Mobile has transitioned into a ‘must have’ for many customer segments, thanks largely to the proliferation of smart phones across the global market and the ‘on the go’ internet access they provide. And with mobile internet usage expected to exceed desktop internet use by 2014,1 mobile banking services will become ever more important.
The combination of smart phone adoption and improvements in access speed means customers are increasingly comfortable with completing more, and more complex, transactions via their mobile.
After slow growth in 2010, consumer adoption of mobile banking technology skyrocketed in 2011. Reports suggest that 11.9 percent of UK consumers now use their mobiles to make payments online, double what it was 12 months ago. An estimated 20.4 percent of people bank via their mobile too, compared to 9.7 percent in 2010.2
Many customer segments are clearly getting comfortable with using mobile banking. It is particularly true of the Generation Y group (18–32 year olds) who are three times more likely to adopt mobile banking than older users.
Moreover, mobile banking is instrumental in building lasting relationships with Generation Y customers. According to recent YouGov research, one in four Generation Y consumers said their opinion of their bank would improve if it offered mobile financial services.3
Also known as ‘connected millennials’, these lucrative young consumers represent the fastest growing section of today’s workforce, and a quarter of the global population. The future importance of this segment cannot be underestimated, so banks will need to work harder to remain relevant, attractive and create value for this target market in a competitive landscape.
So far, however, the next generation of mobile technology, ‘Tap and Pay’ Near Field Communication (NFC), has failed to spark consumer interest, and is not expected to take off any faster in 2012.
The technology really came to prominence when Google integrated NFC into its Nexus Smartphone. Yet in 2011 there were still only 7 million NFC-enabled handsets in the US, less than 2 percent of all devices.
Other significant barriers are also impeding take-up, namely:
- The technology is only compatible with selected smart phones
- NFC is restricted to certain store purchases.
Until silos are broken down, and there is collaboration across the value chain between merchants, mobile phone companies and financial services organisations, the mass audience will remain unconvinced.
So what does the future hold for mobile banking?
Delivering an effective marketing and sales capability through the mobile channel will be crucial for banks in 2012/13. To date, banks have focused on developing a mobile banking service that is secure, offers an acceptable user experience and tests demand and adoption rates. That is, they have focused on servicing at the expense of sales.
Banks’ ability to present personalised, actionable marketing messages in context has turned the internet into a hugely effective sales channel. Banks with strong internet banking propositions now sell a quarter of their retail product this way, and the proportion of sales is rising steadily year-on-year. Therefore, as the mobile channel pulls customers away from the internet, it will need to earn its keep as a revenue generator, as well as a service channel, by generating similar sales levels.
Institutions such as Bankinter in Spain have shown how this can be done in a way that makes sense for mobile, without destroying the customer experience. In collaboration with Amdocs Mobile Banking solutions, Bankinter has built a cost effective customer communication channel that allows customers to receive alerts, respond to targeted sales offers, and access and manage their bank account information through a mobile device.
Mobile banking is still in its early adoption phase, and a large section of the population remains concerned about security and fraud risk. Banks will need to tackle these perceptions.
Equally, as mobile becomes more mainstream, banks must work hard to stay ahead of the fraudsters by providing ever stronger protection. New methods will be needed that do not compromise the experience in the way that current two-factor authentication, calculator-based security does. Biometrics perennially promises to solve these challenges without really doing so. Newer methods seem more accurate, and combine well with probability-based algorithms to reduce the problems of false positives in fraud checks. Nevertheless, none of these advances have resolved the problems of the initial capture of customers’ biometrics, or what happens if the biometric data is lost.
On the upside, mobile devices can play a key role in security by supporting out-of-band authentication in a multi-channel environment. For instance, alerting has already become a useful tool in reducing the impact of compromised cards and online banking credentials.
As part of the drive to both monetise the mobile channel and develop new revenue streams, we will see financial institutions offer standalone applications that support activities such as buying a home or car. Australia’s Commonwealth Bank Property Guide App is an early example of this, using augmented reality features to provide
a truly mobile-optimised experience.
Mobile payments is one of the hottest topics in financial services. While banks have not been hugely visible in this space to date, at least in the UK, there has been considerable activity behind the scenes.
It is important to remember that, through interchange fees, banks will benefit from any card-linked mobile payment or e-wallet solution. As for bank-branded offerings, Barclays has led the way through its Quick Tap partnership with Orange in the UK. And although NFC-based solutions have generated most of the attention, industry bodies in the UK have been working on solutions that utilise the Faster Payments and Link networks, thereby potentially avoiding some of the infrastructure hurdles to widespread NFC adoption. Expect to see some banks incorporating local payments into their mobile banking apps before long.
In summary, 2012/13 will be the years when mobile will move towards, but not reach, maturity. Banks will launch enriched solutions and applications that provide sales opportunities as well as service. We are already witnessing the development of some good solutions. But banks that fail to innovate to capture sales will have to question their investment in an area that fails to deliver the sorts of sales levels provided by their web banking channels.
1. Internet Trends, Morgan Stanley, April 2010.
2. UK mobile finance market doubles in 2011, TNS Global.
3. Mobile Banking a Competitive Differentiator for Gen Y in the UK, MobileFI, December 2011.