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Wednesday, March 9, 2011

The Future Of Mobile Finance - Dial In To Your Account

article by Tessa Warner Breneman
More people are picking up their mobile phones rather than heading to the bank to take care of their personal finances. According to Juniper Research, 400 million people across the globe will be using their phones to complete some financial transactions by 2013, which is double the current amount of mobile banking users. In fact, more than 80% of banks from various regions in Juniper’s global study said they currently provide a mobile banking solution for their customers.

Fiserv (, which provides banking solutions to financial institutions, reported in a 2009 study that mobile banking is close to a tipping point due to the amount of people currently using mobile phones daily. Approximately 58% of adults use their mobile phone for non-voice data activities, which could provide an open door for mobile banking solutions. Also, Fiserv says Generation Y will earn $3.4 trillion in income by 2018, which presents an opportunity for banks to capitalize on a tech-savvy age group.

Howard Wilcox, who authored the Juniper report, says it’s too early to determine if users will begin making their banking decisions using the mobile banking services financial institutions provide, but it’s possible that Generation Y and the socalled Millennial Generation could factor those features into their decisions in the future.

Mobile Banking Options
Because banks are using a combination of SMS (short message service, or text messaging), mobile Web sites, and mobile applications to deliver their services, users don’t necessarily need a smartphone to accomplish tasks, such as checking your account balance.

In fact, an IDC Financial Insights survey shows SMS as the most popular form of mobile banking. Most institutions will send information such as your account balance, recent account activity, payment due dates, and ATM locations when a customer texts a specific command to a number provided by the bank.

Additionally, financial institutions with a mobile banking strategy will often support many of the same transactions available with an online bank account through your mobile Web browser or a downloadable application. Wells Fargo, for example, will let its customers pay bills, transfer funds, and view transactions through its mobile Web site and its application for Android, Black- Berry, iPhone, and webOS devices. Some applications and mobile sites will even route you to the nearest ATM by leveraging your GPS location.

Marc DeCastro, the research manager for the consumer banking and community banking division of IDC Financial Insights, says mobile banking is trending more toward applications than other mobile banking options. “Downloadable applications appear to be primed to be the preferred mobile channel,” DeCastro says.

“The main driver of this is the mere fact that touchscreen smartphone sales will exceed nontouchscreen phones in the near future,” DeCastro says. “This changes the interaction people have with their mobile devices and the touch navigation does not work as well with the traditional browser-based applications.”

Although most people use mobile banking technology to stay in touch with account balances and view transactions, many analysts and financial institutions see the opportunity for other types of services to emerge. For example, real-time transaction alerts could provide an extra level of security for certain accounts, and remote deposit capture would let you deposit checks by sending a multimedia message with photographs of the front and back of the check you want to deposit as captured by your phone.

What’s In It For The Banks
In order for financial institutions to be successful in their mobile banking strategies, they must address a few challenges. For starters, a perceived security risk seems to be preventing some consumers from getting involved. Wilcox says users are understandably anxious about the security of their bank accounts and need to be able to trust mobile services before they will adopt them and use them regularly.

Part of that trust could come from mobile security software emerging in the market. According to DeCastro, most people have not experienced any virus or threats to their mobile device, but they have had something happen to their PC. However, DeCastro says, people still continue to use online banking and bill payment services on their desktop computers. “The mobile device will eventually need the same protection that people put on their PCs and laptops.

The one big difference is that the network used for mobile banking is still controlled by the carriers and more private than the public Internet traffic,” DeCastro says.

Banks are also struggling to find ways to make mobile banking profitable. DeCastro says financial institutions are using mobile banking as a defensive strategy so they won’t lose customers, rather than finding ways to monetize mobile transactions. But this could change.

“Financial institutions are going to be under increased pressure to raise non-interest income, usually through monthly fees, overdraft charges, etc.,” DeCastro says. “So the only angle banks could go with is that mobile banking may reduce some costs. But for now it is more a defensive strategy to try and keep customers rather than a way to make any additional revenue. The mobile payments components will present some interchange income opportunities, but this is still in the early stages.”

Wilcox says banks could potentially profit from the monetary savings that mobile strategies will bring over the long run. “Mobile banking offers significant cost saving for banks compared to [other] channels. An example is that phoning a call center for your balance costs the bank at least six dollars, including the cost of the call  center person, compared to five cents or less to send a bulk SMS. Despite this, some banks make a monthly charge for mobile banking,” Wilcox says.

Where To Go From Here
Although mobile banking has increased its popularity, and research shows it will grow rapidly in the next few years, DeCastro says mobile banking is still far from being a mainstream U.S. channel.

“The branch remains the No. 1 preferred channel, followed by online. At some point, mobile will be there, but not in the next couple of years,” DeCastro says.

Additionally, researchers will need to work out the definition of mobile device. DeCastro points out that there’s ambiguity around devices, such as the iPad, that don’t fit existing definitions. But in the meantime,
DeCastro says, banks should continue to develop solutions in all channels and let their customers choose what is most appropriate for them. ▲

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