In the most recent holiday season we witnessed the continued and painful decline of Main Street retail as consumers increasingly shop on their mobile devices. Retailers are deploying omnichannel strategies to mitigate lost sales in their stores and move their customers to more efficient and cost-effective cloud-based, mobile channels.
Should the corner bank be concerned?
The future seems positive for banks, according to a Salesforce whitepaper on banking behavior in May 2016, with 75% of Millennials dependent on their mobile banking apps. Customers are opening their larger screen and mobile app daily to check their account, pay bills, deposit and transfer funds.
However, it is this very advantage that makes the banking industry more precarious now than before mobile services entered Main Street. The incumbent maybe up for grabs.
More than before, there are more opportunities for alternative financing companies to shake up the banking industry. Remember that these are the same customers that abandoned their Facebook account for Snapchat, their iTunes for Spotify, their Tinder account for Bumble and their Twitter for…what?
Loyalty is increasingly fleeting.
Let’s look at the incumbent banking sector. Forward-thinking banks are retrofitting their brick-and-mortar branches with more automated functionality. They are attempting to act as a financial concierge. Their staff are re-trained to clientele customers into the cloud. And well they should. Young consumers are looking to skip the line and deposit their checks and perform other banking services instantly.
Tech leaders such as the Bank of America (BOA) and ING have successfully created an agile technology environment to enhance their digital services and increase responsiveness to customers.
Tangerine of Canada and Fidor Bank of Germany have shed their physical footprint and gone digital native. These are full-fledged banks that are built and branded on technology and communications platforms. They have subbed their teller window for engagement channels such as video chat.
On the fringe, banks are going beyond mortgage calculators, digital check deposits and fraud alerts. Innovative banks are not only mobilizing existing services but adding mobile-first features, such as with Scotia Bank of Canada embedding consumer’s shopping receipts and vouchers into the mobile bank ledger. America First Credit Union of Utah allows customers to search for their next car purchase and apply for financing without leaving the mobile banking app.
Leviathans such as BOA have the ability to migrate their 25 million online customers using an internal technical team; however, it is not feasible for most smaller banks to build, deploy and maintain a leading-edge mobile banking platform. To go beyond optimizing digital processes, banks invariably find they need to partner, acquire and outsource mobile development to technology companies.
Regardless, the bank will never win based on technology alone.
Any marketing rep will tell you, the most important aspect of a mobile strategy is the constant contact that digital affords and, in many cases, demands.
A bank customer wants to hear about her bank activity. Younger customers demand immediate alerts when a transfer clears, an overdraft fee has been charged or a check bill is paid. Nearly half of Millennials want to receive SMS alerts from their bank and when they have a mobile app on the phone-top, 28% of Millennials would prefer push notifications. (Salesforce, May 2016)
It is the relationship behind the technology that is crucial to master. It is the trust that the bank manager establishes at the branch that needs to be ported to the cloud.
To this end, the bank has a diehard weapon. It can lock the consumer in short-term with deposit accounts and long-term with loans and mortgage. This allows the bank a daily, monthly and annual relationship with its customer. The bank has multiple retail touch points providing ample opportunity to continue to cross-sell and upsell additional services.
These same consumers, according to a "Consumers and Mobile Financial Services” study in March 2016 by the Federal Reserve, are checking mobile or online account balances and recent transactions on a daily basis and are receiving alerts (e.g. a text message, push notification or email) from their bank on a regular basis.
Among all respondents with bank accounts, mobile banking has already overtaken telephone banking. While there is still an omnichannel relationship with branches (ATM and online banking accounts for the lion’s share of contact), over the next few years mobile will undoubtedly make these touch points redundant as well.
There is a consumer trend to “anytime” financial awareness and access. The bank has become one of five essential apps on the phone: social, entertainment, messaging, search and payment.
However, you only need a bank license for one service: to take government insured deposits. That is the bank’s strength.
You do not need a bank license for most bank services: lending money, moving money, investing money. The bank’s strength in managing a consumer’s deposits is also it weakness. Nearly every bank is geographically and regulatorily restricted, while alternative services are increasingly nimble and unrestricted. Banks incur significant compliance and security costs, which makes it difficult for the bank to effectively put this consumer cash to work.
Outside of insured deposits, banking products are becoming increasingly commoditized. In response, banks, in an attempt to recapture their declining revenues, have increased their service fees across accounts.
As the same time, bank challengers continue to deliver these same services with a better tech experience for lower fees. These alternative financial service providers are attacking the last bastion of the bank: the daily interaction and trust that the deposit account brings.
Gary Schwartz has played a leadership role in the mobile industry, founding Impact Mobile in 2002 and running the first cross-carrier short code campaign in North America. In 2006, he founded the mobile committee for the Interactive Advertising Bureau (IAB) and has worked to publish literature such as the Mobile Buyer's Guide, helping extend the digital buy into mobile (for which he received an IAB award for industry excellence in 2009). In 2010, Schwartz was elected Chair of MEF North America with a remit to develop a mobile commerce practice to service brands, retailers and content owners (for which he received a MEF award for industry excellence). He is the recipient of the Asia and Japan Foundation Fellowship as well as the Macromedia People’s Choice Award and Dodge Foundation Award for innovation. Schwartz authored the books Click2K’Ching: The Mobile Shopper and The Impulse Economy.