Will Mobile Banking Take Off?

By CIOinsight  |  Posted 05-16-2007

Will Mobile Banking Take Off?

It's easy to be skeptical about mobile banking. After all, does anyone really need to transfer funds from one account to another while riding the bus to work, or check balances during meeting breaks? And who wants to see a driver zipping down the freeway with one hand on the wheel, the other paying the utility bill?

Then there are the inevitably massive cell phone bills that will result from all the bank data transfers. And the constant concern that a transaction was not completed due to a faulty connection. If wireless customers get frustrated when a voice call is dropped, how will they feel about a thousand-dollar transaction being lost midstream? And security? Fugeddaboudit.

Yes, it's easy to doubt the viability of mobile banking. But then again, similar skepticism was voiced in the early days of online banking. And you have to wonder: If mobile banking is such a bad idea, why are some of the smartest and most successful financial institutions in the world falling all over themselves to put their mobile banking stakes in the ground?

In February, Bank of America Corp. and Wachovia Corp. introduced basic services that let customers check balances, pay bills and transfer money on their mobile devices. Citigroup Inc. recently rolled out a mobile banking application that customers can download onto their mobile devices. Even the wireless carriers are interested in getting into the game: Cingular Wireless, for instance, is in talks with several banks and expects to offer banking services on its handsets later this year. And dozens of smaller banks, particularly online-only banks, are in the process of rolling out their mobile services.

The reasoning among banks for the move to mobile banking is simple, if not compelling: The more time a customer spends transacting with a bank, the more loyal that customer is. In the hypercompetitive banking industry, where companies are merciless in their attempts to lure customers away from competitors, mobile banking feels a little like an arms race.

But not everyone is sold on the soundness of the strategy. "We have struggled to see the business rationale for mobile banking," says Alistair Newton, a research director at analyst firm Gartner, Inc. "We question the real value to the bank. Chasing after new customers quickly becomes a zero-sum game, where it costs them so much to get a customer from their competitors that it's not worth it, or they lose existing customers in the meantime. There is a belief that mobile banking will help them retain customers, but I'm not convinced."

Despite the skepticism, Wells Fargo & Co., the San Francisco banking behemoth with $486 billion in assets, is among those joining the mobile banking brigade. The company already provides customers with mobile alerts when an account balance reaches a predetermined threshold, or a particular kind of credit card transaction occurs. And it plans to add interactive text messaging, which lets a customer text a short code to the bank and receive a response displaying an account balance within seconds. Now the company is poised to take its next steps. "We spend a lot of time talking to our customers, and they are telling us that mobile banking is important to them," says Steve Ellis, executive vice president of Wells Fargo's Wholesale Services Group, who is charged with deepening customer relationships and providing consistent products and services across channels. "We need to be where our customers are, and help them get their information easier and faster."

The company is piloting and testing three routes to the mobile market: text messaging, mobile browsing and downloadable applications. Each has its relative merits and drawbacks, and none is mutually exclusive. But no matter which path Wells Fargo ultimately takes, there will be obstacles. Supporting mobile devices of infinite size and variety is a headache for any IT department, let alone the customer service representatives of a 6,000-branch bank with more than 23 million customers. And giving customers enough confidence in the security of their data without making the authentication process too onerous is a problem not easily solved.

The Wells Fargo team, nevertheless, remains undaunted. "I was highly skeptical of the service myself, and thought I would never be a user," says Jim Smith, executive vice president and managing head of Wells Fargo's Internet Services Group. "But I surprised myself by using it many, many times, because I had a true need."

Delivery Decisions

Delivery Decisions

One reason Wells Fargo is so confident in the mobile banking model is that recent history is on its side. When the Internet was in its infancy, some Wall Street analysts didn't believe there would ever be a business rationale for online banking: People simply didn't need to interact with their banks that often. Customers would not be confident their online transactions were completed properly. Security would be terrible. These are all the same arguments now being made against the mobile banking model.

In addition, the folks at Wells Fargo are smart enough to know that they don't know how the mobile banking model will evolve. "When we first started with Internet banking, a lot of the work we did was migrating simple functions online: checking balances, transferring funds," Smith says. "That drove the initial wave of growth. But over time customer expectations changed, and that drove a second wave of initiatives. First it was seeing their balances, then it was 'why are you sending me paper statements' and 'can you categorize and provide insight into my spending habits and how I manage my finances?'"

Smith expects that with mobile banking the same phenomenon will take place, and he doesn't even try to predict what it will look like this time. To capture customer feedback, Wells Fargo uses a number of techniques, including a program it calls the Voice of the Customer, which combines feedback from phone and e-mail survey data. It also conducts other user and market research, and convenes a customer advisory council 18 times a year. "When customers start interacting with you in a new way, their expectations will shift," Smith says. "We understand some things, but we can't figure them all out up front."

What Wells Fargo has to figure out, however, is how to deliver its mobile services to customers. Text messaging seems too rudimentary; mobile browsing can be slow; and downloadable applications put the bank in the software business. That's why the company is testing all three possibilities. "We are in the discovery phase on downloadable apps, but we have concerns," Smith says. "But we are starting from the hypothesis that a combination of browser and text will be sufficient."

Wells Fargo uses service provider ClairMail, Inc., to broker text messages between customers and the bank. After customers register their mobile devices at WellsFargo.com for authentication purposes, they can send simple text messages with a transaction code to the bank. In return they get messages back with the information requested or the go-ahead to transfer funds. It's not terribly sophisticated, and for those comfortable with online banking, it feels a bit backward. "Because of the limitations of text messaging, we didn't expect a lot of people to use the service," says Smith, who won't share how many customers use the service, and notes the program is still in the pilot stages. "But customers are finding it incredibly valuable while traveling."

Browser-based banking shows more potential and can mirror the online banking experience. It also targets users of BlackBerries and Treos, who have more sophisticated browsers and bigger screens. But speed is an issue here, and the multiple form factors are an additional aggravation for Wells Fargo. "For the browser solution, you have to be able to tell what kind of phone [the customer uses] and deliver an experience specifically for that device," says Smith. "That means that each time they interact with us, we have to verify the device, so you have to build a tremendous amount of flexibility into your mobile banking platform."

That's the advantage of downloadable applications. With an application that customers download onto any device, they could have a consistent experience no matter what phone they use. But the applications would require constant development and updating as new services are rolled out, not to mention support from the bank itself. "We're shying away from that, because the concern we have is getting into the software distribution business and the support model associated with it," Smith says.

Gartner's Newton strongly recommends to his clients in the banking industry that they use existing delivery channels when extending their services to the mobile platform. In other words, go with the Web. "We believe that banks entering this market should proceed with extreme caution," Newton says. "You don't want to go out and offer a completely new channel. It's too expensive. Too risky." Newton points out that European banks tried to roll out mobile banking in the 1990s and were met with disastrous results. But the services back then were less sophisticated than they are now. And with the evolution of mobile browsers, there is more potential for customer adoption today.

New Services, New Hurdles

New Services, New Hurdles

Whenever a company the size of Wells Fargo introduces a new product or service, there's a massive ramp-up of sales and support staff to prepare for the rollout. But with mobile services, the challenges are unique—this is where the analogy between online banking and mobile banking breaks down.

When online banking first hit the market, Wells Fargo's support staff had to answer the most basic customer questions, even those that had nothing to do with WellsFargo.com. Service reps had to be prepared to explain everything from how to download a browser to what a modem was. But with mobile banking, the challenges are more varied. "With online banking, we had the advantage of there only being a few different kinds of browsers in the world," Smith says. "But there are hundreds of devices out there, and our reps have to have a general understanding of the capabilities of all of them, because many of the questions in the beginning are about the technology and not the service."

Wells Fargo, meanwhile, intends to partner with mobile phone makers and wireless service providers to enhance the service. It's critical to have the staff up to speed before the service rolls out because, Smith says, "If you ask a customer to try something and it doesn't work the first time or the service is not helpful, [the customer] won't come back." So Wells Fargo rolls out new services slowly, first to a small group of internal users on the IT team, just to be sure what they've built is operational.

The next step is to expand to a larger group of internal users (Wells Fargo has nearly 160,000 employees), then to a group of friends and family, which is where the program is now. So far, there have been some pleasant surprises. For example, the company originally thought customers over 25 wouldn't take well to the text messaging option. But those who did use it found it valuable when they were traveling or shopping. The company plans to expand the service to its entire customer base later this year.

All along the way, Wells Fargo has been collecting surveys and feeding the data back into the Voice of the Customer program for incorporation into the broader introduction of the service. The iterative approach gives the customer support people a chance to familiarize themselves with the kinds of questions customers are likely to ask.

The other big hurdle Wells Fargo has in common with its mobile banking competitors is security. If mobile banking does indeed follow the same trajectory as online banking, the scam artists and thieves are sure to follow close behind. "Mobile devices have not yet been subject to the same [number] of attacks as online banking has," says Gartner's Newton. "So there are clearly security concerns, because when they are attacked, you can expect trouble."

Wells Fargo believes that its security philosophy is different from that of most banks. Ease of use is paramount, and to that end, the company puts the onus of security on itself. "Our approach is to do all the necessary security behind the scenes and take responsibility ourselves for that," says Clyde Ostler, group executive vice president Wells Fargo's Internet Services Group. To that end, the company is working hard to strike the right balance between protecting the customer and making the service easy to use.

"You don't want to have the strongest authentication of every transaction possible," Smith says. "Some transactions have less risk, so we try to model the customer experience to protect the customer where the risk is. We don't want them to go through so much work that it becomes unusable." That means for most transactions there will be two- or three-factor authentication (identifying the device, username and password). For larger transactions, a phone call could be placed to the device to verify further.

If the mobile device ever morphs into a truly essential tool for personal or business finance, the nirvana for all banks would be the phone transformed into a contactless payment system. "We are very interested to see whether that form factor would move from a plastic card to a chip embedded in a cell phone," Smith says.

Perhaps ultimately cell phones will serve as de facto banks, beaming money from person to business, or even from person to person. Better master the basics first, however. And conquer the skepticism.