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Mobile App Stores From Banks: Fact Or Fantasy?

A well-known research firm recently published a report that claimed:

“Within two years, 25% of the top 50 global banks may launch app stores to enhance customer service and make innovative banking applications easier for customers to find. As banks continue to develop apps for different segments of the customer base, app stores, complete with user reviews, will help customers find and use apps that are appropriate for them.”

And within two years, they might not (if this isn’t the clearest clue as to which research firm we’re talking about here, I don’t know what else to tell you).

So, two years from now, 12 out of the “how many freaking banks are there in the world?” will have an apps store. Oops, I mean “might” have an apps store. Credit Agricole already has one, so, one down, 11 to go.

But the concept may not be limited to just the top 50 global banks. The author of the report was quoted as saying:

“As more banks take on this concept there will be a snowball effect, putting competitive pressure on banks that do not have app stores.”

My take: There are a lot of merits to having a bank-run apps store, but there are some barriers to making this a widespread practice.

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For the record, I love the idea of a bank-run apps store.

Go to the iTunes store, look up finance apps, and you’ll find something like 27 screens worth of apps–that begin with the letter “A.” I don’t have the patience to figure out how many screens worth of apps there are for all 26 letters of the alphabet.

How can consumers figure out which apps are best? The user ratings? Ha! Even the biggest idiot on the planet knows not to trust those reviews. Which apps have been developed by legitimate developers who will protect the users’ data privacy? Good luck figuring that out. Do any of these finance apps integrate with the banks’ mobile banking platforms or apps? No idea.

As consumers’ use of finance-related apps grows, there is a real need for a trusted source–like a bank–to be the conduit to these apps.

On the other side of the coin, legitimate apps developers need help, too. One research firm (not the one mentioned above) found in a study that apps developers biggest challenge was gaining awareness among consumers. Who better than a bank (or credit union) with hundreds of thousands, or even millions, of customers to provide a channel to reach the masses.

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There are, however, a couple of forces in the universe that will act against the widespread deployment of bank-run apps stores.

One of those forces is money. It costs money to provide an apps store, ensure developer participation, drive consumer use of it,  and all the other things that have to be done to run an apps store.

What exactly is a bank getting in return for this investment?

If you try to tell me that it will “deepen” the relationship, and drive “greater levels of customer retention” I, in turn, will try to hit you upside the head in an effort to knock some sense into you.

If you try to tell me that the apps store will produce millions of dollars in revenue as consumers pay for those apps, then I, in turn, will fall on the floor laughing uncontrollably. Because here in the US, there aren’t too many consumers that pay for finance-related apps. Not yet, at least.

Source: Opera Mediaworks

As the chart above shows, in Q4 2013, while business, finance, and investing apps received a respectable percentage of overall impressions, the revenue generated from apps in this category is pretty small (and I believe that data represents global activity, so it’s quite possible–if not likely–that the revenue generated from these apps came from outside the US)

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It would seem far-fetched to most bankers to think that US consumers would pay for financial-related mobile apps when few people have that much interest in managing their financial lives, and those that do get those tools for free from their banks and credit unions.

But I guess it seemed far-fetched to everybody except Howard Shultz back in the 60s or 70s (or whenever it was) to think that people would pay $3.50 for a cup of coffee, and a bad one at that.

As far-fetched as it seems today, it is possible that one day consumers would brag about the mobile apps they use to manage their finances and pay for apps. They might not use them for more than a couple of weeks or months at a time, but if those apps do their jobs and add value, then people won’t mind paying a dollar, or even a couple of dollars to use them.

If you have a hard time seeing this as a possibility, I completely understand. You go right on wasting your $5 on those empty calories in that caffe mochalatteatto, while bitching about the $5 you pay a month to your bank to store, safeguard, pay, and manage your money.

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But Schultz had to start SBUX and build the industry. He had to create and shape demand for expensively bad coffee.

Simply launching a mobile apps store and thinking customers will flock to it, and….what? Suddenly interact more, buy more, expand the relationship?  Thinking that will happen is foolish. It’s going to take a helluva lot of resources–and even more importantly, focus–on the part of banks to create a mobile apps store and make it successful.

Good luck with that.

At the recent Next Bank USA conference, I asked Bain Capital’s Matt Harris a question, but prefaced it with a comment regarding something he said about how banks should be turning their mobile banking platforms into mobile wallets. I remarked on why that wasn’t happening, and Matt agreed and asked me why banks weren’t doing what we agree they should be doing. I blew the answer. I said “because they have their heads in the sand?” Wrong. It’s because they don’t see the ROI or revenue opportunity.

It’s the same with mobile apps stores. Few FIs that launch one will put the resources and focus into it–and for long enough–to see any meaningful revenue from it. It’s too early.

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If you’re reading this, you’ve probably been in the financial services industry long enough to know what happens when an FI tries something new that doesn’t immediately pan it: The industry concludes it was a bad idea and moves on.

But is a “failure” always because it’s a bad idea? Couldn’t it have failed because the firm that launched it botched the execution? Or couldn’t it have failed because the timing (perhaps because of economic and demographic trends) just wasn’t right (which is my theory on what happened to PerkStreet)?

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There is another reason why I’m not buying that other research firm’s “snowball” premise.

In a recent survey of financial services executives that conducted by Aite Group and The Financial Brand, bank execs were asked what their FI’s approach to mobile app development is. Three in 10 said they have no strategy, two in 10 said they will build multiple apps, and half said they’re building a single, integrated app.

To me, this is proof that a majority of banks are stuck in the old Web development paradigm, of building one big honking point of interface for customers, and missing that consumers’ behaviors and preferences are changing to using and having discrete, standalone apps that perform very specific functions.

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Bottom line: So, are bank-run mobile apps stores fact or fantasy? YES.


Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Check out Ron's book, Smarter Bank.. And join Ron on August 11 for a free webinar on New Marketing Competencies in Lending

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Comments

  1. You really did blow that answer, right?

  2. Isn’t a lot of FI customer/member/product acquisition modeled on “build it and they will flock to it”? Branches, products, etc….why would apps be any different? Wait – you mean that business model doesn’t really work? Never mind….

  3. I suspect someone with insight, persistence and capital will create a “white label” app store for FI’s. Yes, the humongo’s will go it alone, but the rest of the world is a huge market. They’ll want a place that is pre-configured for integration, security, testing and the like, one that app developers can work with to more seamlessly integrate with the FI’s.

    I also think you shouldn’t worry about blowing the answer to the question. Nobody, noBODY listens to you in the first place… :)

  4. ouch ouch ouch. But you are SO right. That said, you should have heard the groans when I put up the picture of Michael Jackson holding his baby over the hotel room balcony. Nobody might be LISTENING to me, but they are looking at the pictures I put up. :)

  5. Kinda messed up EVERYTHING I said this week, so no surprise that I would blow that one, right? Right? Right?

  6. NO! A lot of FI customer/member/product acquisition is modeled on delusionarily precise estimates of ROI that are not only NEVER realized, they’re never even measured and tracked back to the original estimate. :)

  7. A full-blown app store isn’t really a possibility for financial institutions. At best, these would be directories with links to the iOS App Store, Google Play Store, Amazon Appstore for Android, etc. This is what Credit Agricole is doing. For iOS, there is no other way to load an app unless you have a developer account with Apple. And Android will become less open in this respect as malware is becoming a real issue with side-loaded apps. Ultimately, the app installation needs to go through an “official app store” where 30% of any revenue is taken off the top by Google, Apple, Amazon and Microsoft.

    Because of this, I’m not sure there is even a viable revenue model for the bank-hosted app store itself. Charging for shelf space for third-party apps perhaps? Since banks and credit unions are already terrified of third-party services like Mint and Personal Capital that serve up ads and offers to their customers and members, it’s hard to see them showcasing them on their own sites.

  8. Ron, that’s true for Bank marketers who think that ROI = Return on Interaction, or my current favorite flavor, Return on Relationship…

  9. Tim:

    Thanks for the education on how this works. A few responses:

    1) I think the need is for FIs to become the “trusted” intermediary in the apps shopping/decision-making process, so the fact that a selected app would still need to be downloaded from Apple, Google, or Amazon isn’t a deal-killer.

    2) I would be willing to bet that a Citi or Bank of America could negotiate w/ Apple or Google to reduce that 30% cut.

    3) Completely understand (and agree with) your point about FIs’ fears and concerns regarding third-party services. But I believe that (fin apps) developers WOULD be willing to pay for shelf-space. Their biggest challenge is awareness. FIs could deliver that for them.

  10. Tim McAlpine says:

    I’ll take that bet. If Microsoft has to give Apple 30% on all in-app purchases made through Office for iPad, ain’t nobody getting a special deal! :)

  11. Hmm. You may have a point there. You realize, of course, that since this is my blog, I can go in and edit my comment, and rescind that bet, right? :)

  12. I loved the concept of an app store when I explored it with a 3rd party provider a couple of years ago and I still like it. I agree with Tim that the current ecosystem may make it hard to completely own the entire process and revenue, but isn’t that how getting on store shelves works?
    Big banks may be able to create their own app stores by curating apps from the two main sources (Apple and Google warehouses), but a savvy third party provider could develop a store that smaller FIs could brand and provide to their customers. Rev share could be done like YouTube, where a download results in the originating FI getting a portion of the revenue the 3rd party gets for featuring the app. I think consumers would be a little more willing to pay for a financial app if they were more certain it would fit their needs and work as promised. A curated store might do that.

  13. I’ve worked in other industries that do a better jobs than any bank in business cases. Which is worrying. It bothers me how banks conveniently CR history.

    Turns out a change request rewrites truth. Wish that worked in my high school exams or in s business!

    I wonder if the value of the app store is actually more at the salesforce platform level. In the b2b and small business spaces. Apps that add value around the consumer experience might help but I don’t think that’s where the roi is.

  14. Doug check out standard treasury… They’re founded by former stripe and Facebook guys.

  15. I think that’s the wrong comparison. We should look at ecosystems like salesforce as examples

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