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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.

Related Sidebar: "Mobile Banking a Money Maker for U.K. Banks"

To read more on this topic, visit BS&T's Mobile Banking Resource Center, the top resource for making sense of the m-banking business.

Brandon McGee, the industry's unofficial ambassador for mobile banking, says, "The biggest change in 2008 is that adoption has really taken off." McGee, senior product manager for mobile banking with Columbus, Ohio-based Huntington Bancshares ($56.1 billion in assets) and a mobile banking blogger increasingly cited by the press, adds that m-banking is "booming."

Banks view mobile banking as a tremendous opportunity, as the channel potentially offers new revenue streams from mobile payments; new marketing and service opportunities, including text alerts; and better hooks into the unbanked as well as existing customers.Although some observers question consumer demand, bankers say mobile banking adoption will come far quicker than did adoption of online banking.

McGee says Huntington's June 30 launch of m-banking, for example, "exceeded our wildest expectations." "The number of users we had after four weeks was our goal for after eight months," he reports. And through his blog (www.brandonmcgee.blogspot.com), McGee relates, he hears similar tales of success from other banks.

New York-based Citi ($2.1 trillion in assets), which has six million retail customers in the U.S. (compared to Huntington's one million), also expects m-banking to be huge. In fact, the banking giant is set to launch a new subsidiary next year to facilitate its m-banking service and serve as a vendor to the industry.

Steven Kietz, EVP of Citi and head of its new unit, Mobile Money Ventures, points to the acquisition of Firethorn, a leading m-banking vendor out of Atlanta, by San Diego-based Qualcomm last November as indicative of the industry's great expectations for m-banking. Qualcomm paid $210 million for a company with "less than two years' " experience in m-banking and which had "negative revenue," he says. It "seems like a good precedent," Kietz adds wryly.

"Mobile banking's going to happen much faster than previous technologies," he continues. "M-banking will happen in three years, whereas Internet banking took 10."

But Emmett Higdon, a senior analyst with Forrester Research (Cambridge, Mass.), is a lone voice among analysts and bankers in dismissing as "abysmal" the same m-banking growth Huntington's McGee sees as "booming." Based on a Forrester survey of 5,000 U.S. consumers in mid-2008, there has only been an increase of 1 percent, to 5 percent of the online banking population, in the use of m-banking since the end of 2006, when Forrester conducted a similar study.

An excerpt from the study and McGee's rebuttal are posted on McGee's blog. In essence, McGee says of Higdon's comments, "He's saying m-banking will be successful at 20 percent [adoption by 2011]; we're saying it's successful at 5 percent." According to McGee, within months of launching an m-banking offering, many banks have exceeded their target of 3 percent to 4 percent adoption by their online households (not individual customers) within the first year.

The No. 1 reason consumers polled by Forrester gave for not using m-banking, according to Higdon, was, "My needs are not that urgent" (i.e., they can wait until they get home or otherwise have access to a PC to conduct their banking); No. 2 was, "I don't see the point." But more on that later.

Despite the banking industry's unfolding financial difficulties from unpaid mortgage loans, not one source contacted for this article was aware of any bank cutting back on m-banking -- perhaps perceived as more of a luxury than a necessity. "That's a pleasant surprise because six to nine months ago that was a concern," Huntington's McGee notes. But, he adds, "You might not see as many press releases because larger banks are guarded now."

Perhaps indicative of that, Kelly Brieger, a spokeswoman for Clickatell, a Redwood City, Calif.-based provider of text messaging services to banks, including two of the top three South African banks, says U.S. clients won't allow their names to be released. "We signed three domestic, regional banks in the last six months, but they're all really tight-lipped," she explains.

The only source who even comes close to suggesting that banks have put the brakes on m-banking developments is Forrester's Higdon. The top 20 banks are already committed to the channel, he says, so "they're certainly not scaling back or abandoning those projects." Smaller banks, however, may hold off to see what works, he suggests. "Nobody knows yet -- we're waiting to see what slides off the wall."

To Text, or Not to Text?

London-based Barclays Bank ($2.27 trillion in assets), the 18th-largest bank in the world, hardly qualifies as small, but it still represents some of the uncertainty surrounding the form in which mobile banking will be delivered. Following the bank's introduction of browser-based mobile banking in summer 2007 and tests of various vendors' SMS-text offerings since, Barclays now plans to make its major m-banking push a text offering early next year, according to Phil Sowter, the bank's head of mobile and self-service initiatives, who admits that Barclays will be a little late to the SMS fray.

Barclays is convinced that text messaging is consumers' preferred method of banking on the run -- for now, Sowter says. "It's not a matter of either/or," he adds, suggesting that there is room for both browser-based and text-based mobile banking. But it will be some time before the content of the average Web site has been designed with the mobile user in mind, Sowter asserts.

"SMS is where the market is at in the U.K. at the moment," he continues. "It offers the reach and adoption that isn't there for downloads or browser-based m-banking."

Given the uncertainty about m-banking platforms themselves -- not to mention vendors' proprietary products -- Barclays exemplifies why some banks might keep mum on vendor announcements. Though Clickatell cited Barclays as a customer, Sowter tells BS&T that Barclays conducted "a couple of tactical pilots" of m-banking text alerts but would not proceed with Clickatell.

In Sowter's view, there's a lack of "scalable" vendor offerings for SMS-text banking. "We're looking at much larger and more-complicated SMS messages," he explains. "We want to extend the range of alerts beyond online banking customers." Sowter says Barclays' text service will include unique features, but he declines to elaborate.

Eventually, "The fixed and mobile Web will converge," Sowter contends. And he is echoed by others, including Huntington's McGee.

"We'll see many institutions layer one technology on another," McGee predicts. "The progression will be from browser to text to downloaded applications," he asserts, noting that the cost of deploying the three dominant forms of m-banking rises in that order. That said, "A tiny little bank with a good programmer could launch a mobile browser solution for a couple thousand dollars," McGee contends. But for that, he adds, "You'd likely just be able to check transaction history."

BankPlus, a $2.1-billion bank based in Jackson, Miss., isn't exactly tiny, but compared with the few banks operating locally that offer m-banking -- such as Wachovia Corp. (Birmingham, Ala.; $812.4 billion in assets) and Regions Financial Corp. (Birmingham, Ala.; $144.4 billion in assets) -- it is. According to Dave McLeod, BankPlus' EVP and chief technology officer, as of July, 3,000 of the institution's 30,000 online customers have adopted browser-based m-banking since it was first offered in late February 2008.

"Today, it's just an extension of our Web site," McLeod says. But, he adds, BankPlus hopes for revenue opportunities from m-banking in the future. "Bill payment is the only Web banking function you can't do in our m-banking," McLeod notes. But he stresses that BankPlus plans to offer m-banking functionality that goes beyond online banking, such as alerts.

Where's the Money in M-Banking?

McLeod's characterization of BankPlus' m-banking plans encapsulates many of the issues facing banks: How do they make money from m-banking? Why would customers want m-banking in the first place?

In the words of Forrester's Higdon, the knock on the current state of m-banking is that "All we have done is simply port over everything we have online to a mobile platform." Indeed, Citi's Kietz remarks that there was some online "badmouthing" of Bank of America for such "porting" when it recently released an m-banking service for the iPhone. Yet Charlotte, N.C.-based BofA is the industry's big mobile banking success story, with more than one million m-banking customers, and the iPhone is widely lauded for raising consumer awareness of mobile devices as transactional tools, not just communication devices.

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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