This week we’re celebrating 5 years of the Apple App store (see Wired’s commentary.) The realization that in 5 years mobile and apps have had such a huge impact on banking, can not be understated. Of course, there were many in the financial services space that were massively skeptical of the iPhone and Apps when they first launched in 2007. My favorite quotes come from a January 14th, 2007 article on Bloomberg, that contain the following gems:
“The iPhone will not substantially alter the fundamental structure and challenges of the mobile industry,” Charles Golvin, Forrester Research Inc
“Apple will sell a few to its fans, but the iPhone won’t make a long-term mark on the [financial services] industry“, Matthew Lynn, Bloomberg
Today it’s rare for me to meet someone who doesn’t understand the impact mobile is having on our industry, but back in 2009 when I started discussing the broad impact of mobile, the sceptics outnumbered the believers 10 to 1. Today, if you don’t believe in the power or impact of mobile you’re most likely a luddite. Incidentally, it even took Finextra 4 years before “Mobile Banking” was an available category for tagging blog posts.
But here’s the thing – the economics, fundamental service structure, customer experience requirements and core customer expectations in retail banking have flipped almost entirely in just 5 years – and almost no one, not even top industry analysts who watch this space every day, saw it coming.
Think about that. This rate and magnitude of change has NEVER happened in the banking industry ever before, not even close. So it is understandable that when presented with this new paradigm, that many dismissed it as unimportant for the mature, deeply regulated, incumbent-controlled industry we know as financial services.
What comes next?
While the emergence of person-to-person payments via the phone, instant balances on the handset, remote cheque (or check) deposit capture, even real-time receipts and feedback off of an NFC powered App are sexy, this is very early in the day for Mobile – we ain’t seen nothing yet.
The marriage of big data (curated to rich data), personalization, geo-fencing, wearable computing and other such iterations on mobility mean that the shift in day-to-day banking engagement, payments context and customer fullfilment when and where I need it – is just beginning.
The problem is that the organization charts of retail FIs are not built in anyway to respond to this shift. It’s why what we’ve seen today is little more than trying to fit internet banking on to a smaller screen, or shove a debit card into a mobile wallet. This is not mobility as we’re going to see it develop over the next 5-7 years.
For a start, mobile won’t look like the banking we know and love today based around branch engagement or the wet signature card of a typical onboarding process. Mobility will drive the contextualization of banking such that the promise of a bank in it’s ability to solve your financial problem or enable your life will be entirely different based on where you are, what you’re doing and what you need to help you get something done.
This distributed form of banking will largely relegate the branch to a quirky form of support structure for roaming customers performing banking everyday in their life. The ability to integrate these experiences into a customer’s life will be the only differentiation that matters in the next decade.
I know some are probably reading this right now with the same practiced skepticism – really, we’ve heard it all before, right…?
My guess is that those skeptics are the same ones that felt the same Charles Golvin or Matthew Lynn did when iPhone and the app store first appeared – “it’s not fundamentally going to change our business”.
They’ve been wrong before, they’ll be wrong this time too…
I am one of the skeptics you mention. The problem with this is monetizing any of it. Retail banks make money lending money. All the mobile channel related revenue for banks (even that potentially generated via geofencing, wearable computing and the contextualization of banking???) will continue to pale in comparison to revenue generated by the retail banking industry’s mortgage, credit card, small business, SBA, etc. lending. How exactly will mobile transform these businesses? Yes – the industry needs new revenue sources. But I am skeptical that any “bank” can remain viable if it focuses too much attention on facilitating payments and mobile-device marketing. Banks that hope to lend without feet on the street will find their balance sheets under fire from the regulators. Banks that can’t lend at sufficient rates are the ones that go out of business. That was true 20 years ago, and it will be true in 20 years from now. Also – This shift you talk about isn’t the biggest ever in retail banking. Arguably, the biggest shift ever in retail banking came about with the advent of secondary markets for securitizing assets.
Mary Beth, I don’t think it’s a mobile only strategy that is going to revolutionise the industry but it is certainly a key element. Looking at this recent article (http://www.euromoney.com/Article/3167208/Citis-top-transaction-banker-sees-technology-as-key-to-growth.html) and specifically the section where Citi’s Naveed Sultan speaks of their Corporate Banking mobile app:
“Take up for mobile has been significant, with value growth running at 7.24% weekly in 2012, and weekly volume growth of 6.84% (8% in EMEA). The service is now used in 88 countries (50 in EMEA) by around 6,300 clients, with $41 billion in transaction value processed using mobile capabilities.”
Surely with figures like this, mobile has a big role to play?
I think a key issue that the skeptics are missing would be the user experience driving future growth. I recently changed banks due to the online apps and offering available through another bank as my old bank didn’t see the value in developing these tools. Does that mean I am going to get a car loan or mortgage through my phone, no. I will however take those loans through the bank who enables me to manage my finances in the best way for me (through my iPhone) – so while you can put a number on what revenue the app brought in, you can learn something from customer lifecycle analysis and consumer behavior.
Consumers can be very loyal and when you build an experience for them that meets their needs they will look to you for other solutions – even if they don’t fit inside the app.
Firstly, this is a healthy debate, so thank you all for coming to Bank Innovation with it.
Let’s start with some qualifiers. It is absolutely true that the app market has been great for consumers and great for Apple, but abysmal for the vast majority of application developers. There was a valuable write up on this (which I can’t seem to find online unfortunately) in the July issue of Wired. Essentially, the economics of apps are terrible.
Further, I think it is absolutely wrong to think of mobile as a standalone channel. Even Brett’s post above implies that it is. Mobile has to be viewed within the prism of overall banking, as Marsha hints to above. With that mindset, it is not so much that mobile in and of itself is the engine of $X of revenue and Y% return, but rather that mobile is a component of all banking revenue — or at least it will be.
Let’s consider Marsha’s experience more carefully. Mary Beth, if you were to consider a new bank today and you learned that the bank had zero online banking services, would you choose that bank? I certainly would not. I actually switched my commercial bank a couple of years ago because the online banking was so poor. Now, equally if you were to consider a new bank today and you learned that the bank had zero mobile banking services, would you choose that bank? This is less certain. If the bank, for example, offered you a mortgage at 50 basis points below the nearest bid with the caveat that you had to move your checking account to the bank — even though the bank had no mobile banking — a rational consumer might consider it. But I would argue that as mobile banking advances and as mobile itself advances into our daily lives, the answer to this question will increasingly be no. Therein resides the great value of mobile. There is little doubt in my mind that mobile banking to a great degree will be part and parcel to what banking is. Full stop. This will equally be true in corporate banking as it will be in retail banking, as Paud O’Keeffe hints above. If you think consumers are demanding of their banks, corporate banking clients are only more so. The larger the account, the greater the expectation for technology.
You may read the above and still be unconvinced that the monetization will be there in mobile banking. What are the dollars and cents, you might ask? But is this really the right way to look at it? Banking has been plagued — and I mean that word — by an inability to separate itself from the culture of immediate ROI. Entrepreneurship does not happen if the return on investment must be realized in, say, the next quarter. There must be an ability to separate from current thinking to think the impossible or improbably. We have seen in recent years startups that have time and again taken businesses that should have been traditional banks’ — mobile financial services businesses, too. This is not because the startups have more resources. It is because the startups dared to dream. Here we stand at a wonderful juncture in the history of banking with an entirely new medium just waiting to be developed and from which great profits can be derived. Instead of wondering how, some say we cannot, that because the monetization is not obvious, there is an assumption that there is no possibility of monetization at all. If it were the case that no venture in any industry has profited heartily from mobile, then I would understand the hesitancy. But as Brett points out above, that is not the case. Just a small dose of entrepreneurship will yield great results. It always has.
I agree with some of the points of Mary Beth’s mail, but I am not as skeptic. Lending remains the backbone of the profitability for the banks and while mobile enablement may make the process easier and make the customer chose a better enabled bank than the other, the decision making process for lending will probably not undergo huge changes.
One key point missing from the debate above is the fact that the cost of servicing cusotmers through mobile banking is a fraction of the cost of any other channel. Whether it be lending origination, deposits servicing, transaction banking or any other. So with the increasing volume of activity and transactions moving to the mobile banking, shouldn’t we expect significant change to the operational cost structure of the banks, probably leading to thinner spreads between borrowing and lending rates?
The bottom line, which JJ’s comment already points out, is that a growing number of consumers expect their banks to provide outstanding mobile banking capabilities. According to a new report from Aite on Digital Banking, the vast majority of institutions investing in online and mobile banking over the next couple of years are doing so in order to meet consumers’ expectations and to achieve parity with competitors (including the new, non-traditional ones like Moven). Innovators like Apple, Amazon, Netflix, Spotify, and countless others have set the bar for consumers’ expectations. Banks need to come to grips with this. It’s not about monetization. It’s not about ROI. It’s about the very real risk of your customers leaving because you are not offering the service they expect.
And, setting all of that aside, the amount of time and money resources that banks can potentially save with mobile is staggering. According to Bank Innovation, a recent report by Javelin Strategy and Research estimates that banks can save $1.5 billion with remote deposit capture alone. That’s a pretty big chunk of change by simply shifting deposits from in branch to on a mobile phone.
Why is anyone still a skeptic?