Mobile banking and payments are growing impressively, driving convenience for consumers and cutting costs for financial institutions, but where do banks need to ramp up?

The omnipresence of SMS and the surging adoption of smartphones have provided financial institutions with several convenient mobile channels to engage consumers, improve customer service, reduce costs and even drive revenue. Here, analysts and industry insiders chime in on the top trends they are seeing, opportunities and issues that need to be addressed in the space.

“The main trend that’s going on right now is really strong organic growth of mobile financial services,” said Red Gillen, Portland, OR-based senior analyst at Celent. “The big story is—more than any specific feature—the fact that more and more people are using mobile banking.

“Without a lot of work or effort on the banks’ behalf, people on their own are discovering that the mobile phone can be used for more than just voice—smartphones have driven this awareness that phones are for more than just talking,” he said. “There is a general awareness and higher level of discovery of data-centric applications such as mobile banking.

“All the banks have told me that consumer adoption of mobile banking has exceeded their expectations, with very little marketing support—it’s taking off on its own.”

There are three basic platforms for mobile financial service: text messaging, the mobile Web and applications.

Application users typically constitute a big chunk of mobile banking users—40 percent are iPhone or iPod touch users, according to Celent.

Although applications are really popular, not everyone has a smartphone, and there is still demand for SMS and the mobile Web, so banks should not launch just applications.

“A lot of the features that were around when mobile banking got its start, a lot of those features are still the same, such as balance inquiries, but this year we’re seeing a few more interesting features coming out, and we’ll see how quickly they get adopted,” Mr. Gillen said.

One of the most important features is real-time transaction alerts—when consumers swipe their debit or credit card, within a matter of seconds they receive a text alert that their card was used for this amount of money.

That feature is an important fraud-detection measure and a great use of the mobile channel.

More advanced platforms offer two-way alerts, letting bank customers reply Y or N or set up a call to resolve any issues.

Another important emerging trend is mobile remote deposit capture, letting bank customers take a picture of the front and back of a check to make a deposit via their mobile phone.

“You send that digital image to your bank and it’s deposited, so there’s no need to go to a branch,” Mr. Gillen said. “What a wonderful thing.”

USAA, which mostly caters to military personnel and retired military personnel, is an example of a financial institution that offers mobile remote deposit capture.

Lean on me
Mobile banking is not a new phenomenon, although consumer adoption has lagged behind technological innovation.

The first iterations of mobile banking appeared on the scene around 1997 or 1998.

In the meantime, mobile banking and payments service providers such as ClairMail, Obopay, mFoundry, Fiserv’s Mobile Money, Monetise and Sybase have stepped in to provide ready-made mobile platforms that banks can white-label.

What has happened in that decade-plus?

“There have been lots of joint ventures and partnerships that were announced but that ended up going no place spectacular,” said Alex Kwiatkowski, principal analyst of financial services technology at Ovum, London. “However, in the last couple of years there has been a resurgence in mobile banking because banks haven’t had to figure out the technology themselves—they can partner with service providers.

“There are a whole range of platform providers that can provide mobile banking services,” he said. “Banks are very happy to take a platform from a company and white-label it in order to quickly give themselves a mobile banking presence for their consumers.”

Variety is the spice of life
Banks and financial institutions are increasingly providing mobile services with better support on smartphones.

Mobile banking services have expanded from checking account balances to remotely initiating account transfers and bill pay, and most recently to mobile proximity payments.

“In the developing countries, we see high consumer adoption of mobile bill and peer-to-peer payments in order to reduce risks associated with cash and to increase convenience,” said Jean-Louis Carrara, vice president of business development and telecommunications at Gemalto North America, Austin, TX.

“In developed countries, banks have been doing a good job in using mobile networks as a delivery platform for their services,” he said.

One issue holding mobile financial services back from achieving its full potential in North America and Western Europe is the prickly relationship between financial institutions and carriers, particularly when the question of revenue-sharing comes up.

“The way the banks work with mobile operators in developed countries is quite different from what you see in developing countries, where banks and mobile operators cooperate to create a new complete distribution system,” Mr. Carrara said. “Without a developed infrastructure in place, mobile fills an important gap.

“They both have needs and this makes for a greater willingness to cooperate and stronger partnerships,” he said.

That said, everything is in place for the continued development of mobile financial services worldwide, according to Mr. Carrara.

“Gemalto is actively involved in more than 40 mobile banking programs worldwide that serve as a reference model for others looking to implement a mobile banking system,” Mr. Carrara said. “Demand continues to increase.

“The security architecture is available and proven, cooperative business models are flourishing and consumers are adopting convenient, safe and secure financial services the world over,” he said.

Banks on board
Banks and financial institutions are now realizing the added efficiencies, improved customer convenience, speed of information availability and cost savings resulting from mobile integration of consumer and enterprise services.  

For example, simple notification services advising customers of credits, debits and the checking account balance available to customers not only improves customer satisfaction but also results in savings for banks, as customers do not call centers or walk into bank branches for such routine information.

“The trends are about empowering customers with real-time advisory notifications about transactions on their financial services and the capability of transacting their accounts on the move,” said Abraham Punnoose, vice president at Roamware, San Jose, CA.

“For example, the ability of paying a utility bill via a mobile connecting using one’s mobile banking service provides customers the ability of being in control even while on the move without Internet access,” he said

“Overall, financial institutions are waking up to the power of mobility offerings to their customers and adoption is growing at a never-before-seen pace.”

Banks and financial institutions have had some success with basic services like notifications and status updates, but the bigger opportunities lie in providing complete control of their accounts from the mobile phone, enabling every transaction that one could perform via the Internet or at a branch in person.

“On-device mobile portals present the next level of convenience and additionally banks still need to do lot more in driving adoption,” Mr. Punnoose said.

“Banks and financial institutions need to do more than just rolling out a mobility offering, they need to actively working on promoting the adoption by providing an incentive of consumers to adopt these services,” he said.

A bank could offer incremental loyalty program points for transactions completed via a mobile phone for a promotional period, for example, 1,000 reward points for downloading and registering oneself on a mobile banking on-device portal (ODP) or bonus loyalty points for all utility payments made using a bank credit or debit card via the ODP.

“The other opportunity, which perhaps presents the most lucrative opportunity, is to reach out to low-income groups that are either underbanked or unbanked and provide virtual banking accounts linked to their mobile phone account, which is in most cases is available only after due verification or the standard ‘know your customer’ ( KYC),” Mr. Punnoose said.

“This segment presents a significant opportunity for financial institutions to grow their businesses beyond the usual banked segment, and the potential for incremental revenue,” he said.

Mobile marketing opportunity
While many banks have gotten the basics of mobile financial services down, some are lagging behind in the more advance use cases. Many are also missing out on the opportunity to use the mobile channel to promote their own products and services.

“Financial instutions are doing a good job of providing the basic mobile banking services—looking up your account balance or transaction history and customer service, where the nearest bank branch or ATM is,” Mr. Gillen said. “That basic stuff is being handled quite well.

“Where banks need to work on is how can they use the information they glean from mobile banking and make it actionable within the bank?” he said. “For example, balance alerts when your balance is below $100 asking ‘Do you want to transfer money from savings to checking?

“How can the mobile channel be used to prompt consumers to do certain things?”

Banks could try to up-sell, asking questions via SMS such as “Would you like to add overdraft protection?” when a consumer’s checking account balance goes below a certain threshold.

“A lot of the focus has been on the user interface, but banks have to look at the back end as well,” Mr. Gillen said. “Mobile marketing offers and opportunity—banks can use the mobile channel as a way to sell products, but they don’t want to create the text version of spam.

“Banks are struggling to figure out what is the right level of mobile interaction so that consumers don’t find it intrusive.”

Issues to be addressed
In addition to financial institutions and carriers agreeing to play nice, there are other important issues that need to be addressed in this area:

1. Deployment of easy to use applications for mobile customers—it is critical to keep these applications it simple and idiot-proof

2. Targeted adoption programs and customer education

3. Complete integration of mobile banking and financial institutions’ infrastructure to enable complete empowerment for the consumer in enabling all possible transactions via the mobile phone

4. Ensure security standards are not diluted

Continued innovation is another important factor that financial institutions need to stress.

“Banks have done a great job of rolling out a stable and usable mobile platform,” said Chris Nichols, CEO of Banc Investment Group, San Francisco. “Unfortunately, that stability and usability has come at a cost of being slower to market than non-banks.

“The areas of person-to-person payment or mobile budgeting applications are just a couple of areas where banks are going to have to play catch up,” he said. “While security, usability and functionality will continue to be on the forefront of a banker’s mind, the real challenge will be moving quickly into rapidly expanding areas.

“Banks will have to continue to have to address changing platforms and the needs of both the consumer and business customer.”

Bright future
While many challenges exist, there is no doubt that mobile financial services are growing as never before and represent a must-have rather than a nice-to-have for banks and other FIs.

“Mobile banking adoption is growing at a double-digit clip—surpassing 15 percent customer penetration—and is being driven by the rise of the smartphone and tablet,” Mr. Nichols said. “In fact, the iPad is a great example of an application that will continue to blur the lines between mobile banking and online banking.

“The creating of the user-friendly app will now redefine what the term ‘bank branch’ means,” he said. “For example, the ability to deposit a check via a picture from a smartphone is game-changing.

“This trend will expand bank’s capabilities and penetration over the next three years.”