The rise of mobile banking


Barry Dark
Barry Dark

Barry Dark, managing director for EMEA at provider to the banking industry, FIS, on the importance and the rise of mobile banking.

It is becoming increasingly difficult to pick up an industry magazine without seeing articles about mobile banking. In fact, one sometimes wonders if there are more words written about mobile banking than there are users of its various services, as most providers can only report a modest 15-35% market penetration. Still, with recent predictions suggesting that the mobile payments market could be worth £365 billion by 2013, the stage is surely set for vast expansion in the sector over the coming years.

According to these figures, there can be little doubt that the industry is still very much in its infancy. The question is: why? If mobile banking has already been around for 10 years, then why has it so far failed to conquer the mainstream?

Stifled progress

One reason is that in years gone by there were relatively few handsets capable of supporting mobile banking, and this stifled progress as banks were reluctant to spend millions of pounds developing technology for the minority of customers with compatible handsets. However, the growing popularity of smartphones (Apple sold one million 3G iPhones worldwide in the opening weekend of its release) has now created a viable platform for banks to reach their customers, and UK users of 3G technology are set to exceed 20 million by 2012.


In addition, the backroom processing systems involved are complex and providers have faced many challenges in perfecting a level of secure and reliable service for mobile banking.

Some services pose more difficulties than others, and while simple balance checking facilities have been in existence for some time, interbank transfers have proved more difficult due to the necessity for cross-party cooperation. A simple balance transfer for example requires communication between the ‘sending’ account, the ‘receiving’ account, and a third party to process the transfer itself. Designing secure payments systems to synchronise the actions of all parties to a transaction is no mean feat, but a number of providers are now able to offer interbank clearing services.


Long way to go

Even so, participation rates of existing mobile banking services suggest that the format still has a long way to go to fulfil its potential. The most recent statistics indicate that although one particular service is now available to over half of all UK adults, so far it has just one million users.

Theories abound as to why this is the case. Interestingly, providers themselves admit the first challenge is that customers are still unwilling to give away their bank details to a company whose name they do not recognise. Others cite not being able to sign up from a non-internet enabled mobile phone, general security concerns and the abundance of ATMs as barriers to consumer participation. And as the current economic climate continues to hurt the financial sector and impact R&D spend, surely mobile banking is seen as an unnecessary expense for banks?

Far from it. In fact, there is a dual incentive for financial institutions to offer their own mobile banking service as mobile becomes an important differentiator: given a choice of two bank accounts from similar banks, one with and one without a mobile banking offering, which would you pick? In this way, mobile banking is seen by some banks as a highly cost effective way of attracting new customers. Those banks without a current product will inevitably end up playing catch up in the years to come as mobile positions itself within the consumer consciousness.

Similarly, research on branchless banking has shown that mobile banking is at least 50% less costly than traditional channels. In the coming years, partly as a result of the recession, traditional in-branch banking is set to decline by 0.5% per annum as banks look to cut costs.


Rise of mobile banking

The bottom line is that if the banks want consumers to switch from branch banking to mobile, sooner or later consumers will be eased into making the switch. But it should not be a hard sell.

Consumers themselves are becoming increasingly tech-savvy, and the demand for anytime, anywhere information is now greater than ever before. Internet banking can already count 21 million users in the UK, and mobile banking allows even greater freedom and access to information to create a true anytime, anywhere service.

The future of mobile banking looks bright. Today the services offered are limited to account balances, transaction histories and inter-account transfers. Some progressive providers also offer mobile bill payments and iPhone applications, but in the future we will also see remote deposit capture, increased customer support, anti-fraud alerts, P2P payments and marketing messages. These new services could hasten the decline of traditional branches and attract new customers to mobile banking as confidence is the technology grows.

On this point, banks still have an important role to play in marketing their services and educating consumers to encourage participation. But ultimately, as ever increasing numbers of services are developed and handset technology continues to improve, mobile banking is sure to overtake branch banking.

The value of mobile transactions is estimated to be around £6 billion by 2012, and that is only the beginning. It is no longer the case that financial institutions have to wait for consumers to become comfortable using the technology; rather the banks have to catch up.

FIS is the world’s top-ranked technology provider to the banking industry. With more than 24,000 experts in 100 countries, FIS delivers the most comprehensive range of solutions for the broadest range of financial markets, all with a singular focus: helping you succeed.

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