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Tuesday, April 28, 2015

Mobile Banking – Can Analytics help banks innovate?




Bank of America COE Brian Moynihan recently disclosed that its mobile customers grew by 2 million, touching 70 Million this year. Wells Fargo and JP Morgan Chase have already reported robust growth in mobile customers in 2014.

This rise in mobile banking users is welcome news for the banking industry. This growth is not limited to the US alone. Britain also, in the recent past, has seen an uptick in mobile banking users and the number is expected to reach 32.6 million by 2020 as per a study by Fiserv.

Mobile banking is widely used in emerging economies of the world – especially where traditional banking services have not taken deep roots. For example, Sub-Saharan Africa, Kenya and Bangladesh have huge user base in mobile banking.

But the spread of mobile banking here in the US has taken a different route - even arguably slower and maybe even a scenic route. Nevertheless, the growth of mobile banking offers exciting opportunities to banks that are in the throes of massive digital transformation.

A recent study by the Federal Reserve Board has made several far reaching findings. The study examines trends in the adoption and use of mobile payments and shopping behavior in the US and how the emergence of mobile financial services impacts customer interaction with banks and financial institutions. In my view, three key findings of this study stand out because of their larger impact.
 
Source : Consumers and Mobile Financial Services 2015, March 2015, Board of Governors of The Federal Reserve System


 Firstly, the study reported that 87% of the adult population has a mobile phone, with smartphones making up 76%.  Secondly, this widespread usage of mobile phones is changing the way consumers access their banking and financial services. Thirdly, mobile phones are impacting the way customers make payments.

But the big question is how will all this impact banks? How can banks monetize this boost in mobile customer base?  Has it really benefitted banks bottom line? Where do they begin?

A recent study by McKinsey has pointed out that non-bank players are increasingly threatening the supremacy of banks in the payments business. PayPal, Square, M-PESA (promoted by telecom giant Vodafone) – just to name a few - are some leaders who dominate this space through continuous innovation and delivery excellence.  In fact, I would argue that they have the advantage currently.

Banks must reformulate their mobile payments strategy. For example, Ebay expects to reach a transaction volume of $300 billion in 2015. Given the size of the opportunity in mobile payments, we can expect banks to enter in a big way. Banks entry and dominance of this space can potentially redefine the payments industry.

Analytics is another area where banks have traditionally enjoyed clear advantage. As the customer base increases, mobile analytics will take center stage. Mobile analytics apps can provide real time analytics on financial products, investment options etc.  Further, analytics can help banks identify payments business segments best suited for them and craft a long term mobile payments strategy.

Many banks have already seen the opportunities coming. For example, BBVA, a leader in mobile banking, is seeking to offer a “complete banking experience” on the mobile phone. Other banks are experimenting with the use of biometric facial and voice recognition apps.

This surge in mobile customer base is a positive and timely development for banks. It provides a great window of opportunity for banks to innovate and create new opportunities to boost their bottom line. In many ways, it is a reiteration of the customers trust in banks.