Mobile Banking Leads Race in Electronic Services

MBA (4/29/2008 ) Palaparty Vijay
Financial institutions can expect mobile and expedited bill payment and online personal finance management tools to grow rapidly as electronic banking services. A report from the Aite Group LLC, Boston, reveals a 72 percent increase in mobile banking consumers by 2009.
More specifically, the share of consumers paying bills via mobile banking is expected to increase at a compound annual growth rate of 185 percent between 2007 and 2009.

"While the overall picture is bright for electronic banking services, important disparities persist among large financial institutions," said Gwenn Bézard, research director at Aite and co-author of the report, Usage Trends in Online and Mobile Banking: Upping the Ante. "For instance, the majority of financial institutions have sub-average adoption levels in bill pay. As new electronic services up the ante in the race to win and retain customers, not falling behind in terms of basic adoption remains more critical than ever."

The Aite report revealed that consumers primarily drive demand for electronic banking services. Mobile banking adoption is expected to increase by 13 percent in 2009, a 9 percent difference compared to last year’s 4 percent increase. This year can expect a 7 percent increase.

A report from Financial Insights, Framingham, Mass., sees the future of mobile banking, having passed its tenth anniversary this year, requiring at least two more hyears before establishing itself as a “meaningful” channel of business at financial institutions. The company also said consumer demand for efficiency will ultimately drive adoption, echoing findings of the Aite report.

“Banks need to understand the long-term appeal and relevance of a mobile channel for their customers and business models,” said the Financial Insights report, Is Mobile a Viable Channel for Banking, Investing, and Insurance? “Institutions can begin addressing the viability question by focusing on customer demand for mobile channel enabled service. Answering the question requires an assessment of the tasks and assessment for the mobile channel and the cost/benefit result(s) for both the customer and institution.”

Financial Insights said that consumers benefit most through the mobile channel because of the efficient time and location fulfillment it provides. Mobile services include account balance inquiry, minimum balance or overdraft alert, potential fraud alert, ability to freeze a card, automatic transaction update, request information, transfer funds between accounts and bill payment.

Bank of America, Charlotte, N.C., is expected to exceed 1 million activated customers in its mobile channel by this quarter, which makes up 4 percent of its existing 25 million internet banking customers, Financial Insights reported.

According to a study from the retail banking consulting practice at IBM, Armonk, N.Y., which was shown to The Associated Press, younger generations are driving mobile banking adoption. Twenty-one percent of younger consumers between the ages of 18 and 34 reported using their cell phones for mobile banking compared to only 10 percent of the general population. However, the study also revealed that 89 percent of consumers do not use their cell phones to conduct mobile transactions.

The low rate of adoption among the general population might be explained by very low customer trust in mobile banking reported by the Aite Group. Only 5 percent of consumers consider trust in mobile banking as high to very high. But comfort level is improving. On a scale of 1 to 5—very low to very high—consumers reported a 2.5 comfort level this year, up 1.4 from 1.1 two years ago.

In entering the mobile banking space, Financial Insights suggested financial institutions assess the ease of use impact of mobile banking on the mobile platform, how customer interactions and business processes have to change as a result of adoption, whether the mobile technology infrastructure would meet customer expectations and evaluate business benefits for banks in mobile banking.

“In the coming two years, financial institutions will need to focus both on introducing new services such as mobile banking and optimizing the adoption of existing ones like online bill payment,” Bézard said. “Keeping a balance between new product development and optimizing existing product performance will likely stretch resources.”