Skyrocketing numbers, smartphone ubiquity advance service’s second coming.
You’ve probably heard it before – mobile banking is the next big thing. It’s about to take off.
But this time, analysts say it’s poised to happen, and the numbers seem to back that up. “This is the big year in terms of percentage growth … This is the killer app,” says Mark Beccue, senior analyst in consumer mobility with technology research firm ABI Research.
The firm estimates only about 400,000 mobile banking users existed in 2007, a figure that skyrocketed to 3.1 million in 2008. In 2009, the numbers of subscribers will more than double, hitting the 7 million mark. Beccue’s long-term estimate: 32 million by 2013.
The number of U.S. banks offering mobile banking should hit 614 this year, representing about 4 percent of banks in the country, double the 245 that offered the service in 2008, according to financial services research firm Aite Group.
The effort is being spearheaded by major players like Bank of America, which launched a new mobile banking service in 2007 after efforts earlier in the decade failed. The bank has doubled its mobile banking customers in less than a year and now has 1.9 million active users of the service, up from 1 million in June. Mobile banking is an extension of the bank’s foray into online banking, a service currently used by 29 million of its customers.
User-friendly smartphones facilitate mobile banking much better than earlier models, whose small screens could be frustrating. About 40 percent of Bank of America’s mobile banking customers use the Apple iPhone or iPod Touch. The bank recently upgraded its mobile banking offerings for the iPhone and iPod Touch and released a mobile banking application for Research In Motion’s BlackBerry phone in early January.
Banks “can’t not have it. Bank of America, Wells Fargo and Citibank are all committed to this platform and that means everyone else that wants to stay on the ground has to,” says Jim Bruene, editor of industry newsletter Online Banking Report.
For carriers, the benefits of offering mobile banking are ambiguous. Though companies like Verizon Wireless, AT&T and Sprint facilitate the service, mobile banking does little more than provide a marginal boost to data ARPU at this point.
That may change down the road as features like contactless payments and the multi-mode mobile wallet become a reality, providing revenue opportunities for banks and carriers alike. Carriers will be able to use payment-enabling near-field communication (NFC) chips as a way to upsell customers on handsets while boosting data ARPU.
However, there is little infrastructure in place for contactless payment, when a consumer pays for merchandise by waving their phone past a reader. Most handsets lack an NFC chip and the penetration rate for contactless readers at the point of sale is low. Security is also likely to become a larger concern as handsets become an attractive target for hackers.
“There are lots of barriers to [mobile commerce] right now,” says Kelly Buday, representative for mobile banking applications developer Firethorn. “You can’t always find a reader and there’s the basic level of phones not having the chip, but we feel that is the end game and it is what we’re moving towards.”
Mobile banking has been touted as a way to reach the ranks of the unbanked, including immigrant populations likely to use the service for mobile remittances to relatives in foreign countries. Western Union is currently piloting one such program in the Philippines.
THE GEN Y FACTOR
The service also has been touted as a way to reach out to the 100 million-plus Generation Y consumers in the United States for whom mobile banking is an expectation, not an extra.
“Banks have run out of room for organic growth… They’re looking at unbanked markets, those deposits that are so desperately needed are going to come from areas that don’t have accounts today,” says Virgina Garcia, senior research director at Tower Group. “And in the past several years, more and more institutions have realized the power of generation Y – they have completely different service expectations.”
For now, the service offers few revenue opportunities. Banks have yet to charge for the service and its potential cost savings does not offset implementation and maintenance expenses.
“Some banks are rather begrudging of mobile banking [because] it’s what they have to do rather than what they want to do,” says Nick Holland, senior analyst at Aite Group. “[Mobile banking] is training wheels for other services down the line. There’s a whole variety of things they can tie in, a whole ecosystem of capabilities that can happen once the phones are in the market.”