The business value of mobile banking

By Pete Daffern, CEO of ClairMail

“With every passing month, we see more and more new clients enrolling for mobile banking within 30 days of opening a new account.”
-ClairMail client Top 12 Bank

Mobile banking is emerging as a once-in-a-decade opportunity that FIs must invest in or risk being left behind. This article discusses the importance of building a business case for mobile banking and selecting a solution that delivers proven results.

Mobile banking is shifting from a "nice to have" innovation to a strategic investment that financial institutions (FIs) of all sizes can't afford to miss.

Just as online banking changed the financial services landscape over a decade ago, mobile banking is poised to have an even greater impact. Mobile provides unprecedented coverage: 95% of U.S. banking customers own a mobile phone, most within arm's reach 24x7. In comparison, most estimates put Internet penetration at only 70% of U.S. households.

The anytime, anywhere nature of mobile provides a level of availability and immediacy not attainable with the traditional mix of banking channels, and makes it an ideal vehicle to proactively deliver high-value, personalized content to FI customers.

Customers who use mobile banking exhibit the characteristics most desired by FIs - they tend to carry higher balances, purchase more banking products and have longer tenures. As such, FIs should support and continually engage these more profitable customers, or chance losing them to competitors.

Javelin predicts there will be 85 million U.S. mobile banking customers by 2013, and TowerGroup projects a compound annual growth rate of 51.8%. Moreover, according to TowerGroup, adoption and usage are increasing faster for mobile banking than any other channel in the history of banking, and this upward trend will continue to rise.

Dramatic new banking channels only come forth once a decade, evidenced by the gaps between the emergences of ATMs and online banking. Like its predecessors, mobile banking truly is a once-in-a-decade opportunity that FIs must incorporate with their overall strategic objectives, or risk being left behind.

Building the business case for mobile banking

Recent market conditions have disrupted relationships between FIs and their customers. Increased competition, higher service costs and heightened government regulations on fees all threaten to reduce customer loyalty and drive down profits. As a result, FIs face mounting pressure to lower servicing costs, increase retention, improve acquisition, mitigate fraud and increase revenue.

Mobile is in a unique position to solve these problems.

1)    Lower servicing costs: FIs can realize tremendous savings by deferring costs from other, more expensive channels to the extremely cost-effective mobile channel. For instance, the cost for an SMS message is about 2.5 cents, less than one-tenth the cost of a call to an Interactive Voice Response (IVR) system and miniscule compared to a contact center call ($4).

2)    Increase retention: Mobile banking gives customers valuable control over their finances from anywhere at any time. FIs can deepen relationships by engaging their customers with valuable, personalized information, thereby increasing loyalty and reducing churn.

3)    Improve acquisition: FIs can use mobile banking as a selling point to attract new customers, particularly younger ones. Recent data from Mercatus showed that 60% of younger consumers use mobile as a deciding factor when selecting a new bank, and that banks with mobile garner twice their normal share of customers switching banks: 16% versus the typical 8%.

4)    Mitigate fraud: FIs can send time-sensitive alerts for any questionable transaction or potentially fraudulent activity to customers and empower them to instantly approve or disapprove by simply responding. Faster detection leads to fewer fraud losses for both FIs and customers.

5)    Increase revenue: FIs can deliver highly contextual, cross-selling marketing messages to customers to improve conversion rates and ultimately generate revenue. For example, a customer could be sent a low balance alert followed by a messaging promoting the FI's overdraft protection service.

Choosing the right solution

The return on investment that an FI realizes from mobile banking directly correlates with customer adoption and usage. FIs should ensure that their mobile banking solution utilizes the following six drivers for maximizing adoption:

• Target 100 Percent Coverage: Make the solution available to all customers by opening enrollment through multiple channels, not just via online banking.

• Extend Mobile Across the FI: Leverage a mobile platform that seamlessly integrates with all back-end systems, so mobile can be applied across different products throughout the entire organization.

• Continuously Measure and Improve Adoption: Utilize user management and reporting tools to monitor and adjust content, marketing and enrollment processes accordingly.

• Use Adoption Best Practices: Support the solution with a program that incorporates adoption best practices, distinctly identifies adoption levels necessary to achieve ROI targets and clearly defines action plans to meet these goals.

Delivering proven results

TowerGroup recently interviewed a number of FIs using the ClairMail solution - which leverages these six adoption drivers and is used by 8 of the top 12 FIs in North America - for a report on mobile banking. The report revealed many impressive results experienced by ClairMail clients:

• All clients exceeded their adoption goals, some by up to 100%; one surpassed its annual enrollment target within three months after launch.

• Customers enrolled in mobile banking typically had retention rates 10-12% higher than non-mobile customers. One client noted a double-digit retention increase among Generation Y customers, typically the segment with the highest attrition rate.

• Clients reported an increase in new customers and attributed mobile banking availability as the key factor. "With every passing month, we see more and more new clients enrolling for mobile banking within 30 days of opening a new account," said a ClairMail client.

• One client saw a 70% reduction in IVR usage by mobile banking customers, and another observed a 3% reduction in overall contact center calls.

• TowerGroup believes mobile services will reduce fraud by 10-25% by providing immediate knowledge of all account transactions.

Mobile banking is emerging as a market mandate that all FIs that wish to remain competitive must pursue. Getting in the game now will enable FIs to ride the mobile wave rather than stand on the sidelines and watch their competitors succeed.