(June 10, 2010) The Apple iPhone, long a staple among consumers who pay bills and transfer funds via mobile devices, is now being challenged for mobile-banking leadership by a surging Android operating system, according to new research.

Handsets that use Google Inc.’s open-source Android OS now account for 12% of the smart-phone market, up from 4% just six months ago, and account for a 17% share of active mobile bankers, according to a report released on Thursday by Javelin Strategy & Research. That means Android users are catching up with iPhone devotees, who account for 34% of regular mobile-banking users and 24% of all smart-phone owners. BlackBerry devices, which dominate smart phones with a 39% share, claim a share among steady mobile bankers equal to that of the iPhone.

Android users who conduct mobile banking also log in to the service more often than iPhone users and are closing in on iPhone owners as users of advanced features such as mobile bill payment. Some 30% of Android phone users pay bills on the phone, compared with 38% of iPhone owners. More impressively, Android users are already as likely as iPhone owners to use mobile banking, with 48% having accessed the service in the past 90 days, compared to 49% for the chart-topping iPhone. BlackBerry phones are a distant third at 29%.

The result surprised even Javelin’s researchers, who have recommended for months that banks cater to iPhone users. “To see Android come out so quickly and surpass iPhone or come even with iPhone, we didn’t expect that,” James Van Dyke, Javelin’s president and founder, tells Digital Transactions News. “Now we’re saying [to banks], ‘You’ve got to invest in Android” as well as the iPhone.

One reason for Android’s rapid rise could have to do with its roots among a younger, somewhat less affluent user base who see Android phones simply as utilities for getting things like banking done. By contrast, the iPhone’s heritage, with the gadget having descended from the popular iPod music player, may work against it to some extent. “Music is not as entrenched [with Android],” Van Dyke says. “But music is part of what the iPhone is all about.” That “distraction factor” stemming from the iPhone’s role as a music player could mean that, with Android, “there’s more space left for [users] to experience other things,” he notes.

The downside for banks and processors that must now reckon with the upstart Google system is that applications need to be customized for each device that runs it—some 18 phone models as of May 11, according to Pleasanton, Calif.-based Javelin. This contrasts with the Apple OS, on which applications render the same way across all iPhones. As an open system, Android is also more susceptible to malware, Javelin warns.

The research firm found that, while Android phones are proliferating, smart phones overall are accounting for a greater share of mobile-phone users, even though the recession has taken a toll on the cell-phone user base. Mobile-phone penetration among all U.S. adults was 74% in March, down sharply from 85% a year earlier. That translates into 23 million consumers having turned off their phones, in many cases because of economic pressure or the loss of jobs that subsidized the devices, Javelin says. But smart phones now account for 27% of all mobile phones, up from 20% a year ago. That’s good news for financial institutions offering mobile banking, since smart phone users tend to be steadier users of mobile-banking services. Some 54% of all mobile-banking users access the service with a smart phone.

The research also confirms what mobile-banking advocates have long argued—that banking by mobile phone promotes mobile payments. Those who used their phones for mobile banking in the past 90 days made purchases on the same device three times as often as all consumers surveyed (38% vs. 12%). Ring tones remain the most often-bought item, with 53% reporting having purchased these, followed by games (38%), music (26%), applications (21%), and physical goods (13%).

Meanwhile, 30% of those who performed mobile banking the past 90 days said they would be likely or very likely to conduct person-to-person payments on their handsets.

For the report, Javelin collected data from three online surveys, chiefly one conducted in March among 5,211 households. Two earlier surveys—one in July 2009 with 3,000 respondents and one in April 2009 with 2,779 respondents—also yielded data for the report.