By Patti Murphy
ProScribes Inc.
Several new reports call into question the ascendancy of mobile banking and payments. Consumer concerns over security, as well as technology issues, have been a drag on momentum. In November 2012, the Federal Reserve Bank of Boston released a report - Mobile Phone Technology: 'Smarter' Than We Thought - that suggested consumer security concerns about mobile technologies are a huge barrier to broad adoption of mobile banking and payments.
"The unfamiliarity and complexity of the mobile device and associated technologies create security concerns for consumers who want to be confident that their personally identifiable information and actionable financial information (e.g., account numbers, PINs, security codes and passwords) are protected in storage and while being used to process mobile payment transactions," the Boston Fed report stated.
Meanwhile, a report by the Oliver Wyman Group noted that globally banks are "showing insufficient urgency" in responding to competitive threats from new entrants into areas like payments.
"Banks believe that merchants are reluctant to adopt the new technology because they fear customers will not use it, and vice versa," said the report's author James Sherwin-Smith, Senior Manager in the payments practice at Oliver Wyman Group. "The risk for banks is that new competitors will invest enough in both the technology and the marketing to overcome these barriers." The report, Advanced and mobile payments: what's stopping you?, was a joint undertaking between Oliver Wyman and the European Financial Management Association. "Banks no longer have the payments field to themselves and have to fight against retailers, mobile phone providers, tech firms and new startups to position for a share of the market," said Patrick Desmares, Secretary General of the EFMA.
Ann Arbor, Mich.-based ForeSee, which specializes in customer experience analytics, just released its satisfaction index for financial services, which illustrates how mobile banking services are consistently out-performed by retailers. "Satisfaction matters just as much for mobile, and perhaps even more in some cases, as it does in any other channel because it represents the future of customer engagement," ForeSee stated.
It does, indeed. And I believe satisfaction with mobile technologies has a lot to do with generational divides. I'd venture to guess that few of us born before 1975 can maneuver smart phones with the speed and agility of someone younger.
I discovered this recently when my thirty-something niece asked me to use my mobile's web function to find a restaurant she wanted to eat at. Soon realizing I was inept at the assigned task, she pulled out her own mobile, found the restaurant's web page and called the restaurant all in the time it took me to google the name.
I suspect that's why mobile banking and payments have been slow to gain traction. Baby boomers are still calling the shots in the commercial world, and too many of us are dumbfounded by our smart phones. And it shows. Square Inc., a compelling disruptor to the status quo in merchant acquiring, for example, was created by thirty-something Jack Dorsey.
A similar dynamic was at play in the 1980s and 1990s, first with cards issued by banks for use at ATMs and later with cards issued for use at both ATMs and at the POS. Baby boomers pounced on the trend, but not our parents. I recall convincing my mother, eventually, to get a debit card. It was the late 1990s.
Today, 81 of the top 100 U.S. banks offer customers mobile financial services, such as account balance inquiries, payments and remote check deposits, according to First Annapolis Consulting. In addition, Javelin Strategy & Research reported that financial institutions added 10 million Americans to their mobile banking customer rolls in 2012.
Mobile banking adoption, which tracks closely to smart phone adoption, is greatest among customers of large regional banks that offer app-based and text messaging-based mobile banking in one package. Among these banks, the mobile adoption rate was 28 percent in 2012.
Mobile check deposit is the hottest new twist in mobile banking, and by most accounts, it could be a real game changer. Asked recently by the consultancy AlixPartners what types of products and services would cause them to switch banks, one-third of respondents said the ability to deposit checks using their smart phones.
So why do mobile banking and payment adoption numbers fail to meet expectations? The Boston Fed report suggested confusion is partly to blame. Not merely confusion among consumers, but confusion across the board, from solution providers to regulators.
For example, the report noted that although the underlying mobile technologies "may be relatively proven for other purposes, they are still considered nascent for mobile payments ... in other words, not all mobile technologies are optimum for all payment-related purposes." Near field communication (NFC) is an example. It offers many potential benefits, but it presents challenges too. Two challenges looming are that not all smart phone manufacturers have adopted NFC and no uniform standards exist. Also, merchants, as a whole, haven't committed to upgrading POS devices to enable two-way NFC.
More consumer education is needed, too - not just information about the technology and how it can be used for mobile payments, but also guidance on using mobile payment devices safely and securely, the Boston Fed wrote.
The report examined cloud technologies as an alternative to NFC. Merchants like cloud-based payment options because it requires no new or upgraded terminals. But the following negatives must be addressed:
The report's conclusion urges all involved parties - banks, nonbanks, telecom carriers, government agencies, networks and the card brands - to collaborate now to avoid future problems.
"Together they need to identify potential vulnerabilities, share applicable data, conduct security analysis of weak points in the mobile process, and determine who is responsible for fixing them," the report stated. "Then they will have the tools to develop reliable controls, education plans and standards that may be needed.
This is a complex task that will not be achieved in silos, or by just one entity, but only through collaborative efforts, which will be a win-win for all mobile stakeholders, especially the consumer."
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at patti@greensheet.com.
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