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Mobile Only Banking: The Pros & Cons for Financial Institutions

May 13, 2013 By Heather Youngo 1 Comment

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.

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, an Intuit 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 Intuit 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 Intuit Financial Services 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] Intuit Internal Internet Banking/Mobile study of 7 Intuit 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 Intuit 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 Intuit financial institution client, November 2012

Filed Under Data & Research Tagged With financial institutions, Intuit, mobile banking, online banking

The New Normal

April 2, 2013 By Banking.com Staff 4 Comments

One reason the technology industry is so unique is that it has—or more accurately, successful companies have—developed the art of self-cannibalization. It’s a neat trick, and everyone can learn from it.

As technology consumers, we’ve come to expect that every product will invariably get ‘better-faster-smaller-cheaper.’ For their part, most technology vendors know that if they don’t deliver advances at a lower cost, someone else will. As a result, companies build around a business model that routinely cuts into their own profit margins. It’s counter-intuitive yet vital.

It’s not necessarily a discipline that travels well across industries, although there are exceptions (anyone remember how much flat-screen TVs used to cost?). But elsewhere, the price tag for everything from cars to houses continues to rise. With technology, it almost always goes the other way.

The banking industry seems to be in the process of learning these lessons. At a number of industry events recently, leading lights from the world of financial services have gone public with the need to change some fundamental operating assumptions. At its heart is the vexing question the technology industry has long confronted: Can customers benefit only at the expense of the vendor?

This is the new normal, and everyone needs to change accordingly.

To be clear, the banking industry does face major challenges. While overall economic belt-tightening surely takes its toll, governmental pressure hasn’t helped either. For example, regulations that place curbs on debit card and overdraft fees have hit the industry hard; banks could collectively lose revenue in the $12 billion range.

But the problems are even more systemic. The new normal is worlds removed from the past—customers now routinely expect more from less, and they have more options than ever before. Even a question as basic as branch banking is now the source of constant headaches. On the retail side, this model has been the cornerstone of virtually all market-facing initiatives. But as customers do more online, this model has been thrown into turmoil. Today, every institution must conduct extensive cost-benefit analyses on which branches to close and which, if any, to open. Of course, this affects everything from staffing to capital expenditures on real estate, which in turn affects the bottom line.

In the same vein, the plethora of mobile apps available from every financial institution means that everyday processes have been completely transformed. For example, it’s estimated that, rather than walking up to a teller’s window or even stopping by the ATM, customers now deposit checks via their mobile devices 10,000 times a day. And if that’s the case now, imagine what the numbers will be in five years. For the record, as related by William S. Demchak, President of the PNC Financial Services Group, this change in user practices customer saves $3.88 per transaction. That’s money the bank gets to keep.

So new technologies and changing user habits benefit the customer and benefit the bank—everyone’s happy, right? Sure, but this is why additional and alternative revenue models are so important. Key question: if customers no longer have to go to the bank or even an ATM to deposit a check, would they be willing to pay a very small fee for the convenience?

In other words, does technology enable only savings or additional revenue?

This is why the lessons to be learned from the technology industry are so important. It has weaned the market to want new products—the latest smartphones, software upgrades, cool accessories—regardless of the validity of the model they already have. There are plenty of Apple iPhone 4s to be had for very little money, but everyone wants the iPhone 5. And that’s just one reason why Apple recently had the highest market cap of any U.S. company in history (though it’s fluctuated since).

Not every company can be the paragon of innovation that Apple is, of course, and financial services is a very different industry. But as we’ve covered on this blog before, the former has benefited greatly from disruption and innovation, leading to an endless supply of emerging market leaders, while banking seems to have the same players and same business models year after year.

Banking’s new normal brings not just disruption but opportunity. There are new markets, new capabilities, new technologies and new customers. All of that should surely add up to some new revenue.

Filed Under Industry News Tagged With banking news, online banking, PNC Financial Services Group

What We’re Reading: Continuity, Mobile Usage and Mobile Commerce

November 2, 2012 By Banking.com Staff Leave a Comment

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

Bankers’ Next Storm Challenge: Continuity

American Banker

As Hurricane Sandy starts to make its way inland, bankers from Virginia to Maine have shifted their efforts away from emergency preparedness to focus on post-storm crisis management. The decision to open or close branches took place over the weekend, along with choices on staffing data centers and contacting employees. A number of banks also used social media to inform customers how to set up and use online banking should their branches remain shuttered for several days. Bankers are looking ahead at the coming week with a realization that many of the customers, and some of their branches, could be knocked out of commission for the foreseeable future. The storm’s timing was particularly taxing for banks that process clients’ payroll payments, making that a top priority for some management teams.

Is the ‘Branch of the Future’ Here?

GonzoBanker

The “Social Branch”. The social branch is the model most people immediately associate with the “branch of the future” concept. Queue the tranquil lobby music! This is the open, inviting atmosphere with amenities so abundant that customers will come to hang out, drink free coffee, receive amazing personal service from new account reps floating about the lobby with tablets in hand, and get the fastest service available by tellers perched proudly behind their teller pods. However, for the most part, organizations implementing this concept as a tactic to drive more customers through the door have struggled to justify the effort spent. The social branch is likely to be a hit with FIs in urban markets that have a strong brand and a level of customer loyalty high enough to drive feet through the door for more than just routine transactions. Rural markets will be hard pressed to get this to succeed.

Checking Balances, Viewing Transactions Are Top Mobile Usages, Study Finds

Bank Systems & Technology

The study, conducted for Virtual Hold Technology by The Adcom Group, also found consumers grow increasingly frustrated when problems arise with mobile apps that prevent them from completing a task. Checking on account balances and viewing transaction histories are the most common tasks customers perform in financial mobile apps, according to a study from Akron, Ohio-based Virtual Hold Technology. The study, conducted for Virtual Hold Technology by The Adcom Group, surveyed 600 U.S. smartphone users between May and June on their mobile financial habits. More than 94 percent of those who have downloaded financial smartphone apps said they use them to check account balances, while 90 percent use them to view transaction history. Sixty-five percent of users transfer funds while 60 percent schedule or modify payments or online bill-pay. Only less than 1 percent indicated they use mobile apps to deposit checks, locate ATMs, cash in reward points or send money to others.

Image Processing Tech Limitations Could Stymie New Mobile Banking Apps

American Banker

Financial institutions have been experimenting for a few years with new and creative ways of taking advantage of smartphone cameras to provide mobile banking services. They started with mobile check deposit and have moved on to mobile capture of mortgage documents and drivers’ licenses. But there are factors that limit how widely mobile cameras can be used to advance financial services. Technology analysts say gaps in processing and user interfaces will have to be overcome before mobile image capture can be optimized as a way to expedite myriad types of consumer financial transactions. Bob Meara, a senior analyst at Celent, says adoption of remote deposit capture — or using a smartphone camera to take a photo of a check to facilitate a deposit — has grown quickly after a slow start. But more exotic uses of mobile capture, such as snapping a picture of a bill for mobile bill payment, have not been as popular. “I would say adoption has been lackluster,” he says. Research from AlixPartners that forecasts mobile photo bill pay adoption could reach 33 percent by 2018.

Tapjoy: M-Commerce to grow 300% by 2015

Biz Report

Mobile is predicted to have a big impact on holiday shopping for 2012, but the bigger picture shows sharp increases in mobile spending over the next three years. According to new data out from Tapjoy mobile commerce (US) could increase by as much as 362% over the next three years. The Tapjoy study further shows: 54% of Tapjoy customers shopped via mobile in the previous six months. 45 million smartphone users looked into the shopping app category (June 2012); nearly half use these apps. On average, smartphone users access shopping apps 17 times per month. 64% of those polled said they would make mobile purchases over the 2012 holidays. While ‘on mobile’ users are comparing prices (61%) and accessing promotions/coupons (51%) the most. But, shoppers are also accessing reviews, scanning mobile barcodes and taking product pictures while shopping.

Working To Make ACH Easier To Explain

Credit Union Journal

In 2010, NACHA – The Electronic Payment Association began a new messaging project initiative to develop clear, powerful messaging ensuring a common understanding of the NACHA Operating Rules, the ACH network, and ACH payments. The initiative involved the definition, adoption, and consistent use of industry terminology to explain the ACH network, ACH payments, and their attributes and advantages. The recently launched ACH Messaging Campaign and Microsite are very important from my perspective, because consumers and businesses really still don’t know and understand the ACH network. Numerous tools have been developed to help those in the industry describe ACH payments with clear, consistent terminology.

Going Luddite on Mobile

October 22, 2012 By Banking.com Staff Leave a Comment

Tracking the adoption of mobile banking is like putting human behavior under a microscope…again. In a sense, it’s very much like the adoption of online banking (or online anything else), only on a much faster scale. To some, it’s still odd working with professionals who can’t remember what business was like before the Internet. Imagine how we’ll feel when the colleague in the next cubicle has no memory of life before “there’s an app for that.”

The issue seems to have taken on extra relevance because there’s been a flurry of articles recently about how mobile banking is not being adopted as widely as it should because of security concerns. Even the Better Business Bureau (BBB) is offering tips on safe mobile banking practices.

There’s nothing wrong with good, sensible advice, but maybe we need some perspective here.

First, let’s be clear about the adoption of mobile banking: It’s growing at an astonishing rate. As far back as 2011, an eternity in tech years, research firm Yankee Group projected in its Mobile Money Forecast that global mobile transactions would grow from $241 billion last year to $1 trillion-plus by 2015. That’s a staggering CAGR (compound annual growth rate) of 56%–how many other trends can we say that about?

More to the point, the practice continues to grow without huge amounts of education or even promotion. Just a few years ago, the term ‘mobile app’ didn’t even exist; now there are literally millions of them, and most of us are blasé about what we choose to download and use on a regular basis. The mobile device has effectively blurred the distinction between personal and business use and forced our employers to keep up rather than push us to try new software.

Sure, putting money into the mix changes things. It’s one thing to download a video game for playing while on the road and entirely another to use a new button to make an impulse investment or just transfer funds. But what’s remarkable is not how few people do exactly this and more, it’s how many do it every day.

Again, good advice is always welcome, but it’s likely that most of have already heard (perhaps many times over) what the BBB is telling us we should do to protect out investments. Don’t follow links; don’t download authorized applications; keep devices secure. That said, we probably need to keep hearing it.

It used to be said that while Windows PCs got hacked relentlessly, Macintoshes were pretty safe. That’s statistically accurate, and therefore true, but one reason is that the customer base for Apple products was comparatively small. Hackers went after Windows users for the same reason that Willie Sutton allegedly gave for robbing banks: that’s where the money is. Well, guess where the money is now.

There will always be some, from the hyper-cautious to the Luddites, who resist mobile banking. The alternate reality is that there’s already a vast customer base for mobile banking, and they deserve the greatest attention (which is exactly what cyber-criminals are giving them).

The mobile experience for every human action will continue to evolve and gain in popularity, and banking is no exception. There will be viruses and data breaches, and a few will gain enough of a profile to scare off some potential users. But the technology itself offers too much flexibility, productivity and convenience to completely outweigh the risks.

There’s a downside, and we need to keep it in mind. But as industry professionals, it’s our job not to be overwhelmed by the threats but instead focus on keeping the practice as secure as possible. Our customers—and there are many of them—need that.

This article originally appeared as a guest post on MyBankTracker.com.

Filed Under Industry News Tagged With banking news, banking services, mobile apps, mobile banking, mobile payments, mobile wallet, online banking, PFM tools, security

The Impact of Baby Boomers & Seniors on Online Banking

October 11, 2012 By Jason Weinick 1 Comment

There is a presumption which exists in the world of online banking that baby boomers and seniors do not use their computer and/or mobile device to interact with their financial institution. We’ve all heard the reasons why – security, lack of internet access, or they prefer to bank the way they’ve always banked. However, as a Gen Xer and someone who works in the banking industry, I’ve seen that boomers and seniors do use online banking, and they could fuel the next growth wave within digital banking.

Over the last three years, I have performed portfolio analytics across dozens of Intuit Financial Services’ clients encompassing 2.8 million checking account holders.* These deep dive studies have provided me with insights into the banking behavior of consumers. While baby boomers and seniors have not quite reached the level of adoption rates of online banking as Gen Y/X, it’s hard to ignore their adoption growth over the last several years. Additionally, once baby boomers and seniors become active users of online banking, their engagement within the channel rivals Gen Y/X. Baby boomers and seniors, ages 49-68 and over 68 respectively, account for 46 percent of all open checking account holders.

* See chart below for breakdown by generation and comparison of bank vs credit union.

Across the 2.8 million checking account holder segment I have analyzed, 55 percent of Gen Y (0-28 in age) consumers actively use online banking. This rate is 57 percent for Gen X (29-48); 46% for baby boomers; 27% for Seniors. Those stats probably don’t surprise anyone, but what if I were to say that both baby boomers and seniors demonstrate a higher active use rate for bill payment than GenX and GenY? Granted, Gen Y includes a portion of consumers who (enjoy it while you can) haven’t reached the point in their financial lifecycle to have payment obligations, but it’s probably safe to say that most Gen Xers have monthly obligations. 35 percent of online banking boomers utilize bill payment, compared to 33 percent for seniors and 32 percent for Gen X. Granted, the variance here is very tight across these 3 generations, but the point I’m making here is that boomers and seniors utilize the services within the online channel once they feel comfortable with using online banking. And it’s not just bill payment – Personal Financial Management tools, internal funds transfer, eStatements – boomers and seniors have shown an appetite for these services, and as we know, the more engaged a consumer is within a channel, the less likely they are to leave the financial institution.

According to a study by Market Insights Professionals, “Boomers…are not far behind in embracing the Internet for their shopping needs–two out of three Boomers have researched a product or service online in the past three months, and more than seven out of 10 have made an online purchase during the same time frame. Boomers are the generations with the highest online spending levels.”[i]

What is also interesting within the data I’ve analyzed is the trend over time related to the active use curve of online banking. The traditional product curve for online banking reveals early adopters are younger demographics who embrace technology, have grown up with a computer and internet access, and value anywhere/anytime convenience. Pew Research found that “While the youngest generations are still significantly more likely to use social network sites, the fastest growth has come from internet users 74 and older: social network site usage for this oldest cohort has quadrupled since 2008, from 4% to 16%”[ii]. Technology services such as email, Skype, eBay have become increasingly popular with boomers and seniors, and as their comfort level with technology grows, so too does their adoption rates of online banking. The table below illustrates the online banking behavior of the same checking account holders over a two year period. The annual growth rate of seniors actively using online banking is outperforming all other generations, followed by Gen Y, Boomers, and Gen X. The additional growth in Gen Y is believed to have been fueled by mobile banking.

I know what you’re thinking – because seniors started at such a low adoption rate there was more room for them to grow. That is true, but their rate of growth still exceeded other generations, in part because technology is becoming more commonplace in their household and financial institutions have vastly publicized the security and convenience of online banking. “Older generations become more active as their experience with a new channel increases. Our research shows that as tenure with a digital channel increases, so, too, does a user’s willingness to conduct more complex interactions through that channel — such as selling a security through a mobile phone.”[iii]

While the saturation point of online banking for Gen Y and X might be near, boomers and seniors not only represent the majority of the US population, but their acceptance of online banking continues to grow at a rapid rate. Financial institutions and providers of online banking services must be aware of consumer demographics and perhaps go so far as to customize online banking for those demographics. Whether it’s the font size on the computer screen, products/services presented to the consumer, or changes to secure login credentials, demographics should not be ignored when considering growth in the online banking channel. Do not grow complacent in pursuing this older market. As you can see, there is much opportunity and benefit to attract the older generation. It is observed, that once the baby boomers and seniors gain confidence in the online channel, they will begin to cultivate additional online services, which presents another chance to cross-sell this generation.

About Jason Weinick: Jason is a Senior Analyst with Intuit Financial Services and leads the initiative on client profitability analyses, providing banks and credit unions a valuable in-depth look into the value of the online channel. Jason’s background includes 15 years experience within the financial services sector, focusing on consumer behavior, risk modeling, reporting, and financial analysis. Jason holds a Bachelor of Science degree in Finance from Clemson University.

[i] November 2, 2011: The State Of Consumers And Technology: Benchmark 2011, US, by Gina Sverdlov, for Market Insights Professionals

[ii]Pew Internet Report: http://www.pewinternet.org/~/media//Files/Reports/2010/PIP_Generations_and_Tech10.pdf

[iii] June 8, 2011: Mobile And Social Technologies Come Late To Wealth Management: Younger Generations Are Just The First Wave Of Mobile and Social Adopters- by Bill Doyle with Benjamin Ensor, Amelia Martland, and Beth Hoffman

Filed Under Data & Research Tagged With Baby Boomers, gen x, gen y, Intuit Financial Services, online banking

Peering Into The Future

September 13, 2012 By Banking.com Staff Leave a Comment

Online banking carries with it the same question that accompanies every aspect of human activity moving online: Is it simply a more convenient way to do what we’ve always done, or is something new, particularly in the sense that we can do more, and therefore will do more?

There’s obviously no simple answer to this—the very act implies a level of customization that rules out any all-purpose conclusion. But if we still don’t know everything, what we do know now that we didn’t know even a couple of years ago?

A recent report from Javelin Strategy & Research has some answers, and they’re not particularly pleasant. Here’s the gist: Too many financial institutions still view online banking as the completion of a circle—consumers and (and maybe businesses as well conducting transactions, only doing it faster and more easily than by going to the bank. Javelin emphasizes that this “approach to online banking and bill pay has reached saturation because it is outmoded and unappealing in an era of customer-controlled interactive finance.” And that’s not all. Instead of new, technology-driven offerings drawing more business, Javelin theorizes, it might be even be a handicap: “The banking industry’s stale approach to online banking and bill pay leaves FIs particularly vulnerable to losing the 11% of consumers who are likely to switch primary FIs this year.”

The fundamental problem is the role of the bank in the equation—is it now simply a facilitator, the same way a basic piece of technology might be, or does it have more to offer?

Looking back, it’s easy to see that this is a transformation that’s been a long time coming. The availability of personal finance software two decades ago signaled a major shift in consumer behavior; the ability to collate huge amounts of information with ease and speed enabled a level of unprecedented control over money matters. The rise of online trading was another milestone—the boom years of the dot-com era surely had a lot to do with the voluminous buying and selling of the late ’90s, but instant access to business data was also responsible for much of it. Even the simple act of online bill paying was, in its own way, revolutionary.

In this context, it’s easy to understand that in the grand scheme of things, online banking in general and mobile banking in particular are still in their infancy. But in a few years (there’s a reason this blog is called Banking2020), everything we do now will seem antiquated. That still leaves the question of the banking industry’s role in this evolution.

For example, think of how consumers prefer to pay their bills. While FIs in general have a share of this market, they could surely get more. However, research shows that many consumers still indicate a preference for bill-paying services rather than their primary financial institution. What can the FIs do to bring the back the business that many think is rightfully theirs?

This may be a small issue, but it offers a perspective on a larger one. Throughout its history, the banking industry has thrived on certain core advantages—trust and credibility built over years of operation, the convenience afforded by a real-world presence and easy access, the stability that comes from size and government-backed insurance. But as with so many industries, the past couple of decades have brought about more changes than the dozen decades that came before. In the era of mobile banking, these advantages are still there, but they don’t mean as much as they used to.

The Javelin report urges FIs to “raise their aspirations beyond being an efficient pipeline for paying bills to instead become a place where customers gain control, oversight and insight into their bills, spending, cash flow and overall finances.” That said, there’s no magic bullet here—every institution will have to figure for itself what this change entails.

To be sure, this will require a fundamental transformation in everything from business philosophy to operating practices. Those that resist the change have a problem. However, those that take on the challenge early, and manage the change well, will not only survive but thrive.

Filed Under For Financial Institutions Tagged With Banking 2020, financial institutions, Javelin Strategy & Research, online banking

Online Banking: Glory or Gloom?

August 27, 2012 By Banking.com Staff 2 Comments

TSB Bank just announced that less than a month from today, it will close its Frankleigh Park branch.

For readers who might be unfamiliar with those names, TSB is a locally owned full-service bank, and Frankleigh Park is a suburb of New Plymouth, in the western North Island of New Zealand. The most recent figures indicate a population of less than 4,000. The given reason for the branch’s closure is simple: It reflects the global shift to “self-service banking,” where people do more things online. In particular, consumers are using mobile devices in increasing numbers to conduct financial transactions.

Going to the other extreme, consider ICICI Bank, the second-largest private sector financial institution in the world’s second-most populous nation, India. “More than one third of our transactions take place through Internet, making it the second most used medium,” Chief Executive and Managing Director Chanda Kochhar, just announced. “With the increase in Internet usage, it may also grow to occupy the No. 1 position.”

She further noted that mobile phones and tablets are growing at over 100% every year, compared to only 20% in desktops, and that has prompted the company to launch an array of new services, including electronic ‘branches’ that conduct operations around the clock, ‘tablet-based’ banking offerings that ease account opening, and enhanced POS terminals that facilitate every transaction. In the spirit of ‘democratization’—helping consumers without personal access to technology still enjoy its benefits—the company already has 25 electronic branches in 18 locations around the country.

If those seem like extreme examples, take a look at KB Kookmin Bank of South Korea. It launched KB Star Bank, a service optimized for smartphones, in April 2010, and the results seem to have surpassed all expectations. The service had I million subscribers in barely a year, passed 3 million the next year, and was up to 4 million by June of this year.

So where is the United States in all this? The most recent survey by the American Bankers Association reported in September of 2011 that 62% of all bank customers preferred online banking, a rise from 36% the previous year. The real news back then was that, for the first time, a clear majority, 55%, of bank customers over the age of 55 professed a preference for online banking over any other method. That represented a very sharp spike over 2010, when only 20% had the same opinion.

Let’s acknowledge that pretty much any Internet report or survey is nothing more than a snapshot. Online adoption or activity is a fast-moving target, and today’s hot trend is tomorrow’s dinosaur. Obviously, online banking in general and mobile banking in particular are not some niche trends—they represent a massive change in customer behavior, and they’ve evolved faster than most trends that came before. But what does that actually mean?

The most fascinating perspective we can draw from all this is not what’s happening now, but what will happen next year, and the year after that. In that vein, here are some questions that need answers.

First, earlier this year, some banks announced that they were actually constructing new retail outlets. Looking ahead, how many bank branches will we see being closed down over the next few years? Could we see trends following certain patterns—for example, conglomerates shutting down local branches while community banks take their place?

Next, it’s apparent that online banking doesn’t respect demographic or regional boundaries—the trend is being adopted everywhere from Iowa to India, and by Gen-Xers and senior citizens. In developing countries, Internet cafes are being replaced by boutique electronic banks that enable non-tech-savvy people to do everything they would with a PC or a smartphone. The easier the access, the thinking goes, the more the business. If that’s the case, will innovation-minded banks draw business away from institutions that have spent decades building trust?

And finally: If two years from now your bank hasn’t closed any branches and has the same mix of face-to-face and online banking it currently has, is it doing things right? Or is it facing eventual disaster?

Filed Under For Financial Institutions Tagged With American Bankers Association, online banking, smartphone, survey

Tips: How to Choose a Bank for Your Small Business

July 17, 2012 By Erica Bell 6 Comments

Banking is one of the first things you’ll need to make a decision about as you get your business up and running. From business security systems to online marketing, everything about your business relates directly to your company’s financial sector. You’ll want to make sure things are efficient and glitch-free. As a small business, choosing a bank can sometimes be daunting. Here are three things to consider when choosing your banking company.

Location, Location, Location

As they say in the real estate world, the most important thing is location. Depending on the size and nature of your business, you may need a bank with numerous locations or a small bank in your immediate area. Location plays an important role when choosing a bank.

Does operating your business entail numerous runs to a bank in one day? If so, you’ll want to make sure you choose a bank with a branch local to you to cut down on time and gas accrued from running back and forth.
If your business transactions occur mostly online, location isn’t as important and you can focus on other features each bank has to offer.
Are you going to need lending? In today’s market, small banks are more likely to take chances on small businesses. If the bank is in your community, they may be more flexible and provide greater customer support.

Online Banking Selections

Regardless of whether you choose a banking corporation or a small business, you may want to choose a bank that provides online banking. Online banking has its perks, but there can be drawbacks if you choose a company that is only online.

Making the most of online banking can help your company reduce its environmental impact. If your company wants to be as green as possible, online banking can help you do just that.
Strictly online banking accounts typically pay a higher rate of interest than you can get from a brick and mortar competitor.
Online banking accounts may save time with the constant use of direct deposit, but because there are no ATMs, depositing checks and withdrawing cash become more difficult.
Open 24/7, accounts that offer online banking are convenient and allow for constant monitoring of payment and spending. You can catch fraudulent actions quicker than if you wait for a monthly statement.

Figuring Out Fee Structures

As you come closer to choosing a bank for your business, you’ll need to look at the fee structure of each bank. Some charge fees after a certain amount of transactions or for various financial services. Determining what you need and the fees associated will benefit your business in the long run.

If you’re going to need financial advice and the bank you are considering offers such services, look into the related costs, if there are any. See what extras are associated with your account and which aren’t.
Larger banking corporations are more likely to issue corporate credit cards to small businesses, which can be used for financing. Rates are also usually less with larger banks.
Some banks will also charge small businesses for online banking services, even though they do not charge individuals.
If you will need a loan, what are the rates? You’ll want to figure out what kind of loan you’ll need and the rates associated. Banks often limit loan amounts so asking what each bank’s limit is might be a good idea.

Always ask questions about fees and services associated with your account. Pin down what you need and make sure the bank you choose has those options available. Don’t forget to occasionally shop around. Your business changes and so do the banks’ rates and available options. As your business expands and shifts around, you may have different needs that your current bank doesn’t provide.

Contributed content by: Erica Bell: Erica is a small business writer who focuses on topics such as business plans and social media trends. She is a web content writer for Business.com.

Filed Under Industry News Tagged With banks, online banking, small business, Small Business Lending

Consumer Trust: Still A Major Issue

February 13, 2012 By Banking.com Staff Leave a Comment

Consumers have been regularly engaging in online transactions that involve personal finances for many years now—shouldn’t we be able to trust in the process by now?

Apparently not, if the report “2011 State of Online and Mobile Banking,” just out from comScore, is any indication. The report has many positive signs that should cheer the industry, but there are also some negative indicators that deserve attention.

The area commonly categorized as Personal Financial Management (PFM) is clearly an important one for most financial institutions—it enables each company to engage with their customers on a more personal level and subsequently derive more revenue. That’s why most FIs across the board offer a range of tools to help consumers do business online with speed, convenience and safety.

However, even with awareness of these options, adoption is undeniably low. Half the customers of Bank of America and Wells Fargo know that these banks offer a range of online PFM tools, but that hasn’t translated into usage—adoption hovers at only 12 percent and 6 percent respectively. With greater education regarding functionality and usage, there’s tremendous potential here for growth.

Going one level deeper into online bill pay, there’s definitely good news: nearly 66 percent of the customers surveyed use this capability, and the number is still growing. However, there was 19 percent year-over-year growth in 2010, but an anemic 2 percent rise last year. Consumer habits are also far from settled, with most using a variety of institutions—banks, third-party providers, credit card issuers. Given the value of these services in better engaging customers, there’s definitely scope for major enhancements.

In addition to sufficient awareness and adoption, security remains a core concern—in fact, it’s the single most important reason why more consumers don’t pay their bills online. More worryingly, these concerns are growing—the comScore report shows that consumer fears actually jumped by 14 percent over 2010.

Given the considerable resource most institutions have dedicated to building their defenses, the natural reaction is to dismiss these concerns as unfounded. However, it’s important to remember that even for the tech-savvy generation, security is a visceral issue. Consumers don’t generally turn to analyst reports to see which institutions have implemented the best firewalls or the most effective data encryption technologies—they respond to word-of-mouth, advertising, and media coverage of high-profile data breaches.

The comScore report also indicates that good education can be effective—nearly a quarter of the survey respondents reacted positively to good, accessible information provided by their FI about security measures.

There’s no question that each institution can gain a significant competitive advantage by effectively using an array of personal financial management tools to engage and build a lasting relationship with every customer. Those customers can in turn benefit from the speed, convenience and safety afforded by the tools available.

However, there’s clearly a gap between what’s doable and what’s being done. The only way we can bridge it is by getting the message out more effectively.

Filed Under Industry News Tagged With comScore, consumer trust, mobile banking, online banking

Banking on Facebook

February 8, 2012 By Banking.com Staff Leave a Comment

We all know that the upcoming IPO for Facebook will be an exercise in minting money—just ask founder Mark Zuckerberg’s tax accountants, who have some busy days ahead. But could the company actually mint money in an even more literal sense? Could this young upstart, which has become essentially the currency of communication in the era of social networking, become actual currency?

It already is. It’s clearly more interesting to write about all the young millionaires the public offering will spawn, but a more consequential story is that of Facebook Credits. For many consumers, it will be a completely new way of doing business. For financial services institutions looking ahead, it’s a potential—and totally unexpected—rival. But looking even further ahead, it could be a major opportunity, at least for those willing to go for the new.

For the record, Facebook Credits are, according to the company, a virtual currency consumers can use to buy virtual goods in any games or apps of the Facebook platform that accept payments. Facebook Credits can be purchased directly from within an app using a credit card, PayPal, mobile phone and other local payment methods. While they’ve gone largely unnoticed in the public forum, the practice is getting new attention for its inclusion in the company’s public filing.

For the record, Facebook is still essentially a media company in the sense that it derives the bulk of its revenue from advertising. However, revenue from “payments and fees” spiked from $13 million in 2009 to $106 million in 2010—a growth spurt similar to the company’s own consumer adoption. That’s even before Facebook Credits became mandatory for nearly all game developers in July of last year.

A couple of related factoids: first, while the best-known Facebook game developer, Zynga (the force behind FarmVille) has separate deals with other financial services providers like Discover, Facebook gets up to 30 percent of the face value of user purchases in Zynga’s games on the Facebook Platform. Even more interesting, the company acknowledges in its filing that “payments on the Facebook Platform could be considered a financial product.” In other words, the company could be classified as a financial services institution.

Wall Street, meet your newest occupant? No, Facebook isn’t likely to go head-to-head with JP Morgan Chase and Goldman Sachs, or even your neighborhood credit union, anytime soon. But banks and other financial entities would still be wise to take heed and consider options in this evolving marketplace.

No one, not even its most fervent backers, could have predicted Facebook’s astonishing ascent, from a Harvard dorm room in 2004 to a sixth of the world’s population in barely six years. In the process, it has redefined the very notion of daily human interaction, demolished geographic boundaries and age/class/gender/ethnic barriers, obliterated many distinctions between corporate and consumer communications, and played a key role in aiding democratic revolutions. Is the idea that it could fundamentally transform financial transactions really so far-fetched?

So far, it’s an open question as to what more traditional financial services firms can do to compete, even if they’re so inclined. Some analysts have suggested partnerships to, for example, launch co-branded credit cards. But that’s thinking small, and old. Facebook demands big, and new.

There are billions (literally) of consumers out there spending all that time on a platform that’s still largely a distraction. There are massive, and numerous, opportunities to monetize that. It’s time to innovate.

Filed Under Industry News Tagged With Facebook, Facebook IPO, online banking