What the Banks Have to Say About Mobile Banking

Do mobile customers save banks money? Are they more profitable? Here’s what eight leading financial institutions found when they adopted mobile banking.

Recently, mobile-banking vendor ClairMail Inc. commissioned analyst firm TowerGroup to study the real value of mobile banking in today’s marketplace by surveying eight U.S. financial institutions that use ClairMail’s mobile-banking solution. The following article, submitted to Digital Transactions by ClairMail, contains excerpts of the resultant report, “Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits,” which can be found in its entirety at: http://www.clairmail.com/towerstudy.

Mobile banking is outgrowing its status as a nice-to-have innovation and is emerging as a mainstream offering for banks of all sizes. Despite current economic pressures and their effect on the bank-technology market, the momentum behind mobile-banking services shows no signs of slowing.

Indeed, adoption and usage are increasing faster for mobile banking than for any other channel in the history of banking. TowerGroup estimates that the number of active users of mobile banking in the United States will grow from 10 million in 2009 to over 53 million in 2013.

What is driving adoption and usage of mobile banking? Mobile banking is becoming more widely available to consumers as the number of banks offering mobile banking grows by dozens every month. Mid-tier and lower-tier institutions feel more comfortable deploying mobile banking today, having observed the deployments by larger institutions.

Late adopters can benefit from the early experiments of their larger counterparts as well as the increased consumer awareness of mobile banking fostered by the large banks.

Immediacy And Persistence

TowerGroup tells us that mobile-banking adoption and usage will continue to rise for three primary reasons. First, today’s mobile-banking launches are coming at a time when mobile-device penetration in the United States is high: The approximately 240 million wireless subscribers represent a mobile-phone penetration of about 90% of the adult U.S. population aged 20 and above. Most estimates put Internet penetration, by comparison, at only about 70% of U.S. households.

Second, consumers’ banking preferences have evolved. Banking customers are now accustomed to the self-service model, thanks largely to online banking and, to a lesser extent, the ATM, both of which allow customers immediate access to information.

Recent TowerGroup estimates indicate that “remote transactors,” defined as customers that perform over 75% of their banking transactions via a self-service channel, will represent almost half of all U.S. banking customers by 2012.

The unique value of mobile, which will increasingly be expected by mobile-device users, is any time, any place access to the institutions where they bank. This puts the mobile client in control and provides an immediacy and persistence not always available with the existing delivery channels.

Third, the fast third-generation (3G) wireless networks used to access mobile-banking services are now available in the majority of large, densely populated portions of the country, and even faster, 4G services are being rolled out.

Of course, not every subscriber has a 3G phone, but even slower network speeds are sufficient for access to basic account information, such as account balances or SMS alerts. Devices today are richer in almost every aspect, from screen resolution to operating system and user interface, further increasing the appeal of using data services.

Three fundamental common factors accounted for the decision to launch mobile banking among the institutions TowerGroup interviewed for this research. The first is that competitive pressures were a key driver in implementing consumer mobile banking.

The second is that most institutions recognized that clients who adopt mobile banking tend to exhibit the characteristics most desired by consumer banks. That is, they tend to carry higher balances and more products and have longer tenure at the institution. Therefore, it is advisable to support these clients and continually engage them with the technologies and services typically expected by this segment.

And finally, institutions looked to mobile banking as a way to reduce the cost of servicing their customers.

Competitive pressures drove many of institutions surveyed. They wanted to deploy mobile for fear of losing customers or generally not appearing as current as their competitors. Based on initial market information that mobile-banking users tend to be more profitable customers than others, the banks did not want to see these potentially valuable customers move to a competitor to access mobile banking.

Some of the banking executives interviewed expressed the belief that mobile banking will become a critical component of consumer banks’ delivery-channel infrastructure over the next three to five years. Waiting to deploy mobile banking would allow their competitors a definite timing advantage in terms of customer adoption and the banks’ own ability to understand and stay abreast of the evolving technology.

Several financial institutions believed that mobile-banking usage would lead to a reduction of the number of contact-center interactions. These institutions pointed to the high volume of costly live-agent calls simply to request account balances and verify online-banking transactions. These institutions believed that mobile banking would allow them to migrate some of these calls away from an expensive live agent, which would result in tangible cost savings.

For example, one institution reported that approximately 40% of its live-agent calls are for balance inquiries, even with very high utilization of voice-response units (VRUs) for this transaction. Deflecting even a small percentage of such calls, which have a stated average cost of $4 per call, would provide tremendous cost savings.

This institution recognized that overall transaction volume would increase, as it tends to do with new channel availability, but the ability to instantaneously access balance information with a simple SMS seemed to bode well for reducing call-center transactions.

All of the banks interviewed that had deployed mobile banking reported that actual adoption exceeded expectations by up to 100%. Many reported penetrating 10% of the online-banking customer base within 12 months of launch.

Accelerated adoption is usually highly dependent on effective marketing, but many banks experienced mobile-banking customer penetration of 5% to 6% within the first 12 months with virtually no marketing at all.

Banks reported that mobile-banking customer profiles skew slightly younger than those of customers who don’t use mobile banking, but mostly are representative of overall mobile-user profiles. Mobile customers tend to have attractive demographic profiles and predominantly fall within the age range 18 to 35. They tend to be heavy transactors and carry more debt products and higher debt balances than non-mobile bankers.

One factor is certain: Mobile banking customers are comfortable with, and more reliant on, technology than non-mobile banking customers, independent of age, income, education, or other demographic factors. One result reported consistently is that mobile customers tend to be among banks’ most profitable customers.

Virtually all of the banks interviewed expected mobile-banking usage to lead to an increase in client engagement and client satisfaction. One institution reported that attrition rates for mobile-banking customers have dropped almost 15% for certain account types compared to the attrition rates of non-mobile banking consumers. TowerGroup says that a 10-to-20 point reduction in attrition rate is a reasonable expectation for mobile-banking users over the next two years.

The primary business-case driver for most institutions whose mobile executives TowerGroup interviewed was cost reduction directly related to migrating inquiries from the call center to the mobile device. Mobile-banking customers tend to perform an average of 15 to 20 mobile transactions per month, many of which would otherwise have been contact-center transactions, according to the institutions surveyed. Migrating these transactions to mobile thus results in tangible cost savings.

One institution reported a 70% reduction in VRU usage by mobile-banking users. TowerGroup says that mobile-banking users will reduce contact-center transactions by half because they can fulfill simple inquiries in a fraction of the time by using an SMS-based service.

Several survey participants commented that they believe real-time access to account information will improve their institutions’ ability to identify and prevent fraud. One institution did report awareness of instances in which mobile users indentified fraud that they might otherwise have missed until they reviewed their monthly statements.

Market Mandate

TowerGroup reports that fraud detection will become an increasingly important element of mobile banking’s business value. It expects mobile services to reduce fraud by 10% to 25% for mobile-banking users by providing immediate knowledge of all account transactions.

At least one institution interviewed measures the apparent effect of mobile banking in attracting new customers. This institution credits mobile-banking availability with influencing a new account if the new accountholder registers for mobile banking within a week or so of opening the account. TowerGroup expects that 1% to 2% of new SMS-based mobile-banking customers will be new customers to the institution, partly or wholly influenced by mobile-banking access.

TowerGroup came to the conclusion that mobile banking is a market mandate that all retail banking organizations that wish to remain competitive must pursue. Today’s mobile-savvy consumers will soon view banks that do not offer mobile access as irrelevant. And banks without mobile banking will risk losing these customers.

Forward-thinking organizations are deploying mobile less as a competitive reaction than as a platform for innovation. These banks realize that the world is on the cusp of a mobile evolution that will bring highly differentiated and far more personalized services and capabilities to the market.