Competition has a habit of fuelling innovation and nowhere is this truer than in the financial services industry. In recent years this innovation has demonstrated itself in the provision of advanced personal banking services over mobile phones. Banks have woken up to the opportunities the mobile channel represents for interacting with their customers and reducing churn through the rollout of attractive and convenient services. Noting this trend, analyst house Juniper Research has forecast that mobile banking usage will double in the next three years, reaching 400 million people by 2013. mBlox’s research with OnePoll in March 2010 found that mobile banking has overtaken telephone banking, with 25% of US and 37% of UK mobile phone users adopting mobile banking services, with respondents finding mobile banking more convenient and easier to use than telephone banking. It is clear that even the smallest of financial institutions should consider their mobile strategy carefully if they want to be able to compete effectively.
So how should a financial institution structure its approach to mobile? Today, the approach seems to be applications (apps)-centric. Designed for smartphones, such as the iPhone, BlackBerry and other touch-screen based devices, apps have been deployed by a range of high street brands and offer a convenient way for users to bank regardless of where they are. The interfaces are fairly intuitive and apps offer a wide range of services for users, from balance checks to transfers. In some respects, however, moving to an apps-based approach to mobile banking feels a bit like putting the horse before the cart.
While financial institutions can enjoy being part of the hype cycle that the apps market has become, they are doing this as the loss of service reach. The fact of the matter is that despite the high profile attention smartphones receive in the media, there is only a small number in use compared to the less expensive standard feature phones. Research firm Gartner, for example, has found that global sales of standard mobile phones stood at 314.7 million units in the first quarter of 2010. This compares to just 54.3 million units of smartphones sold over the same period. If banks want to reach the majority of their customers with mobile banking services, therefore, they should look beyond the app store and consider a more traditional channel: SMS.
Virtues of SMS
SMS is one of the oldest mobile applications on the market, yet every year more and more text messages are sent. According to Informa Media & Telecoms, 5.5 trillion SMS messages traversed the world’s mobile networks in 2009. This was an impressive 416% increase from 2005. Portio Research, meanwhile, has predicted that SMS volumes should reach 11.5 trillion by 2014. SMS is generally available on all wireless networks globally and can reach virtually all of the 4 billion mobile phones in use today, making it the world’s most pervasive data communications technology. This may not be a new technology but SMS is seeing the sort of growth most services can only dream of. The success of SMS is down to its simplicity, ubiquity and usability – three reasons why the banking sector should be looking to exploit the technology for financial services.
The introduction of mobile banking and SMS alerts has also been shown to increase the ‘stickiness’ of customers to banks with one financial sector client reporting a 5% increase in retention. This is largely down to the simplicity of the solution which enables a two-way flow of information between the bank and the customer much more easily than over apps. Apps are very adept at specific tasks and users can do a multitude of things with them, but the user often has to proactively log on to the application for the service they require. For certain services, this may be impractical.
Fraud prevention services, for example, illustrate the interactivity and simplicity of a mobile alert via text. If a bank suspects a fraudulent transaction, a near real-time message can be sent to the card-holder’s phone to validate the transaction, allowing the customer to respond only moments after the transaction has occurred, if there is an issue. The account holder immediately receives the alert and they do not have to wait until they can log on to their account to get the warning.
SMS can also be used to help banks reduce their fraud risk. Financial institutions can provide an additional layer of security on transactions through two-factor authentication. For card-holders purchasing goods or services via voice over the phone or internet, a card issuer can send a one-time, time-sensitive password to the user’s mobile phone ensuring that the transaction is being conducted by the genuine account holder.
A text message has been shown to be a very effective payments tool when used as a ‘trigger’ for a payment via a prepaid account or an account transfer. Customers can instantly authorise a payment with a few simple keystrokes on the phone, whenever and wherever they receive the text message. Analysis from one mBlox customer found that 64% of customers paid their bill within 48 hours and only 12% took longer than one week to pay.
New ‘free to end user’ (FTEU) services have recently been launched in the US, which allow the cost of the text message to be assumed by the financial institution or the debt collection agency, so that the mobile operator charges do not fall on the consumer (consumers bear the cost of SMS messaging in the US). A text message is far less confrontational and less costly than a phone call, and as a result, SMS has also become effective as a collections tool. Alan Berrey, vice president (VP) of market development for SoundBite Communications said that his organisation has consistently found that banks who use text messaging for collections purposes obtain up to 117% improvement in collections over voice-only communications.
SMS is therefore a driver for interactivity in mobile banking and enables new ways in which financial organisations can engage customers with online tools and a host of other self-service options and new products. Such benefits can be achieved as a standalone offering or coupled with mobile web/downloadable application products. Smartphones are viewed as an enabling technology, however it should be noted that smartphone users actually send more text messages than those with standard feature phones, according to Neilson Mobile. SMS is the foundation stone for all forms of mobile banking and continues to grow as a successful and reliable communication tool.
SMS will continue to evolve with the newest technologies that arise in the market – the emergence of mobile location-aware technologies adds a host of new possibilities for marketing and other services. Because consumers almost always have their device switched on and in close proximity 24/7, there is potential for fraud prevention by determining if a person’s mobile phone is in the same proximity to a credit or debit card that is being used. If not, a simple and immediate SMS notification can alert the cardholder to ensure that a transaction is not taking place without the cardholder’s knowledge.
While apps are useful and can provide a rich media experience, SMS should not be overlooked. SMS reaches a greater audience and is often easier to use and easier to deploy than other systems. In fact, SMS can be used to complement apps in order to keep consumers engaged with upgrades or as phone clutter ultimately diminishes usage of the app. While it may not be a new service, SMS is a non-intrusive, effective communications channel that has dominated the industry with its continued consumer popularity. Financial institutions should be looking both at how SMS and apps can provide separate value add services but also at how they can be combined for more powerful and compelling services. This hybrid approach looks set to be the next phase of banking as the mobile channel provides both reach and most importantly options for consumers.
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