Mobile has long been a buzzword in banking, but while bankers almost unanimously agree on the significance of the mobile platform, there is still a lot of uncertainty about how they can monetise it.

Mobile banking, mobile payments and mobile commerce are moving up the agenda in the boardrooms of banks all around the world, but traditional lenders – which have a branch network and legacy infrastructure to maintain – are split between those that dare to take the lead and those that trail behind. The innovators risk sinking funds into projects that will not pay off; the laggards risk becoming irrelevant and losing customers to next-generation digital players.

“Bankers feel pressured by mobile and think ‘we must do something’ because they keep picking up these reports saying that mobile is going to be huge and is going to be the way people will pay. But when they look at it they cannot see how to make money out of it – that is the dilemma,” says John Chaplin, a director at Anthemis Edge, the advisory arm of financial services firm Anthemis Group.

Some high-profile projects – including Softcard (formerly known as Isis) and Google Wallet – have failed to gain the momentum needed to become mainstream. Softcard, a joint venture between three US mobile operators, enables consumers to pay with their mobile using near-field technology. The company is now reported to be in talks with Google over a potential sale. Technology news website TechCrunch quoted Ed Busby, the former chief commerce officer at Softcard, as saying that he was not surprised at the news.

“I just think everyone realised that [mobile payments] would be a longer haul than people thought it would be going into it and, as a result, they aren’t willing to make the types of investment that would be required to sustain this,” he was quoted as saying.

Smartening up

Meanwhile, in the UK technology company Monitise, which provides mobile banking and payment solutions, has announced its third revenue warning in the past 12 months, adding that it is considering its options, which include looking for a buyer.

However, despite these cautionary tales, banks still have to consider their mobile strategy. “Consumers are logging into online banking through mobile much more, a change in behaviour that is not going to go away – it is just going to increase. It’s not something you can ignore if you want to be banking in the future. [Banks] are on this knife edge – they have to take a step and walk the knife edge,” says Mary Monahan, research director of mobile at technology research specialist Javelin Strategy & Research. 

Figures showing growth in mobile usage also cannot be ignored. According to the GSM Association, the industry body representing mobile operators across the globe, the total number of mobile subscriptions worldwide is projected to grow from 3.7 billion in 2015 to more than 4 billion in 2018. And among these subscriptions, the proportion of smartphones is increasing.

Tomasz Smilowicz, global head of mobile solutions at Citi, says that internet searches are becoming more common on mobiles than desktop computers, which is no doubt connected to the fact that smartphones are getting cheaper, making them more accessible. 

Moreover, the proliferation of devices – mobiles, smartphones, tablets, phablets and wearables – means that consumers will increasingly expect to do their banking on the move.

Scratching the surface

Mobile banking services have evolved dramatically from their first incarnation as text message alerts sent by banks to notify their customers of their account balance. “In 2010 and 2011 there was a big change; banks started to launch different mobile products,” says Mr Smilowicz. “Initially it was a case of banks taking online banking, simplifying it and moving it onto the mobile phone. My personal view is that if you do that you are losing the opportunity that mobile gives you."

Marcus Treacher, global head of innovation, payments and cash management at HSBC, agrees. “The mobile paradigm is not just a laptop without a keyboard – you are moving into a very different world from the one we have lived in for decades,” he says. “In the mobile world, if you are a creative player you will do well. If you are not a creative player you will not."

Ms Monahan says that many financial institutions treat mobile as if it is a little computer. “It is not – it is different, it has different capabilities,” she says. These include the ability to take photos (a user's photo identification or of a cheque so that it can be processed digitally, for example); security features, such as unlocking the phone with a fingerprint reader or having a passcode texted to a user; as well as GPS tools that enable the phone to verify where a user is located. These different capabilities, says Ms Monahan, are prompting a rethink of how banking is done. “How do you bank using this device, which stays with you 24 hours a day?” she asks.

Christophe Chazot, group head of innovation at HSBC, is enthusiastic about the opportunities of mobile and says it will take time for banks to evolve their mobile strategy to maintain security and confidentiality. “We are just scratching the surface – mobile is a fantastic opportunity. This is just the beginning,” he says.

Functionality arms race

The evolution of new technologies means that new products and services are not necessarily always profitable in their infancy. Ms Monahan points out that this has always been the case with emerging technologies, as providers grapple with how best to monetise them. “When online [banking] came out it was difficult to make a profit, but now [banks are] able to do this. The same thing is happening with mobile,” she says, adding that when online banking was first launched, there was a rush to get as many customers onto the new platform as possible.

Mr Chaplin describes investment in mobile as a "table stake", in the sense that all banks have to invest a minimum amount just to stay in the game. “That does not mean it makes money – it’s more a case of if you don’t do it, you look old-fashioned,” he says. “Fear is the biggest driver in the banks. The fear comes from the view that if you do not [invest in mobile] you may get left behind." Where banks are leading with innovative solutions, he says, the real motivation is for the bank to be perceived as entrepreneurial – and thus win more customers – rather than the new innovation offering any direct value. 

A January 2015 report by technology consultancy Forrester Research says: “Many digital banking teams have been more concerned with launching functionality to meet their customers’ expectations, and with keeping up with competitors, than they have been with optimising the quality of the experience.” The report goes on to quote a bank executive as saying that banks have been involved in a “functionality arms race”, where features were squeezed into mobile solutions, while data and analytics to measure the usage of the solutions have been lacking.

Mr Smilowicz at Citi is very clear in how he measures the success of mobile, listing a number of key performance indicators that the bank uses to determine how engaged customers are and how mobile usage is increasing. “It is important to know who the user of the product will be, the context of why he or she might need that. If you do not ask these questions it is very easy to design something that does not create value,” he says.

This was the approach taken by Citi when it decided to develop a mobile solution for the corporate world. Mr Smilowicz makes the distinction between treasury professionals, who spend a lot of time out of the office but need to approve financial transactions, and CFOs and CEOs, who have a more strategic role and need a macro perspective. “It is very important that you know who you are designing for – you cannot design for everyone,” he says.

For this reason, Citi created two mobile banking solutions: one is smartphone-based for treasury professionals and another is a tablet-based solution for C-level executives. “It is very important that we create relevant solutions for our users. If you create something that clients like they will move more business to you,” says Mr Smilowicz.

Acid test

It is not enough for banks just to create relevant mobile solutions; they must actually be used by their customers. “You need to keep your bearings – it’s easy to do funky stuff that may only reach a small number of clients. We need to focus on innovations that will benefit a large number of customers” says Mr Chazot at HSBC. “It’s a question of trust – our customers trust us. This trust for me is very important."

Focusing on customers’ needs is an approach that a number of banks take. For example, in its November cover story, The Banker looked at how Wells Fargo approached innovation by focusing on serving its customers first in the belief that if they are served well, revenue will follow.

For many banks, the intention is not to make money directly from mobile, but rather use it as a means by which to win and serve their customers. For example, Chase redesigned its mobile app with an emphasis on user experience, releasing the new design in 2014. The account preview feature, for instance, responds to customer requests for speed and simplicity by allowing customers to view limited account information by swiping their finger to the right of the log-in screen.

Meanwhile, the chief digital banking officer at BBVA Compass, Jeff Dennes, says that the bank did not set out to monetise mobile, but rather it concentrated on enabling customers to access their money. The bank's mobile app has been ranked highly by consultant Javelin.

Mr Dennes adds that customers are expecting to do less in a branch and the mobile strategy for BBVA “is more about digital than about mobile”. BBVA Compass is the US subsidiary of Spanish bank BBVA, whose CEO Francisco Gonzalez has been vocal about the bank’s digital strategy. He recently predicted digital disruption in the banking industry would cause half of the world’s banks to disappear. Mr Gonzalez also expects BBVA’s costs to reduce as more of its customers move to digital banking.

Standing app

As part of its digital strategy, BBVA recently acquired Simple, a digital start-up that focuses on the customer experience. Mr Dennes says that the pace of development of new technology means that smaller start-ups, such as Simple, are able to create simpler digital experiences. When asked whether BBVA Compass acquired Simple for its technology or its customers, Mr Dennes explains that the acquisition was made to combine Simple’s digital experience with BBVA’s competencies in banking, and that the bank will nurture the start-up. When it comes to the bank’s digital strategy, Mr Dennes explains that the focus at BBVA Compass is on helping its customers through what they are doing in their daily lives.

With many banks claiming to focus on customers' needs, their philosophies about mobile start to sound the same. So how are banks differentiating themselves from the competition? Mr Treacher at HSBC says: “It is about bringing out what you are established to do as an organisation.” For HSBC, the focus is on businesses operating internationally. “In the mobile world you have to reinforce and amplify what you set out to do as a company,” he says.

For many financial institutions, the focus is on client experience and client engagement. 

Kevin Jenkins, managing director of Visa UK and Ireland, says: “More engaged customers are more likely to be loyal and you are more likely to be able to sell them another product. The more engagement you have and the more relevant you are, the more likely they are going to stay with you. It’s not a choice whether to embark on mobile technology – it is what everybody has to do."

One way to get more engagement with the customer is through payments. “Mobile and payments are the bridge into the relationship with the customer,” says Mr Jenkins.

Bank issuers traditionally wanted their cards to be at the top of a customer’s wallet and therefore used the most. These days, however, banks want their app to be on the main screen of a customers mobile device, a task that is made more difficult when there are so many other options for them to choose from.

Show them the money

Another way to engage customers and monetise the mobile channel is through loyalty and reward programmes. Visa, for example, has created a loyalty scheme through which retailers can publicise offers to their customers based on their previous purchases. When a customer goes into a store to redeem the offer, the bank that provides the payment account receives a share of the revenue from that particular sale. Banks are able to offer this service to their customers and, at the same time, are able to own the relationship.

Mr Treacher believes that there are ways to monetise the mobile channel. “The underlying commercial value is absolutely there,” he says. In the corporate space, mobile can remove the cash from the collections process – something that is valuable to companies doing collections across the thousands of islands in Indonesia, for example. With services such as mobile collections, HSBC plans to charge per transaction, which for the corporate client is much smaller than the cost of handling cash.

Mr Smilowicz says that in most countries Citi does not charge directly for the use of the mobile solution. There are some exceptions, however, in some markets where the solution is extremely innovative and the clients are willing to pay for it.

Internet banking, says Mr Treacher, used to pay for itself, because corporate customers would pay a rental fee for such a service. With mobile, however, a different approach has been adopted, with the focus more tailored towards creating value in the mobile world. “It’s about being a part of what that person does day to day, and for the bank to participate in that. Before [mobile phones], banks had their traditional channels and asked customers to work with them in a bank-centric way. Now, we are organising our services around their needs, and how they prefer to use their bank,” says Mr Treacher.

Some banks, for example, have apps that help customers with house hunting – thereby associating the bank’s brand with life's big decisions and pre-empting the customer’s choice of bank for their mortgage. 

“What is fantastic about this channel is that people enjoy and are excited about interacting with their mobiles," says Mr Chazot. "It means that customers can have their bank at their disposal, when you want it and where you need it. It creates a whole new interaction between the customer and the bank. The bank is present in a discreet way, which creates a whole new challenge with the relationship with the customers. It’s not about pushing, but being at their disposal.” 

When it comes to monetising mobile, Mr Chazot points out that customers do not pay to enter a bank branch either; the bank’s revenues come from all the services that can be found there.

Survival of the fittest

Traditional banks that continue to run branch networks are at a disadvantage when competing with digital-only start-ups that are able to offer mobile services without the cost burden of legacy systems. Ms Monahan notes that one of the ways that banks can compete is to cross-sell a range of bank services. “[Banks] have deep knowledge of banking services and their competitors do not,” she says.

Ms Monahan cites a Javelin survey in which 33% of consumers say that digital banking – online and mobile – is sufficient for their needs. “People are changing and their needs and desires are changing. Consumers would have never said that before,” she says. Back in 2007, 45% of those surveyed said they walked into a branch every week. By 2014, this figure had dropped to 28%.

Despite this, some banks aim to keep their branch network as a differentiator in the face of competition from the new wave of digital companies. Ana Botin, chairman of Santander, has been quoted as saying that young people still enjoy going into a branch and that having a retail presence puts banks at an advantage compared with the technology companies that are competing for parts of banks’ traditional business.

Mr Dennes at BBVA Compass says that banks have been talking about the evolution to digital for 15 years and that they still have a long way to go. “The industry is going to have to transform to digital,” he says.

If that journey is the knife edge that Ms Monahan describes, it could end up cutting the industry in half – as BBVA’s Mr Gonzalez predicts – into the creative players that can survive digital disruption and those that cannot.


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