US mobile banking: beyond the buzz

Celent’s Dan Schatt reports on how users are set to take up mobile banking offers in ever increasing numbers, and predicts the appearance of the ‘mobile wallet’ in the not to distant future.

Anyone who experienced mobile banking in the US in the late 1990s is certainly justified in viewing the mobile banking initiatives of 2006 and 2007 with a degree of skepticism. Since its introduction almost 10 years ago, Celent estimates that mobile banking accounts for no more than one-third of one percent of banking users. However, that is set to change in a very dramatic way by the end of 2007 as consumers increasingly leverage their mobile phone data capabilities for a variety of personal and business applications.

By the end of 2010, Celent predicts that 30 percent of all online banking households will engage in mobile banking. Far from just an extension of online banking, the mobile channel will grow to provide new functionality that will make the channel distinctly different from online banking. Mobile contactless payments, contextually relevant time and event based rewards and various promotional banking offers will become part of the equation, spurring payments activity.

Mobile phones once were projected to be a niche market with 900,000 subscribers by the year 2000. Even 10 years ago, many questioned the value of having a cell phone at all. Since then, the industry has moved from less than 10 percent adoption to 76 percent adoption, with 11 percent of US households now ‘wireless only’ households, according to CTIA, the wireless industry association.

As contactless cards and the ensuing point of- sale terminals are increasingly rolled out in the US, mobile phones will be equipped with near field communications (NFC) chips that may eventually leverage the contactless payment infrastructure that the card industry has been building.

Today, virtually all handsets on the market allow both SMS and Web browsing, and over half can now download applications. The question now centers on the number of mobile users who will actually take advantage of their handsets’ capabilities. The majority of mobile users have a data plan in place, although just 17 percent of users have downloaded an application, and 27 percent have browsed the web through their mobile phone. SMS and downloadable banking applications will account for much of mobile banking activity over the next three to five years. Larger banks will appreciate the advanced levels of customization capabilities possible with a client application, while consumers will benefit greatly from speed and usability. Today, over a third of mobile users have used SMS and almost half of mobile subscribers aged 18–25 indicate they use SMS very frequently.

It is this 18- to 25-year-old ‘Generation Y’ that will gravitate to mobile banking faster than the general population. Generation Y will be drawn to data services much more quickly than mainstream users. In a recent Celent survey, when asked if they would be willing to use a mobile banking service, a full 66 percent of Generation Y respondents indicated they would be likely to use the service to find the nearest branch or ATM machine. Close to 50 percent indicated they would use the service to check a balance, and 50 percent indicated they would use the service to check transaction history. A full 31 percent indicated they would use the service to make a bill payment. Other significant interests included their ability to interact with customer service through messages and receive alerts about their financial information. All these data points indicate a growing interest in interacting with financial services remotely. More than a third also indicated an interest in viewing their financial reward information. Celent views this as an important finding because it indicates a willingness of young consumers to use the phone for services that specifically leverage its inherent portable capabilities.

Although many may question the relevance of mobile banking today and the likelihood of its success, it is here to stay and will grow significantly faster than online banking. Fifty percent of Gen Y respondents indicate that mobile financial services will play a factor in their choice of banks. Five years from now, a significant percentage of this demographic will be in cell phone only households, frequently retrieving information and conducting transactions from their handheld devices. Also notable are the findings that 40 percent of consumers age 56 and older who have a mobile phone are data users, and Hispanics and African-Americans tend to be data users more often than White or Asian mobile consumers, and that those making over US$200,000 a year tend to be mobile data users just as often as consumers making US$36,000 toUS$74,000 per year.

Today, 50 percent of all calls to a bank customer service center are placed from a mobile phone. Many of the voice calls today are simple balance requests. Mobile banking can present a viable opportunity as a low cost customer service medium. Celent estimates that, by 2010, upwards of 70 percent of bank center call volume will come from mobile phones. Half of those calls will be related to very basic balance inquiry information. We expect many of these inquiries to be displaced by mobile banking, as the mobile phone increasingly becomes the primary telephone used in a household. This information will be very easy to come by in data form on a phone and will be available in much less time than an IVR call. Mobile subscribers of data services cut across income levels, age, and ethnicity and are very good leading indicators of mobile content usage, including the use of mobile financial services.

The coming year looks daunting in terms of how carriers and banks are likely to come together to provide mobile financial services that are both ubiquitous and customizable, but the reality is that it has already started to happen. We will see a number of announcements and rollouts from major banks throughout 2007 and into 2008. While it may be tempting for financial institutions to take a wait and see approach, a combined mobile banking/bill payment application will prove a far greater retention tool for banks than consumer bill payment has been to the online banking channel.

The mobile banking end game will not be about checking balances and paying bills. It will evolve into a mobile wallet, allowing banks to generate additional electronic payment volume through the combination of electronic loyalty programs, mobile marketing, and contactless payments. Loyalty and marketing applications are still largely confined to product roadmaps, but they make their debut in late 2008. They will fuse merchant and bank interests by keeping consumers in touch not just with their financial services, they will allow consumers to access points balances and make impulse spending decisions based on real-time promotions and reward offers. By 2010, 10 percent of all contactless payments will be made through a mobile phone.

Celent advises banks to consider a multi-pronged mobile banking strategy. A paired SMS and Java/Brew client deployment can blend popular alerting capabilities with the higher level of usability, speed, and convenience an application has to offer. Although it is tempting to leverage an existing online banking infrastructure for use with a WAP application, banks should consider this option very carefully. Cumbersome authentication, slower network speeds, and high consumer data costs can outweigh the benefits of offering the service. Nevertheless, it is worth considering for the six to eight percent of mobile users who have full keyboards on their mobile phone and lack download capabilities.