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Mobile Banking: This Time for Real?

BY KENNETH CLINE

Roundtable participants say mobile banking is here to stay, but the revenue benefits for banks will await new payments applications.

| SYNOPSIS | Banking by cell phone failed to catch on with financial institutions at the start of this decade but industry experts say this time is different. Roundtable panelists representing banks, technology vendors and a wireless carrier say greater customer usage of cell phones and improved technological interfaces have laid the groundwork for mass consumer adoption. All that’s required to kick-start that process, they say, is more consumer education and a major marketing effort. But the panelists also agree that while simply replicating Internet banking on the phone may help with customer retention, it will not generate revenues for banks. Adding payments applications will be required to build a true business case for banks, they say.

The recent flurry of excitement about mobile banking has a déjà vu quality about it. After several major banks announced experiments with cell phone banking, the July/August 2000 issue of this magazine put a cell phone on its cover with the headline: “Look or Leap? Banks Confront the Wireless Revolution.”

Only problem was, that wireless revolution didn’t really occur until about eight years later. Now, once again, we have major banks experimenting with cell phone banking. And once again, the industry is abuzz with speculation about this being the next big thing. Is it?

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We recently posed that question to a roundtable of experts who represent some of the three major constituencies invested in mobile banking: banks, carriers and solutions providers. As one might expect from such a diverse group, disagreements arose on some issues, specifically the technology platforms and services that are likely to be embraced by consumers. But there was also broad agreement on some of the big picture issues.

For example, the panel agreed that the current technology is more robust than in 2000 but mass-market adoption will require a major marketing push by both banks and carriers. They also agreed that banks wouldn’t see significant revenues until mobile banking morphs into mobile payments, with customers able to authorize purchases from their cell phones. “If all we do is replicate Internet banking on this mobile device, it will just be yet another cost to the financial institution,” said Tripp Rackley, chairman and CEO of Atlanta-based Firethorn.

Joining Rackley on the roundtable was another solutions provider: Joseph H. Salesky, chief executive officer of ClairMail, located in Novato, Calif. The bankers taking part were Ilieva I. Ageenko, senior vice president and director of emerging applications at Charlotte-based Wachovia Corp.’s e-commerce division, and Michael L. Lindsey, senior vice president with Tupelo, Miss.-based BancorpSouth. And presenting the wireless carrier side of the story was Mark Collins, vice president of consumer data with AT&T Mobility in Atlanta.

Q: Banks first got excited about mobile banking in the late 1990s but then nothing happened. What’s different now?

Ageenko: First, the technology is far more sophisticated than it was then. I was working for our predecessor organization First Union Corp. at the time and we piloted mobile banking services. We gave customers devices for free and, at the end, we pretty much asked customers, the two or three who were using them, “Could you please not use them anymore because they’re costing us too much money?” Now it’s so much better—the browsers, the devices, the real time connectivity etc.

Salesky: The problem before was that it was largely an issue of just duplicating online banking on the mobile device. The question is really: why is the customer doing mobile banking and how do we serve the customer and the bank in a broader sense? You’re now seeing a broader approach in how people use the device and how it matters to the banks. The key is to make it frictionless for the bank to access the customer and for the customer to access the bank, with the consumer choosing the means of access.

Lindsey: BancorpSouth didn’t have the opportunity to participate in mobile banking in 2000 because our markets didn’t have the wireless data networks. We’re fortunate we didn’t because there is a stigma associated with those earlier efforts.

I agree about the importance of customer usage of mobile. I’d also mention the opportunity to partner with the wireless carriers, which have a huge marketing engine. They know a lot about the mobile devices and how their customers use those devices. So, our opportunity is not to go it alone and be a bank trying to figure out the mobile industry but rather to have a carrier partner that will pre-load the applications, drive adoption and help us market to those customers.

Collins: The primary differences between then and now are the customer penetration and the use of a wireless data network. Now, we’ve got more than half of our customer base engaged in some form of wireless data. The U.S. population wireless penetration is somewhere in the 240 million to 250 million range.

In 1999, I was carrying around a RIM pager that served as sort of an instant messenger. And that was about as much as we had then across all wireless networks. It was a separate network that wasn’t even integrated into our existing network at that time.

Ageenko: Mobile banking was feasible then but cumbersome, not user-friendly.

Rackley: I was there in 2000. We had monochromatic screens, slow networks and it was painful.

There are two fundamental issues here. One, what are we really trying to solve? Firethorn is not just trying to replicate Internet banking on the phone. That’s not what Wachovia or AT&T wants to do either. We want to create a new user experience.

Consumers aren’t sure what they want, fundamentally, so it comes back to discovery. It’s like satellite radio. You ask people if they want to spend $10 a month to get a radio in their car and they say “no” until you put it in front of them and educate them on its use.

Two, we need mass marketing. This technology has been around forever. But it’s not until it’s easy for consumers to use it that we’re going to see true mass adoption.

Salesky: The benefit of the mobile phone is that you can make calls and receive calls. If all you could do was make calls on the mobile phone it would be a less useful device because it wouldn’t make you more accessible; it would just allow you to make some outbound calls and frustrate people when you didn’t connect.

We think one of the keys to adoption is that with the right infrastructure, the bank has a nearly real-time method to engage the customer. Timely two-way alerting capabilities enable easier account management and fraud protection and empower customers to resolve issues entirely using their mobile phones.

Rackley: I don’t disagree. We have that today in online banking; I get email alerts all the time that say, “Hey, something’s happened with your account.” All that’s great. I don’t disagree that should happen on the mobile device.

Again, my point is quite different. I’m not trying to take the experience that I have on the Web and move it to the phone. That’s just the first step. I agree we should get all sorts of messages on the phone. But I can tell you one thing: if all we do is replicate Internet banking on this mobile device, it will just be yet another cost to the financial institution.

Q: So how do you accelerate the customer adoption rate? What are the obstacles right now to getting customers interested and how can you overcome them?

Collins: I think the first thing is just awareness, to increase customers’ understanding of the products available. You’ve got to tell the market that this service is now available to them and that this is the value proposition that’s being offered. We really haven’t had a marketing campaign to launch the service and get it top of mind with the consumer. We’re about to fix that.

Salesky: Until people use it, they don’t really see how valuable it is. Part of the key to priming that pump is getting the early adopters to adopt. We’re seeing banks provide their customers with a choice of approaches—messaging, mobile Web and client applications—to encourage broad adoption.

Ageenko: Most definitely, customer awareness is key. For that, we need marketing and customer education. While the first step was to focus more on existing online banking customers and offer them a mobile banking solution, we now need to focus on segments that don’t use online banking. Some mobile customers may not want to bank online.

Salesky: It’s interesting that most of a bank’s customers who aren’t using online banking are using mobile banking. It’s called the “mobile phone” and they’re actually going through the Interactive Voice Response (IVR), or the call center. We found that almost 80% of the inbound phone calls to the IVR are coming from mobile phones.

So, the question is, because the mobile phone is more than a phone, but perhaps less than a PC, can we make it more convenient for customers to get at this information, on the device they’re already choosing to use to access that information?

Lindsey: I think the value of the marketing that AT&T is going to do, and even the marketing that Wachovia and our other competitors are going to do, is going to be a tremendous benefit to the market in general by getting the awareness out there.

Collins: That will lift all boats.

Q: Who needs to do this marketing? Is it the responsibility of the banks or the carriers?

Lindsey: It really works well together. You’ve got to use different approaches. The mobile carriers know who their customers are and what mobile devices and services they have. And we know customers value their relationship with the bank because they trust us with their money. So, I think you’ve got to market from both approaches.

Ageenko: For the carriers, this is one more thing you can do with your mobile device. For the banks, it’s another channel from which the customer can access their financial services.

Q: A lot of research reports have warned lately that security concerns might hinder mass adoption. What are the real threats this industry faces in that arena?

Ageenko: Instead of mobile devices being a security threat, I see the opposite. Mobile devices are already playing a crucial role in enhancing second factor authentication and providing stronger security for financial services.

Salesky: In other countries, the mobile phone has been one of the ways people trusted their bank. There was a case study in the Ukraine where people were alerted when funds were withdrawn from their bank so they felt their funds were safeguarded. It’s not just an issue of encryption. It’s easy for the bank to pick out anomalous transactions; the question is what do you do without overreacting to false positives?

Lindsey: We found customers were uncomfortable about setting up their laptops in a Starbucks, say, and doing their banking business because everyone could see what they were doing on a 15-inch monitor. But they felt more secure with mobile devices. That was an unexpected comment that we received from our customers.

Q: What is the business case for banks? Is mobile banking a profit center or customer retention tool? Can banks actually make money on this service?

Ageenko: If the only thing banks want to do is provide mobile banking, then it’s more of a convenience play for the customers. But if we’re really thinking about the long-term vision to provide new payment services, then it becomes a revenue play.

Q: So it’s a revenue play if you can get to the next stage?

Ageenko: Yes. If the strategy is to open new channels for payments and services, it can be a source of revenue for the bank.

Lindsey: It’s a lot like the early days of Internet banking. It was a challenge for us to go out and make the new mobile service available for our customers. But we knew that given a year or 18 months, everyone was going to have it; that it would just be table stakes.

Our long-term vision is for payments. We want to make sure we’re positioned properly to take advantage of those opportunities, whether it’s in 18 months, 24 months or 36 months. Customers need to know we’re working on it and we’re not going to be disintermediated. Banks need to take a stance.

Q: But you agree that mobile banking by itself, without payments, is not a profit center?

Lindsey: That is correct.

Salesky: Right now, the consumer is not very willing to pay for access to information. They expect that to be part of their existing banking relationship.

Rackley: As I said before, if we just replicate Internet banking on the phone, it will turn into just another cost center for the banks and default to the lowest cost delivery.

But I disagree that it’s going to be free for the consumer forever. When I go home, I drive past the nearest ATM and take money out, whatever it costs me, and keep going. If you put that same sort of functionality on the phone, make it more convenient, I would absolutely pay for that.

I believe there is a real business model around why Internet banking has become free. I buy that. But going into a model where it’s a 100% cost to the financial institution is a problem.

Q: What is the business model for carriers?

Collins: In terms of wireless service, the majority of our data revenues at this point in time is messaging and mail — two-way communications that customers have gotten used to and value quite a bit. But there’s a growing business in premium content such as streaming-based radio, downloading of ringtones, etc. Mobile banking is just one more way to make the data service valuable to AT&T’s customers.

This device is all about personalization and your financial information is one of the most personal things you have. It’s all about taking that to the next step and making it more useful to the customer. There will be many new uses as consumers see this as a financial enabler as opposed to just a two-way communications device. You could, for example, wave the phone in front of a (data) reader at Starbucks to order a cup of coffee, which would make the line move faster. Starbucks would see real value in that.

Salesky: It’s all about driving the vision of a new consumer experience. It’s not about today.

Q: So when we talk about mobile banking, the promise is really several years out?

Salesky: It’s like with online banking. Channels develop first to add convenience and then they become platforms for revenue. I agree that what this is really about is how the mobile phone becomes more central in a customer’s life.

What we’ve learned over the past year and a half is the type of things people will value, such as non-batch actionable alerts for low-balance transaction verification and payments due. If the banks give up overdraft fees, the issue becomes, what new revenue and cost savings will they gain by offering the alerts? It’s critical that the mobile banking and payments platform be able to deliver on convenience and also be able to deliver revenue-generating products and services.

Q: What advice would you give to other banks that are looking at mobile banking? What are the issues they need to consider?

Ageenko: Granted, the business case for the large bank is usually different from that of the smaller bank because of the amount of investment. I can tell you that today, for all the large banks, not providing mobile services creates a competitive disadvantage. That’s why all my peers are working on it today.

However, I am not trying to tell all the banks to offer mobile banking today. It may have to happen, but they can also wait a little bit.

I see a great competitive advantage in the pre-loaded application for the mobile device. And I believe in partnerships. Each of the players brings different value propositions to the equation. Application providers such as Firethorn and ClairMail can bring many things, but do they understand financial services as well as banks do? On the other hand, we have a very strong technical group at Wachovia, but do we want to get into all the issues of browser compatibility? No. We want to provide reliable financial services.

Lindsey: We’re like Wachovia. As many technical resources as you may have, you have projects that can absorb those resources. So, I think that even for a mid-size bank, it made more sense for us to look at partners. They provide both the carrier interaction from the wireless standpoint and knowledge of the back-end systems. Because that’s the piece we haven’t talked about yet—you’ve got to get the content from the core processor. You have to either possess the resources internally or look for somebody that has the expertise and history in delivering that content.

Q: Does a mid-size bank like BancorpSouth actually need to get into mobile banking? Why not let the mega banks pioneer the technology?

Lindsey: I don’t think we can afford not to get into this; we can’t just let the mega banks dominate the channels.

Salesky: How does a regional bank differentiate itself? If it’s all about service, can they afford not to offer services that are being offered by their larger competitors?

Lindsey: A regional bank has some advantages too. I’m sure Wachovia, for example, has a lot more structure than we do. But it’s easier for banks our size to make decisions and go through the process sometimes just because we don’t have the layers of committees.

So, in some aspects, being of smaller size can be an advantage just because you can move fast and you can make those decisions quickly. And you can react because the market drives what’s going on. If the customer tells us something needs changing, and if our partners can react quickly, we can react quickly as a financial institution.

Rackley: Financial institutions have two important decisions to make when it comes to their mobile financial services strategy. First, they need to define what they’re trying to accomplish. If you’re trying to send a message to your customer, that’s one solution. If you’re trying to replicate your online banking component, that’s another solution. If you’re trying to morph into payments, that’s another solution. First of all, you need to define the goal and that tends to be the biggest issue for the financial institution.

The second thing is you need to pick a strategy. I get into meetings with banks and they say “Oh, yeah, we definitely want the usability of applications, no question, we definitely want that, but we don’t want to work with carriers, we don’t understand them.”

Financial institutions need to decide if the carriers matter and study what’s been successful in terms of partnerships with the carriers. Or, they can acknowledge that carriers don’t matter and try to work around them. If a bank decides the carriers are not central to their strategy, they have to understand this decision may affect the long-term revenue opportunities associated with the future of mobile financial services, such as mobile payments.

Q: Is that the major choice financial institutions face then, to work or not work with carriers?

Rackley: It’s amazing how many financial institutions I come in contact with that want the functionality of a Wireless Application Protocol (WAP) solution—“it’s all mine, it’s my brand, I do everything, it’s my security, etc.”—combined with the functionality and the end result of an application. That’s difficult, if not impossible, to accomplish.

Q: Going back to the beginning of our discussion, is mobile banking here to stay — this time?

Ageenko: This time I think it’s real. When you look at the commitment from the different players—the banks and the carriers—there is a huge commitment around that. How is it going to happen? That part we don’t know. Who are going to be the real users of mobile services? It is going to depend on the value proposition and the market demand for convenience and mobility.

Salesky: The mobile phone already is the source of 80% of the inbound phone calls to the bank and the question is, is that the best we can do in terms of the use of the device and the quality of the customer experience? There’s absolutely no question that it is the fastest way to reach the customer and it’s the immediacy of this two-way capability that makes it very different from the Internet. The question is going to be, what are the services that resonate with users?

It’s definitely here; the genie is not going back in the bottle.

Lindsey: I think it’s definitely here, and I think the reason it’s here is because some people in different industries made the decision to go out and try some things and see what would work. The market or the customer decides what the product will be.

This is just the beginning, but it’s definitely here.

Collins: There’s no question it’s here to stay now. The question is, how big can it get and how fast?