By Marc Lien, Sebastian Sjoberg, and Radboud Vlaar
Mobile banking is still in its infancy – but like a train carriage echoing to the sound of a hundred simultaneous phone conversations, this fledgling segment is generating a great deal of noise. Is this just industry hype, or is mobile on the way to becoming the dominant retail banking channel of the future, especially in emerging markets or mature markets with a low internet and high mobile penetration? Where should banks place their bets?
At the moment, only a small fraction of global consumers is engaging in any kind of mobile banking. Among these, the most common services used are checking account balances and recent transactions. Even smart phone app users seem relatively unadventurous. A recent survey of the top 100 iPhone financial apps in the US found that the most popular functions (used by about two in five customers) were simple budgeting and personal finance tools. Banking per se was cited by fewer than one in five.
That said, mobile applications are at the heart of many new retail banking prod¬uct innovations. McKinsey has identified six ways in which banks and non-banks are seeking to capitalize globally on these technological developments – through better money management, improved access, convenient payment mechanisms, greater personalization, the injection of a social (or “fun”) dimension, and more targeted pricing. Mobile is a crucial com¬ponent in all these offerings.
Ready for take-off
It is the growing pen¬etration of smart phones in developed markets that is driving this flurry of mobile-centric banking innovations. The uptake of smart phones, and smart phone applications, is much faster than other recent technology introductions such as the NTT docomo i-mode in Japan and desktop Internet usage. In southern Europe and emerging markets, in particular, mobile looks set to leapfrog online banking, although the differences between the two are becoming more theoretical than practical as devices converge.
The attractions of smart phones over PCs for banking customers are already manifold – greater convenience, the ability to check data and initiate transactions more frequently, and of course the novelty of new technology. It is therefore instructive that smart phone owners are also using their devices to browse the web, which could bring them into “mobile” contact with web-based banking applications. Banks have not yet captured this potential.
Several different technologies are competing. Not all will survive, but then, neither is a single technology platform likely to emerge as the undisputed winner. In any case, the basic technology solutions employed in different parts of the world will continue to vary. In many emerging markets, for example, smart phones will not be economic for some time and SMS technology will probably remain sufficient.
By contrast, full mobile banking in the developed economies of Europe, North America, and parts of Asia will require a rich interface that gives users access to more sophisticated “mobile” services, such as bill payment and credit card transactions. Here, the use of NFC (Near Field Communication), built around electronic tags that talk to the smartphone and transfer data when placed close to it, could also be about to take off.
Those who succeed will have to take account of local tastes. The same uncertainty applies to platform providers. While the iPhone (the clear leader in terms of apps offered) and Android systems may seem certain winners, the recent tie-up between Nokia and Microsoft is a good example of the determination of other industry players to stay in the game. Blackberry, which dominates the business segment, will hardly remain on the sidelines for long. The dilemma for banks aiming to exploit the new potential for mobile banking is that they do not have the luxury of a “wait and see” approach.
Who’s robbing the bank?
Another challenge is that, according to previous McKinsey research, the overwhelming majority of app innovation is coming from outside the banking sector. Non-banks are also showing greater skills in immediately commercializing new products. While financial institutions or banks generally top the league table of free finance apps for iPhone, the top paid-for finance apps for the leading smart phone brand are budgeting and other financial tools developed by the army of software start-ups operating in the mobile space.