When people opened their holiday presents last year, chances were pretty good that someone was getting a smartphone. Where mobile phones used for talking and texting were the big things of the last decade, smartphones have muscled over them the way a WWE wrestler muscles over a referee. They’re both in the ring, but only one of them is the star.
In fact, Framingham-based research firm IDC last week announced that the smartphone market hit an all-time high in the fourth quarter of 2011, growing almost 55 percent, and that now one-in-three mobile phones shipped is a smartphone. IDC expects that figure to grow by double digits this year.
Clearly, smartphones are the newest evolution in technology – some even say they, and their tablet cousins, may spell the end of the ubiquitous laptop computer.
But their exponential growth is causing a lot of problems for community banks.
Only 21 percent of consumers at regional and community banks, and 15 percent of consumers at credit unions, use mobile banking – versus 37 percent of consumers at giant banks.
But many community banks and credit unions don’t yet see the payback for offering mobile banking options. These systems are expensive to put in, they take a slew of marketing dollars to promote, and they add another level of security risk for banks. And one more thing: You can’t actually do much banking with them.
Look at the websites of some Massachusetts banks and credit unions. Metro Credit Union’s mobile offering, for example, let’s you check your balance and transfer funds, and you can locate an ATM with it. Modest, yes, but still better than what you can do at Enterprise Bank, where mobile banking is limited to viewing transactions, account balances and transferring money between accounts.
For many community banks, the slow adoption of mobile banking is for the same reason that many of their customers are also slow to use the service, even if offered. Again, there’s not much actual banking going on in mobile banking.
At Rockland Trust, they’ve managed to take the genre a little further, with a nifty app that lets you scan a check and make a deposit directly from your phone. But what’s missing from all these offerings is the Big Kahuna of banking: Being able to use your phone like a debit or credit card.
A Serious Consideration
The problems involving mobile payments (as opposed to mobile banking) were thoroughly thrashed out recently in a paper from the Federal Reserve Bank of Boston, and its counterpart in Atlanta. At the moment, most of the big financial institutions (the ones who drive most of the technology innovation) haven’t found a compelling business case to seriously offer mobile payments.
That’s because the opposing forces are legion.
Is there going to be a payments standard so that all phones work with all merchants? Can the phone manufacturers be swayed into adding a security chip into every phone? Will merchants be willing to invest in similar technology on the retail side, if they’re not convinced the equipment will work with whatever the payment system looks like next year (No one wants to be the guy who buys the HD DVD player the day that BluRay takes over the market….)?
What is clear, though, is that we’re not far off from the day when this is all going to be solved. The rapid rise in smartphone sales and use are an indication of a changing consumer mindset. The advent of Amazon, PayPal and Google into mobile payments has dug a competitive spur into the big banks. It’s all adding up to a scenario that banks can’t dismiss: If they want to stay at the center of their customers’ financial lives, they’re going to have to let them do their banking not by phone, but on their phone.
And it’s going to be an expensive proposition for community banks and small credit unions.
According to the Javelin report, more than 50 percent of consumers are expected to become mobile bankers by 2016. Almost all of the nation’s top 25 banks already offer mobile banking.
“The key challenge for smaller [financial institutions] is attracting the right demographics,” said Mary Monahan, executive vice president and research director, mobile at Javelin. “The typical mobile banking customer is young (ages 18 through 44), ethnic (typically Asian, Latino, or African American), and high income (earning more than $75,000). Customers at regional and community banks and credit unions are significantly older, less wealthy, Caucasian, and less tech-savvy.”
But the Javelin report fails to note that the demographic difference most likely mirrors the overall adoption curve for new personal tech. That same “desirable” demographic was the first to grab onto cell phones, too, but eventually they became ubiquitous. That’s going to happen with smartphones, and with true mobile banking. In fact, Javelin notes, consumers’ use of mobile banking rose dramatically in 2011, jumping by 63 percent from 35 million U.S. adults in 2010 to its current level of 57 million.
Remember these numbers. Especially in five years, when a number of community banks have merged, sold or failed because they couldn’t – or wouldn’t – take mobile banking seriously.
Vincent M. Valvo is president of Agility Resources Group. He can be reached at vvalvo@agilityresourcegroup.com
