Smartphones Unleash Mobile Banking in North America
August 8, 2011
By: Robin ArnfieldVRL provides independent incisive analysis and insight for the global cards and payments community.
US consultancy Javelin Strategy & Research predicts that US smartphone users will rise from 59 million in 2010 to 138 million in 2015. In Canada, 48 percent of mobile phone users aged 18-34 have a smartphone, with smartphone penetration among 18-24 year-olds reaching 55 percent, according to research by Quorus Consulting Group for the Canadian Wireless Telecommunications Association (CWTA).
While the number of customers accessing their accounts via mobile devices is still below the numbers using branches, ATMs and PC-internet banking, this startling rate of growth in smartphone users is causing a wave of activity from banks.
"When the smartphone market took off, North American banks had to offer mobile apps," says David Albertazzi, senior analyst at US consultancy Aite Group. "Apps provide a better user experience than mobile browsers or SMS text-based banking. They can be tailored to the specifics of the user's smartphone, which you can't do with browsers."
"Smartphone ownership has really grown in the last year and is driving the increase in m-banking," says Stephanie Houck, research director at digital audience measurement firm comScore.
In the 14 months to April 2011, the number of Canadians using banking apps on their smartphones went from zero to 2.5 million, says Solutions Research Group. Over a third (38 percent) of all Canadian smartphone-owners currently use banking apps, the Canadian consultancy says. The TD Canada Trust app has the most users, followed by CIBC, RBC Royal Bank, Scotiabank and BMO Bank of Montreal.
According to comScore, the number of US consumers accessing mobile financial services such as bank, credit card or brokerage accounts via apps grew by 120 percent between the first quarter of 2010 and the first quarter of 2011. comScore says that 33 million Americans used a mobile device (smartphones and regular cellphones) to access their financial (bank/credit card/brokerage) accounts in Q1 2011, including 30 million who logged on to m-banking.
"Currently, 49 million people, or 24 percent of the adult US population, use m-banking," estimates Mark Schwanhausser, Javelin's senior financial services analyst. "By 2015, this figure will rise to 86 million people, or 41 percent of the adult US population."
Banks are finding that they have to offer mobile banking via SMS, web browsers and smartphone apps, the so-called "triple play" approach. "You need to let customers use whatever channel they prefer," says Schwanhausser. "If you go with one technology, you leave out part of the market. Also, our survey data shows that people want to be able to use all three m-banking modes. For example, they want to check their balance via SMS, but feel more secure paying bills via an app."
Smartphones are unlocking some amazing developments. The ability to deposit cheques into a bank account by scanning them into a smartphone's built-in camera could prove very popular in the US. "Mobile remote deposit capture (MRDC) is the application that will really make customers want to do m-banking, as it saves having to go to the ATM or the branch," says Schwanhausser.
MRDC is currently offered by banks such as JPMorganChase, PNC Bank, U.S. Bank, and USAA, a financial institution that serves the US military. "A lot of US banks are now developing MRDC services as they are feeling the competitive heat from Chase," Bart Narter, senior vice president in US consultancy Celent's Banking Group, says. Regulatory restrictions mean that Canadians are unable to enjoy this service.
The volume of m-banking activity is generating swathes of potentially useful data. Like other top US banks, Wells Fargo has seen rapid adoption of m-banking. At 31 March 2011, Wells Fargo had 5.5 million active mobile customers. "We're seeing 9-10 customer log-ins per user per month via mobile browsers and apps, while we're receiving 23-25 text message-based inquiries per user per month," says Jinee Ellis, vice president for Wells Fargo's Retail Mobile Channel.
Wells Fargo's m-banking strategy is to develop services that fit its customers' lifestyles. "We spend a lot of time conducting customer research, and everything we do is driven by user feedback," says Ellis.
"Wells Fargo is doing the analytics to see what's happening with its m-banking customers," Neil St. Germain, senior vice president at US consultancy Speer & Associates, says. "Many other banks don't do the customer analytics, they just create a mobile platform – a case of 'build it and they'll come.'"
Wells Fargo offers transactional banking via its mobile website as well as via apps running on iPhones, Palms, BlackBerries and Android-based smartphones. Services include transfers between a customer's accounts at Wells Fargo as well as transfers to the accounts of other Wells Fargo customers. The bank also offers account informational services via text messaging.
"We've found that customers are attracted to the speed of text-based banking," says Ellis. "If they want to find out their balance, a bill due date, or the nearest ATM, they don't have to log on. All they have to do is send a text, and the answer comes very quickly. They can do that while waiting in a checkout line."
When the SMS service was launched in 2007, it was initially only available for PC online banking users. However, in 2010 the service was made available to all bank customers. "A lot of people who don't have time to do PC banking, or who don't have access to a computer during the day, would like to use SMS banking," says Ellis. However, to use transactional mobile browser or app banking, Wells Fargo customers first need to register via PC banking.
Smartphone banking has found a place in the lives of busy customers, Ellis says. "If they have a smartphone, customers don't have to drive by a bank, or carve out time in the evening to do banking," she says. "They can take care of financial tasks on their 'to do' list immediately, whenever and wherever they think of them, for example bill payment. Mobile apps are so convenient, that customers prefer to use their smartphones even when they have access to a PC. They don't have to boot up their PC, and they can get the task done quicker using the app."
Wells Fargo encourages customers to play a proactive role in identifying fraud by signing up for transaction alerts. Customers can opt to receive these near real-time notifications via SMS or emails.
One exciting opportunity that smartphones have opened up is for money transfer. In partnership with Bank of America and Chase, Wells Fargo has launched clearXchange, a service enabling customers to make mobile or PC-based person-to-person (P2P) transfers to other banks. With clearXchange, all the sender needs is the recipient's email address or mobile phone number, instead of having to provide the recipient's chequeing account number and bank routing number, or open an external account with a service such as PayPal.
A pilot of clearXchange is underway in California and Arizona, with nationwide US rollout expected to be completed by early 2012. "If clearXchange users in Arizona and California want to send money from their cellphones to people in other states, they can do so," says Jim Stahley, senior vice president for Wells Fargo Enterprise Payments Strategy. "This means we benefit from viral marketing. Our ultimate goal is to sign up other banks across the US, so clearXchange users can send and receive money from any US financial institution."
clearXchange is accessed via a Wells Fargo app that fires up a web page for the actual P2P transfer. "Wells Fargo take a hybrid, multi-layered approach to m-banking security that uses downloadable apps as well as Web access," says Ellis.
According to Alisdair Faulkner, chief products officer at US online security firm ThreatMetrix, Wells Fargo's approach reflects best practice. "If the m-banking app doesn't go via a browser, and therefore doesn't use the security built into web banking, then the bank has to reinvent the wheel for authenticating app users," he says. "This is risky. So we recommend that banks adopt a hybrid app-browser approach. The app can let me to check my account balance, but, if I want to do a transaction, the app should redirect me to a secure browser."
Ellis stresses that Wells Fargo m-banking transactions are fully covered by the bank's online security guarantees. Speer's St. Germain says that offering zero liability for m-banking provides a way to reassure customers about the security of the channel. "This means the bank is saying: 'm-banking is so secure that we will guarantee all your mobile transactions,'" he says.
In comScore's fourth quarter 2010 survey, 33 percent of US smartphone users who did not access their financial accounts via smartphone said the reason was concern about the security of the process. comScore says 30 percent of non-smartphone users also gave the same reply.
"Security perception is a generational issue," says St. Germain. "Gen Y, the under-25s, grew up with cellphones, so they're comfortable with m-banking. Gen X, those under 40, are a little more concerned about fraud in an online environment. Older people are really hesitant."
Canadian banks have been able to take advantage of the country's integrated payment system to push out mobile banking much more efficiently than their US counterparts. In 2010, each of the top five Canadian banks launched 'triple play' m-banking services integrated into their PC web banking offerings. The services replace an earlier wave of unsuccessful wireless banking launches.
"Ten years ago, most Canadian banks launched wireless banking services," says Tracy Gomes, director, mobile banking at Scotiabank. "But the customer demand just wasn't there. Scotiabank's original wireless service still exists, but we're looking to close it."
"What's unique in Canada, as opposed to the US, is that there are a limited number of mobile operators and just five national banks," says Nizar Assanie, vice president of research at Canada's IE Market Research. "By contrast, the US mobile and banking markets are very fragmented, making it harder to roll out m-payment services in the US than in Canada."
Mobile P2P transfers in Canada use the same system as P2P payments made via online banking, Interac e-Transfer. All the top five banks plus 40 credit unions offer Interac e-Transfer. Provided the sender and recipient's financial institution is an Interac e-Transfer participant, transfers are cleared instantly via the Interac payments network. Otherwise, transfers take four days to clear within the Canadian banking system.
Scotiabank's Canadian 'triple play' m-banking service won the 2011 Celent Model Bank Award for "innovative and effective technology usage in banking" in the Distribution/Channel Management category. The service, launched in October 2010 with the help of M-Com, provides real-time account-to-account transfers, domestic P2P transfers via Interac, global P2P payments via Western Union, bill payment, and account information. Sign up is via PC web banking, call center, or the mobile phone itself.
"It's important to offer enrolment via mobile phone, as many young people just have smartphones and don't use PCs," Celent's Narter says.
Scotiabank offers an iPhone app and will shortly be launching an Android app. It also offers various mobile browser options including touch browsers for touchscreen phones and WAP (Wireless Application Protocol) browsers. "BlackBerry users download an app which places an icon on the device's home screen," Gomes says. "The icon launches a mobile browser for the actual banking session."
All m-banking transactions benefit from Scotiabank's mobile security guarantee, which mirrors its online banking guarantee and protects customers against unauthorized use of their accounts.
In Canada, concerns about security constitute the primary barrier to the adoption of m-banking apps, the CWTA survey found. 31 percent of smartphone users who do not currently use banking apps have "general concerns with security", while another 9 percent have specific concerns with privacy, 6 percent with identify theft, and 6 percent with fraud.
An important safety feature of Scotiabank's m-banking is the real-time customized alerts that it sends out. "Customers can request any of 17 different types of alert, including one that says their balance has dropped to a certain level and another that says their Scotia Visa card has been used abroad," says Gomes.
M-banking take-up has exceeded expectation, says Steve Gaskin, Scotiabank's vice-president, self-service customer experience. "Since launch, 400,000 users have signed up for m-banking, and we have 100,000 log-ins per day and 7 million transactions a month," he says. "We're seeing rapid adoption."
"A feature popular with immigrants to Canada is Scotiabank and Western Union's global mobile P2P transfer service," Gomes says.
RBC launched its app for the iPhone and BlackBerry in December 2010. "In the first month, we saw over 250,000 downloads and, in the first six months, this number grew to almost 750,000," says Eddy Ortiz, RBC's director, digital strategy. "The usage on the app has grown every month since launch. From December 2010 to June 2011 we saw over 58 million interactions including account balance enquiries, access to account details for RBC credit cards and mortgages, usage of our branch and ATM locator, and payments and fund transfers."
RBC intends to launch an app for the Android platform in autumn 2011 and, early next year, it plans to introduce a mobile stock-trading functionality, Ortiz says.
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