Mobile Banking: Disruptive Technologies & The Outlook For Banks
With the FinTech industry shaking up the established order and mobile banking on the rise, banks are facing a unique environment, presenting both threats and opportunities. As new technologies enter the market and consumers demand more flexibility and better experiences in their financial activities, it’s evident that banks need to adapt and evolve or risk losing market share. But this disruption by (specifically mobile) digital technologies also presents banks with a wealth of opportunity.
This article will look at how customer behavior is changing with the rise of mobile banking; mobile banking trends and usage in the US and Canada; barriers to adoption; how banks and FinTech are working together to offer a better customer experience; and strategies banks can use to benefit rather than suffer from new technological developments in the mobile space.
The Rise of Mobile Banking: Consumer Usage & Attitudes
Much like mobile payments, user adoption of mobile banking has been gradual rather than explosive. However, it has been growing every year since 2011, and consumers are expecting more from their financial providers when it comes to managing their finances. While 70% of millennials now use mobile banking, its usage is growing across all age groups: in the US in 2015, 58% of smartphone owners between 30-44 and almost 20% over the age of 60 reported they were using mobile banking.
In Canada, the mobile banking environment is even more prominent. Over 30% of all Canadians state they used mobile banking in 2015, up from just 5% in 2010. Furthermore, the attitude towards mobile banking and FinTech innovations is very favorable among Canadian consumers:
- 26% of Canadians say that their use of mobile banking is increasing
- Almost half of Canadians expect to be conducting their banking using mobile devices in the near future
- 90% of Canadians believe innovations like apps and other mobile services have made banking more convenient
Furthermore, in both the US and Canada, the desires of consumers appear aligned with the benefits mobile banking and other digital banking innovations can provide. A report by the US Federal Reserve Board states that consumers are interested in expanding the range of banking functions they can perform with their phones. It predicts that mobile banking usage is likely to continue to increase as more consumers use smartphones and recognize the convenience of the services offered.
Canadian consumers value the convenience mobile banking offers, as well. According to the Canadian Bankers Association, consumers value banking innovations, stating three key areas of importance:
- 90% – banking at a time that is convenient
- 77% – banking innovations that allow them to save time and bank more quickly
- 77% – banking from virtually anywhere
Additionally, almost 60% of consumers state that being able to use their mobile device to pay for purchases adds value to their banking experience.
The sentiment in both countries centers around convenience, and mobile banking is well-suited to meet consumer demands. Functions like checking account balances and recent transactions, performing transfers, depositing checks via photograph, receiving notifications and more are already prevalent, and customers are interested in more functionality that will help make their banking experience more convenient.
Barriers to User Adoption
Though consumers are interested in greater mobile banking functionality, as it stands, the greatest barrier to user adoption of mobile banking is security. In the US in particular, consumers are concerned about how secure mobile banking is. Many are wary of how safe their money and personal information is when banking on their smartphones.
However, attitudes are gradually changing; from 2014 to 2015, there was a 5% increase in people stating they believe their personal information is safe with banking, according to the Federal Reserve Board’s Consumers and Mobile Financial Services 2016 report. Building trust with consumers will continue to be an important factor in changing attitudes among consumers who are very concerned with security.
FinTech vs. Banks
Typically, the emergence of the FinTech industry has been seen as a threat to banks’ market share. However, many have noted that there is a huge opportunity for collaboration. Jeff Marshall, Head of Scotiabank’s Digital Factory, notes that while competition exists, it doesn’t preclude collaboration, specifically because both FinTech and banks share common ground – they both focus heavily on the customer experience.
A similar idea is echoed in Canadian Banks 2016: Embracing the FinTech Movement released by PWC. The report states that FinTech can be seen as an enabler to traditional innovation and continuous improvement for banks:
“Banks recognize that they have much to gain from FinTechs’ innovations: soon, many FinTech-driven offerings may become pivotal elements in banks’ operating models, enabling banks to reduce costs, reach underserved markets and open up new products and revenue streams.”
Challenges for Banks
While the rise of mobile banking and FinTech services and products present a wealth of opportunity, banks still face a myriad of challenges. While there is an understanding that innovation is critical, these impediments are still big barriers to progress:
- Bureaucracy and organizational structures: startups enjoy a level of flexibility that large banks don’t
- Long development cycles: many banks are still in the process of changing processes to embrace a more agile, lean development philosophy
- Legacy systems: adopting and implementing new technologies is more difficult with long-standing systems in place
- Organizational thinking: in a similar vein, organizational thinking needs to shift to a more proactive, agile, lean philosophy to allow banks to keep pace with changing consumer behaviors and technological advancements
- Security perception: as mentioned above, banks need to continue to work to build trusts with consumers, particularly with new innovations in mobile banking and other digital services
Strategies for Banks to Improve Mobile Banking Services & Technology
Despite the challenges, PWC notes that banks that don’t keep up run the risk of outside competitors capturing market share with their own successful offerings. In order to stay ahead of the curve and capture more market share in the evolving mobile banking and FinTech space, banks need to focus efforts in a few key areas.
Getting Started & Planning for The Future
The industry is moving quickly. Banks need to be investing in technologies and processes that align with their business goals while letting them evolve and become market leaders. At the same time, they need to be looking at longer-term strategies that will allow them to easily embrace new technologies and capitalize on opportunities they present.
Much of the reason behind the success of FinTech startups is that they take major customer friction points and eliminate them. Banks are doing this as well – the ability to deposit checks by taking a picture of them, for example – and they need to continue to do so. As digital natives age and gain more personal wealth, their behavior and expectations will continue to evolve. And it’s not just millennials; as mentioned above, mobile banking and other FinTech services are becoming more popular with other demographics as well. Focusing on the customer will help banks deliver the services that users want and eliminate their major pain points.
Explore Different Development Philosophies
To compete with FinTech organizations, banks will need to adopt a different development philosophy. Many still use waterfall, which delays product launches and causes inefficiencies. Agile, iterative processes will help banks go to market more quickly and improve offerings and services at a faster pace to keep up with market demand. Already many banks and financial service providers are going through this transformation, including many of the big players in Canada and the US.
Invest in New Technologies
In the future, we are likely to see a number of acquisitions as banks invest more in FinTech. Banks must also look to invest in technologies that let them reduce dependencies on outdated legacy systems, while still keeping security top-of-mind.
Collaborate and Partner Where Necessary
While banks work through some of the major barriers to advancing their technologies and rethinking their processes, partnership and collaboration will likely be necessary. As mentioned above, there are opportunities for collaboration with FinTech companies, whether this is through mutually beneficial partnerships, acquisitions, or other forms of investment. Banks could also look to partners with expertise in agile development and processes and experience in the mobile development space to help transform organizational thinking and get products to market as they transition.
Mobile banking is one of the more popular topics in banking technology right now, but it’s a window into a much larger reality which banks are facing and adapting to. Technology and evolving consumer behaviors are driving change across all financial services. In this environment, remaining competitive means adapting to these changes, embracing new thinking and ways of doing things, and even leading the charge to innovate.