By 2019, 1.75 billion around the world will be doing their banking through their smartphones, predicts Juniper Research. That’s more than double the 800 million mobile banking customers today.
No surprise then, that the once-staid global banking industry is embracing mobile technology. It’s an effort to both boost profit margins and to compete, including with non-bank entities like PayPal and Google.
One obvious way for banks to increase profit margins is to reduce the real estate expenses of branches and the compensation for the real live human beings to operate them. According to SNL Financial, in 2013 just in the US, the banking industry closed 1,487 brick and mortar locations. During the first quarter of 2014, about 281 more were shuttered.
Some customers are opening and maintaining checking and savings accounts hosted entirely in cyberspace. They are known as Internet or online banks. They can be managed from a mobile device or desktop. Because they have low overhead, they are promoted with significant perks such as having no fees. Some banks have adopted the dual identity of being both an online bank and a traditional brick and mortar one.
But no matter which kind of bank customers are dealing with, the Federal Reserve Board reports that during 2013, 51 percent of smartphone owners used the handset to bank, and more than half downloaded mobile banking apps for that purpose.
In addition, mobile apps generate incremental profit. Banks have begun providing apps which facilitate cross-selling, for example. Through them, current customers can shop for houses, and then connect with the bank’s mortgage department directly through the app.
The Competitive Arena
Mobile also is emerging as a competitive weapon. A major issue has been reducing customer churn.
Just as in the credit card industry, reward programs are key to building loyalty. For banking, these programs are being facilitated through smartphones that provide incentives ranging from coupons to games.
But the more important competitive move is to provide the kind of mobile capability and experience customers want. AlixPartners reports in its recent “Mobile Financial Services Tracking Study” that 10 percent of customers changed banks in the fourth quarter of 2013. The primary reason was that their previous bank didn’t provide the mobile features they needed. Of that 10 percent who jumped ship, almost 20 percent were Millennials.
That 18 to 34 demographic is prized, of course. They represent the future, and their likes and dislikes are indicators for future consumer trends.
Millennials know that they don’t have to show up in person to open an account or use the telephone to resolve a problem. Both those options require social interaction. Instead Millennials will look for the digital contact points, all lower cost for the bank.
But the most formidable competition will likely take shape not among banks but with non-banks. They include Facebook, Amazon, eBay, Apple and Google. There will be many more. The startup space is crowded with those creating financial apps.
The competitive threat is already evident in Peer-to-Peer (P2P) payment options. Virtusa Corporation found that less than 10 percent of mobile banking customers are transacting P2P payments. That will have to increase significantly. According to Forrester, P2P mobile payments will reach about $90 billion in 2017. Two years ago it was at $12.8 billion.
The profits and actual survival of the banking industry depend on the innovation, convenience, user-friendliness, security, speed, and reward programs associated with the mobile experience. That aggregate is the platform on which the future of banking will have to be built.