The Mobile Tipping Point

Industry analysts say this is the year mobile banking goes mainstream.

March 14, 2011

Leaders in mobile banking are finding new ways to keep pace with consumers’ willingness to embrace financial services that match their mobile lifestyles.

Mobile banking often begins with alerts and information about account status, expands to include mobile transactions, and advances to person-to-person (P2P) electronic funds transfers.

 Mobile banking


  • Value-added mobile services will be a competitive differentiator for CUs.
  • Access to mobile banking motivated 40% of CU members to switch primary financial institutions.
  • Board focus: Mobile banking will become an increasingly important way to gain market share, especially among younger consumers.

Experts say learning from the financial leaders exploring these mobile banking applications can help credit unions develop services for members who want to use their mobile phones to perform financial transactions.

That’s important because these experts also predict mobile banking will shift from an interesting experiment just a couple years ago to a mainstream delivery channel by year’s end.

‘Tipping point’

The coming year will most likely be the “tipping point” for mobile banking adoption, says Teresa Epperson, partner at Mercatus—a strategy consulting and investing firm that focuses on retail financial services.

She cites these indicators from Mercatus surveys of mobile banking users:

• Mobile banking adoption increased from 2% of survey respondents in 2007 to 12% at year-end 2010.

• “Baseline” mobile services are a critical decision factor for attracting new customers who lack mobile banking access.

Among those who don’t use mobile banking, about 20% of credit union members and 28% of large-bank customers say they’d switch financial institutions to obtain mobile banking services.

• Access to mobile banking motivated 40% of credit union members and 41% of large-bank customers to switch primary financial institutions.

• Mobile banking is a critical factor in the selection of a financial institution among consumers age 18 to 25. Half of them say it’s “extremely important”; another 17% call it “important.”

Epperson predicts an accelerating pattern of adoption where value-added mobile services play a key role as a competitive differentiator. Not only that, mobile transactions cost less to process than even online transactions (“Channel cost comparison”).

Channel cost comparison

Next: The ‘triple play’

The ‘triple play’

The term “mobile banking” encompasses three types of services: short messaging service (SMS), wireless application protocol (WAP), and applications (apps).

SMS typically is used to send alerts, such as notifying members of low checking account balances that could trigger overdraft fees. Owners of all types of mobile phones can use SMS.

WAP, also called the “mobile Web,” links wireless communication devices to the Internet, providing access to online banking from Internet-enabled mobile phones.

Apps are software programs that enable smart phones to perform specialized functions. They can be downloaded to a phone or accessed via the Internet, combining richer functionality with higher speeds.

“Credit unions need to support the triple play: SMS, WAP browser, and apps,” says Bart Narter, senior vice president at the research and consulting firm Celent.

Narter says there’s a fundamental difference between the simplified nature of delivering information via SMS and the transactions enabled by WAP and apps, making it important to offer all three to meet the needs of mobile members.

Smart phones’ key role

Offering high-level apps for mobile users recognizes the clear link between the use of smart phones that connect to the Internet and adoption of mobile banking, Epperson says. About one-third (28%) of cell phone owners use smart phones, but 68% of mobile banking adopters use these devices, Mercatus reports.

The company’s research indicates that smart phone users are more likely to adopt mobile banking as they become heavy users of text messaging, e-mail, the Internet, and social networking.

This embrace of smart phone applications highlights the difference between the introduction of online banking and smart phones. Epperson notes that banks and credit unions seeking to boost online banking adoption often had to begin by teaching consumers how to use personal computers.

But this scenario is reversed with smart phone owners because these users typically exceed financial institutions’ understanding of how to use mobile phones to manage daily chores, including financial transactions.

That makes introducing mobile banking a “when” not an “if” question for credit unions that want to keep pace with mobile banking leaders and remain relevant to members.

“Now is the time to have a mobile offering that will be compelling to the people you’re trying to attract, and [explain it] to the market,” Epperson says.

Next: Value-added features

Value-added features

Mobile banking features can be broken down into two categories: those that save time and offer convenience, and those that provide value-added capabilities.

Mobile “time and convenience” features that would cause consumers participating in a 2010 Mercatus survey to switch financial institutions included bill payment, sought by 19%; checking balances on savings, checking, and credit card accounts, 16%; and statements of account histories, 15%.

In the value-added category, the most popular capabilities that would tempt consumers to switch financial institutions are the ability to transfer funds, view recent transactions, and receive alerts on account activity or low balances.

Mobile banking and PFI statusWhile these features have high appeal, Epperson and Narter say credit unions must promote them to boost adoption of mobile banking.

That’s supported by a study from Synergistics Research Corp., which reported in January 2011 that four of 10 mobile phone users don’t know whether their financial institution offers mobile banking services.

When potential users understand mobile banking, it can help credit unions attract and retain members, including ethnic groups likely to respond to mobile options.

The Mercatus survey showed that mobile banking adoption is highest among Asians (27%), African-Americans (25%), Hispanic/Latinos (20%), and Caucasians (9%).

Mobile banking also has high appeal for small-business owners who want to manage company finances remotely.

A new environment

Mobile banking promises to enhance credit unions’ ability to establish lasting relationships with consumers due to the combination of sophisticated functionality and complete portability, says Scott Moeller, chairman/CEO of MShift Inc., a provider of mobile banking services.

“It’s truly the first time that a small community financial institution like a credit union can compete on a technological level playing field with a national bank,” Moeller says
(“Follow the mobile banking leaders”).

This competitive advantage continues even when members relocate or simply re-evaluate their financial arrangements.

You first must assure members that mobile banking is safe before you can fully realize this advantage. While young members tend to assume mobile banking is secure, users older than age 30 require reassurance.

Moeller says digital networks and secure encrypted technology make mobile banking via the Web, as well as app-based functions, more secure than even online banking.

The exception is SMS, which is vulnerable to “smishing” and other attacks aimed at stealing sensitive information from users.

“Smishing” stands for “SMS phishing” and refers to the practice of duping consumers into sharing confidential information by pretending to be a financial service provider.

Moeller says this threat can be averted by sending information-only alerts to mobile users and educating them to use other—more secure—channels, such as the mobile Web, to access sensitive information or perform transactions.

Next: The online connection

The online connection

Mobile banking often is promoted initially to online banking users.

While that helps boost adoption, credit unions should recognize that young users with high potential to embrace mobile banking might never use online services, says Jeff Russell, executive vice president of The Members Group.

Russell says young members often prefer to access the Internet with mobile phones rather than computers and opt for dialogue enabled by social networking rather than e-mail.

“You have an entire generation of consumers—age 18 to 35—who don’t do business the way their parents did, whose mobile phone is probably the most important thing they own, and who rarely use checks,” Russell says.

The Members Group gathered information about consumer preferences when preparing to introduce its mobile P2P payment partnership with Dwolla, a mobile P2P vendor, and Veridian Group, a credit union service organization formed by $1.7 billion asset Veridian Credit Union, Waterloo, Iowa.

Russell says young consumers prefer Facebook and Twitter because they allow an ongoing dialogue. Equally important, these sites can be accessed via mobile phone, which has virtually replaced the computer for young users.

Given these preferences, mobile banking likely will become the primary delivery channel for young members, who might use online banking rarely if ever.

In comparison, members above age 35 might continue to use online banking as their primary channel even after they become active mobile banking users.

While it’s important to monitor the leaders in remote banking, credit unions should avoid relying solely on a “copycat” approach to mobile banking.

Instead, they should analyze their local market conditions and conduct member research so they build their mobile banking strategies around members’ wants and needs.

Then, develop mobile banking services that make it possible to gain both a bigger market share and a bigger share of members’ wallets by keeping pace with mobile members.

“Don’t offer mobile banking just because Bank of America has it,” Russell says. “Offer it as a strategy to gain market share.”

Next: Follow the mobile banking leaders

Follow the mobile banking leaders

Experts cite these financial institutions as leaders who bear watching as mobile banking adoption increases:

• Bank of America created an early advantage by effectively marketing mobile banking. Seventy-seven percent of consumers in a Mercatus study cited Bank of America as a mobile banking provider, giving it the highest recognition of any financial institution. Citibank and SunTrust aren’t far behind.

• USAA Bank, a “branchless” provider of financial services, was among the first to introduce mobile remote deposit capture (RDC) for iPhone and Android users. USAA serves military personnel and their families.

• Chase Bank was the first major national bank to offer mobile RDC. Its solution allows customers to use their mobile phones to take photos of checks and send them to the bank for deposit.

• Patelco Credit Union, San Francisco, introduced mobile banking in 2003. In 2010, the $3.7 billion asset credit union worked with MShift and CashEdge to become the first U.S. financial institution to introduce the Popmoney™ service for mobile person-to-person payments.

• America First Credit Union, Riverdale, Utah, has offered mobile banking since 2000. Today, the $5 billion asset credit union allows more than 10,000 mobile banking users to check account balances, make transfers, pay bills, and view account history information.

America First’s typical mobile banking user is age 31, has been a credit union member for 9.5 years, uses 4.35 services, and holds 4.93 accounts. Two-thirds (67%) of its mobile banking users are male, 32% are female, and 1% are businesses.

Put these items on your mobile to-do list

Mobile banking experts interviewed by Credit Union Magazine recommend taking these steps when introducing mobile banking services:

  • Decide when and how to offer mobile banking in 2011. Go live by year-end if possible.
  • Use mobile banking as a strategy to acquire members. Consumers will be more inclined to join credit unions as banks continue to add and increase fees.
  • Offer mobile remote deposit capture (RDC) as a value-added service to attract consumers from other financial institutions.
  • Explore applications for business members, including mobile RDC and mobile transactions, so they can manage their businesses remotely.
  • Select a vendor with the right combination of functionality, fees, integration, launch timeline, and references. Create a fee schedule that separates mobile banking and online banking to reduce costs for serving young, mobile-only members.
  • Consider mobile RDC’s potential to decrease branch traffic, making it possible to trim branch size and reallocate staff.
  • Wait to adopt “contactless” functionality until merchant acceptance grows and a clear winner emerges among options to “tap” or “wave” the cell phone on or near devices to pay for low-value purchases.