Mobile Banking: Enigma, Mystery and Conundrum

It’s so simple. Need some kind of transaction with your bank? Just take out your mobile device—smartphone, tablet, whatever, on just about any operating system—and you’ll have a wealth of apps to get it done. You’ll get reminders when you need to do it again, or set it up to do it automatically. It’s very simple, really.

Now let’s pull back and try to analyze the mobile banking market overall. That, it turns out, is not simple at all. In fact, it can be an exercise in frustration and futility.

Here’s an example. As documented in this forum recently, mobile banking is drastically changing the industry landscape. According to a report from Javelin Strategy and Research, no less than “88.5 million Americans attempted to open an account online or with a mobile device” between June of last year and this one. A new report from the same firm, meanwhile, identifies the huge potential opportunity in this market—financial institutions can save almost $50 per customer per year just by getting them to switch to mobile deposits. That’s an industrywide boost of $1.5 billion.

But do those savings by themselves constitute a clear ROI? At a recent industry summit, many of the discussions hovered around the idea of fees, since providing mobile services can be seen as a value-add (and it takes resources to develop and market those apps). As a result, some institutions such as U.S. Bank and Regions Bank have built monetization models into their mobile offerings.

This may be one reason (but only one reason) why not everyone is using the mobile option as much as they can. For example, both the Javelin study and another from MoneyRates note that while there’s a general level of satisfaction with the notion and practice of mobile banking, mobile deposits have been slow to catch on. Javelin reports that while the percentage of customers who opt for mobile banking rose from 15% to 25% between 2010 and 2013, only 6% of that demographic—in other words, those who bank via their mobile devices—go that way for check deposits. It’s as if the act of having a paper document in hand mandates a visit to the branch. As a result, banks have to do more to change user behavior.

Fair enough—but again, that’s not how everyone sees it. “Think about it. Do you know anyone who writes checks anymore?” begins a new article that hammers home the security risks inherent in mobile banking. The author certainly has a point: While banks have developed and released many new apps to help customers turn to mobile banking (though apparently they still have more to do—see paragraph above), security seems to have taken a back seat in that many technologies and procedures are adapted from the old world of online on even traditional branch banking. Innovation in this area has clearly lagged behind, and fraudsters have noticed.

Meanwhile, the market may be about to get even more messy. As we’ve noted here before, industry professionals need to understand that tablets and smartphones might not be the only mobile options—there will inevitably be other form factors disrupting the market. One we speculated about was Google Glass, which didn’t have a clear financial purpose but represented another potential platform with which to conduct financial transactions. Of course, very few people even have the device, so who’s going to develop apps for it?

Try Fidelity Investments. That fund giant’s development unit is launching a Market Monitor app that delivers quotes for major U.S. stock indexes over computerized frames. Pretty basic—just like the early incarnations of online apps and mobile apps.

The truth is that because of the rate of technology innovation and the speed of market adoption, any industry snapshot is old by the time it’s taken. Best practices can become similarly obsolete virtually overnight. None of this negates the fact that as an industry, we have to be prepared for technologies as they emerge and paradigms as they shift.

With mobile banking in particular, let’s assume that we seldom know what’s coming next. But even if we don’t know what the change is, we know there’s one coming soon, and one right after that. We’re not always going to be ahead of the market, but we shouldn’t always be scrambling just to catch up. Let’s try to keep pace.

The New Paper Chase

It’s always interesting to examine trends taking shape at the intersection of financial services and technology, as this blog does so often. But there’s one issue that’s frequently gets overlooked and yet is still the giant elephant in the room: paper.

Yes, paper. We’re a couple of decades into the era of e-commerce, and for many of us even bills arriving via snail-mail seem like a rarity. We have a staggering array of online tools that enables us to do virtually everything financial, from anywhere at any time. What’s paper got to do with it?

The short answer is: a lot. This is particularly true of checks, as used by millions of consumers and even small and mid-sized businesses. But in many other areas too, it’s an area in which change has been surprisingly slow. On the flip side, doing away with paper will bring enormous benefits, from speedier transactions and greater savings to environmental preservation.

It’s been almost a decade since the Check 21 Act passed in late 2003, allowing financial institutions to create digital versions of original checks. Today, banks deal with each other almost entirely through electronic transfers—once the actual check has been submitted, it disappears from the process.

But tell that to the entities writing the checks in the first place. To be sure, the numbers are dropping, however slowly—there’s close to 2 billion fewer written each successive year. But at this rate, it will take until 2026 for paper checks to be eliminated altogether.

That’s the conclusion in a study published last year by the Federal Reserve Bank of Philadelphia. According to the same report, the benefits are undeniable: getting rid of paper saves the banking industry $1.2 billion a year, while consumers and businesses keep $2 billion in benefits through faster payment processing.

Of course, few trends in technology stay at the same rate—there are frequent spikes and pullbacks, and unexpected accelerations that blow away all estimates. No one expected tablet adoption to grow at such a staggering pace, but it has. It took almost 10 years for smartphones to reach 40 million users (which admittedly meant replacing older models), while that number was crossed only two years after the emergence of the Apple iPad.

Just this week, Juniper Research estimated that tablet buying will lead to 200 million users of “transactional tablet banking services” by 2017. By that time, one in four tablet users will be paying their bills via those devices. There are other signs too—let’s not forget that Amazon used to accept checks, but discontinued the practice in 2008.

There’s now a broad variety of services designed in part to wean users off the habit of writing checks. For example, most banks now offer the ability to capture a check image via smartphone and make an instant deposit. And any number of other providers, from thriving vendors like Square to newer entrants like Zipmark—which styles itself as the digital checkbook—make it easy to avail of the new capabilities.

The changes will have tremendous ramifications: Intuit, which now has close to 30 million customers for its payments services and processes $38 billion a year in payments, estimates that it could increase its payments business by $4 billion by getting QuickBooks software customers, mostly small businesses, to use the payments service.

At this point, the use of paper seems almost a throwback to an earlier time, but the numbers clearly belie the perception. Getting rid of it from the world of finance would likely do a world of good. And given the justified concerns over rainforests and a rapidly declining ecosystem, it would actually do the world good too.

Intuit Financial Services’ Innovation Conference: Mobile Trends, Technology Transformation, and Personal & Small Business Finances

In early October, Intuit Financial Services hosted its annual user conference, the Intuit Innovation Conference, in Nashville, Tenn. The conference brought together industry leaders from banks and credit unions across the country, and discussed key topics affecting the financial services industry. To provide a broad spectrum on issues, Intuit hosted an array of esteemed keynote speakers included Steve Forbes, Chairman, CEO, and Editor in Chief at Forbes Media; Tom Kelley, General Manager of IDEO; and, Dan Ariely, behavioral economist and author.

The Banking.com staff got a chance to pull key tidbits from the event, which focused on mobile trends, technology transformation, and personal and small business finances. Below are some top tweets and highlights from the conference:

Mobile:

  • Tablet users touch their financial institution (FI) 30 times per month across multiple devices (tablet, phone and PC) not including text banking touches.
  • Smart phone remote deposit users deposit approximately 2+ checks per month at an average of more than $420 per deposit. Cost savings to FI – $3 each deposit over using a branch.
  • 30% of customers now factor mobile solutions into why they choose their primary FI.
  • Average mobile phone user now spends 12 minutes/day on the actual “phone,” two hours/day doing other things.
  • Mobile is the primary way people interact with their FIs today and growing; mobile banking up 63% to 57 million in 2011.
  • 10% of online banking users are now using their tablet.

Technology Transformation:

  • Web and mobile is eliminating intermediaries like traditional editorial process. Media model of last 150 years has been blasted away.
  • Mobile is changing the media model again. Everything in marketing must be customized to the individual. There are more specialized segments than ever before.
  • Contingent workforce will be 40% in few years (following passions, seeking work/life balance). This offers a new set of financial complexities that financial institutions will need to consider.
  • Digital trends shaping future behavior:
    • World without borders
    • Participatory networks
    • Mobile first & only
    • Humanizing the data
    • Reputation rules
  • “The Digital channel has increased engagement 3x to 32 times/month” – Intuit Financial Services General Manager, CeCe Morken

Personal & Small Business:

  • 2/3 of personal businesses don’t track their mileage for tax time or they track it incorrectly.
  • 50% of small businesses use manual methods (pen paper) to manage finances.
  • Average value of personal business to an FI is $5,000 in revenue per year. Consumer value is $500.
  • Personal small business market segment is growing. Forecast is 32 million by 2018.
  • Personal businesses take longer to make buying decisions than consumers and larger businesses.
  • “74% of #smallbiz owners aren’t wowed by their FI”-Christine Barry of @AiteGroup

A recurring theme of the conference was mobile in the banking industry; how important is a mobile presence to you? Does your FI meet your needs with its mobile solutions? What do you expect from your FI’s when dealing with mobile? Leave us a comment below.

Mobile Maturity

Here’s a conundrum: Is the rising concern over security as it relates mobile banking a sign that mobile banking is gaining legitimacy?

Sadly, yes.

There’s been a lot of talk here and in plenty of other places how mobile banking is being adopted more broadly by providers and consumers alike. With a little push on the innovation front, it’s likely to gain even more traction as the social media generation comes of age. Walking into financial institutions, or even sitting down in front of the PC, is too much work; let your phone or tablet do the banking. We’re surely about to see a plethora of mobile apps that enable us to deal with our finances in ways we never have before. As with every other shift in technology, this is turn will affect our behavior—perhaps even our attitude toward our personal finances.

The flip side to all this, of course, is the downside— a new breed of criminal that poaches on looser protection standards. The goal: to secure access to insecure data.

But again, as with the emergence of every new platform, form factor or application, security takes on a new urgency. The very point of mobile adoption is convenience—everything absolutely must get easier. Now, if something is easier, does that mean it’s automatically less secure?

Let’s hope not, but there’s more work involved to make that happen. Every financial institution is currently rushing products to market, knowing that there’s a huge potential audience for something customizable, unique and useful (so much easier said than done). But given the need for speed, is security getting the attention it should?

In an interview with BankInfoSecurity, Joe Rogalski, information security officer at New York-based First Niagara Bank, warns of the perils of this trade-off. He stresses that every product offering related to mobile banking—be it remote check deposit or just bill pay—needs to be evaluated from a fraud perspective before it goes to market.

But we all know that in the real world, getting there first can be more important than being the best. Is the threat of a serious data breach somewhere down the road worth losing critical market share now?

Just to be clear, even the PCI Security Standards Council is continually playing catch-up with regards to protocols and best practices—the whole field is still too new, and in perpetual motion, to set comprehensive standards. For their part, the bad guys have no trouble finding weaknesses and loopholes. For example, we’re only just starting to learn about a new breed of attack that fools consumers out of their SIM cards. (This mode should concern telecoms as much as FIs.) This is particularly troubling because SIM cards are the favored tool for securing mobile payments at many mobile payment schemes around the world, ironically because it gives the telecom provider more control.

The problem is that too much of this discussion remains in the theoretical realm, and belongs in the real world. So let’s take it as an article of faith that consumer adoption will continue to grow, that FIs will continue to push products out to market that makes diverse banking processes easier, and that criminal elements will use any tactic they can to steal access, steal data and steal money. Because they will.

Moving forward, we need ironclad guidelines, rock-solid processes and innovative technologies to (try and) stay one step ahead of the downside. Mobile banking is natural, beneficial and inevitable. It’s up to us to minimize the threats that emanate from it.