By Nicole Rovi and Ryan Whalen
The growing customer utilization of mobile technology has driven systems investments in mobile banking for banks across the country over the last decade. Spending on IT at banks has increased by over 49 percent over the last five years. These investments have generally been defensive in nature. While some early adopters realized a small increase in customers, community bank utilization typically protected them from losing deposit share to the massive online systems of the big banks. Whether or not to play in mobile banking is now old news; mobile is now a necessary product offering. Designing the perfect mobile banking application is the next market disruptor threatening community banks.
Ranging from mobile payments and money transfer applications, technology companies are encroaching on mobile banking and offering more complex services, including small business lending and personal financial management (see sidebar for a list of the most popular competitors). These applications utilize detailed and clear images and provide the customer with budgeting tools and tips, as well as insight into his or her spending patterns and spending history. Applications developed by technology companies are capturing community banks’ customers because they provide a more interactive and user-friendly experience.
The introduction of Apple Pay, a mobile payment platform which links a consumer’s credit/debit cards to his or her mobile devices, and Mint, a web-based personal financial management tool, have sent shockwaves throughout the banking industry. With the development of more complex banking functions on mobile applications and online, technology companies have become increasingly prevalent throughout the banking industry. Community banks must evaluate their position in the mobile banking space and determine how they can compete with established technology companies that have greater resources, reach and expertise on the mobile platform than most community banks. Like the initial adoption of mobile banking itself, it is imperative that community banks provide their customers with these services before their customers find alternatives.
Most mobile banking applications created by community banks have been designed with simple functions in mind, such as monitoring accounts and paying bill. Consumers are becoming more interested in money management tools on mobile devices, a feature readily available on applications created by technology companies. For example, Mint provides the customer with a simple, interactive process that allows the customer to budget, track spending patterns and view his or her credit score, along with more complex features.
A missed opportunity
In a recent study conducted by the Aite Group, 86 percent of banks surveyed had the ability to complete bill pay from their mobile platform, while only 49 percent had the tools to help customers with budgeting. Only 48 percent had the ability to categorize expenses. This is a missed opportunity for community banks, as a consumer who values budgeting tools might download one of the many applications available, as opposed to his or her own bank’s app.
A 2013 Cisco Customer Experience Report that focused on retail banking showed that customers in the United States are willing to provide more of their private information in exchange for customized banking services. In this case, the bank will miss out on valuable information about a customer’s spending habits, and thus the opportunity to further their relationship with that customer.
Mobile money transfer applications have become popular as a way to connect individuals who bank with different companies for the purposes of mobile payments. Applications such as Venmo that use social networks to connect individuals have become increasingly popular among the younger generations as a more convenient and reliable way to repay others. While many money transfer applications do not allow users to transfer money between their own personal accounts (a function most mobile banking applications provide), it fills a need that mobile banking applications cannot - peer-to-peer transfers, regardless of one’s bank affiliation. Mobile money transfer apps have become a threat to traditional banks, as they provide convenient banking services to a larger network of people.
Community banks can compete with technology companies by implementing new technology and mobile app add-ons. There is a distinct difference in generational values regarding banking. Generation Y (born in the 1980s and 1990s) and Millennials (born between 1990s and early 2000s) value convenience and speed over relationships, while older generations often appreciate the personal touch that is associated with community banks. Banks can make their mobile applications more inclusive to all demographics by utilizing add-ons that incorporate videoconferencing into their existing mobile app. These add-ons, such as Linqto’s Personal Banker app, give the customer the option to videoconference with a bank employee face-to-face rather than using the traditional help window. Innovative products like this can help bankers bridge the gap between impersonal and relationship banking, ultimately leaving the choice to the consumer.
If consumers are unable to find what they need from their bank’s mobile application, it is exceedingly simple to find alternative solutions. Banks need to determine the most pertinent needs of their customers and implement them into their mobile applications so that they can capture valuable information and strengthen customer loyalty - both which will build value for the institution.■
Nicole Rovi and Ryan Whalen are financial analysts in FinPro’s Consulting Division. For more information, contact Nicole or Ryan at (908)-604-9336 or firstname.lastname@example.org and email@example.com, firstname.lastname@example.org.