Mobile Banking Creates a Bright Spot Within the Struggling ...

Mobile Banking Creates a Bright Spot Within
the Struggling Financial Services Industry
by Jon Paisner, Andy Castonguay and Christopher Collins | June 2009
Executive Summary
In an era of nearly unprecedented financial upheaval, bank consolidations and federal bailout programs, mobile banking services are
demonstrating remarkable growth within tech-savvy, higher-income customer segments and providing solid potential for greater expansion
into broader consumer segments. The confluence of bank-led mobile initiatives, impressive growth of smartphones, outstanding increases
in consumer mobile data usage and the burgeoning mobile applications market have aligned to generate mobile banking penetration of
approximately 6.5 percent in North America, according to the Yankee Group Anywhere Consumer: 2009 Survey Suite, Wave 1-3. In contrast
to many international markets that have generated broader mass appeal with mobile banking solutions, the early-stage developments of mobile
banking services in the United States and Canada have resonated most strongly with younger, affluent, tech-savvy smartphone users, who are a
strategic constituency of banking segmentation and an important bel wether group in terms of technology adoption. With smartphones quickly
becoming a primary standard among mobile-data-hungry North American consumers, financial institutions (FIs) will have a highly interactive and
expanding palette of mobile devices through which they can better serve, understand and engage their customers.
This custom publication has been sponsored by Research In Motion, Inc.
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.

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Mobile Banking Creates a Bright Spot Within the Struggling Financial Services Industry
Table of Contents
I. The Past, Present and Future of Mobile Banking






2
II. Consumer Interest in Mobile Banking Is Increasing






3
III. The Growth of Smartphones and Application Stores Paves the Way for Mobile Banking

4
IV. Case Study: The Success of Bank of America’s Mobile Banking Solution



5
V. Moving Banks from Inquiry to Revenue







5
VI. Recommendations for Banks









7
I. The Past, Present and Future of
have not yet shifted to more dynamic channel models. In 2009,
Mobile Banking
in the context of the financial market upheaval, FIs have a unique
opportunity to lay the building blocks for mobile banking to become
The January 2008 Yankee Group white paper “Mobile Banking in the
a revenue-generating channel in the near term.
United States: Taking First Steps Towards Capitalizing on Anywhere
Banking” demonstrated that the emerging mobile banking space
would deliver consumer value by initial y delivering key account
Exhibit 1.
information, advance into more transactional activities and final y
Mobile Banking Evolutionary Pace Quickens Despite
evolve into a smart channel for financial institutions to cross-sell
Economic Recession
and up-sell services. As the landscape of networks, devices and
Source: Yankee Group, 2009
consumer attitudes has evolved in the past few years and with the
emergent dominance of application storefronts as a prominent
distribution channel for many mobile financial services solutions,
Past
Present
Future
mobility is now considered a strategic product for many North
American financial institutions.
2006-2008
2009-2010
2011-2013
• Application stores/
As the distribution for mobile banking applications has changed
worlds as a key
• Regional launches
distribution point
• Regional launches
and transitioned to the off-portal world of application stores, FIs
• Minimal joint marketing
• Joint marketing between
• Minimal joint marketing
efforts
Tier 1 device OEMs,
efforts
have begun to transform their thinking about the monetization
• Driving consumer
operators and banks
• Mobile is viewed as a
Key Drivers
awareness and adoption
• Introducing transactional
strategic imperative
of the channel. For the first time in 2009, the mobile channel has
• Experiment with
services
• Consumers utilize
mobility as a customer
• Mobile is viewed as a
multiple mobile payment
become a viable channel to generate revenue based on a number
service channel
differentiator
channels
• Generating revenue
of key market drivers (see Exhibit 1). Since 2007, innovative FIs
from the mobile channel
have invested in mobile solutions to create a dynamic relationship
touchpoint with customers while others have responded with
• Expedited bill payments
mobile services simply because the market and competitive
• Balance inquiry
• NFC
Functionality
• Domestic remittances
• ATM locator
• Location-based ATM
• International remittances
environment demanded it. However, many of the less strategical y
• Balance transfer
locator
• Domestic remittances
minded FIs focused primarily on the cost side of their business and,
unconvinced about the revenue opportunity of the mobile channel,
2
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.

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June 2009
Although the potential opportunity to generate revenue from the
This figure is significant because this age group represents only
mobile channel is substantial, what banks will actual y be able to
16.6 percent of the total sample. Respondents in the 20-to-24-
realize will depend on the composition of their customer base.
and 35-to-44-year-old groups also overindexed compared to
For example, even in a developed market like the United States,
their actual representation in the total sample (12.3 percent/7.7
only about 49 percent of consumers have a checking or savings
percent and 19.6 percent/18.7 percent, respectively), but not
account, leaving a large unbanked population that is accustomed to
nearly at the same pace. These strong instances of overindexing
paying expensive check cashing and bill payment fees on a monthly
overlap cleanly with two of the most important characteristics
basis. Attracting these unbanked customers to the mobile channel
of mobile banking usage: technical savvy and banking activity.
presents a solid opportunity for banks to acquire these customers
Banks should continue to focus on this age group to drive better
in a profitable fashion and leverage mobility to further extend that
awareness and take advantage of the technical familiarity and
relationship over time. In this fashion, banks can extend the reach of
greater mobility common in these users. Clearly, the usage of
mobile services beyond the early adopter segments of today into a
mobile banking is still in its nascent stages in North America, but
broader base of consumers.
the current banking crisis in the U.S. can generate an important
opportunity for banks to leverage the mobile channel to expand
II. Consumer Interest in Mobile Banking
their connection to the growth customers of the future.
Is Increasing
• Mobile banking users are more affluent. 62.4 percent
The ubiquity of sophisticated mobile devices suggests the potential
of mobile banking users have incomes of more than $50,000,
reach of mobile banking solutions far outstrips the reach of online
with those with salaries of more than $75,000 consistently
banking and traditional branch and ATM networks. Consumer
overindexing. No overindexing exists for those with salaries of
interest in mobile banking is growing. According to the Yankee
less than $50,000. Affluence and greater bank interaction go
Group Anywhere Consumer: 2009 Survey Suite, Wave 1-3, a third
hand in hand because much of the existing mobile banking usage
of respondents said they were interested or very interested in
is being generated by smartphone users on data plans, which
mobile banking but only if—and here’s the catch—the service was
correlates to higher incomes general y. These users represent
free. (Just 4 percent of respondents indicated interest in a paid
the best early targets for banks to attract, but the North
mobile banking service.) Given that 260 mil ion American have
American market still must transition this activity into more
mobile phone service, this represents a potential audience of more
revenue generation.
than 85 mil ion consumers. But as with most behavior transitions,
the early adopters of mobile banking in the U.S. represent a largely
• Men outpace women. Early adopters of mobile banking in
distinct population of tech-savvy, higher-income individuals that
North America are predominantly male, representing 61 percent
have long been the target of Tier 1 bank campaigns. Yankee Group
of the base, distinctly overindexing the sample’s slightly higher
consumer surveys provide insights into the composition and
base of female respondents (51 percent female to 49 percent
characteristics of current mobile banking customers that banks,
male). Current marketing activity for mobile banking has clearly
operators and device manufacturers can leverage to focus their
succeeded in appealing to male clients within the segments
marketing and product development efforts effectively. These
detailed here. Generating greater growth of mobile banking
insights include:
services will require banks to focus more heavily on messaging
that targets women specifical y.
• The majority of mobile bankers are smartphone users.
54.8 percent of respondents who have used mobile banking in
the past three months have smartphones, compared to only 18.6
percent of the total base of respondents.
• The key age segment for mobile banking is 25-to-34
years old. Even though mobile banking usage was reported
across all age groups, 25-to-34 year olds comprise the largest
group (31.1 percent) out of the total base of m-banking users.
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.
3

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Mobile Banking Creates a Bright Spot Within the Struggling Financial Services Industry
III. The Growth of Smartphones and

The boom of smartphone demand is sparking the swift creation
Application Stores Paves the Way for
of adjacent markets to leverage the scale and functionality of
Mobile Banking
those devices. The expanding production scale has fundamental y
changed the economic dynamics of software development for
Despite the global recession and expected decline of worldwide
mobile OS platforms and enabled apps to serve as a differentiator
mobile device sales, the smartphone category continues to
for platforms and a reason for users to upgrade to a smartphone.
outperform the market. As user demand for mobile multimedia and
For the short term, in the face of growing competition in the
data services continues to grow, the industry’s high-end, advanced
applications space, solutions that combine iconic advanced OS
OS device offerings have never been more robust or plentiful. More
devices, dynamic brand position, massive marketing budgets and
than 308 mil ion advanced OS handsets were sold global y in 2008.
open development characteristics will fare wel . For financial
As demonstrated in Exhibit 2, advanced OS device sales in North
institutions, the tremendous expansion of the mobile applications
America are growing at an impressive speed and the variety of device
space, growing marketing around the application stores and
platforms to choose from is also expanding. Top-tier operators
exploding downloads signal a welcome shift in marketing channel
such as AT&T and Sprint have declared that up to 75 percent of the
strategy for distributing mobile banking applications. Prior to
device portfolio wil have QWERTY keyboard inputs by the end of
the recent frenzy around mobile application stores, banks were
2009, which in turn wil drive even greater adoption of advanced
largely relegated to directly market their mobile services to their
OS handsets. As a result of these trends, Yankee Group expects
clients with some limited partner participation from operators.
the market share of advanced OS devices in the U.S. to increase
Because the success of the application markets has made these
from 15.1 percent in 2008 to 39 percent in 2012, representing one
stores a destination site for both mobile and computer browsers,
of the fastest growing markets for these high-end devices. As the
banks can now develop and deploy their applications much more
preferred device among early adopters of mobile banking services,
efficiently to an audience that is already predisposed to try and use
the smartphone’s rise wil continue to act as a key catalyst for greater
mobile applications. Although mobile application marketplaces have
adoption of mobile banking services and provide a more consolidated
existed for more than five years, the recent wave of name brand
set of device OS platforms on which to develop specific mobile
stores from top device manufacturers represents a fundamental
banking applications. This will not only reduce the develop cycle time
shift in both opportunity and distribution strategy that will catalyze
frame, but also generate better channel management for application
mobile banking activity among smartphone users.
distribution and customer care efficiencies.
Exhibit 2.
Smartphone Growth in North America Expands Mobile
Banking Palette
Source: Yankee Group Link Data: Global Mobile Device Monitor/Forecast, April 2009
250,000
200,000
150,000
Advanced OS Phones
Device Shipments
Voice and Basic Browser Phones
(in Thousands)
Voice-Only Phones
100,000
Feature Phones
50,000
0
2007
2008
2009
2010
2011
2012
2013
Year
4
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.

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June 2009
IV. Case Study: The Success of Bank of

• Check transaction activity (e.g., seeing if a check has been cashed)
America’s Mobile Banking Solution
is the next most popular activity (90 percent of users)
Bank of America (BofA) is a textbook example of how the
• Fund transfer is the third most popular activity (50 percent of users)
intersection of increasing consumer interest and smart mobile
• A smal , but growing percentage of users take advantage of location
banking product design can yield immediate and impressive
functionality (for example, looking up ATM locations)
adoption and usage. BofA launched its mobile banking efforts
in May 2007 with a mobile Web solution, instead of adopting
For BofA, the biggest benefit is increased customer satisfaction,
an SMS or custom software client approach. The bank focused
fol owed by the increase in banking activity. (There is some
on the mobile Web for three important reasons. First, BofA
customer service “deflection” out of BofA’s call center, but that is
wanted to give their customers access to the product via the
less important to BofA than the increase in customer satisfaction.)
widest possible range of device, OS and carrier choices—which
Doug Brown sums up the success of Bank of America’s mobile
consumers have largely embraced now that BofA has extended the
banking solution in just a few words: “We offer a solution that is
solution to more than 800 handsets. Second, it wanted to provide
simple, meets our customers’ needs and is available on all devices
a consistent, “horizontal” experience to its successful online
and platforms.”
banking platform. Final y, BofA was extremely conscious of security
V. Moving Banks from Inquiry to Revenue
considerations because of its desire to enable mobile transactions,
not just provide mobile bank account management.
Many new technology implementations have focused on improving
the efficiency of key banking processes such as transitioning
Since launch, BofA has attracted 2.4 mil ion active mobile banking
customer interactions away from the costly IVR channel to reduce
customers, the largest mobile banking base in North America.
costs and improve customer satisfaction. In this way, mobile
Doug Brown, BofA vice president of mobility, explained, “the first
banking solutions can reduce, but not ful y eliminate, certain
mil ion customers were ‘early adopters’ but the second mil ion
operating expenses (opex). The cost to serve between the IVR
are much more mainstream. People don’t buy a phone specifical y
and the mobile channel is vastly different. Yankee Group estimates
to bank, but once they have a smartphone with a mobile banking
the numbers at $0.56 per interaction for the IVR and $0.40 for
app, one of their top five activities will be banking.” BofA’s strategy
mobile. Mobile can also provide other benefits to the financial
has been to target customers who already use the bank’s online
institutions, such as fraud prevention or overdraft warnings,
banking platform and have a smartphone, because this segment is
which not only contribute directly to the P&L, but also increase
the most comfortable with mobile banking behavior.
customer satisfaction levels. However, going through 2009,
BofA found that once people start to use mobile banking, they
because mobile banking adoption levels have already surpassed 4
increase the intensity of their banking activity during the first three
mil ion customers, FIs must find a way to move beyond account-
to six months and eventual y reach, on average, 12 to 14 activities
based inquiry and generate needed revenue from this channel. To
per month. According to Brown, this increased frequency is driven
transition consumers beyond balance inquiry to revenue-generating
by a “moment of truth” where mobile banking saves the day for a
activities, FIs must first launch functionality that saves customers
customer (for example, when a customer can transfer money to a
money (by helping them save on the fees associated with late bill
family member to complete a purchase). These moments of truth
payments). After introducing bill payment functionality that saves
drive BofA’s growth in four key areas:
consumers money and generates revenue for the FI, the next step
is to expand into other forms of payment such as remittances and
• Managing account balance (e.g., seeing if a deposit cleared) is
presence payments at the point of sale.
the top banking activity (99 percent of users), because people
want the peace of mind to immediately know if they have
money available
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.
5

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Mobile Banking Creates a Bright Spot Within the Struggling Financial Services Industry
Expedited Bill Pay Is the Easiest Way to Monetize
between the parent’s bank and child’s if they happen to be different.
Mobile Banking Services
The best way to drive consumer value and interest is to enable
this transfer service between existing bank accounts and not force
Consumers typical y set aside time each month for paying bil s so
consumers to create yet another account with another password
transitioning consumers from online bill pay to mobile bill pay will
and debit card.
be quite difficult because the experience is not quite the same.
However, if changing consumer behavior for regular bill payments
Although launching a remittance network, whether international y
is too difficult, then FIs should not focus on driving mass adoption
or domestic, will provide financial services products to market
of mobile bill payments. FIs should target consumers that have
segments that traditional y are not the target market for financial
forgotten to pay a bill and would rather pay an expedited bill
institutions, the unbanked and underbanked market represents
payment fee than get charged a late fee and have a late payment
49 percent, or 106 mil ion consumers, according to the Center
affect their credit report. A typical bill payment fee for an
for Financial Services Innovation. The consumer opportunity only
unbanked consumer can range anywhere from $10 to $15 per
becomes viable if a distribution channel of cash-in and cash-out
transaction or more than 15 percent APR on your credit card.
points is established. These distribution points represent the ability
for consumers to use a debit card to obtain cash from traditional
Peer-to-Peer Payments to Attract Generation Y,
ATM networks or money transfer networks, or the ability to top
the Unbanked and Underbanked
up existing accounts through a carrier’s distribution network, retail
storefront or bank account.
Customers under the age of 25 are less concerned about security,
are less likely to have a bank account of their own and are often
NFC Won’t Contribute to Earnings Until 2013 But
charged ATM fees. As a result, banks can generate revenue by
Represents the Largest Revenue Opportunity
offering peer-to-peer domestic remittances to this important
future customer base. By completing an automated clearing
The largest revenue opportunity provided to financial institutions
house (ACH) transaction at a cost of $0.15 and charging the end
from the mobile channel lies with near-field communications (NFC)
customer a fee of $0.25, banks can create a win-win situation. In
payments. Not aimed at the retail banking division so much as at
certain scenarios, for example when a child is away at col ege, a
the credit and debit card issuing divisions, NFC has the potential to
parent can add funds to a child’s bank account at another bank for
drive incremental electronic transaction volume in new areas such
a nominal fee. At the same time, the child does not have to pay
as micropayments and public transit systems, among others.
exorbitant ATM fees and can quickly and easily transfer money
Exhibit 3.
Consumer Interest in NFC Outpaces Supply and Ecosystem Readiness
Source: Yankee Group Anywhere Consumer: 2009 Survey Suite, Wave 1-3
Interest in NFC
40
35
30
25
Penetration
20
Interest Level 15
10
5
0
18-19
20-24
25-34
35-44
45-54
55-64
65+
Age Group
n=486
6
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.

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June 2009
Although NFC is expected to achieve a penetration of 50 mil ion
NFC-enabled handsets in North America and Europe by 2013,
FIs should not expect significant revenue contribution from this
technology in the short term. Recent Yankee Group North
American survey data conducted in the first quarter of 2009 shows
consumer interest levels spike in the 25-to-54-year-old age group
even though NFC technology is not available in the marketplace and
has limited awareness in the minds of consumers (see Exhibit 3 on
the previous page). Currently, the technology is simply not in the
hands of enough consumers to generate significant revenue streams.
For banking institutions, the other mobile banking solutions detailed
here represent a more immediate revenue-generating opportunity
(e.g., peer-to-peer payments/remittances) and better channel for
client relationship development.
VI. Recommendations for Banks
• Bundle SMS into your fraud prevention solutions.
Providing consumers the ability to create personal fraud
profiles based on individual transaction sizes or account
balances is critical. FIs should deliver these alerts through SMS
while providing consumers single-click-to-call functionality if a
suspicious transaction is identified.
• Lay the groundwork to monetize the mobile channel in
2009. FIs should launch expedited bill payment first. Not only is
it a way to generate revenue quickly and offset the investment
to build out Java applications and mobile Web access, but it also
provides FIs with the peace of mind that the current evolution of
mobile banking is not the same as the failures in 2001 and 2002.
• Create the hub and spokes to facilitate peer-to-peer
remittances. Whether domestic or international remittances,
a trusted third-party clearing house hub is necessary. Enabling FIs
of any size to interconnect and complete transactions, whether
initiated by an SMS, MMS, Java application or mobile Web session,
will enable a potential y profitable connection between consumers.
© Copyright 2009. Yankee Group Research, Inc. All rights reserved.
7

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