Banks Can Keep Customers, Make Money With Mobile

Paying With Devices to Hit Critical Mass in Four Years, Says Yankee Group

Posted by Rita Chang on 01.05.09 @ 03:58 PM

Bankers who want to cut customer churn and make money should look no further than the mobile device in their pockets, argues Yankee Group in new research.

Generally, banks have largely viewed the channel as a way to generate savings by diverting customer service away from call centers or interactive voice response. But at some point, they have to look beyond saving overhead and use mobile as a revenue generator.

A big piece of that will depend on the adoption of near-field communication (NFC) payments, the study said.

What are NFC payments? It's when a phone can be used to pay for a transaction because it has an on-board commerce chip that can talk with a receiving chip inside a point-of-sale device. NFC is made for speedy, high-volume transactions used at places such as fast-food outlets and convenience chains because all consumers have to do is tap their phone against a reader and input a password, which is quicker than using cash.

In other words, banks are hoping that more consumers will whip out their phones to pay for burgers and fries, instead of using cash. Each time credit is used, the issuing bank gets a cut of the total transaction.

The market isn't quite there in the U.S. yet, as the phones supporting these transactions are not available, but banks are already priming consumers by issuing no-swipe credit cards that can be used at NFC readers that are installed in outlets such as McDonald's. Yankee Group says how the success of NFC will depend on whether banks will continue to invest in mobile banking. Yankee expects mobile banking -- along with NFC -- to gain critical mass in 2013.

Still, today banks should be looking at mobile as another channel that consumers can use to interact with it, in addition to the ATMs, phone and online -- essentially deepening their relationships and averting defection.

Most financial institutions are seeing about 3% of online banking users adopting mobile banking, according to the report, though Bank of America is ahead of the pack, having logged 1 million users as of this summer, on a base of some 25 million users.

One hurdle to the launch of mobile banking in 2008? The fact that call centers are often involved in the activation of mobile banking. As many as 30% of all mobile banking application downloads in the U.S. have necessitated help from the carriers' call centers, to the tune of an average $6 per call, according to the Yankee Group.

5 Comments

By nickkinports | Chicago, IL January 6, 2009 09:38:37 am:

Living in Japan in the not too distant past, I was introduced to this technology as an everyday way of life. Now you can purchase food or drinks from vending machines using just your phone. Not sure if the American consumer needs or wants this - in Asia and much of the rest of the world where this tech is more prevalent merchants discourage use of credit or debit cards and rely primarily on cash.

Is swiping your phone and confirming really faster than pulling out your debit card?

http://admaven.blogspot.com

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By rcanterbury | Carlsbad, CA January 6, 2009 06:05:15 pm:

It's not necessarily "payments" that will initially drive end-user NFC adoption. While payments are certainly one of the key drivers focused on by the banks and MNO's, the real benefit to early adopters (both merchants and end-users) is targeted marketing via smart-tags, downloadable coupons and other custom messaging opted into by consumers. Payments will come, as outlined in this article. There is no doubt about that. But I think that we can get there a lot faster by looking outside of payments first to drive consumer adoption and getting everyone comfortable moving from their wallets to their phones (think gift cards, coupons, physical access cards, etc).

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By Rodney33 | FRISCO, TX January 6, 2009 06:08:22 pm:

Having worked in the wireless and financial sectors, I know
this technology has been available for a very long time. The barrier to banking on the phone has been the consumer comfort level and the wireless carrier networks, which have both greatly improved over the last year.

Smart phones on 3G and wifi networks are quickly changing consumer habits and comfort levels as phones are becoming an abbreviated laptop.

GPS will be a key enhancer to building a strong customer relationship for banks. Imagine new value-add opportunities from your bank, "opt-in for specials on goods and services right where you physically are, when you pay with your phone."

Rodney Mason
CMO
Moosylvania
The Great State Of Design
www.moosylvania.com

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By scottlackey | New York, NY January 7, 2009 12:12:22 am:

Absolutely great technology which will be embraced by the early adopters.

The barrier to widespread acceptance: concerns about security and privacy--the ability to safeguard
the most critical personal information.

Fear of hacking...and worry about the security of wi-fi.

That skepticism is going to be the challenge.

Scott Lackey I Co-Founder & Strategic Director
Jugular Advertising
http://thenewadvertising.blogspot.com

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By andrewkarl | Tucson, AZ January 7, 2009 01:34:35 pm:

Adoption will be led by infrastructure and convenience. Already there are 35,000 contactless NFC points of sale installed across the country. That said, there are only 35,000 points of sale. Access to the technology is paramount for broad use, much as was the case when credit cards were introduced. Infrastructure provides the consumer a means to access the technology.

Convenience and use will be driven by a broad base of features that make contactless mobile payments more appealing than conventional credit cards. Just as the cell phone evolved from only making calls to smart phones rivaling compact computers, mobile banking applications will evolve into full function mobile wallets with payments, tickets, coupons, gift cards, etc. (as noted in another comment by Rob). Combined, consumers will choose their mobile phone and mobile wallet instead of conventional cards, paper coupons and tickets, etc.

So the question becomes one of who takes the lead. Banks pushing purchasing convenience? CPG manufacturers leading with discounts? POS transaction firms and in store terminals?

Andrew Karl
VP Business Development
Contactless Data, Inc.
www.contactlessdata.com

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