Like Coyne, Doug Brown, SVP of mobile solutions for Jacksonville, Fla.-based banking and payments technology vendor FIS, believes mobile is a big part of the future revenue mix for banks. "A lot of big banks are making a transition from the old business model of fees to a new one," he says. "Mobile phones and tablets offer a lot of potential to reach clients in new and better ways."
Mobile wallets, which use NFC-based technology to allow customers to make contactless payments at the point of sale, already have begun to make their presence felt. Mountain View, Calif.-based Google launched a digital wallet this past fall. The search giant has agreements with Visa, MasterCard, American Express and Discover to make the Google Wallet available to the card companies' account holders, and there already are some NFC-enabled terminals in use across the U.S. that can accept it, including at many mass transit stations. Meanwhile, Isis, the mobile payments venture formed by AT&T Mobility, T-Mobile USA and Verizon Wireless, is set to launch this summer in select U.S. markets.
Brown believes mobile wallets can help banks replace traditional revenue streams in a number of ways. First, with consumers using their phones, rather than debit cards, to purchase products at the point of sale, it helps reduce reliance on what has now become a less-profitable payments method for banks due to the new Durbin interchange rules. "That can replace a lot of the lost interchange revenue," says Brown.
Also, adds Brown, the digital credentials used in a mobile wallet can help banks drive value for their customers at the point of sale, such as with expanded loyalty programs and location-based offerings, by partnering with local merchants. "It gives banks control of the customer experience," Brown says. "They can do merchant-funded rewards, but also there is opportunity for additional bank services, such as a microline of credit that might be needed at the time a customer is buying something. Banks are seeing now that consumers will happily pay for convenience." Meanwhile, he suggests, banks can leverage their "enormous advantage" in consumer trust versus companies that now offer similar services, such as Groupon and Living Social.
Brown admits that mobile wallets still need to gain widespread acceptance for such programs to be profitable for banks, but he believes that will happen sooner than many may think. One big obstacle for large-scale adoption of mobile wallets is that merchants need to install NFC-enabled terminals. But there are ways around that, Brown notes. He says FIS has created a mobile wallet offering that is cloud-based and can read QR codes printed off of a receipt, thus bypassing the need for NFC terminals. "We're still probably two to three years out before we see significant penetration [of mobile wallets in the U.S.], but I think it will happen, considering smartphone penetration is over 50 percent in the U.S. now."
Gaurav Dhall, global head of enterprise mobility and mobile devices for Wipro, a global IT services and consulting company headquartered in Bangalore, India, says mobile also can be used to set up new revenue streams for banks beyond the retail consumer space. For example, Dhall says, banks are offering their bigger clients wealth management services and programs on tablet computers, which are highly interactive and content-rich devices. "That can help keep the client sticky and sell them more services," he adds. Banks also can leverage the online channel in a similar way, Dhall notes, by providing services such as portfolio management.
Already, banks are beginning to utilize mobile in practices such as lending, adds Shushankar Daspal, the practice head for banking channels at Wipro. Lending products, he says, "are reasonably profitable products, and they help establish a long-term relationship with customers." According to Daspal, some banks are starting to look at how tablets can be used to aid in the mortgage process -- for example, by providing tools to help prospective homebuyers compare house prices in a certain area, or by giving them to mortgage loan originators who can use the tablets to follow up on additional requirements and request credit results.
End of the Branch as We Know It
As mobile continues its rise, meanwhile, most industry insiders agree that a reduction in branches — or at least a reinvention of the branch — will be necessary for banks to improve profitability. Celent's Narter believes branches will continue to have their place, but will act as more of a "sales and service center" rather than as a place to conduct a basic transaction, such as depositing a check. (For more on the transformation of the branch model, see related article, page 22.)
"Branch visits per account are going down," Narter reports. "There is an increase in envelope-less ATMs, which people are much more comfortable depositing checks into. And mobile RDC has also sucked traffic out of the branch."
Narter sees the redesigned, sales and service-focused branch of the future as featuring "smart" ATMs in the front of the store and trained staff on hand to assist customers who need help using them. He also predicts that to save money on staffing, banks will utilize "remote experts" -- each branch location may not have a mortgage expert on site, but a customer interested in finding out more information about mortgage products will be able to speak to one via videoconference.
Bob Meara, a senior analyst with Celent, adds that while U.S. banks are over-branched as an industry, there are viable branch strategies, depending on the size and culture of the bank. Credit unions and community banks, for example, still rely on the branch as a major channel and driver of new account openings. For bigger banks, Meara says, there will be an increase of in-store branches, not just in traditional locations like grocery stores, but also in department stores and other retail outlets where banks do not generally have a presence now.
Ultimately, though, Meara believes there will be a decline in the number of future branches. "In the next five years we'll see quite a significant contraction in the number of branches," he asserts. "It wasn't very long ago that banks trumpeted their extraordinary branch footprint as the reason why they will succeed; now they regard them as hugely expensive."
Whatever changes may occur, it's clear that rapidly emerging technology, intensifying regulatory scrutiny and evolving consumer preferences will change the way banks do business in the future. "It is an industry that is reinventing itself, so it is pretty exciting from that aspect," says KeyBank's Coyne. "There is a lot of opportunity."