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Mobile Banking Delusions

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

Aite Group expects the number of banks and credit unions that offer mobile banking to double from 2011 to 2012:

Bank Technology News reported on a survey of bank executives which found that:

“Eighty-seven percent of respondents say the hope of strengthening customer ties is driving the development of mobile banking apps at their institution. Competitive pressure was cited by 71%. Surprisingly, only 55% said that moving transactions to lower-cost channels was a driver and 53% cited new relationship acquisition.”

My take: What flavor of kool-aid are the 87% drinking that make them think that mobile banking apps will “strengthen customer ties”?

Every time I see this particular survey result (and I see it all the time), I’m reminded of something that Pat Swannick, who used to run the online channel group at Key Bank, once said to me:

“If every project that we invest in in the name of improving customer retention actually delivered on its promise, we’d be at 800% retention.”

The delusion of “strengthening customer ties” has been a part of the justification for nearly every new technology in the banking space for the past 15 years: online banking, online bill pay, eBills, PFM, and now mobile.

Did none of the people that left their bank for a credit union or smaller bank in the weeks leading up to, and including, Bank Transfer Day, use their bank’s mobile banking capabilities?

While the percentage of banks that offer mobile banking is growing, the largest banks — those presumably hardest hit by BTD — have been the early adopters.

So what has online banking online bill pay, eBills, and mobile banking — not to mention the billions of dollars invested in enterprise-wide CRM applications — done for those banks’ customer retention efforts?

You’ll pardon me if I conclude: Very little.

The 87% expecting to “strengthen customer ties” would also appear to be ignoring some market research conducted in 2011 by the American Bankers Association on consumers’ channel preferences which found that:

The least preferred method of banking was the mobile channel, which dropped from 3% in 2011 to 1% this year.

If just 1% of consumers prefer the mobile channel to other channels, then what impact is mobile going to have on overall customer retention rates?

Last year, I published an Aite Group report called The Impact of Mobile Banking: The Case for Mobile Marketing. In the report, I concluded that mobile banking:

  1. Will have a detrimental impact on revenues. The ability to better monitor balances helps consumers avoid overdrawing on their accounts, which will lead to fewer overdraft fees, negatively impacting bank revenue.
  2. Doesn’t drive mobile payments. Mobile shopping drives mobile payments, which in turn drives mobile banking.

Don’t get me wrong: I’m a strong proponent for the mobile channel. But I’m also an advocate for making a realistic business case for making mobile channel investments. The realistic business case has three components: 

1. Revenue generated from improved marketing efforts. Banks and credit unions must get a whole lot better at mobile marketing — in the form of cross-selling, influencing choice of payment cards, merchant-funded reward offers, and driving mobile payments — in order to recoup their investment in mobile banking.

2. Lower costs from transaction migration. The 55% that said that moving transactions to lower-cost channels was a driver of mobile banking investments are on the right track. But unlike past efforts, this time around banks and credit unions have to realize the potential savings by downsizing other channels, and forcing customers to give them up. The rationale that bankers give for not doing it — fear of losing customers — is ridiculous. They’re losing customers anyway.

3. Competitive differentiation. The battle for differentiation through the mobile channel will come from the deployment of “purely mobile” applications — applications that use the capabilities of the mobile channel that are unique to the channel, and can’t be replicated in other channels (e.g., location awareness, augmented reality).

Porting online banking capabilities to the mobile channel doesn’t qualify as differentiation and will do little to “strengthen customer ties.” Please don’t harbor mobile banking delusions like 87% of your peers appear to do.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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  1. Great observations Ron, I’d like to meet the 87%.

  2. Ron, as usual, you make excellent points.

    I wonder how banks and credit unions know how many of their customers actually use mobile banking.

    I wonder how many mobile banking providers provide that data to their customers.

    Maybe I should be wondering do the people making these decisions know that there should be analytics monitoring the decisions they make.

    I could go on but I won’t.


  3. Ron, overall, I agree with most of the points you make especially about the three main drivers for offering mobile banking in the first place but I do disagree a bit with the main point of the article.

    I agree that mobile banking will not help retain or improve the customer relationships in and of itself, especially if banks offer poor customer service and start charging too many fees which caused many to transfer their accounts to credit unions and smaller banks, but there is a growing demand for better “mobile” access by clients and customers especially the younger generation and those in the developing world.

    I do agree that the banks need to do more to differentiate their mobile channel from their online channel but having a mobile channel is going to be increasingly important. I don’t like having to go to my computer to access my account, transfer money or pay a bill when it is much easier to do this on my phone.

    I also want to be able to take a picture of a check on my mobile phone and deposit it to my bank remotely. This is why I now moved all my check depositing to my account at Charles Schwab since neither of my big US banks offered this service.

    I also want reminders and notifications on my phone to let me know when there is a big transaction or purchase charged to my account or to let me know when my credit card is due. Yes, this will mean that there will be fewer overdraft fees but I do not agree that this will actually be detrimental to bank revenues especially if the bank takes advantage of this channel to cross sell products and services and to lower costs for transaction migrations (as you correctly pointed out in your conclusion).

    Several banks here in the Philippines are now making it cheaper to make bank payments via a mobile phone rather than by a teller since it saves the bank quite a bit in moving clients to this channel, especially for smaller banks who want to expand services but lack space.

    In Asia, were texting is an important way to connect with people and arguable more important than emails, staying in touch and strengthening ties with clients via the mobile channel will be essential, especially for the vast majority of clients who still do not have regular access to the internet via a computer or even a smart phone.

    So, while your comments are somewhat relevant for the US and European market place, when you look at the rest of the world, especially Asia, Latin America, and Africa, banks will need to invest in the mobile channel or they will lose clients to others who are more nimble (just look at what happened in Kenya).

  4. Great article, Ron.

    Small payments, like buying a coffee are digital decisions. You want a drink, yes or no.

    Banking, getting a loan, buying a house are not. Its a hand holding exercise. When will the techy zealots who’ve never spoken to a customer in their lives realise that?

    The best way to improve banking is to make the face to face dealings more inspired and grab the opportunity to up and cross sell.

    Digital is going the opposite way – to get people to close the one transaction fastest. Conventional retail marketing is about keeping the customer in store for as long as possible.

    The two philosophies are mutually exclusive and using current mobile platforms, wholly incompatible.

  5. Interesting comments and I would agree that mobile banking alone will not help a bank attract a new corporate customer or help someone complete a home loan but mobile and internet banking are great for those shopping around for better credit card rate or even something fast like a car loan. In fact, I quickly accepted a loan from GE Money Bank at my car dealer and completed all forms on an iPad tablet like device in a fraction of the time it would have taken me at my regular bank. For these fast types of approvals, digital is the only way to go. But I do agree, for a bank where I plan to send my direct deposit, handle multiple financial arrangements, or large transactions like a home loan, I do want face-to-face contact. However, if I cannot check my account, pay my bills, transfer funds, or deposit a check via my mobile phone, I will not stay with the bank for long. I am too busy to go to the bank or wait until I can get to my computer. I need access 24/7 and when I am on the road, my mobile is the only way to connect with the bank. For most people outside the US, Europe, and other developed countries, the mobile will be the best way to reach most clients.

  6. John: Thanks for your comments. I think what spurred me to write this was less about mobile banking, and more about how banks justify their technology investments. Justifications like “deepen customer relationships” or “enhance the customer experience” are typical reasons, and are somewhat unassailable. I mean, who can come out and say “we shouldn’t be deepening customer relationships” or “we already have a perfect customer experience and don’t need to invest more in it”?

    But these justifications lack an analytical rigor and are used with the assumption that somewhere down the line, there will a profitability impact. What I’m trying to point out is that banks have a long history of using these soft justifications on technology investments, and a short history of proving their connection to the bottom line.

  7. Neil: I don’t disagree. But there’s a chicken and egg problem here. While the best way to improve banking may very well be to “make the face-to-face dealings more inspired”, you first have to entice/lure/force(?) customers to have those face-to-face interactions. Here in the US, and I suspect in many other countries, consumer behavior and preferences are going in the opposite direction — we don’t want face-to-face interactions.

    People will do it (go into the branch) if they believe the experience or interaction will be far superior than it would be online or on a mobile device. But for the vast majority of transactions and interactions, how can banks do that, prove that, and communicate that?

    I think it’s easy for you or I to sit here and say that banks have to make face-to-face dealing more inspired, but if I were working at a bank, I’m not sure I would know what to DO to accomplish that.

  8. Yes, I do agree that “deepening customer relationships” is very hard to quantify from a strict cost benefit analysis and that it is better to focus on your other three points. Keep up the interesting blog and twitter feed!

  9. Mobile will not drive customer engagement for another very simple reason — most mobile solutions I’ve seen offer ZERO opportunities to strengthen customer ties. Sure, mobile solutions allow customers to check their balance, some even allow for balance transfers from one account to another (WOW!), and still some others allow for consumer RDC (a great service for the minority who need to deposit a check more often than once per year).

    This argument is very reminiscent of billpay, and more recently of PFM/OFM. Neither point solution created strong customers ties (as banks continue to look for the silver-bullet), and I believe neither will mobile.

    However, I do agree that mobile will become table-stakes – a functional requirement that will be demanded by consumers just for a Bank to be considered a contender.

    So, here is the dilemma — Banks must invest in mobile banking, yet the functionality is rather simplistic and offers little opportunity for incremental revenues / profits (yes, there are opportunities to reduce operating costs by shifting into a lower cost channel). Another dilemma – Bankers are beginning to figure out that their customers are far from loyal (hence all the activity to “strengthen customer ties”) but there are no simple solutions.

    Actually, the simple solution is staring Bankers in the face, but most are unable / unwilling to pursue… the simple strategy of giving to get. Give consumers true value in order to get a disproportionately high wallet-share. Better yet, focus offers on the right demographic to drive substantial growth and profitability. Simple, yet…

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