Banks are cautious about adoption of the latest app or gizmo – and with good reason. The banking business is a heavily regulated one, with compliance required every step of the way.

Then there’s the cost. What’s the point of introducing a new e-banking platform or a new payment app if it isn’t going to generate some revenue?

Mobile banking applications, payment applications, electronic loan applications and e-signatures are gaining momentum in banking, and Craig Focardi, a senior research director at CEB TowerGroup, thinks the next innovation will be something like a consumer mobile banking application specifically for loans and mortgages.

“Nowadays, customers usually have access to their information online via traditional websites, but they typically don’t have the ability to view their accounts or make payments on a mobile device,” he said. “Banks should increasingly move toward making those same capabilities available via smartphones and tablets.”

The Money App

“If banks want to continue to maintain a role in their customers’ digital lives and acquire new ones, they have to look at obtaining these kinds of services in order to compete,” said Chris Craver, the vice president of product and commerce product strategy at Monitise.

But mobile products increasingly present a myriad of revenue opportunities for banks, Craver said.

Craver said around one in five mobile phone customers now pays their phone bill month-by-month, on a pre-paid basis rather than opting for a contract. Monitise has worked with banks abroad, in the United Kingdom and India, to offer their customers the ability to top up their mobile phones straight from their banking applications. The bank earns a little bit of commission on each transaction.

He gave another example: Banks can offer their customers the ability to buy gift cards to their favorite restaurants and retailers, much like they would in a grocery store, through a banking application. The customer just stores it in their phone instead of their wallet. Walk into any Starbucks and watch a customer pull out his or her phone to pay – it’s the same idea.

And again, the bank gets a commission – and it might even exceed the revenue the bank would collect on the interchange fee.

Risks And Benefits

A a few risks should be considered before launching any new technological initiative, including the potential effects on  reputation, legal and regulatory questions, and transactional issues, according to Deborah Sementa, associate professor in the Master of Science in Business Ethics and Compliance degree program at the New England College of Business.

Sementa, who spent 27 years as both an examiner and a bank compliance officer, said a compliance officer will be concerned with delivery of the proper disclosures, the retention of required compliance documentation – especially where online advertising, applications and disclosures are concerned – and of course, the establishment of a legally binding electronic signature.

The key is to engage compliance professionals from the very start, so they can conduct a risk assessment and address any potential vulnerabilities from the get-go, Sementa said.

Focardi also stressed the importance of involving compliance from the beginning of the adoption process. “Under Dodd-Frank, compliance becomes just as much a core component of the lending process as does the customer interaction and traditional underwriting process,” he said. “It’s not an afterthought. It needs to become part of the workflow.”

Some of the process of adopting new technologies can be aided by third-party vendors and even cloud-based services, but Sementa warned that compliance responsibilities remain with the bank. “When you go into cloud, when you contract with a vendor, a third party, to provide those services, whether it’s cloud or e-banking, now it’s out of the bank’s hands,” Sementa said, stressing the need for due diligence on the vendors. “As a compliance professional, I want to know, does the vendor have proper procedures and controls in place?”

“Compliance has evolved from “don’t ask, don’t tell” from problems with the loan file to zero tolerance for any defects with the loan file,” Focardi added. “It’s really a zero-defects environment we’re operating in.”

Email: lalix@thewarrengroup.com