The Impact Of Mobile Banking

Ten years ago (and by the looks of the picture on the report, at least 10 pounds ago), I wrote a brief titled Banks Cutting Costs Should Cut Mobile Finance.

At the time, mobile banking was making its first appearance at a number of banks, and the crux of my argument was that it wasn’t the right time for banks to be investing in mobile banking capabilities. Why?

  1. Technological hurdles. Smartphones hadn’t quite made it to scene, and the majority of households back then didn’t have data plans.
  2. Consumer preferences. Mobile banking features weren’t important to consumers back then. Believe it or not, only 15% of consumers said they’d check their account balances with a mobile device.
  3. Relationship risk. Bottom line, nobody was going to leave their bank because it didn’t offer mobile banking.

I had a colleague who wrote the opposite — that banks should be investing in mobile banking. The CIO of a large bank flew the two of us out to his firm’s headquarters and had us debate it out in front of his team. I won the debate (of course), and the bank took my advice and eliminated its mobile banking budget. 

A year later, I got an email from the CIO thanking me for making the right recommendation. He told me they redeployed millions of dollars of capital to more important initiatives. 

Roll the clock ahead 10 years, and I’m still an analyst writing about mobile banking. But man oh man how my tune has changed. 

Aite Group just published a report I wrote called The Impact of Mobile Banking: The Case for Mobile Marketing. I always walk a fine line when I blog about reports I write because I can’t give away too much. But I will share two conclusions from the report:

  1. If you think that mobile banking — like online banking and online bill pay before it — is a way to improve retention among more affluent customers, you’re seriously wrong.
  2. Mobile banking will have a detrimental impact on revenues. 

If you think that these conclusions  sound like arguments for not investing in mobile banking, I’d understand. But that’s not what I’m arguing for. Offering mobile banking capabilities is an imperative — consumer interest and demand is overwhelming and growing. But simply providing mobile banking capabilities — e.g., checking balances, transferring funds, paying bills — won’t pay for itself.

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. And in 2011 — unlike in 2001 — there’s no putting off this investment to the future.

For more specifics, I’m afraid you’ll just have to read the report.


6 thoughts on “The Impact Of Mobile Banking

  1. Ron,

    as usual great thought provoking post. As my direct messages to you yesterday indicated, I took a contrarian view to your blog post. The reason, I am playing the role of the Devil’s Advocate.

    I disagree with point 1) Mobile banking (app, web, SMS) will solidify retention among more affluent customers just like online banking and bill pay did. Why? It will free this segment from doing their banking from their fixed location computer to where ever they choose to do their banking (assuming they choose their smartphone over a laptop or tablet). My dataset? The school of hard knocks. = School link here:

    I also disagree with point 2) Mobile banking will not have a detrimental impact on revenue. The environment over the last few years has had a detrimental impact on revenue (bad economy, high gas prices and regulatory changes). Little ole’ mobile banking is not the major cause. Just because MINT (hopefully every PFM/OFM tool can do this) can send me a text message to my cell phone every time I pay an ATM fee does not mean there will be a detrimental impact to an FI’s revenue. My data set? Advanced studies program at the school of hard knocks – you know the link.

    Summary: Every FI should get the tools that empower their customers to engage more efficiently with their accounts and services. The improved efficiency is a benefit to both the customer and the FI. If these tools allow the FI to also get better at mobile marketing then your point of “Banks and credit unions must get a whole lot better at mobile marketing” will be met. Then it will be a matter of execution. In regards to any potential loss in revenue, I learned decades ago that the focus should be profit fundamentals. In banking the profit fundamentals are high deposits and high (low risk) loans. Penalty fees are not part of the mix. If your business model requires them then your business model is broken. If your business model, driven by the fundamentals, will not have a detrimental impact to revenue via lower fee income. You may, however, have a positive impact to spread income, and that is welcome.

    Ron, I do agree with you. Am I saying your research is not valuable as compared to the School of Hard Knocks. No. Sometimes the free tuition to the School of Hard Knocks has a detrimental impact on revenue but that is a story for another day.

    The real question for me is when is mobile banking going to show up. All we have so far is a copy of the decades old online banking formatted for a cell phone via the web or app.

    Will Bank Simple or Movenbank be the first to deliver mobile banking that embraces the mobile platform? Time will tell.


  2. Ron,

    Not having Mobile Banking today, is like not having ATMs. As a service and transactional platform it is might be a net cost, but it is a channel ou simply have to have or you don’t get the revenue opportunities in other channels.

    I think there’s a problem in looking at one channel on its own from an ROI perspective these days. The key is understanding wholistic customer interactions and journeys, or as you previous called them stoROIes.

    The other reason Mobile is currently not providing the revenue that it could is that were making all te same mistakes we made with Internet banking. We’re classifying mobile apps as transaction platforms for channel migration again, rather than conversation or engagement platforms. In fact, I’ve only seen one single app that even comes close which is Hana bank in South Korea.

    We need to rethink how customers work with us and start to think differently about the economic relationship with customers across the channel environment. Mobile banking, if used properly, could contribute significantly in that respect and the economics would be very different to what I see today.

    The potential of the mobile channel doing so much more for engagement is there, it’s just no one is using it as it can be.

    Does that help?


  3. Ron,

    Once again,another thought provoking post.If offering mobile banking is just “table-stakes,” then how do banks and credit unions make money from the product? Or should generating revenue not be mobile banking’s goal? Is it just the cost of doing business? I hate to bring up ROI, but what are the ROI considerations of mobile banking?


  4. Mark: The short answer (to you and to Brett) is that banks and CUs need to see mobile banking as more than just mobile “banking”. It’s about engagement and the opportunity to deliver a whole new set of services (that I like to call “purely mobile” — meaning that they can ONLY be offered through the mobile channel) that help consumers manage/spend their money.

    Just as the online channel did not kill the branch (I hear a Monty Python actor saying “I’m not dead, yet”), mobile banking won’t kill the channels that precede it. But banks/CUs can’t just keep investing in new channels on the promise of “increased retention” or the shallow cries from the innovation gurus and “we need change” advocates.

  5. Mobile banking need not only be about doing banking. In emerging markets the ability of the banks to directly integrate into a variety of providers, ranging from prepaid mobile airtime, electricity and even lotto tickets. Has given the bank a 3rd party revenue stream. A slicker virtual distribution platform will be hard to emulate. Yes clumsy virtual wallets funded by credit cards can and does work.

    Mobile banking can make a profit once the customer trusts the system.

  6. Mark: Good points. In the US (where I, admittedly, was narrowly thinking of), for mobile banking to be the profit driver, it would have to deliver — and prove — that costs declined as a result of the service, and that any sales that might occur through the channel were attributable to the channel.

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