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Mobile Banking Takes Off ... Or Does It?

Although some observers question consumer demand, bankers say mobile banking adoption will come far quicker than did adoption of online banking.

With the continued development of third-generation (3G) handsets and software tailored for the devices, that awareness should continue to grow, and payments initiated from mobile devices are believed to offer big revenue potential. But there are significant development hurdles to overcome -- especially for contactless payments, which are initiated with a wave of the mobile device using near-field communications. For one thing, handsets need to be modified, meaning cross-industry collaboration -- among banks, phone makers, mobile carriers and software vendors.

In the face of self-interest, however, such collaboration isn't a given. Barclays' Sowter says there's "not so much a standoff as a gold rush mentality," with everyone looking to hit pay dirt themselves.

An easier interim mobile payments offering for banks will be money that today might be transferred by check (e.g., person-to-person or bill payments), for which the funds can travel via the existing payments system while the associated messages can use existing mobile communication technology. For example, by early fall Citi will launch person-to-person payments using technology from Obopay, a Redwood City, Calif.-based vendor that sends payment messages by text and moves funds via the Automated Clearing House (ACH) network.

According to Juniper Research (Hampshire, U.K.) mobile money transfers, by migrant workers and others, will exceed $5 billion globally by 2013 -- which suggests another big m-banking angle: Though more relevant to developing countries than the U.S., m-banking could be the hook to draw unbanked customers into the financial system. "By 2015 there will be one billion new middle-class customers [worldwide], and the mobile is going to be their first banking device," says John Gauntt, a senior mobile analyst with eMarketer, a New York-based research firm.

Consumers Get the Message

But the return on investment U.S. banks are seeking from m-banking -- in the short term, at least -- is more about marketing opportunities and potential cost savings than direct revenue. For example, there's no expectation that U.S. banks will start charging for text alerts, as U.K. banks have begun to do (see related article, "Mobile Banking a Money Maker for U.K. Banks").

However, one in four frequent mobile banking customers is likely or very likely to respond to an SMS marketing message received on his or her mobile phone -- almost three times more than the average customer with a mobile phone, according to a June mobile marketing report by Javelin Strategy & Research (Pleasanton, Calif.).

Barclays' Sowter adds that "90 percent of all texts received are read," which is much higher, he asserts, than e-mail or direct mail. Additionally, texts can prompt an immediate response. Imagine, for example, a loan offer -- a bank could say, "If you're interested, text XYZ and we'll call you right back."

Even Forrester's Higdon agrees that if banks could make something like bill pay as easy to do from a mobile device as from a PC, such a "sticky app" would make the mobile channel an important customer retention and acquisition device.

Further, m-banking holds the potential to cut service costs. For example, "Look at the money saved by pulling calls out of the call center -- customers looking to see if their checks have cleared or find out their balances," says Huntington's McGee. "One call could cost upward of $6."

Richard Winston, a Dallas-based senior executive with Accenture consulting, adds that banks have a new incentive to push m-payments. As check use has finally fallen, he explains, check processing has gone from a low-margin revenue business to a drain on the bottom line and, without economies of scale, each check processed is a net cost. With m-payments, Winston contends, "Banks are trying to solve both problems."

Still, Citi's Kietz says, cost savings are a small benefit in the scheme of m-banking. It's more about revenue potential and customer appeal, he says. For example, as U.K. customers already do, U.S. consumers increasingly will receive potential-fraud alerts when high-value transactions are made on their accounts. "We'll get the customers to be the fraud department, and they'll be happy about it because they're worried about identity theft," Kietz relates.

Asked if there's any likely tipping point for m-banking adoption, Huntington's McGee says there is any one thing. But, he adds, "One number I read lately jumped out at me -- that m-banking use is expected to quintuple this year versus last."

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