Fiserv’s Aleksandra Gren
presents the business case for an enterprise-wide
mobile financial services strategy.
The industry buzz around mobile
banking has driven many institutions to take a tactical; ‘just try
something and get it up and running quickly’ approach to mobile
banking over the last several years. By taking this route, some
financial institutions may meet the needs of a tactical line of
business or a single channel, but they risk running into dead-ends
later on as they seek to take advantage of new mobile applications,
functionality and access modes.
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For financial institutions, the
recent financial crisis provides a unique opportunity to sharpen
their focus on implementing mobile financial services solutions
that enhance the banking experience of their customers, while
reducing channel costs and achieving a compelling return on
investment. This will require a dramatic shift in emphasis from
simply enabling basic transactions through mobile phones and other
mobile devices to adopting a more holistic, enterprise-wide mobile
financial services strategy.
The Market: Timing is
Right
According to the International
Telecommunication Union1, the current penetration of
mobile phones in the developed economies is 97%. Many consumers are
already using mobile phones for services beyond the traditional
voice calls and short messaging services (SMS). Recently,
consumers’ expectations for mobile phone functionality have
increased dramatically. This is signalled by the revolutionary
‘Smart Phones’ market segment growing more strongly, and at a much
higher rate than any other segment2.
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By GlobalData
Momentum is
Building
The emergence of smart phones
has greatly expanded the universe of what consumers can do with
their mobile devices: listen to music, watch videos, send email
messages, surf the Web, play games, even read an e-book. They
transformed primary voice-based wireless communication devices that
consumers carry with them everywhere 24/7. It is these
transformative and continually evolving devices, supported by
high-speed, pervasive wireless infrastructures, that have helped
set the stage for the consumer adoption of mobile banking and
payments occurring across the globe.
Among the online population at
large, consumer interest in mobile banking and payments services
offered by financial institutions has increased steadily. In 2010,
30% of mobile phone owners used one or more banking services over
their mobile phone, up from 23% in 20083.
By the end of 2010, a projected 39m
households were expected to use some form of mobile banking. The
longer term horizon for mobile banking is even brighter. By 2015,
86m consumers are expected to use mobile banking4. That
projection encompasses use of mobile devices for everything from
receiving mobile financial alerts and monitoring account balances
to viewing statements and transferring funds between accounts.
The Mobile Generation
Will Lead the Way
Not surprisingly, many of the early
adopters of mobile banking and payments are younger consumers –
particularly Generation Y (those born between the early 1980s and
2000), but also Generation X (those born between 1961 and
1982).
Born at the dawn of the digital age
in the early 1980s, the oldest among the Generation Y have never
known a world without personal computers and video games. The
youngest of these so-called Millennial’s are still in their early
teens, using their mobile phones for texting more than talking and
counting their ‘friends’ on Facebook. Millennials may not have the
most money or be the most profitable to banks – not yet anyway.
Over the next decade, Generation Y will overtake their parents’
generation, the baby boomers, in population and
income5.
Gen Y is often described as the
Mobile Generation because of their obsession with all things mobile
and digital, and they are embracing mobile banking in large and
ever-growing numbers. In a Fiserv survey, nearly 60% of Gen Y
consumers expressed interest in conducting mobile financial
transactions 6.
Mobile banking also seems to hold
strong appeal for those in Generation X. This consumer segment
shares many of the same usage characteristics of Gen Y, but has
higher incomes, higher account balances, and uses more bank
services than the younger group. Given these characteristics,
Generation X may have a greater need for more mobile transaction
capabilities such as mobile payments and account transfers than
Generation Y7.
Mobile banking can provide
customers with immediate access to needed banking services, while
‘right-channelling’ customers from high-cost contact centres and
branch operations to lower-cost mobile services.
By some estimates, mobile will
surpass all delivery channels by 2025 to become the most heavily
used way to interact with financial institutions8.
The Fallacy of the Ad
Hoc Approach
As mobile banking and payments
mania reached a near-fever pitch in recent years, financial
institutions scrambled to implement solutions that would allow
their customers to start performing basic transactions via their
mobile phones and other mobile devices. These early implementations
were often ‘one-off’ pilot projects that sought to deliver a single
application through a single mode – text (SMS), mobile browser
(WAP) or downloadable application.
At this stage, the industry debated
endlessly about which vendor approach and which access mode would
win the day. But the debate largely fell by the wayside as industry
leaders gradually recognised the value of each access mode for
reaching certain customer segments and performing certain kinds of
secure transactions on devices ranging from the most basic of
mobile phones to the latest smart phones.
Lessons from Online
Banking
Many financial institutions in the
1990s took a similar ad-hoc approach to internet banking. They
cobbled together online banking and bill payments functionality
from different vendors – often with surprisingly little thought
given to integration, user experience, flexibility, features and
scalability. Once again, some in the industry thought it was enough
to ‘check the box’ and provide basic online functionality – without
having an overall online channel optimisation strategy.
Today, similar trends are playing
out in the mobile banking and payments arena. Some vendors are
offering so-called ‘triple-play’ solutions built on multiple
technology platforms, often from different vendors. But this
fragmented approach significantly increases the cost and complexity
of implementation and maintenance at a time when most financial
institutions are instead looking to simplify their technology
infrastructures.
Both then and now, this approach
has proven to be fundamentally flawed. Many financial institutions
regarded the online channel in isolation to their overall
multichannel strategies – just as they do today with the mobile
banking channel9.
At the same time, sometimes
institutions may assume that ‘trying a few things’ is the more
sensible course to take when it comes to an emerging technology
like mobile banking and payments. However, in the long run, lacking
a comprehensive strategy usually doesn’t end up being a competitive
business advantage. Clearly, those institutions that map out a
cogent mobile financial services strategy are likely to be the
winners, and those that don’t are likely to be the industry
laggards in the long run.
Besides, a cobbled-together
approach may not work for a revolutionary technology such as mobile
financial services. Mobile financial services have the potential to
transform not only the way consumers interact with their financial
institutions, but also to radically change the way they pay for
goods and services and exchange money with other individual
consumers.
In addition, technology adoption
cycles are getting shorter. For example, it took 28 years to reach
100m mag-stripe credit card accounts and 12 years to reach 100m
debit accounts. Industry analysts project that it will take just 4
years to reach that many mobile banking users.
While some institutions were
piloting a few mobile banking projects over the last several years,
other banks were sitting on the sidelines taking a cautious,
wait-and-see approach. Over the long haul, mobile banking is not
going to be optional. The longer that institutions wait to get
started down the path of mobile financial services, the longer it
will likely take them to catch up with the industry’s early
adopters.
A Roadmap for
Enterprise Mobile Financial Services
Financial institutions are
beginning to realise that they must move beyond this short-term
vision of ‘mobile banking’ and adopt a more comprehensive
enterprise mobile financial services strategy in which technology
and functionality are leveraged in order to deploy enterprise-wide
banking services to mobile devices10.
This broader vision encompasses the
support and integration of customer activities across multiple bank
channels, including mobile. These mobile financial services can
integrate transactions, payments and content in novel ways,
generating revenue for the bank, and delivering functionality to
diverse customer segments ranging from retail to corporate and
small- to medium-sized businesses11.
To drive the highest levels of
adoption and usage, financial institutions need an integrated
mobile financial services platform that delivers an optimised
experience for consumers using an ever-growing array of device
types. Institutions need a scalable and integrated end-to-end
enterprise mobile financial services platform that can deliver
native support for multiple access modes (SMS, WAP and downloaded
application). It should also provide a flexible application
platform that facilitates future growth and expansion of
capabilities such as mobile payments.
Ideally, a mobile banking and
payments platform that is tightly integrated with core banking,
online banking and electronic payments systems can offer customers
a more consistent and richer user experience.
At the same time, institutions can
gain a single cross-channel view of their customers for improved
customer care and efficient enrolment. Whatever the approach taken
– integrated product suite or a diverse product architecture –
institutions should look for flexible, integrated mobile banking
platforms. Institutions should be able to deploy functionality
using multiple access modes across multiple lines of business (for
example, retail, small business, corporate) that adapt and expand
their offerings over time as the market becomes ready for mobile
payments and mobile commerce.
Multichannel
Strategy
An integrated, multichannel mobile
banking strategy begins with an understanding of the behaviour and
needs of distinct customer segments. It should be based on a
knowledge that customers ‘behave in an integrated way, rather than
in channel- or product-specific ways’12. These customer
insights should help the institution deliver targeted services to
these segments – consumers, small-to-medium-sized businesses,
unbanked and underbanked populations, and corporate customers,
among others.
Institutions that look at mobile
banking as merely an extension of online banking and roll out a
mass-market solution run the risk of ignoring the needs of
overlooked, but important customer segments such as those who don’t
bank online and the underbanked. In this way, banks can miss
opportunities to drive retail banking customers to lower-cost,
self-service and virtually universal channels such as mobile.
By the same token, an integrated
mobile financial services platform allows institutions to support
additional customer segments such as SMBs or take advantage of
emerging functionality – without requiring the acquisition of niche
solutions that can bring added costs, integration complexity and
time-consuming implementations.
The mobile channel can also provide
both a targeted acquisition and retention tool. As we have seen,
the availability of mobile banking services is a key criterion for
Generation Y in their choice of a financial
institution13. Mobile banking also helps improve
loyalty: One financial institution was able to boost customer
retention from 85% to 93% in a 6 month period after implementing
mobile financial services14.
Like online banking, mobile banking
is a ‘sticky’ service that can increase customer loyalty and
profitability. Institutions can also offer value-added services to
their customers through the mobile channel, such as alerts,
merchant offers and mobile remittances.
Across the globe, many banks in
Europe, Asia-Pacific and other markets are charging fees for mobile
transactions and access. Some banks may charge less-profitable
customer segments for the privilege of accessing their accounts via
their mobile device, and others may focus on generating new revenue
streams from innovative applications such as person-to-person
payments, merchant offers and expedited bill payments. As
competition intensifies, the mobile channel is likely to become
just another cost of doing business15.
Just as with online banking, the
promise of deeper customer relationships and improved retention
rates may be reason enough for most institutions to justify their
investment in mobile banking.
Lowering Channel
Costs
As with any channel, mobile banking
will have built-in cost structures associated with it based on the
cost of maintaining the technology and infrastructure. Mobile
banking introduces new operational costs, but it is by far the
lowest-cost channel in place today. Furthermore, it provides more
potential functionality than some other bank channels such as ATMs
or interactive voice response (IVRs).
Many financial institutions are
focused on converting online banking consumers to mobile banking
consumers. However, recent research has shown that those who use
online banking were less likely than the unbanked to use mobile
banking services 16. In addition, since online banking is already
the lowest-cost channel on a per-transaction basis (see chart,
above right), this focus on moving those who use online
banking to mobile banking will fail to lower the institution’s
overall cost to serve.
A more effective approach is
working to convert non-online banking and less profitable customers
from more costly channels such as ATM, contact centre and IVR to
the mobile channel. Through a proactive channel migration strategy,
institutions can leverage mobile banking as a new, more
cost-effective way to reach the non-online banking population while
lowering channel costs17. For example, consumers
continue to use ATMs for simple inquiry functions, and much of the
ATM transaction growth is driven by services that can easily be
rendered less expensively via mobile banking and alerts.
Many consumers today still leverage
the bank’s contact centre to receive staff-assisted access to
information such as balance enquiries. Not only is this expensive,
but it also overlooks the contact centre as an effective channel
for selling the value of mobile financial services and directly
enrolling consumers in mobile banking.
By providing customers with the
flexibility to enrol in mobile banking through the channel of their
choice – mobile, the branch or contact centre – rather than
requiring all enrolments via the online channel, financial
institutions can effectively channel customers from offline to the
lower cost-to-serve mobile channel, while tapping into a new
targeted customer segment and maximising their return on
investment.
For example, one bank used the
branch and contact centre to convert more than 40% of its regular
contact-centre customers to mobile banking users through a 4-minute
enrolment process. As a result, approximately 30% of these inbound
interactions and 55% of the outbound interactions ultimately
converted to the mobile channel18. By providing a
convenient and accessible alternative to the online channel, mobile
enrolment also provides additional cross-selling opportunities.
Like any other banking channel,
mobile banking introduces new costs. However, in our experience, by
the end of the second year of providing a comprehensive mobile
financial services offering, financial institutions have been able
to manage fully loaded net annual costs to £4 to £5 per active
subscriber (including solution, infrastructure, messaging,
personnel and marketing costs). For the equivalent cost of two
branch visits by a subscriber, you could cover the annual cost of
providing mobile banking to each subscriber.
When mobile banking is provided as
a free service, the average consumer will make more than 100
transactions annually.
Based on actual data from
implemented customers, if appropriately managed, an estimated 30%
of those transactions will be migrated from alternative
channels.
By migrating customers from higher
cost channels such as ATMs and contact centres, financial
institutions can realise savings of between £7 and £14 per active
consumer per year19. At a time when banks are
aggressively looking to cut costs, the mobile channel can help
institutions achieve efficiencies across their channels while
boosting customer retention.
Beyond Banking,
Deriving Strategic Value
Financial institutions
underestimate the value of the mobile channel when they regard it
as just a newer, cooler way to check account balances, transfer
funds– somewhat akin to what ATMs represented to consumers in the
1970s. And the strategic value from mobile payments will be even
more significant.
Unlike the ATM example, mobile
banking isn’t just a new way for consumers to perform transactions
on the go or during off hours when the branch is not open or an
Internet-connected computer is not immediately available for
accessing online banking.
Mobile banking is also a new way
for financial institutions to interact with their customers and
deliver a wide range of valuable banking services and processes
such as customer service, support and alerts, and cross-channel
security authentication, to name a few examples.
In this way, the mobile device can
become a potential point of convergence that integrates and
streamlines customer processes and activities across multiple bank
channels. The mobile channel may provide a supporting role for a
banking process that may start and/or end in another bank
channel.
For example, one- and two-way
mobile alerts may notify a customer of the current status of a loan
application or the need to update mailing address information in
the case of returned mail. These mobile alerts can speed up
response times and improve bank process efficiency, and result in
average cost savings of £0.50 to £1 per transaction.
Approaching the Tipping
Point
Mobile banking is approaching the
tipping point as consumers increasingly regard mobile phones as
multifunction mobile communication and computing devices. Given the
universality of mobile devices, it stands to reason that the
adoption cycle for mobile banking will be much shorter and swifter
than it was for online banking back in the late 1990s through the
first decade of the 21st century.
Financial institutions that embrace
a holistic multichannel financial services strategy will be better
positioned to drive increased consumer acquisition, adoption and
retention across all banking channels and customer segments. At the
same time, an enterprise mobile financial services strategy will
enable institutions to support new applications, generate new
revenue streams and mobilise payments in novel and yet-unimagined
ways. As a result, this will enable banks to achieve a compelling
and quantifiable financial return from their investments in the
mobile channel.
Every significant technology
investment that financial institutions make should have clear
business objectives and a solid plan for achieving strategic value.
However, in today’s challenging economic climate, this isn’t always
the case.
A Global
View
By 2011, the number of mobile phone
subscribers that use their devices to conduct mobile banking and
payments transactions is expected to reach 150m
globally20.
With nearly universal use of
wireless devices for voice and non-voice communications in North
America and Europe, consumer use of mobile financial services is
poised to one day surpass the numbers of those accessing online
banking services through Internet-connected computers.
In emerging markets such as Africa,
India and China, the ratio of mobile devices to online users is far
greater. In these markets, mobile financial services is a
cost-effective and more profitable way to fill a largely unmet need
for remote access to banking and payment services among unbanked or
underbanked populations that lack access to online banking
services.
Technology experts believe that the
global credit crunch may delay the shift from payments using cash,
cards or cheques to those being made by mobile
devices21. Still, industry analysts generally agree that
the United States and Europe remain several years behind many parts
of the world, particularly East Asia, when it comes to deployment
of mobile banking and mobile commerce technologies.
A recent study found that the
mobile banking and payments market is most advanced in the Far
East, but that growing numbers of mobile banking services are being
offered in North America and Western Europe22.
In the not-too-distant future, the
mobile device will gradually morph into a ubiquitous payment
device, both for remote and proximity-based POS payments throughout
the world. By implementing an enterprise-wide mobile financial
services platform today, financial institutions will be better
positioned to take full advantage of the revenue-generating
opportunities that mobile payments will provide when the
much-touted future of m-commerce and the mobile wallet finally
arrive in markets across the globe.
10 Key Criteria for
Selecting a Mobile Financial Services Solution
1) Flexible
Enrolment: The ability to enrol customers offline, via
mobile and the online channel allows the enrolment of customers at
their point of preference and enables institutions to drive
customers from more expensive bank channels to mobile
self-service.
2) Triple-Play
Solution: You should be able to deliver banking services
via multiple access modes, including SMS, WAP and downloadable
applications from one provider, natively integrated, and built on
one platform.
3) Consolidated Enterprise
Platform: You may start with deploying customer-initiated
and institution-generated SMS alerts, but you should not have to
acquire a separate vendor’s solution to deliver mobile banking via
a downloadable or WAP application. The platform should enable you
to deploy multiple mobile financial services and capabilities
across multiple lines of business.
4) Adaptable and Scalable
Solution: A comprehensive mobile financial services
solution enables you to take advantage of new capabilities, support
new channels and evolutionary changes in devices, or serve diverse
customer segments and lines of business through integrated,
multichannel banking processes.
5) Extended
Functionality: Your enterprise mobile financial services
solution should allow you to extend tailored functionality to meet
the needs of diverse customer segments and multiple lines of
business. This is particularly true for emerging mobile payment
models.
6) Mobilising and
Streamlining Business Processes: You should be able to
support multiple banking channels and ‘mobilise’ enterprise banking
processes to reduce customer care costs while improving efficiency
and customer satisfaction. These are best automated through one- or
two-way mobile alerts.
7) Proven for Premium
Services: Your enterprise solution should provide all the
basic banking transaction capabilities you expect in a mobile
banking solution but, should scale to meet your customers’
expanding expectations. The solution should have proven built-in
mobile payments capabilities and offer the ability to take
advantage of new capabilities in support of peer-to-peer payments,
contactless payments, downloadable applications, expedited payments
and channel marketing programs, among others.
8) Integrated:
Your mobile financial services solution should offer the
flexibility to easily integrate with your existing online banking
and core banking systems, to lower the total cost of ownership. The
solution should provide the institution with a holistic view of
customer needs through consolidated customer care and comprehensive
reporting across the online and mobile channels, incident
diagnosis, security monitoring and customer support.
9) Bank-Centric:
Financial institutions should look for a solution that extends the
institution’s brand attributes across the mobile channel while
leveraging the existing security infrastructure, including existing
credential management capabilities.
10) Multiple Deployment
Options: Your bank should have the flexibility to choose
the mobile banking deployment option – in-house software or hosted
ASP version – that best meets your institution’s needs.
Aleksandra (Aleks) Gren is
Country Manager for Bank Solutions at Fiserv, the leading global
provider of financial services technology solutions. In this role,
Gren uses her expertise in front-end multi-channel banking
strategy, core banking platforms and mobile and Internet banking
solutions to drive business in Central and Eastern Europe. Gren,
who joined Fiserv in 2002, has more than 15 years of experience in
the banking and technology industries.
Notes
- International
Telecommunications Union World Communication/ICT Indicators
Database 2009 (13th Edition) - IDC Press
Release 30 July 2009 – Smartphone Growth Encouraging, Yet the
Worldwide Mobile Phone Market Still Expected to Shrink in
2009 - Fiserv Consumer
Billing and Payment Trends Survey, (Fiserv, January
2010) - 2010 Mobile
Banking and Smartphone Forecast (Javelin Strategy & Research,
September 2010) - Mark
Schwanhausser, Generation Y Mobile banking: Younger Consumers
Dominate the Future of Mobile Banking and Payments, (Javelin
Strategy & Research, April 2008). - See note 3
above.
