By Bill Bradway, Bradway Research LLC
The recurring headlines touting mobile banking and more recently, mobile payments, reinforce my opinion that technology-based innovation in financial services is often ahead of the business-based needs the technology solutions address. Mobile banking over the past 10 years has been a poster child for this phenomenon. No doubt the interest in mobile banking today by bankers is rising and far stronger than 10 years ago and several leading institutions have achieved a meaningful retail customer adoption of their mobile banking offer, led by Bank of America in the U.S. But that misses the point of this column. Last month I noted, "As the banking industry begins its recovery from the Great Recession, eyes and minds are shifting their focus back to identifying the most promising bank tech innovations for the next few years." Are mobile banking and payments among the most promising innovations, capable of disrupting the retail banking market? Or, will they drive more bankers crazy, in both business and IT, chasing ever elusive expectations?What should U.S. bank and credit union execs think about when they decide to pursue investments in mobile banking and payments? To no one's surprise FinTech mobile banking solutions were among the ones that received lots of attention at Finovate 2009 (New York) and BAI's Retail Delivery conference (Boston) last fall. There is no doubt that effective innovation can attract customers - witness B of A's rapid growth in mobile banking and USAA FSB's mobile innovations.
I consider the introduction of the iPhone as a "significant" change to the mobile platform that has become a game changer. Other manufacturers have followed with their competing products. This multi-channel, multi-function handheld platform is the key to transforming the mobile platform/channel into a meaningful venue for retail banking and payment capabilities.
The big four wireless providers (Verizon, AT&T, Sprint, T-Mobile USA) serve over 200 million mobile users in the US. Over 20% of mobile users now have a 3G device (e.g., Apple iPhone). Based on Bank of America's mobile banking adoption curve (3.5 million users as of November 2009), I estimate over 9 million U.S. consumers (or 4% of all US mobile customers) are actively using their mobile phones for banking related transactions and inquiries. The NPD Group, a research firm, found that at least 20% of mobile users use their phones as an all-in-one multimedia device for phone, music, videos, Web surfing, and other activities. My view is that mobile banking adoption is more like a rapidly expanding customer experience R & D lab. The hardest part of R & D is figuring out the projected "real" benefits for the institutions. Is it cost savings or more revenue? Does it contribute to organic growth (customer acquisition), reduce customer attrition, or both?
About a year ago, my analysis of mobile banking started with the following premise, which is still valid today. "New technologies can stimulate the marketplace by enhancing existing solutions or introducing disruptive capabilities that can dramatically expand market opportunities. Evaluating this expansion potential requires answers - is it sizzle or steak? Or, should the financial institutions ask "so what?" ... banks have to constantly evaluate their customer (segment) requirements, their channel delivery needs and existing investments, and their capacity to fund new technology..."
Some institutions will pursue mobile banking before their bank or credit union customer base is ready to adopt mobile banking in a meaningful way. Other banks and credit unions, particularly those with lots of Gen Y and younger Gen X customers, will gain from the mobile experience. For the next few years, my sense is that bankers will not go crazy over mobile banking. By 2014, their success stories will solidify the business case(s)/cost(s) for adding mobile banking and payments.
Bill Bradway, founder and managing director of Bradway Research LLC, analyzes the business strategies and IT investments of U.S. banks and credit unions.