Mobile Banking hits Critical Mass

This week industry observers saw Mobile banking reach key milestones. According to Javelin Strategies, consumer adoption of mobile banking jumped 60% in 2011. This is because a large number of banks and financial institutions launched their mobile apps for their customers.  Bulk of these apps has been in retail banking – helping customers manage their checking and savings banking. The chart below shows customer used their mobile devices for checking and savings transactions – like viewing their balances, bill pay and simple fund transfer.

The second important milestone is that in 2011, 50% of US cell phone users will switch to Smartphones. This is a very key development because it offers unprecedented opportunities for banks, credit card companies and other players in financial services to reconfigure their service offerings to their customers.

Expansion in Mobile banking is also happening globally.  According to TNS MobileLife, global use of mobile finance surged in the past year as the spread of new technology and mobile banking infrastructure drove a huge increase in take-up rates around the world. In the UK the proportion of people using mobile banking increased from 9.7% in 2010 to 20.4% in 2011, while in the USA the rates from 11.4% to 21.9%. In Sweden it was greater still: 8.1% to 20%.

What is the takeaway for Banks, Financial Services and other key players in the sector?  What are the implications for technology companies that offer mobile technology and sell solutions to their financial services clients?

My personal view is that the data that we have seen above is only the tip of the iceberg. We are witnessing a paradigm shift in Banking and Financial services offerings.  Mobile banking offers a big opportunity for small and mid-tier banks to leapfrog into big league by offering better customer experience. Banks that do not provide mobile services or are late to hit the market will be left behind.  

For technology companies, this represents a golden opportunity.  Companies like MicroStrategy who have invested in mobile solutions - both financially and built key vertical expertise to scale - are in the sweet spot to exploit the huge surge in service opportunities. 

As the saying goes, success happens when preparation meets opportunity.

Social Media and Banking – Sibos Video

This is video presentation on Social Media and Banking I found on Youtube;  Would highly recommend it;

http://www.youtube.com/watch?v=akdKEW_VYQU

Thanks  JJ Hornblass

Starbucks and Mobile Payments

Starbucks launched its mobile app in January 2011. It enables its customers to pay for their Latte in 9000 locations nationwide.

Starbucks mobile apps allow users to operate the mobile payment feature nationally, check their Starbucks Card balance, reload their Starbucks Card account with any major credit card, find nearby Starbucks stores with the store locator feature and check their My Starbucks Rewards status.

Consider the popularity of the mobile app -

 “Within nine weeks of the national launch of mobile payment, customers in stores paid more than 3 million times using our mobile payment app, and this number continues to grow at a steady rate.”

Congrats Starbucks !

Mobile Banking in Taiwan

Mobile Banking is becoming very popular in Taiwan. According to data provided by Institute for Information Industry (III), 4.9 million people used their mobile phones to access the internet.  This leapfrogged the penetration rate to 21.3%. Further the Institute expects smartphone penetration rate to touch 52.5% in 2015; 

Taiwan banks such as Chinatrust Bank, Cathay United Bank, Taishin Bank and Taipei Fubon Bank are offering a variety of mobile banking services to their customers.   More information can be found here.

Social Media and Banks

Banks all over the world are slowly waking up to the potential of Social Media in everyday banking. With every passing day, they seem to discover new and ingenious ways of putting it to use.   Here are some of the ways banks are using Social Network Intelligence.

New Accounts: Targeting prospective customers is a challenge faced by marketers.  Now Citi and American Express have used Facebook data to target prospects of a specific age demographic. For example CitiForward and Zync cards have relied on social network intelligence to target young adult prospects.

Rural Expansion: Community Banks in Australia have built a strong customer base in rural Australia using social media to build “virtual communities”. 

Credit Risk: When processing loan applications, check on Facebook friends provides insights into applicant.   A California based company, Rapleaf (Rapleaf.com) claims that its studies have shown that if friends in the network are responsible borrowers, then the applicant is more likely to be a responsible borrower. On the other hand if Facebook friends of an applicant has  quite a few who have foreclosed on their homes, then more than likely the applicant will also default  / foreclose on the mortgage.  In other words,  “like follows like”.  If there is no legal or regulatory hurdle, many banks are likely to adopt this insight from Facebook.

Fraud Detection: Lenders are now matching application data with social media data to detect fraudulent applications.   For example, if the address provided on the loan application does not match Facebook location, then application is subject to further checks.  Secondly, if applicant has large number of “Friends” on Facebook, then the email ID is treated as “safe / reliable” email ID.

The coming months will tell us more about how banks and financial services are using Social Network Intelligence.

Enhancing Social Network Intelligence

I was browsing the internet to see how companies have come up with several strategies to make their social media presence felt. I had already written about how social networks are beings used by debt collection companies to track delinquent customers.

My insurance company (auto & home) is pestering me to add it as a friend on Face book – which is really annoying.  There are definitely better, more subtle less annoying ways to befriend the right customer or prospect.  I want to discuss one such methodology.

We can extract useful insights from social media data by combining it with what we already know about the customer from other databases such as credit bureau, rewards and loyalty programs, public records, credit card authorization data, etc.  A smart coupling of any of these databases with social media data enhances quality of social network intelligence (SNI).

Let me walk you through a hypothetical example to elaborate my viewpoint.  Mr John is a Marriott rewards member with a Marriott rewards credit card. He has accumulated significant reward points over the years.  He is active on Facebook where his posts include several dinner outings he has enjoyed with his significant other. Let us examine how we can convert this social media post into actionable intelligence or Social Network Intelligence (SNI).

Data on John’s stay at the Marriott as well as rewards card usage is captured by Marriott and Chase Cards and mutually shared.  When we combine transaction level data i.e. card authorization data with John’s Facebook posts, we have an intelligence multiplier. We can authenticate or validate his favorite cuisines by cross matching social media posts with credit card authorization data with the following information:

a)    how many times in a given period did John eat out

b)    how much did he spend 

c)    the restaurant  and (hence the cuisine) he frequents

Here two important points have to be noted

1)    Social Media posts is tracked for actual willingness and the ability to pay for choice of product  / service – cuisine in our example

2)    By this validation , we have converted a social media posts into social network intelligence -  euphemism for  actionable intelligence

Social networks provide a wealth of information, but often in its raw data. For example John’s posting about his favorite dinner outings viewed in isolation may not be as powerful as when we know if he has actually spent money and how much on his dinners.  When combined with other databases, social media posts enhance its commercial usability.

Fee Income – Different Strokes by different Banks

I just read that the Senate voted let the Federal Reserve limit debit card swipe fees to $0.12 average per transaction, down from $0.44 average per transaction.  

The debit card fee has been a contentious issue that witnessed lobbying by retailers/ merchants and counter lobbying by Banks. Today’s news is a victory for merchants in a long-running fight with banks.

According to the Oliver Wyman report published earlier the Fed’s proposal could trigger a 73% decline in financial firms' fee revenue, from $16.2 billion in 2009 to $4.4 billion. 

No wonder the issue was contentious.

While banks and credit card companies have been losing fee income in post crisis regulations, this Senate vote has only added to their woes.

The innate strength of the banking and financial system has always been its ability to innovate and find new solutions to its challenges. How have Banks and financial services companies responded to loss of fee income?  

Well, different strokes by different banks.

Banks have responded to reduced fee income in different ways.  For example earlier this year, Bank of America introduced four new accounts where users pay fees unless they keep minimum balances, make regular deposits, use credit cards or take advantage of online services. I would definitely not call this innovation!

But I think the best innovation in fee income that I liked came from M&T Bank.  The bank recently announced the launch of new tools for customers to manage all finances and see their credit scores from a single screen. Finance Works enables account holders to view all financial accounts - credit cards, loans, checking, savings and retirement accounts while Credit Score for a monthly fee of $2.99 enables the account holder to see their credit score, refreshed on a monthly basis. These service offerings represent new and creative way to engage the customer, while one service brings in fee income.

While it is true that banks are facing pressure on fee income due to new regulations such as the new debit card fees limit imposed by the Fed,  smart players are leading the way by innovation. 

Greater the challenge, greater the innovation. So I definitely expect to see more innovative service offerings from banks and financial services in the coming months.