financial services the impact of mobile banking

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2011AiteGroupLLC.Allrightsreserved.Reproductionofthisreportbyanymeansisstrictlyprohibited.Photocopyingorelectronicdistributionof

thisdocumentoranyofitscontentswithoutpriorwrittenconsentofthepublisherviolatesU.S.copyrightlaw,andispunishablebystatutorydamages

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photocopying,faxing,excerpting,forwardingelectronically,andsharingofonlineaccess.

APRIL2011 RonShevlin

+1.617.338.6045

[email protected]

GwennBezard

JudithFishman

TheImpactofMobileBanking:

ACaseforMobileMarketing


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TheImpactofMobileBanking:ACaseforMobileMarketing April2011

2011AiteGroupLLC.Allrightsreserved.Reproductionofthisreportbyanymeansisstrictlyprohibited.

101ArchStreet,Suite501,Boston,MA02110Tel:+1.617.338.6050Fax:[email protected] 2

TABLE OF CONTENTS

INTRODUCTION..............................................................................................................................................4

ABOUTTHESURVEYDATA..............................................................................................................................5

WHATBANKSSHOULDKNOWABOUTMOBILEBANKERS..............................................................................6

NUMBER

1:

MOBILE

BANKERS

ARE

MAINSTREAM

CONSUMERS

.......................................................

6

NUMBER2:MOBILEBANKERSAREBALANCECHECKERS.................................................................... 9

NUMBER3:MOBILEBANKERSAREELECTRONICCOUPONCLIPPERS...............................................10

NUMBER4:MOBILEBANKERSAREMOBILEPURCHASERS...............................................................11

NUMBER5:MOBILEBANKERSAREMIGRATINGAWAYFROMCHECKS...........................................13

CONCLUSION................................................................................................................................................14

1.DRIVEDONTDETERDEBITCARDUSAGE................................................................................15

2.INVESTINMERCHANTFUNDEDREWARDSPROGRAMS...............................................................16

3.MARKETPREPAIDCARDSTOMOBILEBANKERS...........................................................................16

RELATEDAITEGROUPRESEARCH.................................................................................................................19

ABOUTAITE

GROUP

......................................................................................................................................

20

CONTACT......................................................................................................................................................20


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LIST OF FIGURES

FIGURE1:MOBILEBANKINGDEPLOYMENTAMONG LARGEBANKS............................................................4

FIGURE2:MOBILEBANKINGDEPLOYMENTAMONG CREDITUNIONS.........................................................4

FIGURE3:SURVEYDEMOGRAPHICS...............................................................................................................5

FIGURE

4:

MOBILE

BANKING

ADOPTION

........................................................................................................

6

FIGURE5:ALLOCATIONOFMOBILEBANKERSBYGENERATION....................................................................7

FIGURE6:PERCENTAGEOFDEMOGRAPHICSEGMENTSTHATAREMOBILEBANKERS.................................7

FIGURE7:AVERAGEINCOME,MOBILEBANKERSVS.NONMOBILEBANKERS..............................................8

FIGURE8:NUMBEROFTIMESCONSUMERSCHECKEDBALANCEWITHMOBILEDEVICE,Q42010...............9

FIGURE9:NUMBEROFTIMESCONSUMERSCHECKEDACCOUNTBALANCEONLINE,Q42010....................9

FIGURE10:CHANGESINCOUPONUSAGEBYMOBILEBANKINGADOPTION..............................................10

FIGURE11:ELECTRONICCOUPONUSAGEBYGENERATIONANDMOBILEBANKINGUSE...........................11

FIGURE12:PERCENTAGEOFCONSUMERSMAKINGMOBILEPURCHASESBYSEGMENT............................12

FIGURE13:NUMBEROFMOBILEPURCHASESMADEBYMOBILEBANKINGADOPTION,Q42010..............12

FIGURE14:

CHANGES

IN

CHECK

USAGE

BY

MOBILE

BANKING

ADOPTION

..................................................

13

FIGURE15:PERCENTAGEOFCONSUMERSUSINGCHECKSLESSBYGENERATION......................................13

FIGURE16:CHANGESINDEBITCARDUSAGEBYGENERATION...................................................................14

FIGURE17:PERCENTAGEOFCONSUMERSUSINGPREPAIDCARDFORPURCHASES,Q42010...................16

FIGURE18:PERCENTAGEOFCONSUMERSUSINGPREPAIDCARDFORPURCHASES,Q42010...................17

FIGURE19:AVERAGENUMBEROFPREPAIDCARDPURCHASESMADE,Q42010.......................................17

LIST

OF

TABLES

TABLEA:DEBITINTERCHANGEREVENUE:BASELINE...................................................................................15

TABLEB:DEBITINTERCHANGEREVENUE:SCENARIO..................................................................................15

TABLEC:PREPAIDINTERCHANGEFEESGENERATEDCONSUMERSEGMENT...............................................18


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I N T R O D U C T I O N

WhenAiteGroupsurveyedlargebanksandcreditunionsinlate2009/early2010abouttheir

mobilebankingdeploymentsandplans,wefoundthatmorethansixin10largebankshad

implementedsomelevelofmobilebankingcapability(Figure1).Amongcreditunions,sixin10

hadnotyetofferedmobilebankingtotheirmembers(Figure2).

Figure1:MobileBankingDeploymentAmongLargeBanks

Source:AiteGroupSurveyof26Top100U.S.Banks,December2009

Figure2:MobileBankingDeploymentAmong CreditUnions

Source:AiteGroupSurveyof54creditunions,January2010


5/20

TheImpact

2011AiteG101ArchStree

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Source:Aite

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oupLLC.Allrightsr,Suite501,Boston,

financialinstlity,likechecascleartoployandhopbelievesthnkingwillimutmobileb

T H E SofDecembasrecruited(Figure3).

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roupSurveyof1,

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served.ReproductiMA02110Tel:+1.6

itutions(FIs)kingaccountsfromourstojustifythattheconsupactbanksonkingcusto

R V E Y Dr2010,Aiteorepresent

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011U.S.Consume

obileMarketin

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rs,December201

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5


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WHAT B A N K S S H O U L D K NO W A B O U T M O B I L E B A NK E R S

Demographicinformationaboutmobilebankingconsumersissimplyabackdrop,however,to

thefiveimportantthingsaboutmobilebankingconsumersthatwillinfluencebanksandcredit

unionsmobilechannelstrategiesforthenextfewyears.

N U M B E R 1 : M O B I L E B A N K E R S A R E M A I N S T R E A M C O N S U M E R S

InQ42010,roughlytwooutof10U.S.consumerscheckedtheircheckingorprepaidcard

accountbalanceusingamobiledevice.Aboutonethirdcheckedaccountbalancesexclusivelyvia

theirmobiledeviceinQ4,whiletwothirdsalsobankedonline.About40%bankedonlinebut

notthroughthemobilechannelwhileroughlythesamepercentageusedneitherthemobileor

onlinechannels(Figure4).

Figure4:MobileBankingAdoption

Source:AiteGroupSurveyof1,011U.S.Consumers,December2010

Nearlyhalfofallmobilebankers(usersofmobileonlyplususersofmobileandonline)areGen

Yers,whileGenXerscomprise28%ofthemobilebankingpopulation(Figure5).Asapercentage

ofeachgeneration,28%ofGenYersand22%ofGenXerscurrentlybankthroughthemobile

channel,whilejust13%ofBoomers(babyboomers)and3%ofSeniors(seniorcitizens)bank

withamobiledevice.Fromagenderperspective,aroughlyequalpercentageofmenand

womenarebankingviamobile(Figure6).


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Figure5:AllocationofMobileBankersbyGeneration


Figure6:PercentageofDemographicSegmentsThatAreMobileBankers



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TheaverageincomeofmobilebankingconsumersisUS$52,952justUS$131morethanthe

averageincomeofnonmobilebankers.Infact,thehigheraverageincomeofmobilebankersis

drivenbyBoomers.TheaverageincomeofmobilebankingGenYersandGenXersisactually

lowerthanthatofnonmobilebankersofthesamegeneration(Figure7).

Figure7:

Average

Income,

Mobile

Bankers

vs.

Non

Mobile

Bankers


Whythisisimportant:Anumberofarticlesinthepressperhapssomedatedatthispointhaveclaimedthatmobilebankingconsumersaremoreaffluentthanotherconsumers.A2009

studysponsoredbyResearchinMotion,forexample,foundthat62.4%ofmobilebankingusers

haveincomes

of

more

than

US$50,000.

1

AiteGroupsresearchshowsthatwhilemobilebankersareyoungerthannonmobilebanking

consumers(36yearsofageversus47),withineachgeneration,theirincomelevelsarerelatively

equal.Whatthismeansisthatattitudinalandbehavioraldifferencesbetweenmobileandnon

mobilebankingconsumersarenotattributabletoconsumersincomelevels.

Inotherwords,evenearlyintheevolutionofmobilebankingasabankproductorservice,itsa

mainstreamofferingthat,incontrasttothedevelopmentofonlinebankingandbillpay,wont

need10to15yearstoscaletomassmarketadoption.Manybanksbasedtheirinvestmentsin

onlinebankingandbillpayontheargumentthattheywereincreasingcustomerretention

amonghighvalue(i.e.,highincome/highasset)customerswhoweretheearlyadopters.That

rationalecant

be

applied

to

mobile

banking

investments.

1. MobileBankingCreatesaBrightSpotWithintheStrugglingFinancialServicesIndustry,http://us.blackberry.com/business/industry/financial/Mobile_Banking_Whitepaper.pdf


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N U M B E R 2 : M O B I L E B A N K E R S A R E B A L A N C E C H E C K E R S

Nearlyonethirdofmobilebankerscheckedtheiraccountbalanceusingamobiledevice10or

moretimesinQ42010(Figure8).Butwhatmaysurprisebankexecsisthatmobilebankersdont

giveupinteractinginotherchannelsjustbecausetheyrebankingthroughthemobilechannel.

Figure8:NumberofTimesConsumersCheckedBalanceWithMobileDevice,Q42010


TwothirdsofmobilebankerscheckedtheiraccountbalancesonlineinQ42010;ofthosethat

did,57%didso10ormoretimesinQ42010.Thatsnearlyequaltothepercentageofnon

mobilebankingcustomerswhoaccesstheiraccountsonline(Figure9).

Figure9:NumberofTimesConsumersCheckedAccountBalanceOnline,Q42010



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Whythisisimportant:Mobilebankersdontchecktheirbalancesallthetimebecausetheylikeplayingwiththetechnology.Theydosobecausetheydontwanttooverdrawontheiraccounts.

Aprepaidcardindustryexecutivetoldusrecentlythathisfirmsresearchshowsthatmanyofits

customerschecktheircardbalanceusingamobiledevicebeforeatransaction,aftera

transaction,andevenduringatransaction.

AiteGroupbelievesthatincreasedmobilebankingadoptionwillfurtherdepressbanks

overdraftfeerevenuebeyondthedeclinetheyhaveseenasaresultofrecentregulatory

changes.Whereasonlinebillpayanddebitcardsmadeiteasyforbankcustomerstooverdraw

ontheiraccounts,mobilebankinggivesconsumerstheabilitythroughbalancecheckingand

proactivealertstoavoidaccidentlydoingso.

N U M B E R 3 : M O B I L E B A N K E R S A R E E L E C T R O N I C C O U P O N C L I P P E R S

Nearlyfourin10mobilebankersuseelectroniccouponsthosereceivedonlineonthrougha

mobiledevicemorefrequentlytodaythantheydidtwoyearsago.Inaddition,nearlyaquarter

of

them

rely

less

on

paper

coupons

than

they

used

to.

In

contrast,

non

mobile

bankers

are

less

likelytobeusingelectroniccouponsmorethantheydidtwoyearsago,orrelyinglessonpaper

coupons(Figure10).Theshifttoelectroniccouponsisespeciallyprevalentamongmobile

bankingGenXersandBoomers(Figure11).

Figure10:ChangesinCouponUsagebyMobileBankingAdoption



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Figure11:ElectronicCouponUsagebyGenerationandMobileBankingUse


Whythisisimportant:Theshiftincouponusefrompapertoelectronicamongmobilebankersemphasizestheneedformarketersfrom financialservicesfirmsaswellasretailersand

merchantstobeabletoreachcustomersandprospectsontheirmobiledevices.

Theshiftisalsofurtherevidencesupportingconclusionswevepreviouslydrawnontheimpact

ofmobiledevicesandmorespecifically,smartphonesonconsumerslives.Previously,we

identifiedasetofconsumerswecallSmartphonaticsconsumerswhodontjustowna

smartphone,butwholooktomakethesmartphoneanintegralpartoftheirlives,andchange

manyoftheirbehaviors(i.e.,billpaymentandpurchasing)asaresultofowningasmartphone.2

N U M B E R 4 : M O B I L E B A N K E R S A R E M O B I L E P U R C H A S E R S

Nearlyfourin10mobilebankersincluding45%ofmobilebankingGenYersand43%ofmobile

bankingGenXersmadeapurchasewiththeirmobiledeviceinQ42010.Fewnonmobile

bankersmademobilepurchases,ontheotherhandjust15%ofnonmobilebankingGenYers

and10%ofnonmobilebankingGenXers(Figure12).Amongthemobilebankingsegment,Gen

Yerswerethemostfrequentmobilepurchasers,averagingnearlyeightmobilepurchasesper

personduringthequarter(Figure13).

2. SeeAiteGroupsreport,HowAmericansPayTheirBills,October2010.


12/20




Figure12:PercentageofConsumersMakingMobilePurchasesbySegment


Figure13:NumberofMobilePurchasesMadebyMobileBankingAdoption,Q42010


Whythisisimportant:Manypeoplebelievecorrectly, tosomeextentthatyoungconsumersarechompingatthebittomakemobilepurchases.Butourresearchshowsthattheinterestor,

atleast,currentbehaviorisnotequallyspreadacrossallGenXersandGenYers.

Thatmobilebankersaremorelikelytomakemobilepurchasespresentsbankswithan

opportunitytosteermobilepurchasestothecardsofferedbythebank.Inaddition,merchants

collaboratingwithFIsonmerchantfundedrewardsprogramswillbeabletomoreeffectively

targetoffersforproductsthatarefrequentlypurchasedwithamobiledevice,forexample,

music,games,andapps.


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N U M B E R 5 : M O B I L E B A N K E R S A R E M I G R A T I N G A W A Y F R O M C H E C K S

Itwontcomeasasurprisetobankexecutivesthatcheckvolumehasdeclinedandthatfewer

consumersarewritingchecksasoftenastheydidtwoyearsago.Whatexecsmightnotknowis

thatahigherpercentageofmobilebankerssaythattheyvemovedawayfromchecksthando

nonmobilebankers(Figure14);thisisparticularlytrueamongmobilebankingGenYersand

Boomers(Figure

15).

Figure14:ChangesinCheckUsagebyMobileBankingAdoption


Figure15:PercentageofConsumersUsingChecksLessbyGeneration



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Ifmobilebankersareusingcheckslessthantheyusedto,whataretheyusingmoreoften?Debit

cards.Infact,acrossthegenerations,ahigherpercentageofmobilebankershaveincreasedtheir

useofdebitcardsthanamongnonmobilebankers,andfewermobilebankersareusingdebit

cardslesstodaythantheydidyears,whencomparedtononmobilebankers(Figure16).

Figure16:

Changes

in

Debit

Card

Usage

by

Generation


Whythisisimportant:AlthoughbanksarenthappywiththeproposedlegislationtoreducetheinterchangefeetoUS$0.12,somethingisbetterthannothing.Andnothingiswhatbanksgetfor

checkbasedtransactions.Ifmobilebankingadoptionleadstochangingbehaviorse.g.,fewer

checks,more

debit

card

usagethen

banks

stand

to

gain

financially

from

mobile

banking.

Anotherreasonthesefindingsareimportantisthattheydemonstratethat,evenforolder

consumers(notthatBoomersarethatold),behaviorisntsetinstone;consumersarentlocked

intotheirdebitcards,cash,orchecks.Banksattemptstochangebehaviormovingconsumers

todebitorprepaidcardscanbeaccomplishedthrougheffectivemarketing.

C O NC L U S I O N

Basedonouranalysisofmobilebankingconsumers,AiteGroupbelievesthatbankswillhaveto

makesignificantinvestmentstoimprove(orevendevelopfromscratch)theirmobilemarketing

capabilities.The

lack

of

aretention

benefit,

the

potential

loss

of

overdraft

fees

from

balance

monitoring,andtheshiftinconsumerattentiontothemobilechannelmeansthatthe

justificationandrationaleforinvestmentsinmobilebankingcapabilitieswillcomefromsuccess

inmobilemarketingefforts.Tojustifymobilebankinginvestments,AiteGroupbelievesthat

banksshould:


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1 . D R I V E D O N T D E T E R D E B I T C A R D U S A G E

Ifconsumersbehaviorschangeaftertheyadoptmobilebanking,thenbankscanincrease

interchangerevenuebydrivingmobileadoption.Basedoncurrentmobilebankingadoption

rates,abankwithonemillioncustomersthataredistributedacrossthegenerationsinanequal

percentagetotheoverallpopulationandwhomakeanaveragenumberofdebitcard

transactionswill

generate

about

US$8.4

million

per

year

in

interchange

revenue

(Table

A).

3

TableA:DebitInterchangeRevenue:Baseline

AnnualDebit InterchangeRevenue (US$)

GenY GenX Boomers

Nonmobile Mobile Nonmobile Mobile Nonmobile Mobile

%ofcustomers 19% 9% 19% 6% 30% 4%

Purchases/customer 65 118 71 78 62 71

Totaltransactions 12,313,583 10,788,654 13,533,095 4,314,152 18,656,133 3,073,839

Totalinterchange $1,477,630 $1,294,638 $1,623,971 $517,698 $2,238,736 $368,861

Source:AiteGroup

IfmobilebankingadoptiongrowsfromaboutonethirdofGenYerstotwothirds,from22%of

GenXersto33%,andfrom13%ofBoomersto20%,thendebitinterchangerevenuewould

increaseby8%tonearlyUJS$9.1million(TableB).

TableB:DebitInterchangeRevenue:Scenario

AnnualDebit InterchangeRevenue (US$)

GenY GenX Boomers

Nonmobile

Mobile

Non

mobile

Mobile

Non

mobile

Mobile

%ofcustomers 9% 19% 17% 8% 28% 7%


Totaltransactions 6,013,954 22,287,560 11,694,593 6,336,728 17,072,375 4,887,405

Totalinterchange $721,674 $2,674,507 $1,403,351 $760,407 $2,048,685 $586,489

Source:AiteGroup

3. OurestimateassumesthattheFederalReservesproposaltosetthedebitinterchangerateatUS$0.12pertransactionwillbeimplemented.


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2 . I N V E S T I N M E R C H A N T F U N D E D R E W A R D S P R O G R A M S

Proposedregulatorychangesregardinginterchangefeeshaveledsomelargebanksto

discontinuetheirdebitcardrewardsprograms.Othersaredeploying,orevaluatingthefeasibility

of,merchantfundedrewardsprograms.

The

success

of

merchant

funded

programs

depends,

to

a

large

extent,

on

1)

frequent

debit

card

use,and2)frequentcustomerinteractionwiththebank.Theformeriscriticalinorderfor

merchantstodeterminewhotomakeoffersto,andthelatteriscriticalinorderformerchantsto

reachbankcustomerswiththoseoffers.

Mobilebankingcustomersbecomeanimportantelementtothesuccessofmerchantfunded

rewards.Reachingcustomersontheirmobiledevicesholdsthepromiseofreachingthemwith

offersattherighttimei.e.,atthepointofsale.Andthefactthatmobilebankersinteract

frequentlywiththeirbanksinmultiplechannelsimprovestheoddsofreachingthemwith

merchantoffers.

3 .

M A R K E T

P R E P A I D

C A R D S

T O

M O B I L E

B A N K E R S

MorethanonethirdofmobilebankersmadeaprepaidcardpurchaseinQ42010(Figure17).

Thiswasnotafactorofage.Ahigherpercentageofmobilebankerswithineachgenerational

cohortreliedonprepaidcardsthanamongnonmobilebankersofthesamegeneration(Figure

18).Mobilebankersarenotonlymorelikelytouseprepaidcards,buttheymakemoreprepaid

cardtransactionsthannonmobilebankerswhouseprepaidcards(Figure19).

Figure17:PercentageofConsumersUsingPrepaidCardforPurchases,Q42010



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Figure18:PercentageofConsumersUsingPrepaidCardforPurchases,Q42010


Figure19:AverageNumberofPrepaidCardPurchasesMade,Q42010


AiteGroupbelievesthatbanksandcreditunionscanrecoupasignificantpercentageofthedebit

interchangerevenuetheyexpecttolose(asaresultofregulatorychanges)bymarketingprepaid

cards.4TargetingmobilebankingcustomerswithprepaidcardoffersmayhelpFIsimprovethe

effectivenessoftheirprepaidmarketingefforts.

4. SeetheAiteGroupreport,RecoupingLostDebitInterchangeWithPrepaidCards,March2011.


18/20




Theupsideissignificant.Basedoncurrentprepaidcardusage,mobilebankersgenerateasmuch

inprepaidinterchangefeesasnonmobilebankers,eventhoughtheyrepresentjust19%ofthe

population(TableC).Abankwith1millioncustomersthatcancapture20%ofitsmobile

bankersprepaidcardactivitycanearnmorethanUS$250,000ininterchangerevenue.

TableC:

Prepaid

Interchange

Fees

Generated

Consumer

Segment

AnnualPrepaidCard InterchangeRevenue (US$)

GenY GenX Boomers

Nonmobile Mobile Nonmobile Mobile Nonmobile Mobile

%ofcustomers 19% 9% 19% 6% 30% 4%

%prepaidcardusers 19% 40% 18% 39% 10% 30%


Totaltransactions 1,003,257 1,320,304 764,387 760,043 625,407 295,331

Totalinterchange $571,857 $752,573 $435,700 $433,225 $356,482 $168,339

Source:AiteGroup


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RELATED AITE GROUP RESEARCH

RecoupingLostInterchangeFeeswithPrepaidCards,March2011.OnlineMarketingMaturityModelforFinancialInstitutions,February2011.TopTrendsInRetailBanking,2011,February2011.PrepaidDebitCards:BarrierstoAdoption,December2009.BrandedPrepaidCardProcessors:AVendorEvaluation,October2009.TheCardIndustry:BetweenaRockandaHardPlace,June2009.PrivateLabelPrepaidCardVendors:AnEvaluation,May2009.ThePulseofthePrepaidCardIndustry,March2009.


20/20


2011AiteGroupLLC.Allrightsreserved.Reproductionofthisreportbyanymeansisstrictlyprohibited.20

ABOUT AITE GROUP

AiteGroupisanindependentresearchandadvisoryfirmfocusedonbusiness,technology,and

regulatoryissuesandtheirimpactonthefinancialservicesindustry.Withexpertiseinbanking,

payments,securities&investments,andinsurance,AiteGroupsanalystsdelivercomprehensive,

actionableadvice

to

key

market

participants

in

financial

services.

Headquartered

in

Boston

with

apresenceinChicago,NewYork,SanFrancisco,London,andMilan,AiteGroupworkswithits

clientsasapartner,advisor,andcatalyst,challengingtheirbasicassumptionsandensuringthey

remainattheforefrontofindustrytrends.

CONTACT

Formoreinformationonresearchandconsultingservices,pleasecontact:

AiteGroupSales

+1.617.338.6050

[email protected]

Forallpressandconferenceinquiries,pleasecontact:

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+1.718.522.2524

[email protected],pleasecontact:

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