Mobile Only Banking: The Pros & Cons for Financial Institutions

If you commute to work, go to the grocery store or walk down a busy street, chances are you will see someone using their smartphone. As a mobile-only lifestyle becomes more common, financial institutions have started offering additional mobile products to keep customers engaged across a variety of platforms. But, with this shift to mobile only banking comes a challenge to financial institutions: the ability to effectively cross-sell, especially as mobile users rely predominately on their mobile devices to conduct banking tasks and visit the bank branch less frequently.

Woman Holding Phone 2

According to the Online Banking Report[1], “We are almost at the peak of online access, with just one million new online households added last year, the fewest annual total since Internet banking came on the scene in 1995. The growth going forward will almost all be on the mobile front.  It’s been a fantastic five years in mobile, growing from less than 1 million U.S. households to about 28 million.”

Adding to this, a Digital Insight study of financial institution customers found that mobile only consumers are more actively accessing their financial information than consumers who only use a PC.  Online only logins per customer average 9.96, while mobile only logins per customer average 16.6.[2]

Mobile banking has many of the same benefits that are commonly used in PC banking, such as transaction history, bill payment and transferring money between accounts. Other positive outcomes to promoting mobile only banking include a lower cost to the financial institution per customer, as well as sustaining the generational aptitude to use mobile banking products. Javelin[3] “estimates that each in‐person transaction at a bank branch costs financial institutions an average of $4.25, while use of the online channel averages $0.19 per transaction and the mobile channel averages a mere $0.10.”

There are also many benefits to the financial institution to promote mobile only banking as the upcoming generation is focused on mobile and have a higher earning potential compared to older generations. An internal Digital Insight study of 27 financial institutions[4] found that 84 percent of mobile bankers are Gen Y and Gen X, and Javelin pointed out that by 2025[5], Gen Y will account for almost half of the nation’s personal income (46 percent). Targeting these specific users is a strong opportunity for revenue growth for financial institutions in the future.

Financial institutions will need to consider altering their branch banking methods as more consumers switch to mobile only banking versus online only. One challenge that financial institutions face from mobile banking is the inability to grow cross-sell opportunities through the online and/or branch channel, especially to Gen X and Gen Y.  These generations are the future of banking.  Mobile vendors are working on features to solve how financial institutions will handle cross-sell when fewer customers are entering the branch and less are logging online because mobile only is taking over.

Ilya Shalman, a Senior Certified Project Manager at Cap Tech Ventures wrote[6], “Financial institutions continue to struggle with creating cross-selling opportunities across their mobile channels… while the entire product offering from the online consumer site could be integrated into a mobile app, most options are not available. The failure to focus on cross-selling across channels is not only detrimental to your channel integration strategy but ultimately a threat to your bottom line.”

Ilya offers three threats to cross-sell on mobile banking: lack of mobile real estate, mobile platform immaturity, and code rigidity to incorporate. However, there are possible solutions for these threats. In addition, Andera’s Melanie Friedrichs wrote, “When it comes to cross-selling, experts suggest that less is more – consumers who haven’t thought about other products are likely to gloss over the heavy text and hit next as quickly as possible. If they are presented with a small number of choices and they can absorb the offer with only a few words, they are more likely to pause and consider the offer.”

A majority of the customers enter the branch for deposit only interactions. The issue with deposit only transactions at the financial institution is that once mobile remote deposit capture grows and the younger generation begins to deposit checks through their mobile device versus the branch, branch interactions will decline[7]. There will be a need for customer service representatives at banks and credit unions to morph into cross sell warriors, targeting those customers that still enter the branch.

As mobile only banking continues to grow, one cannot help but consider the positive and negative aspects this situation may bring. Mobile only banking will surely decrease transaction cost to the financial institution, as well as targeting a high earning potential market in the upcoming generations. However, the challenge of cross-sell efficiency will need to be combated with new practices. In addition, with the rise of Mobile Remote Deposit, comes declining deposit activity in the branch.  What do you think about the idea of mobile only banking? Will this become a strong benefit to the financial institution, or will it begin to cause challenges that the financial institution will have to consider and combat?

About Heather Youngo:  Heather is a business analyst with Digital Insight and leads the initiative on generating and maintaining the accuracy of financial institution profitability data.  Heather holds a Bachelor of Business Administration degree in marketing from the University of Georgia.


[1] Online Banking Report, Number 212, January 5, 2013, page 5

[2] Digital Insight Internal Internet Banking/Mobile study of 7 Digital Insight financial institution customers, February 2013

[3] Javelin Strategy & Research, A Tale of Two Gen Ys: On the Road to Long-Term Banking Profitability, page 6, January 2013

[4] Internal study of 33 Digital Insight financial institution customers, June 2010 through February 2013

[5] Javelin Strategy & Research, A Tale of Two Gen Ys: On the Road to Long-Term Banking Profitability, page 9, January 2013

[6] Ilya Shalman, with Michael Tevebaugh, Chris Crawford, Debbie Miller, Craig Miller: From “The Handheld Billboard – Cross Selling with Financial Services Mobile Applications”, from CapTech Blogs, July 2012

[7] Internal study of one Digital Insight financial institution client, November 2012

Comments

  1. Cory says:

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  2. Heather – you bring up some great points. A comprehensive mobile banking strategy should include a cross-sell component or else financial institutions risk leaving money on the table. Customers want to be presented with the right offers at the right time – every time. This means knowing what your customers are doing (and not doing) and what they’ve done in the past. Predictive analytics technology that can be integrated seamlessly with all your digital channels (not just mobile) can help create an engaging user experience for all your customers. Personetics leverages readily available banking data, the context of specific customer interactions, individual customer activity and crowd behavior to accurately predict customer intent. By accurately predicting customer intent, personalized offers and features can be placed before your mobile customers. Data shows that customers are more likely to sign up for a new service or product when they have a live example of how your bank can simplify their life. Shortly after Isracard, a major international card issuer, deployed Personetics to offer up-sell recommendations, they found that nearly half of customers accepted the new product or service – an astounding statistic that is well above the current industry average.

    So, why the challenge is there, I think the opportunities are far greater for FIs looking to implement a comprehensive mobile banking strategy. There is always something else around the corner (and its name might be tablet), so mobile won’t be the last challenge we are faced with.

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