Mobile Banking: One Step Forward, Two Steps Back

For banks still undecided about adopting mobile banking, there appear to be as many reasons to move forward as to stay back.

Bankers who have already adopted the technology say it is not expensive or difficult to deploy within the institution. Further, as more people acquire more sophisticated cellular devices with enhanced service, mobile banking is poised to become as popular as Internet banking, they say.

To date, however, mobile banking has yet to attract a lot of customers and thus does not generate much revenue, these bankers admit. And they acknowledge technological glitches that present problems in delivering the service to some consumersu00e2u20acu2122 phones.

u00e2u20acu0153The big issue with banks is that thereu00e2u20acu2122s not a great deal in terms of immediate revenue-generating potential,u00e2u20ac says Nick Holland, senior analyst at Aite Group, a Boston-based research firm. u00e2u20acu0153Itu00e2u20acu2122s about accessing information.u00e2u20ac

Roger Applewhite, technology strategist at Avenue B Consulting in Redondo Beach, California, echoes Hollandu00e2u20acu2122s view of mobileu00e2u20acu2122s fee potential. u00e2u20acu0153Itu00e2u20acu2122s not going to stop the world in terms of moving market share,u00e2u20ac he says. u00e2u20acu0153Itu00e2u20acu2122s another channel you have to justify.u00e2u20ac

Even so, mobile banking is enjoying a rejuvenation of sorts after fizzling out around the turn of the century when many banks tried it and then walked away. Now, many more Americans are using mobile phones, putting the industryu00e2u20acu2122s second attempt at mobile banking on much more solid ground.

In 2009, 13% of online banking users are expected to adopt mobile banking, up from only 4% in 2007, according to a survey of 23 of the top 80 banks in a report put out in April by Aite.

But growth in adoption does not mean every bank is ready to offer the service. Banks on the fence may want to check their profiles against those of early adopters, who seem to share certain defining characteristics.

Most of the banks in the vanguard appear willing to roll with cell phone technology as it evolves on the consumer side. Further, they tend to view mobile banking as another channel, without getting hung up on generating revenue or having a formal return-on-investment plan. Finally, they are confident the ranks of mobile banking users will eventually swell.

Irwin Union Bank, which just finished testing and rolling out mobile banking, fits this description. It encountered technical difficulties early on when it realized it would have to accommodate the various types of cell phones in consumersu00e2u20acu2122 hands, says Mike Riddle, senior vice president at the bank, which is a subsidiary of $6 billion Irwin Financial Corp., headquartered in Columbus, Indiana.

During the testing phase with employees, it found that newer personal digital assistants, such as the Blackberry, Palm, or Treo work extremely well with its offering, but some older phones are not compatible. One bank employee with a Nokia phone about three years old ended up having to get a different phone in order to access the service, Riddle says.

u00e2u20acu0153The biggest challenge is how to support these folks without having to be cell phone experts,u00e2u20ac Riddle says.

United Bank of Michigan, a $421 million bank based in Grand Rapids, has had a similar experience. When it started offering mobile banking at the beginning of this year, about one-third of its 4,000 or so online banking customers quickly signed up, says Tim Lockwood, senior vice president and chief information officer. But less than 10% of them have actually been using the service.

Part of the problem is the cell phone equipment its customers have, Lockwood says. United Banku00e2u20acu2122s mobile banking service requires users to have text messaging and Internet browsing capabilities on their phones. However, the cellular network carriers usually charge monthly fees for these features. u00e2u20acu0153If youu00e2u20acu2122re not already subscribed, then just online banking may not be worth the extra charges,u00e2u20ac Lockwood says.

He expects usage will go up as the banku00e2u20acu2122s customers, especially younger ones, start buying more sophisticated phones, like the Blackberry and iPhone. Those phones are u00e2u20acu0153more equipped to handle the technology we have,u00e2u20ac he says.

The issues that Irwin Union and United Bank are experiencing illustrate the relative lack of control banks have over critical aspects of their mobile banking services. While there is a way to get around the older equipment in customersu00e2u20acu2122 hands, doing so requires working more closely with the network carriers, an option that imposes its own set of limitations.

Rather than offer a service that is called up through a phoneu00e2u20acu2122s browser, Synovus Financial Corp., a holding company based in Columbus, Georgia, is offering one that is downloaded to usersu00e2u20acu2122 phones. Downloadable applications better compensate for the wide variety of devices consumers have, and overall, offer better presentation of graphics and functionality.

The drawback is that Synovus can only offer its service through carriers that have been certified to download the software, which is provided by Firethorn Holdings LLC, an Atlanta-based unit of Qualcomm Inc. of San Diego. To date, that means only Synovus customers who use Verizon or AT&T can receive the banku00e2u20acu2122s mobile service. u00e2u20acu0153Weu00e2u20acu2122re limited by the carriers and Firethornu00e2u20acu2122s ability to contract with carriers,u00e2u20ac says Shelby Hutcherson, vice president and senior retail solutions manager at Synovus.

Bankers in these early days of mobile banking realize that the way they choose to distribute their serviceu00e2u20ac”either through a browser or via a downloadable applicationu00e2u20ac”may not ultimately prevail. u00e2u20acu0153You never know. Things change,u00e2u20ac says Kevin Mullins, senior vice president of electronic services at IBC Bank, which is offering a downloadable mobile banking application from mFoundry of Sausalito, California.

Even so, these banks are willing to move forward on investing in the technology with the idea that they will gain a better understanding of how the technology works before demand really picks up. In any event, the investment required to get into mobile banking has not been onerous. This may explain why early-adopting banks have tended to be fairly loose in their return-on-investment requirements for this technology.

Hutcherson says Synovusu00e2u20acu2122s cost to acquire the technology was u00e2u20acu0153very minimal.u00e2u20ac As Firethornu00e2u20acu2122s second banking customer, Synovus was able to secure a good deal, she explains. In addition, ongoing costs are low because the mobile banking service reuses capabilities that already were built for online banking.

Mullins of IBC echoes that point. The $10.6 billion institution based in Laredo, Texas u00e2u20acu0153reused message sets from online banking, so the time to market and development are much more cost-effective,u00e2u20ac he says. Riddle of Irwin Union characterizes mobile banking as an extension of the online banking product line. u00e2u20acu0153The cost is more like what an enhancement would be, versus a new product,u00e2u20ac he says.

The early adopters are not charging for their mobile services and have not placed much emphasis on achieving a specific return on investment. Rather the business plans are built around the theory that mobile banking will become commonplace, and it makes sense to prepare for it.

u00e2u20acu0153How do you get payback on an ATM?u00e2u20ac says Lockwood of United Bank, suggesting that mobile devices are just another channel through which to distribute information. Payback will happen over time, as younger customers in particular become attached to the service and develop deeper relationships with the bank because of it, he says.

Irwin Unionu00e2u20acu2122s business plan rests partly on its desire to project itself as a technologically savvy institution. The banku00e2u20acu2122s mobile banking offering puts it at the cutting edge compared to its competition, Riddle says. u00e2u20acu0153We want to keep in the forefront in our discussions with clients that we are keeping up.u00e2u20ac

Similarly, Synovus did not specify a return-on-investment plan, Hutcherson says, but it expects mobile banking will pay off in the long run. Synovusu00e2u20acu2122s plan is to get customers accustomed to using basic mobile services, and then introduce payments-related functionality for which the bank will be able to charge.

Risk is something that all early adopters must address. In online banking, for example, no one predicted or had prepared for the risks of phishing (in which fraudsters pose as the bank in online communications to solicit personal data).

Because of the inexact nature of mobile bankingu00e2u20acu2122s risk at this early stage, Synovus felt more comfortable choosing a downloadable application, rather than a browser-based service, Hutcherson says. A downloadable application has the security advantages of requiring a direct connection between the institution and the user, and of not storing any personal information in the phone.

Many early adopters are considering or are installing two-factor authentication. United Bank, for example, sends users a one-time password via a text message when they log on. Users must then input this password, along with their standard user name and password, to enter the system.

Above all, early adopters are confident that mobile banking will take off. u00e2u20acu0153Within the next five years, your mobile device will be your electronic wallet,u00e2u20ac Mullins says. u00e2u20acu0153The fact that weu00e2u20acu2122re able to get out there early positions us for the next step.u00e2u20ac

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