Wednesday, May 5, 2010

iPhones will change the game for mobile banking

Germany is a tough market. On the one hand, Germans consider themselves as innovative and technology driven. The internet and mobile phone technology is commonly used in the population.

On the other hand, internet banking and online transactions are primarily used by the younger generation and are not generally accepted across all generations. The percentage of internet banking users in Germany may be higher than some of their neighbors (e.g. Belgium and Poland), but compared to countries like the UK, the USA or South Korea the customer behavior is still pretty conservative.

This may change with the iPhone.

71% of the Germans who have internet access also possess a web-enabled mobile phone. This is an increase of 14% in comparison with last year. The main driver behind this development is the iPhone. Even though a standard for representing online information already existed for about 10 years it was considered slow, inflexible, not user friendly, and costly. The market launch of the iPhone in 2007 brought relief by introducing the first intuitive usable mobile browser. In addition, the other barriers were removed, i.e. the telephone companies increased the data throughput significantly and developed affordable call charge models.

The introduction of the iPhone came along with a variety of applications in the iTunes store to enhance the functionality. Other vendors, like Google and Nokia, followed lately with similar smart phone concepts, broadening the spectrum. According to an article I read recently every fifth sold mobile phone in Germany is already a smart phone.

Anyhow, so far the mobile banking business did not capitalize on this development. In 2009 – referring to results of a recent survey from Steria Mummert Consulting – only 11% of the mobile internet users handled their banking transactions via mobile phones. The demand, however, is much higher. One out of three would like to use this kind of service but only a few financial institutions can fulfill their needs.

That does not mean that the financial services organizations will not jump on the bandwagon. The survey (conducted with banking executives) “Branchenkompass Kreditinstitute 2009” from Steria Mummert indicates that 42% of all German banks plan to invest in mobile banking (M-Banking) in the near future. 15% of the banks already provide some sort of mobile application but those applications are still very simple. They provide customers with guidance to the nearest branch office or a dictionary of contact persons.

While these applications may be useful, they do not use the potential of mobile intelligence. Why should a bank point their customers to the next branch when instead they can manage their transactions online? There are many M-Banking applications economically reasonable which can simplify the life of customers but also give banks an ideal vehicle to interact with them.

· Monthly Financial Statement (for free). The customer can check the settlement of his accounts
· Portfolio Analysis (maybe for free or for a fee). Customers will get a daily/weekly view of their investment portfolios
· Multi-Banking (chargeable offering). Management of multiple accounts of the customer,
including those outside of his house bank. This functionality could be very attractive to customers with multiple accounts in different banks, especially with those that do not offer smart phone apps yet. The only requirement: each bank need to support the HBCI-protocol for online banking.
· Marketing Campaigns. The bank can include actual product information as part of new applications, as long as the customer does not suppress this feature. This will not only improve customer loyalty but can also serve as sales vehicle.

These applications are already available in the market. Other M-Banking features that customers could benefit from and are accustomed to using online banking, have not reached market maturity yet, e.g.

· Management of Standing Orders
· Portfolio Management
· Personalized Stock Information Services
· Live News Ticker

The disposability of these applications will enable customers to react quicker and to use otherwise unproductive time more efficiently. By offering these apps the bank will generate added value for their customer base and will benefit through increased customer satisfaction and retention.

The developments in the mobile phone industry will continue. While the various applications mentioned above can be realized with current technology, the next level of smart phone innovations is already in the making, mobile phones as means of cashless payment.

The next generation of smart phones will – according to industry observers – contain a Radio Frequency Identification chip, short: RFID-chip. This technology allows a wireless data transmission on short distances, thus making the mobile phone a functional currency.
By now this technology is only implemented in a few mobile phones and rarely used. In contrast, being part of an iPhone and using the hype around it could mean a breakthrough for the technology. The debut of the next iPhone generation is expected in summer 2010. If the prevalence rate of the next iPhone is similar to prior generations or the current run on the iPad, banks have to be quick, reacting to these new market conditions in order to keep their customer base.

Because one thing is clear, not only banks and credit card companies target this market. New players will arise with attractive product packages, trying to get a piece of the pie. It is therefore mandatory for the financial services industry to be prepared if they do not want to lose their customers or at least a capital drain.

The main counter-argument of those banks not planning to invest yet in M-Banking: it is a low margin business. The usage of internet banking has a higher net value added (due to the required development effort for M-Banking) and even that technology is not widely used by the customers – as mentioned earlier.

However, business intelligence software like MicroStrategy already incorporates mobile functionality. In addition, more and more effort will be spend on enhancing the smart phone capabilities and providing banks with the right toolset for their business. As a consequence the development costs for the banks can be limited and furthermore, banks will be able to sell these new offerings to their customers (smart phone users are used to pay for qualitative apps), hence reducing their investment and maybe even build new attractive revenue streams.

Mobile banking services will be one of the keys to success of financial institutions and their customer relations in the future. Addressing customer needs is therefore one of the main objectives of mobile banking applications. That is not to say that there is no use for internal apps as well, the typical audience is just smaller. Here are some examples of possible mobile apps in financial services:

· Executive Dashboards. All relevant KPIs for the management available at a glance.
· 360 Degree Customer View. All relevant information of a customer (including product suggestions) directly send to the mobile device of the customer service field representative
· Wealth Management Dashboards. Actual information to manage the portfolio of wealthy customers.
· Risk Dashboard. The most important risk indicators (for the C-level management) to run the business.
· Internal News Updates. Possibility to communicate company news to the workforce.

To sum up, I can say that mobile banking will become more and more important to the financial services organizations, externally to communicate and interact with their customers, internally as a reporting vehicle to their management and employees. Even though I used Germany as an example these deliberations can be applied to the financial services industry as a whole.

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