Mobile banking is dramatically changing the way consumers bank, with features such as person-to-person payments to help friends split the check at dinner and remote deposit capture, so customers can deposit checks without going to a branch.
Businesses also are starting to change their banking habits, though at a slower rate. Features such as mobile credit card swiping could be a game-changer for many small businesses.
While banks have invested in providing these technologies, one net effect could be fewer brick-and-mortar financial institutions.
Security and regulatory concerns also come into play for banks, which are hard-pressed to keep up with their competitors while assuring the confidentiality of mobile banking transactions.
Mobile banking has been around since about 2007, when financial institutions started extending their online banking presences into the mobile space, said David Albertazzi, a senior analyst at Boston-based financial services research firm Aite Group.
"We are seeing a steep adoption curve," Albertazzi said. "The potential consumer reach is almost to its maximum."
The high rate of adoption could be driven by consumers' high smart phone and tablet adoption rates. And as more banks offer mobile banking, more of their customers begin using it, he said.
At first, mobile banking was mainly conducted through SMS text messages, with commands sent by text from the consumer, and the bank replying with account or transaction information.
Then banks started adapting their online banking browsers so they would optimize for mobile devices.
When third-party applications for smart phones became popular in 2008 with the launch of Apple's App Store, banks began offering their own mobile applications for the iPhone and then, later, for other mobile devices.
It is now common for banks to offer all three of those access modes to consumers, Albertazzi said. By his estimation, about 6,000 of the nation's 14,500 financial institutions are offering mobile banking, which adds up to about 45 million consumers.
While some smaller banks don't yet have mobile banking or are just starting to roll it out, the large banks are already replacing their first- or even second-generation mobile banking platforms.
"They're more moving into something that's more tailored to the device and leveraging functions that are available on a mobile device, which are not available through a PC," Albertazzi said.
Cutting-edge financial institutions are also taking advanced steps such as leveraging a phone's GPS to offer location-based services and its camera to take photos of checks for remote deposit.
The Federal Deposit Insurance Corp. (FDIC) has determined that about 26 percent of all banks across the country offer a mobile banking product. Narrowed to banks of greater than $50 billion in assets, 51 percent have mobile offerings.
And all of the largest national banks offer phone-based features, said Jeffrey Kopchik, senior policy analyst at the FDIC.
According to a mobile banking study released by the Federal Reserve in March, about 87 percent of the U.S. population owns a mobile phone and 21 percent of those who own mobile phones use mobile banking.
A study from Javelin Strategy and Research a year ago projected that by 2016, 111 million people will be using mobile banking.
"There are a lot of numbers out there produced by different organizations about the extent of use of mobile banking, and they differ a lot," Kopchik said. "I think it's fairly well agreed that mobile banking will continue to increase and is on the rise."
Banks have been encouraging consumers to complete routine transactions on their own since the ATM first became popular in the early 1990s.
"As the technology has become available to allow consumers to in effect do (things) for themselves, it's just a lot more cost-effective," said Jim Brown, associate professor emeritus in the Center for Consumer Affairs at the University of Wisconsin-Milwaukee.
While the self-serve model is reducing the number of brick-and-mortar bank branches, most analysts do not think branches will be eliminated altogether.
"Banking, at its heart is still about trust," Brown said. "The idea is to provide the accessibility so that it makes it easier for the consumer to access the institution."
Terence Ow, associate professor in management at Marquette University, agrees that trust is the main issue in keeping traditional bank branches around.
"We as consumers still worry in some ways," Ow said. "Most people do business with a bank that is close by."
That way, if there is a problem with the bank's technology or a more complicated need, the customer can still walk into a physical branch and get assistance from an employee.
Electronic payments have changed the way consumers look at financial transactions, Brown said.
"We've electronified value — it's just another form of communication," he said. "It's been reduced from a coin that might have had gold or silver 100 years ago to paper checks, now an electronic blip. It's only valuable because the other party perceives it as being valuable."
Securing the information
Security is a consideration for both banks and customers when using banking services remotely.
Fraudsters are more likely to begin targeting mobile banking programs as more consumers begin using them, Kopchik said.
"The threats are there, and banks and consumers, for that matter, are going to have to continue to make their best efforts to keep it as secure as possible," he said.
Malware has been increasing for online banking and is just starting to appear in the mobile space, said Albertazzi. It has mostly targeted Android devices, since the app building environment on those devices is more open.
"The numbers are nowhere compared to what's being pushed online," he said. "One thing that's certain is that as adoption keeps going up on the mobile banking, it's going to generate more attention from the fraud community."
Ow argues that mobile banking may actually be more secure than online banking because the phone is always with the user and it has a GPS locator to track it down.
The mobile platform is generally fairly stable and the risk with making a transaction is controlled, Ow said.
Developing the technology
While some banks are developing mobile banking technology internally, many are using outside service providers such as Fiserv Inc., FIS and Jack Henry & Associates Inc.
Banks that want to offer mobile banking would have to overhaul legacy systems, and it may often be easier to instead adopt an existing technology, Ow said.
"If they want to compete in this market, they know that mobile banking is what consumers expect," he said.
Brookfield-based Fiserv specializes in packaged financial services technology offerings for thousands of banks across the country. The company also provides the mobile banking technology for local banks such as Bank Mutual Corp., Associated Banc-Corp and North Shore Bank.
Brown Deer-based Bank Mutual introduced its online banking features about a year ago, using Fiserv technology. Customers can use SMS text, a mobile browser or an application to access account balances, see activity, transfer funds and locate ATMs, said Terry Anderegg, senior vice president – retail banking and operations group at Bank Mutual.
Both bill pay and person-to-person payments are currently available through the mobile browser. Eventually, the bank will introduce those capabilities on the application.
While some banks jumped into the mobile space several years ago, Bank Mutual waited, Anderegg said.
"I think we wanted to be cautious," he said. "One of the biggest things we continue to see is customer concern about security. That's something that's very important to us as we relate to our customers."
Banks also are taking into account the demographics of their customer base.
"Most of the bankers that I talk to continue to see lobby traffic decline as customers' preferences for alternate channels is taking much stronger hold," he said. "Banks are looking closely at customer need and preferences. It may mean fewer branches."
Brookfield-based North Shore Bank also introduced its Fiserv mobile banking platform last year. North Shore came out with a mobile app for iPhone, Android and Blackberry in February, said Becky Reinhardt, business relationship manager.
"I think people have been ready for this for a long time. With computers and having so many things available on their phones, they've been waiting and waiting," Reinhardt said. "We just recognized that the trends in banking in general and in business banking that it's mobile, it's on the go, and we want to make sure we have options for our customers."
North Shore also offers merchant services for small businesses collecting credit card payments on mobile devices through a partnership with Atlanta-based payment solution provider Elavon. Customers can swipe a credit card using an attachment that plugs into the device and then sign with their finger on a touchscreen.
This kind of payment solution could be useful for trade shows and for non-traditional businesses, Reinhardt said.
San Francisco-based Wells Fargo, which has a presence in the Milwaukee area, was an early adopter of mobile banking. It developed and launched a mobile browser in 2007, said Brian Pearce, head of the Wells Fargo retail mobile channel.
Wells Fargo also launched text banking in 2007, in which customers can send a text command asking for information such as a balance, account activity or the nearest ATM.
When the Apple App Store launched in 2009, Wells Fargo created an iPhone app. In 2010, when the Android was introduced, it created an app for that operating system, as well as Blackberry and Palm.
"For Wells Fargo, we typically do develop for our online and mobile technologies in-house — we really see it as a way to maintain a competitive advantage," Pearce said.
Since it launched the mobile channel in 2007, Wells Fargo has had more than 1 billion logins — with more than 70 percent of those in the last 12 months. Nearly 9 million of the bank's 22 million online customers use mobile banking, he said.
Customers like interacting with Wells Fargo employees at its branches, but are happy to have several options to connect with the company, he said.
"Mobile is really a way to connect with our customers while they're on the go," Pearce said. "We don't see mobile as really replacing anything. This is really a way to augment our relationship with our customers."
New York-based JPMorgan Chase & Co., which has a strong Milwaukee presence, also began its foray into mobile early, beginning with text alerts in 2007.
The bank's mobile browser and then its iPhone app were launched in 2009. Soon after, Chase introduced its quick deposit feature and became the first big bank to offer remote capture check deposits, said Christine Holevas, media and community engagement.
Chase also gradually rolled out applications for Android, Blackberry and Windows phones. Chase now has 10 million active mobile banking users making 5.5 billion transactions per month.
Looking forward, mobile banking is expected to grow in usage and popularity. Capabilities are expected to grow, and the lucrative nature of the field will draw additional players.
Already, there are several non-bank companies entering the mobile banking and mobile payment space.
Google, eBay, Square and others are engaged in a mobile payment race that could give them a greater role in consumer financial transactions, Brown said.
"There's some pretty major companies that are trying to get into the payments business that aren't limited just to historical financial services institutions," he said. "You've got this interesting cross fertilization between the telecommunications industry and the financial services industry and it raises a lot of really interesting questions as to what's the nature of that transaction."
The FDIC's current regulations do apply to mobile phones, though it doesn't have specific mobile regulations, Kopchik said.
"The FDIC and, for that matter, all the banking industries, have a variety of guidance and regulations that are out there that basically apply to the security of a customer's account and the money that's in that account," he said. "The regulators continue to talk about whether we should do something that specifically relates to mobile banking."
The proliferation of mobile payment solutions could mean a movement toward a "mobile wallet," where a person can swipe the smart phone to pay for goods and services. Google already offers a product called Google Wallet that stores credit card information on an application, which is then swiped instead of cards.
This technology could mean the intermediary, such as a credit card or check, is eliminated, Ow said.