The subprime mortgage crisis is causing havoc for a lot of banks, but they don’t
appear to be retreating from their efforts to move ahead with mobile banking.

The past year has been nothing short of spectacular for some companies in the mobile banking space. Firethorn Holdings sealed deals to provide its mobile banking solution to AT&T Mobility and Verizon Wireless, the two biggest U.S. carriers. Plus, the company became a stand-alone division of Qualcomm, putting it into the league of heavy hitters. mFoundry completed a $15 million Series C financing round led by Motorola Ventures that included strategic investors PayPal, NCR and two unidentified wireless operators. ClairMail was recognized with an Andrew Seybold Choice Award, among others, and announced BB&T as the first customer in its partnership with mFoundry.

Rackley: Subprime market woes didn’t affect mobile banking.

“2007 was obviously a big year for the industry and it was a big year for us,” says Firethorn Holdings Chairman and CEO Tripp Rackley. Not only did the company launch its platform with AT&T and Verizon, it also brought on financial institutions such as Wachovia and SunTrust Bank. National marketing campaigns, including billboards and radio spots, got under way. “It’s pretty amazing that all happened.”

SO MUCH FOR SUBPRIME
But aren’t banks distracted with the subprime woes? Some analysts say they don’t see that having a direct bearing on mobile banking initiatives. Drew Sievers, CEO and co-founder of mFoundry, says maybe one bank has said it isn’t going to do anything because of the crisis; most see mobile banking as a way to reduce costs and retain customers. Rackley says financial institutions are highly compartmentalized, so the subprime market problems reside in different divisions from the ones that are pursuing mobile banking.

Sievers: Plenty of business to go around.

In fact, the mobile banking picture has improved in the eyes of some over the past year. About a year and a half ago, David Chamberlain, principal analyst at In-Stat, had fairly low expectations for mobile transactions outside Japan. But after a study he concluded late last year, he changed his mind. While it’s a complex value chain involving banks, merchants, card issuers and more, he sees vendors demonstrating patience toward the goal of eventually getting to contactless payments using near-field communications (NFC). In-Stat predicts up to 30 million subscribers in North America could be making contactless payments with their mobile phones by 2012.

With millions of people using Internet banking today, “it’s not necessarily a great big jump to see people considering doing this on their cell phones,” he says. “And once we do that, maybe we can do commerce or transfers… these different kinds of payment methods, person to person, person to business. Once we’re doing all that, what’s to keep us from using our cell phones for contactless?” In time, the cell phone could become the loyalty card that grocery stores use, he suggests.

MORE THAN THE INTERNET
No doubt, there’s a lot of ground to cover before contactless payments become commonplace in the United States. Thus far, the mobile banking experience is basically replicating what’s on the Internet, and “our goal has never been to replicate Internet banking but position our financial institutions as looking at the mobile channel as a new channel, bigger than the Internet,” Rackley says.

Rackley, whose previous firm, nFront, built Internet banking solutions, says Internet banking has changed little in the past 10 years. Consumers check balances, transfer money and pay bills, and that’s pretty much the extent of it. “When you move into mobile, all of a sudden you’re talking about a device with you 24/7,” far more prolific than PCs. Managing your wallet on the phone, storing coupons, buying tickets – it’s a different ball game, he says.

Yet going to contactless payments requires a lot of integration, including close relationships with carriers, handset vendors, financial services and chipset providers. Firethorn wasn’t out shopping the company when Qualcomm came calling last year with its $210 million acquisition offer, but when the opportunity presented itself, it was too good to turn away. Hooking up with Qualcomm, with its hefty balance sheet and global expertise, puts Firethorn in a class by itself, Rackley says.

That might lead some observers to speculate that carriers could decide to pick just one solution, but Sievers doesn’t see Qualcomm’s acquisition of Firethorn as a threat to his business. Banks also like to have what he describes as an “open and equitable” option as opposed to the closed reputation that many associate with Qualcomm, although the company would no doubt dispute that label. And Firethorn’s relationship with the two largest U.S. carriers doesn’t mean mFoundry will be left out it the cold. Far from it, he says. mFoundry works with all the major U.S. carriers, which often follow a multivendor strategy.

Last year, mFoundry signed an agreement with Fidelity National Information Services (FIS) for its Spotlight Financial Platform, so FIS can offer hosted mobile banking and payment solutions to its banking and credit union clients. That was a big win for mFoundry because FIS provides banking technology to some 9,000 banks across the country. Early this year, PSCU Financial Services, which serves more than 1,100 financial institutions nationwide, announced it was adopting mFoundry’s platform for credit unions and their members. That service is expected to be available in the second half of this year.

Sievers says he believes there’s room for existing solution providers as well as the newcomers that will no doubt surface. The United States is home to more than 15,000 banks and credit unions, so there’s a lot of business to go around. “We’re all doing reasonably well,” he says.

Talbot: Building a mobile banking app for Sybase was a no-brainer.

AROUND THE WORLD
Taking a more global approach is Sybase 365. “We didn’t create this company for mobile banking,” says Matthew Talbot, vice president of m-commerce at Sybase 365. But Sybase has connections with carriers all over the world as well as expertise in financial services, so building a mobile banking application was essentially a no-brainer. “Sybase is a global player and we are going after a global market here.”

That global audience includes the segments that want to do international transactions. Instead of using Western Union, migrant workers could, for example, use their mobile phones to wire funds back to family in other countries. “It’s definitely a big interest to the banks to get into that space,” he says, adding that for consumers in many countries, their first real Internet experience is via a phone, not a PC.

Still unanswered, says In-Stat’s Chamberlain, is who will pay for it all. But he has heard one answer: Americans will pay for convenience, whether that means splurging on pre-chopped carrots or a tub of mashed potatoes. Still, that runs counter to a survey showing early adopters are reluctant to use new banking services if it means paying more fees.

Perhaps reflective of the historically conservative nature of the financial industry, vendors are cautiously optimistic. “There’s a tipping point that occurs … We’re not there yet,” Rackley says. “Right now, we have proved the model, we’ve got the platform on the phones. We can show people what it does.” But, he adds, “the value is not replicating what you can do on the Internet today, but giving the consumer a unique experience. That takes more content, more handsets and more end-users, so that’s our primary focus.”