Mobile Banking Popular Among Smart Phone Users

According to the "Mobile Money Study" published last month by Data Innovation Network almost 70% of US smartphone users had used at least one mobile banking and/or payment service on their phone in the previous three months.

As has been found in previous studies and reinforced by Doug Brown from Bank of America at last year's BAI Retail Delivery Conference in Boston, the Mobile Money Study found that checking account balances was the most popular banking application (82%) followed by looking for posted transactions (62%). Account alert features were also popular (46%), with roughly 40% of those surveyed transferring money between accounts.


Interestingly, an overwhelming majority of smartphone users accessed mobile banking using their mobile browser (66%) as opposed to a mobile app (20%), with a large number of respondents interested in a mobile wallet concept where they could swipe their phone like a credit or debit card. This possibility was also found to be popular with a Gen Y panel when I attended last year's BAI Transpay Conference in San Diego.

As the penetration of smartphones continues to increase, consumers will become more and more comfortable with and demanding of mobile banking services. I expect the availability and ease of use of mobile banking to become a significant competitive differentiator in the coming 12-18 months for financial institutions.

As Online Banking Acceptance Grows Is Mobile Banking Reaching the Tipping Point With Millenials?

A new survey by the American Bankers Association (ABA) found that for the fourth year in a row, consumers named the Internet as their favorite way of conducting banking business, with 39 percent of respondents saying it is the method they 'use most often to manage (their) bank account(s).'  The second most popular way to bank – visiting a branch – continued its downward trend to 18 percent from 30 percent in 2008.

In addition, this year’s survey showed a sharp increase in the popularity of mobile banking, driven mainly by customers in the 18 to 34-year-old age group. Use of the mobile channel by millennials escalated from 4 percent in 2010 to 15 percent this year. Conversely, the use of branches by this age group during the four-year period dropped from 20 percent to 11 percent, with ATM use also dropping from 32 percent to 14 percent. Overall, mobile banking is now preferred by six percent of customers, a 100 percent increase from 2010.

The distribution of primary channel use this year was as follows:

• Internet Banking (laptop or PC) – 39% (36% in 2010)
• Branches – 18% (25% in 2010)
• ATMs – 12% (15% in 2010)
• Mail – 8% (8% in 2010)
• Telephone - 9% (6% in 2010)
• Mobile (cell phone, Blackberry, PDA, I-Pad, etc.) – 6% (3% in 2010)

Online banking first became the most preferred banking method in 2009 with 25 percent of customers naming it as their favorite. Previously, visiting a branch was the most popular method, followed by ATMs. “The survey results show consumers have a clear preference for the speed and convenience that come with Internet and mobile banking,” said Nessa Feddis, ABA senior counsel and retail banking expert. “However, banks are committed to serving the needs of all customers regardless of which method they prefer,” she added.

Even the oldest demographic segment surveyed (55+) is moving away from branch visits and towards online and mobile channels. As shown below, the 61 percent of the oldest segment preferred branches and ATMs in 2008, while this preference dropped to 37 percent in this year's results. And, while mobile banking preference by this segment is still close to non-existent, internet banking has almost doubled over the past four years. 

Interestingly, this segment is the only group where bank-by-mail and telephone banking has increased consistently. In fact, telephone banking has increased during each period for all demographic segments, representing an opportunity to move many of these transactions to alternative (less expensive) channels.

“These results show customers are embracing new technologies that make managing a bank account simpler, easier and more convenient but that doesn’t mean that the traditional bank branch is going anywhere soon,” said Feddis.

“Branch design may evolve as a result of declining foot traffic. However, we know that nothing replaces human interaction and that’s why branches will never disappear,” she added.

The key going forward will be to encourage adoption the mobile channel by more than just the early adopters for more robust use beyond simple balance checking. According to the white paper developed by Fiserv a few months back entitled, "Breaking the Mobile Banking Glass Ceiling: Five Factors Will Drive Consumer Adoption," these early adopters may represent as much as 20% of eligible users.

To move beyond this 'tipping point', Fiserv recommends five factors to move mobile banking into the mainstream. These include:

• Establishing mobile banking as useful
• Providing access to mobile banking through all devices
• Helping consumers overcome security concerns
• Fostering familiarity for a natural transition across channels
• Making mobile banking easy to use

"Financial institutions have rushed to offer mobile banking during the last few years, and many now realize that driving adoption is not just a ‘build it and they will come' proposition," said Kelly Rodriguez, vice president, Strategy and Business Development, Digital Channels, Fiserv. "In order to maximize return on investment, financial institutions need to engage both their staff and customers. This requires a proactive strategy for delivering mobile financial services and educating potential users on the benefits."

With the continued growth in smartphone ownership and the accompanying comfort level with all things digital and mobile, it is clear that mobile banking acceptance will continue to grow. The key to success will be to introduce marketing initiatives that will stimulate mobile banking utilization beyond the level which naturally occurs in the marketplace. This will require enhanced mobile capabilities, improved customer communication and a focus on the excellent win-win opportunity for both banks and customers.

Additional Resources:

Preferred Banking Method for ages 18-34 for the years 2008-2012 (PDF)

Preferred Banking Method for ages 35-54 for the years 2008-2012 (PDF)

Preferred Banking Method for ages 55+ for the years 2008-2012 (PDF)

Breaking the Mobile Banking Glass Ceiling- Fiserv 2012

The annual survey of channel preferences was conducted for the ABA by Ipsos Public Affairs, (an independent market research firm) on August 2-6, 2012. For the survey, a nationally representative sample of 1,000 randomly selected adults aged 18 and over residing in the U.S. were interviewed by telephone. This ensured survey accuracy within ±3.1 percentage points and reflected the demographic composition of the U.S.

Millennials Find Banks Irrelevant

A three-year study from Scratch, an in-house unit of Viacom, found that a third of millennials believed they won't need a bank in the future. These millennials, defined as those between ages 18 to 33, also ranked the top four banks in the "ten least loved brands" and would rather go to the dentist than to their bank.

Is this surprising? This segment of the population has grown up in an era that saw trust in banking erode due to the financial crisis and a near stagnant economy. This is also a period when new technology has enabled firms like Simple, Moven, Square and PayPal to be more relevant with a generation that would rather handle finances on their phone than in a branch.

Here are some of the findings from the Millennial Disruption Index:

• 53% don't think their bank offers anything different than other banks
• 1 in 3 say they are switching banks in the next 90 days
• 71% would rather go to the dentist than listen to what their banks are saying
• 33% believe they won't need a bank at all in the future
• Nearly half are looking for tech start-ups to overhaul banking
• 73% would be more excited about a new offering from Google, Amazon, Apple, Paypal or Square than from their own bank

These beliefs are coming from the largest generation in the U.S. (84 millions) with a new found purchasing power of over $1.3 trillion that represent the vast majority of new home buyers. They are far more tech savvy than previous generations, use their mobile devices continuously, look for deals in every buying category and are connected through multiple social networks.

According to the TD Bank Financial Education Survey, many millennials look to their parents and friends for advice on financial services and many still rely on their banks. Ninety percent use online or mobile tools for everyday banking activities, with 57 percent saying they used mobile banking more frequently than last year.

It is clear, however, that banks are having a difficult time keeping up with the needs of this segment. While banks spent time improving the online banking experience, millennials had already moved to mobile devices for communication, transacting, entertainment and information. The industry's response, for the most part, has been to provide mobile access to online banking platforms. Only banks built for the mobile device like Simple, Moven, GoBank, Fidor, mBank, Soon and Hello seem to see the future.

How Do Banks Need to Respond

As talk has shifted to the Internet of Things, banks need to become part of this talk. An entire industry needs to reimagine what banking means to consumers and determine the best way to leverage new technology to integrate banking into consumers' daily activities. Downloadable banking accounts need to replace checks and potentially even plastic.

While branches may not disappear, they need to integrate new processes and technology so that the transition from mobile to physical is seamless. Banks also need to find better ways to differentiate, since millennials view all banks as being the same. New products or services aren't the answer ... enhanced experiences will provide the foundation for differentiation in the future.

The banking industry is reaching a tipping point. The millennial consumers (as well as older generations) are using other industries as a point of reference for what they expect from their financial services partner. If they don't receive the experience they want, the results from this survey make it clear they will look elsewhere (outside traditional providers) to meet their needs.

This should serve as a wake-up call to the entire industry. While banks are not becoming obsolete, they appear to be unresponsive to an entire generation. It's time for disruption to come from within the industry. 

BBVA may have heard the call when they purchased Simple. They bypassed legacy systems, legacy processes and legacy thinking to leapfrog the rest of the large banks in delivering a better version of mobile banking.

Will other banks follow the lead of BBVA?