Where revenue stands in mobile’s business mobile
By Tam Harbert
Community banks are adopting mobile banking at a rapid pace, but exactly why are they adopting it? Many community banks say they need to keep up with the competition. Others say it is a cost-savings and efficiency play. A few are even looking at whether they can generate new revenue from it.
The business case for mobile banking is more of a mixture of reasons than a single dominant driver, says Andrea Bona, ICBA’s vice president of marketing. “Any good business person is going to look at the return on investment in mobile services,” she says.
But any potential return from mobile banking, the hottest new potential product differentiator in a long line of once hot new products, can come in many forms: increased ability to attract new customers, quicker and more efficient service, lower costs to deliver services, increased brand loyalty, better customer retention, cross-selling opportunities and, maybe, actual revenue through fees.
The business case for offering mobile banking—yet another delivery channel among many to support—has both defensive and offensive aspects, says Tim Daley, senior consultant at Cornerstone Advisors Inc., a technology consulting firm in Scottsdale, Ariz. Mobile banking is touted as the next platform of choice, especially for younger consumers, Daley says, and banks that don’t offer on-the-go access risk losing customers to those that do. But it also offers a potential cross-selling opportunity “to get a larger piece of [customers’] financial life,” he says.
“We’ve found that as folks become more digitally engaged with their institution they are much more likely to stay with the institution and more likely to use their debit cards more frequently,” Daley says. Banks can potentially “almost double interchange income simply by engaging customers in the mobile banking realm.”
However, so far most of the potential benefits of offering mobile services are soft, and not measurable in hard numbers. Most community banks offer mobile simply to stay competitive and burnish their brand, says Brad Smith, president of Abound Resources Inc., a banking consultancy in Austin, Texas. That’s why some community banks are, similarly, taking the extra step in mobile by offering mobile deposit capture, he says.
Dan Geller, executive vice president of consulting firm Market Rates Insight, thinks that community banks should be more aggressive in adopting mobile as the next step in online banking. According to a recent Market Rates survey of 1,500 consumers regarding emerging financial services, only 3.1 percent of community bank customers use mobile banking.
Along with Internet banking in general, mobile is “the grand equalizer,” says Geller. Big banks used to have an advantage because their physical branches gave them such a big retail presence. But today, “technology puts a community bank on the same level as any national bank because the digital distance between a consumer’s mobile device and the bank is the same whether you’re a small bank or the largest bank in the country.”
While community banks usually don’t charge for general mobile banking services, some consumers are currently willing to pay for new premium services such as mobile deposit capture, Geller maintains. “Consumers expect these value-added services and are willing to pay for them,” he says.
Geller cites, as an example, Regions Financial Corp., a $90 billion-asset bank based in Birmingham, Ala., that recently launched mobile deposit capture with a tiered fee schedule (see sidebar “One Big Bank’s Fees,” page 18). That’s in line with the Market Rate Insights survey’s finding that the more important the consumer considers a particular emerging service, the higher a monetary value the consumer places on it, he says.
But charging extra fees for services—whether for new-fangled services or everyday ones—has also gotten big banks in hot water with their customers, and a fee-based approach is only one way to profit from mobile banking. According to a recent report from the Bank Performance Innovation Network in Mountain View, Calif., community banks should look at renegotiating contracts with core processing vendors when they add new services such as mobile banking. Core bank processing and related IT services are among the largest noninterest expenses for community banks, and can be the best place to reduce costs, the report says.
Mobile service also brings an extra dimension of potential customer loyalty and cross-selling opportunities, Daley offers. If a bank can get a customer more digitally engaged by offering a personal finance management platform, for example, it could become the customer’s digital financial home, storing all of the consumer’s financial accounts (an argument made in the past for adopting other new banking services early that has often not panned out in the marketplace). Mobile banking might allow a bank to know whether a customer has loans or accounts with other banks, a leg up on cross selling.
“The only time I want to go to a branch is when I sign the paperwork,” says Daley, who believes tablets will become the primary platform for retail mobile banking. For banks that offer e-signature capabilities for loans and other documents on top of Internet and mobile banking, their customers may not ever have to visit a branch if they don’t want to, he adds. That all-digital access, at least in theory, might make banking easier and lower account costs for both the customer and the bank—a win-win for everyone.
Tam Harbert is a writer in Rockville, Md.