With 2017 in full swing, let’s pause to recall the many well-intentioned executives whose proposals to hike spending on mobile banking were as welcome by their CEOs as a Friday afternoon visit from the FDIC.
It’s easy to understand the temptation to cut budget requests to enhance mobile banking. After all, many fixed and regulatory costs are rising faster than revenue. Meanwhile, the banking industry has struggled to come up with an infallible calculation of ROI (return on investment) for mobile banking. You can put in—but to what degree will you get back?
Given this backdrop, it’s a wonder how many executives threw up their hands and surrendered without even trying to bring any new technology investments to the 2017 budget discussion.
That would certainly mean bad news for many community banks and credit unions. Each day, these smaller financial services firms risk falling further behind Bank of America, Citibank and a handful of other banks whose technology helps them win new customers.
So it’s time to put aside old approaches to assessing new technologies—an opinion that became even clearer after reading a recent article from a technology firm that claimed to have proven that a mobile banking user “represents $200 in incremental annual revenue.”
That revenue projection is at least partially attributed to improved retention rates among active mobile users. But here’s the flaw: Mobile users must first sign up for online banking at the bank mentioned in the article. Online bill pay users already have incredibly high retention rates, so getting this group of customers to use mobile doesn’t improve retention and the profit associated with them.
That said: Mobile banking has value. How much is debatable—but BofA’s recent success is indisputable. Between July 2011 and 2016, the bank took two steps that would ordinarily appear to hinder deposit growth: It closed nearly 20 percent of its branches and didn’t offer high interest rates on deposits.
The result? BofA’s deposits jumped 27 percent over that five-year span—well ahead of most banks.
It’s not just BofA investing in the technology. Citibank allows consumers to dispute credit card charges through its mobile app. Wells Fargo is getting ready to roll out retina scan for businesses to authorize transactions via an app.
According to the J.D. Power 2016 U.S. Retail Banking Satisfaction Study, these and other investments are paying off for big banks. In its most recent survey, the nation’s largest banks scored highest in mobile, ATM and online satisfaction, with J.D. Power concluding that “Mobile banking in particular has a direct impact on overall satisfaction.”
There’s no real surprise here; convenience has always played an important role when customers select a bank. It used to be defined as proximity to the nearest branch. Today, it’s also defined as digital access to services.
Branches have historically provided access to core deposit growth—something existing and carefully selected de novo branches will continue to do for the foreseeable future. However, a comprehensive mobile banking program has now joined that traditional approach on the list of options for banks looking to expand.
A new branch can easily cost seven figures, plus the annual operation costs. Would an equal investment in mobile produce equal or even better results?
Again, no infallible formula exists to answer that question. However, there is one guarantee: the technology advantage at some larger banks can be purchased and deployed quickly. And if it’s popular among the big bank customers, why wouldn’t it be popular among customers of a community bank or credit union?
Joe Bartolotta is a Boston-based banking consultant focused on helping community banks develop corporate and consumer delivery strategies.