The Golden Age of Mobile Banking

One of the defining trends of the past 18 months has been the increasing penetration of smartphones and tablet devices. According to new figures from Strategy Analytics, 361 million smartphones were shipped in the second quarter of 2011 alone, up 13% year-on-year. Meanwhile, Gartner recently reported that tablet sales would rise to 70 million in 2011, quadrupling from the 15 million tablets sold in 2010.

The rise of these ‘smarter’ devices is fundamentally changing the ways in which consumers are using and engaging with their mobile device. From social networking to shopping, users are embracing mobile as the primary platform for an ever-broader range of traditional, day-to-day activities.

Banking remains one key area which users still seem reticent to engage with via mobile. However, this looks set to change. Research from Berg Insight has forecast that the number of mobile banking users worldwide will grow from 55 million in 2009 to 894 million in 2015. Retail banks, perhaps recognising the growing ubiquity of ‘smarter’ devices, also appear to be seriously investing in the mobile channel, with NatWest’s recently launched iPad app a reflection of this.

With these developments in mind, it would appear that mobile banking may finally be on the verge of reaching that long-awaited tipping point. Yet as more sophisticated apps proliferate and are touted as a more convenient alternative to online banking, what role will traditional SMS services, which have long been the mainstay of this nascent sector, have to play in this new banking landscape?

The Enduring Appeal of SMS

While the rise of apps-based approaches to mobile banking is undoubtedly to be welcomed if it can further stimulate usage, SMS will continue to play a very important part in the structure of mobile banking services.

The reasons for this are manifold. First of all, most mobile banking applications require a high level of proactivity from the user. By and large, users have to log-on to the app in order to access mobile services. While this is suitable for services such as balance checks and money transfers, it does mean that some of the more useful services cannot be mobilised. For example, with SMS, a bank can send its customers alerts when they are approaching their overdraft limit, thereby helping them to avoid charges for exceeding their limit and in turn, providing a valuable customer relationship mangement (CRM) service. With an app, the user would only know this if they happened to access the app at the correct time.

Secondly, SMS is virtually as ubiquitous as the mobile phone itself, with figures from Mobi Thinking indicating that over 6.2 trillion messages were sent in 2010 alone. While there is no doubt that smarter devices and apps are rapidly gaining traction across a widening user base, there is still a long way to go before either can be considered truly mass-market. Unlike apps, SMS is available to all types of subscribers, regardless of whether they have a traditional feature phone or smartphone, or whether their contract is prepaid or postpaid. On the whole, SMS has the benefit of being available to a much broader range of users than apps: this wider appeal is crucial for banks whose customer base comes from all strata of society.

A further limiting factor of apps-based mobile banking services is the lack of standardisation across mobile platforms. Currently, if a bank wishes to offer an app-based mobile money service, it would need to tailor its offerings based on whether or not they were to be available on the iOS, Android or BlackBerry platform. This would require engineering the app for each specific platform in order to maximise the potential reach of the services. SMS does not have this challenge: the SMS platform is compatible with even the most basic of platforms and banks and their partners can therefore engineer one solution to cover their entire mobile-phone owning customer base.

Strong Security

Uncertainty over the security of mobile as a platform for banking has perhaps been one of the biggest obstacles for the financial services industry to overcome. Yet there are signs that this may be changing: a YouGov survey commissioned by Intelligent Environments earlier this year showed that 61% of UK adults felt that security concerns would not prevent them from using mobile banking.

As a platform, SMS has the power to make mobile banking much more secure and address this key concern. Firstly, message alerts can be employed as a type of early warning system to notify account holders to potentially fraudulent activity. An early warning in the form of SMS can drastically reduce the high cost of fraud and improve the bottom line, as it allows banks to identify fraud much earlier than has been possible in the past.

Secondly, SMS can be used to turn the mobile into a second factor for authenticating account holders. In the financial services sector, mobile passwords are best known as one-time passwords (OTPs) or mobile TANs, which enable consumers to authenticate banking transactions. OTPs offer second-level authentication for online banking in order to guarantee that the transaction is being carried out by the legitimate account holder. OTPs are dynamic, session-based and time-restricted passwords that make unauthorised access to restricted assets more difficult than with common, static passwords. By using OTP via SMS to authorise transactions, a two-factor authentication can be assured and malicious attacks can be avoided.

Realising the Opportunity

Despite the apparent strengths of SMS-based mobile banking services, the app-based technology has yet to live up to its potential in developed markets. There is the critical question of who controls the relationship with the customer: the bank, the solution provider, the handset manufacturer or the operator?

The traditional model requires banks to hand over at least some control of the customer relationship to a partner. Unsurprisingly, banks are somewhat reluctant to do this, preferring instead to retain complete control of the customer relationship.

Banks can address this issue by going straight to a global messaging carrier to run their own services over a third-party transaction network. While this is an outsourced model, the global messaging carrier has no interest in ‘owning’ a portion of the consumer and the financial relationship is strictly that of a service provider to a customer. Moreover, this model removes much of the complexity banks encounter when setting up an SMS mobile banking service.

To deliver a comprehensive mobile banking service, banks have been required to establish relationships with all operators in each given market. As well as engendering additional operational costs, this takes them away from their core competencies. By working with a messaging specialist, banks can effectively outsource this complexity and have just one relationship to manage with a partner which can provide connections to all of their customers in one go. As well as reducing costs, this liberates banks to concentrate more closely on their key business areas, in turn driving invaluable economies of scale in an increasingly competitive environment.

Mobile may represent a challenging channel for the financial services sector but SMS provides a viable solution to so many of the obstacles holding back the development of the industry. The ubiquitous and standardised nature of SMS has the potential to facilitate mass-user uptake, while the ability to add in additional layers of authentication and real-time alerts similarly provides users with an enhanced level of security and privacy, as well as a better customer experience. In short, the combination of new technology and the staying power of the traditional SMS, provides the perfect opportunity to help the financial services industry overcome the obstacles and enable mobile banking to deliver on its long-awaited potential.


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