By Patti Murphy
The Takoma Group
There is a growing sense in the industry that mobile banking and payments are poised for significant growth. Some proponents, in fact, have gone so far as to suggest mobile connectivity to financial services will become mainstream over the next several years.
They point to the proliferation of mobile telephony (especially among the up-and-coming Generation Y population) and suggest that mobile phones will do for banking what the iPod did for music.
Now, I'm not going to bet against something that has the kind of mojo that can be likened to the iPod. I was one of those people who never expected iPods (or, more to the point, a computer company like Apple Inc.) to dominate the market for portable, digitized music.
It wasn't until a few months ago that I finally relented and converted my CD library to an iPod, a task I had previously committed to Sony Corp.'s mini-disc technology. Has anybody seen any MiniDisc Walkman MZs on store shelves in the last two years? Doubtful. I did recently see several listed on eBay, some as cheap as $10.
But let us not forget: Mobile telephones are an entirely new delivery channel for U.S. financial services firms. These companies generally don't jump into things; they have too much riding on consumer adoption and financial performance.
There's plenty of history to support this notion. When bank ATMs began proliferating in the early 1980s, for example, some pundits thought it was the dawning of a new era that would bring about branchless banking, freeing banks from the need to invest in brick-and-mortar offices and, of course, saving money.
Well, that didn't work out the way it was supposed to. Sure, folks adapted to ATMs, but it took at least eight years before banks could report customer adoption rates above 30 percent.
Also, since that time, U.S. banks have opened hundreds, if not thousands, of new branch offices in communities large and small in addition to deploying tens of thousands of ATMs.
By the early 1990s, bankers grew wise to the fact that ATMs were just another delivery channel they had to provide or risk losing or not attracting customers. Soon, they started charging for ATM access, especially at more convenient off-premise sites, to better recoup costs.
Whether mobile banking and payments will follow the same path is anybody's guess. One thing this new channel does have going for it is there are many big name companies investing in support technologies and services.
Earlier this month, Visa Inc. disclosed that its mobile platform is being used to power several tests of mobile banking in the United States, as well as in Brazil and South Korea.
"Visa's investment in its mobile platform comes as more consumers in both developed and emerging markets adopt mobile services," Visa said in a statement, adding that an estimated 3.5 billion mobile telephones are in use, worldwide, today.
"As these numbers have increased - and as the devices themselves grow smarter - consumers rely on them for much more than just communication, creating greater opportunity for them to play a central role in commerce and to deliver new services around payment," Visa noted.
Results of a recent survey, conducted on behalf of Brookfield, Wisc.-based Fiserv Inc., lends credence to suggestions that mobile banking is taking off. Three-quarters of consumers surveyed said they would consider mobile banking if their financial institutions offered mobile banking services. That's up from 49 percent in March 2006, Fiserv said.
Visa said it created its mobile platform to help financial institutions, telecommunications providers and other developers of mobile financial products.
A partnership recently formed between Visa and JPMorgan Chase & Co. is one example of what the platform can do, according to Visa. That test involves select customers in the Phoenix area who receive via mobile devices text messages containing offers redeemable at about 50 area merchants.
Bob Homer, Vice President of Product Management at Fiserv Electronic Banking Services, said the Fiserv survey, conducted in April 2008 by MQA Research Inc. of Worthington, Ohio, shows huge potential for mobile banking.
Younger consumers and other heavy users of mobile devices indicated especially keen interest. Among those ages 21 to 34, 83 percent indicated they would consider using mobile banking services if they were made available. The most popular applications among these younger consumers include checking balances, locating ATMs and paying bills.
Fiserv, which owns the CheckFree online banking platform (widely used by banks and billers since the early 1980s), has unveiled a platform to support financial institutions large and small that want to offer mobile access, regardless of mobile device used. Fiserv provides core processing and other services to thousands of financial institutions.
Metavante Corp., like Fiserv a major provider of core services to banks and credit unions, has been touting its own mobile platform, which, like Fiserv's, is an offshoot of its online banking applications. Initial features include the ability to check account balances and to transfer funds between accounts. Executives at both Fiserv and Metavante have identified Generation Y as a strategic market for mobile banking.
"Many financial institutions have yet to define a strategy that will reach end-users who require nontraditional relationships," said Jeff Lewis, Division President, Metavante ePayment Solutions.
"These largely untouched market segments demand a higher level of convenience made possible by mobile. And with cell phone penetration rates topping e-banking adoption rates by a healthy margin, mobile has possibilities beyond Gen Y."
The largest application of mobile banking to date is run by Bank of America Corp., which stated in June that more than 1 million customers were accessing the bank using mobile telephone devices.
The mobile option was introduced in May 2007 as an addition to BofA's online banking offerings. It features account balance inquiry, as well as the ability to review transactions, transfer funds or pay bills. Altogether, 25 million customers bank online with BofA today, the bank said.
Lance Drummond, e-Commerce and ATM Executive at BofA, said in a statement that more than 100,000 people were accessing the bank with handheld communications devices on peak days.
"Mobile banking holds great promise as a unique channel that offers customers the ability to manage their money anywhere, anytime," said James Van Dyke, President and founder of Javelin Strategy & Research. "We see 2008 as a pivotal year for the emergence of mobile banking and payments."
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at email@example.com.
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