strategy & Research found that 49 percent of respondents perceived mobile banking to be unsafe. In actuality, the real-time two way communication technology that the mobile channel utilizes provides enhanced security capabilities and “an even greater ability to detect or prevent fraudulent activity on a customer’s account.”8

To provide an added level of consumer confidence, financial institutions should consider offering mobile banking transactions with the same security guarantee they offer on Internet transactions to cover unauthorized transactions or processing delays. Providing this level of confidence for the consumer makes the mobile transaction feel like a comfortable extension of the online experience they know and trust today.

Public perception of mobile banking security can be changed, but first and foremost, financial institutions must employ a complete security strategy for mobile banking in order to protect their customers and their organizations. A successful mobile security technology, whether for a downloadable application or a browser based solution, usually employs security features that are secured through the Secure Sockets Layer (SSL) protocol. Most strategies also utilize a combination of security features to maximize transaction security.

Some of the more common security features being utilized today include:

Data Encryption
The most effective mobile services employ sophisticated data encryption for all mobile transactions. This ensures the mobile customer the same degree of security as an online banking customer. Any customer data stored on the phone or PDA itself is also encrypted for security.

Restricted Functionality
The most effective mobile services don’t allow certain features, like adding a new payee, as part of their mobile banking. This prevents the initiation of unauthorized payments from the consumer’s cell phone.

Limited Data Storage
Most services don’t store the customer’s sensitive account information on the phone. Mobile applications store the last four digits only, protecting the user’s sensitive information in case the phone is lost or stolen.

PIN Authorization
One of the most effective security measures employed by mobile banking services is the PIN authorization process for applications that have been downloaded to the mobile device. The customer must use a six-digit PIN number to log in to the application each time they want to begin a mobile banking session.

Site Key Authorization
Adding a second layer of protection to the PIN authorization, some mobile services use an authentication key to offer a more robust security mechanism for the consumer and the financial institution. Any person logging into the application must know the PIN number and the correct site key to activate the device.

Remote Deactivation
Remote deactivation is found on many mobile services today. In the event that the phone or PDA is lost or stolen, the mobile banking application can be remotely deactivated, stopping any future mobile banking transactions.

The Future of Mobile Banking
By 2010, Celent predicts that 35 percent of online banking households will use mobile banking compared to just 1 percent today.9 By 2015, the U.S. market alone could encompass between $1.8 and $5 billion in mobile payments related revenue.10 With such revenue potential, financial institutions that embrace early and actively drive customers to the mobile banking channel could ultimately lead in markets they serve.

Financial services industry observers believe mobile banking and payments may be a first step toward an eventual future without plastic credit cards in the wallet. The movement away from plastic cards toward even more convenient forms of payment could occur as consumers demand more ease-of-use technologies, and developers tackle the security issues associated with this increased convenience.

Mobile Wallets
Mobile wallets are a possible first step away from credit cards as a means of mobile payment.11 Over the next 10 years, the consumer may gradually replace their plastic credit cards with a single chip stored inside their mobile device. That chip will enable both security authentication and purchasing for virtually any product or service they want or need.

Emergency Payments and Person-to-Person Phone Payments
The next decade may bring about strategic mobile banking options that harness revenue opportunities via lucrative mobile channels. The ability to pay a “forgotten” power bill on the day it’s due, or a buddy for his concert tickets, by cell phone or PDA could become commonplace. In fact, emergency payment capabilities are already starting to make their way into mobile payment customer options, and person-to-person payments may not be far behind.

The acceptance of mobile banking in the U.S. will likely increase as the larger financial institutions begin to market the service. The rigorous security measures currently utilized to protect customer data during a mobile transaction should alleviate many consumer fears over time as they learn how to safely access mobile banking.

Overall, the future of mobile banking could be linked to the cost of individual cell plans. As more families migrate toward cell-only households, the cost of utilizing the cell phone for texting, mobile banking and other “non-call” uses will need to be affordable in order for mobile banking to grow in acceptance. But with recent studies suggesting that 40 percent of Gen Ys will choose their bank based upon the mobile financial services offered12, mobile banking is a target that should be on every financial institution’s radar screen.

References:

1. Source: “Mobile Banking and Payments Survey,” MQA Research, March 2006
2. Source: Online Banking Report: April 10, 2007
3. Source: Online Banking Report: April 10, 2007
4. Source: Online Banking Report projections based on industry data, April 2007
5. Source: CheckFree bill pay transaction data, subscribers enrolled in online and mobile bill pay, November 2006 – February 2007
6. Source: “Mobile Banking and Payments Survey,” MQA Research, March 2006
7. Source: “MarketPlace: Young Americans,” CPGWire, Dec. 2003
8. Source: “Mobile Banking Security: The Call for Technology Standards and Proactive Security Messaging,” Javelin Strategy & Research, April 2007
9. Source: Celent Communications, “U.S. Mobile Banking: Beyond the Buzz,” May 2007
10. Source: McKinsey Payments Practice
11. Source: Online Banking Report: April 10, 2007
12. Source: Celent Communications, “U.S. Mobile Banking: Beyond the Buzz,” May 2007