Mobile Banking Delusions

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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.

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