We have all read ad nauseam how important mobile is to the future of retail banking, so, long live mobile!
Like many of you, I’ve had moments of doubt, when the business case for robust mobile programs didn’t seem all that clear.
Let’s begin by defining mobile banking: Mobile banking is any banking activity that can be conducted on a smartphone or tablet with internet access. Primarily via smartphone, it would include but not be limited to paying bills, viewing account balances, depositing checks remotely by taking a picture of the check, text chats with bank staff, person to person payments (P2P), scheduling appointments in a branch location with specialists (calendars and e-mails), text alerts for balances or when credit card was used, applying for a loan via mobile such as credit card or mortgage, opening a deposit account, making a loan payment, transferring funds, or solving a problem like replacing a lost debit card or making a point-of-sale purchase using a smartphone (e.g. digital wallet).
All well and good, but what’s the business case? Most bankers cite their mobile or omni-channel or multi-channel strategic vision as “anything you can do at a branch could be done digitally, or via mobile device.” Let’s take a closer look at that.
Making the Case
Online banking is the primary channel used today for checking balances, transferring funds, making loan payments, receiving text alerts, and paying bills. Since mobile is relatively new, most of the functions I just mentioned are done via online banking today. Mobile banking has the potential to replace or reduce this online banking as well as grow in the future. This is a real possibility since smartphone and tablet ownership now exceeds half the U.S. population, according to the BAI Mobile Tracking Study, powered by AlixPartners. Of the smartphone and tablet owners, 39% have adopted mobile banking. However, channel substitution does not make a great case for future mobile investments, especially if the mobile channel is no less expensive than the online banking channel. Online and mobile banking have real cost savings implications since branch-based transactions are the most expensive form of transactions.
However, the branch is the primary channel used today for non-routine activities such as applying for a loan or deposit, opening or closing a loan or deposit, or solving a problem with an account. Overall, online and mobile are very limited today for these more complex and more profitable banking activities.
So far, as you can see, I have not made a very strong case for mobile banking investments. This highlights the essential problem banks have in “making the case for mobile.” The following are some point/counterpoints that keep going through my head when I try to make that case:
Point 1: Mobile is primarily used by younger customers who do not have much money (balances) today and with the new fee income regulations, banks cannot make money on this segment anymore.
Counter Point 1: Banks want to grow new customers. New customer growth comes from younger customers who open new checking accounts. Twice as many customers under the age of 34 switch primary banks than the general population because of mobile banking, according to the BAI/AlixPartners study. Furthermore, this same research shows that branch teller transactions are dramatically reduced after mobile banking adoption, making these customers lower cost-to-serve at a time when most banks have excess branch capacity. Young people are the future, and most bankers worry about the aging demographics of their current customer base.
Point 2: I will simply be a fast follower of emerging technology; no need to be the market leader.
Counter Point 2: Younger customers are switching due to mobile so you may lose some existing customers and not gain many new ones. As mobile banking becomes more mainstream the problem worsens and you run the risk of never catching up to the market leaders. At the very least, staying up-to-speed on mobile banking developments will allow you to be a fast follower.
Point 3: Doesn’t introducing the mobile channel take away from the cross-sell potential of the branch?
Counter Point 3: Banks can use ATM and branch locator applications to make it easier for customers to find their sales locations. Additionally, the ability to schedule appointments with bank specialists to discuss more complex transactions and products is a weakness today in the branch channel. There could be a synergistic model of mobile helping drive more traffic and conversations (sales opportunities) to branches. Mobile has the potential to collect behavioral and locational data for more intelligent bank offers to customers (aka one-to-one marketing).
Point 4: As bankers, we need to be paid for value. We plan on monetizing mobile offerings as we roll out new features and functionality that add value to our customers.
Counter Point 4: Google (Gmail) plans on charging for P2P whereas most banks offer this for free. For Google, all the added value or charge for each transaction is that all of your contacts are already in Gmail, so no need to type them in. Using a bank example, some banks charge for remote deposit capture. This service may be worth the price for the customer not to go to a branch or ATM to make that deposit. Obviously, competition from banks and non-banks will dictate the ability to charge for new services. Remember, most banks charged for online bill pay when it was rolled out until competition made it free today.
So, have I made the case for mobile investments? Like many new channel investments, the business case today is most likely the cost of doing business (aka table stakes). Some of the mobile investment will be recouped through better retention of existing customers who use mobile and love it so they will not leave. Also, nearly 20% of young customers will switch primary banks for mobile so you could gain some market share today (assuming you are not a fast follower).
Longer term, I believe mobile will be a driving force that will change both the size of branches and the interaction within the branches. However, this will be a long-term pay-off, not a short-term one. The BAI/AlixPartners study will continue to track, on a quarterly basis, the features and functionality of mobile that are most appealing to customers. We will also bring together the mobile banking leaders in a roundtable format to discuss the challenges and opportunities in the mobile landscape.
Mr. Riddle is a director at BAI and can be reached at email@example.com.
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