In my last blog I asked what the ROI or value proposition for mobile banking is, and what specific areas the ROI or value proposition depended upon.   A few of the obvious questions are: Will mobile banking reduce costs by converting a certain percentage of activities from higher cost channels? Will it help retain customers?   Will it attract a new demographic?

 

The list of questions goes on and on, but the ultimate factor I was after is how mobile banking will impact a bank’s bottom line.   Currently I cannot find a bank that can prove an ROI or cost justification for mobile banking.  There are studies out there of course, but they are flawed due to their assumptions, sometimes broad and ambitious, which are not backed by real world results, as of yet anyway. 

 

With a lack of tangible evidence to gain insight from I decided to review the ROI for Internet or online banking to try and find some possible correlations.  

 

The questions, skepticism and arguments with online banking (in the early stages of Internet banking at least) are remarkably identical to the ones currently facing mobile banking.  Although this does not provide an ROI or cost justification, this should be somewhat encouraging for mobile banking.

 

Reduced costs were the main argument in favor of online banking, which was meant to move customers from high support cost channels, such as IVR, over to the much lower cost channel of the Internet.  However, online banking ultimately increased costs to banks.  While this was not the initial expectation, due to the additional benefits provided by Internet banking cost reduction was no longer the primary aim.  As the service matured and introduced additional services such as bill payments, it can be argued, Internet banking did achieve a reduction in costs, but that is debatable depending on which bank you speak with.

 

The naysayers of online banking sound identical in rhetoric as the ones questioning whether mobile banking has value.   See this quote from the good old days:

 

“Yes, interesting stuff, but how connected is too connected? Do our members really need this level of access to their credit union accounts? And, don’t forget about security. This seems like a really expensive member acquisition or retention strategy.” -- Credit Union Executive, 1996.

 

This statement seems to imply online banking will only serve to retain and acquire new customers at an increased expense, which may or may not become a zero sum game. Even today it is debatable how online banking impacts the bank’s bottom line.

 

So is the value proposition for mobile banking the same?  Can financial institutions only hope to implement the mobile channel to prevent losing customers and acquire presumably younger customers at an increased cost?

 

If mobile banking increases costs, but is the only way to keep customers then it may be a legitimate value proposition, assuming it does not result in a zero sum game which could very well occur if the strategy is too aggressive.  It is hard to argue that giving your customers what they want is a bad thing, especially if not giving it to them could cause them to defect to a competing financial institution.   

 

The mobile banking ROI or value proposition may simply come down to that: listening to your customers and giving them what they want.   I understand that has little to do with ROI and the “bottom line”, but you understand my point.

 

In retrospect, the real value proposition for online banking came from the evolution of related services such as bill pay, personal financial data and paperless statements, and not simply migrating traditional banking services to the Internet. 

 

This of course, at first, did not compute in a predefined ROI model, nor did the experts accurately predict the complementary services that would ultimately evolve.  The important thing to remember is that the implementation of online banking was the crucial first step leading to these evolutionary services. 

 

So what does this tell us about the value proposition for mobile banking?  Well, the impact on the bank’s bottom line will not be easily or quickly identified.  It will most likely take years to recoup the costs involved in implementing mobile banking, and it may be impossible to directly identify and associate where these cost savings are achieved.   If cost savings is a main goal, banks will inevitably need to plan ahead and reduce resources in other areas.

 

In the end, looking to the bank’s bottom line may not be the best way to evaluate the success of mobile banking.   It may be more beneficial to view the longer-term value proposition which, like online banking, is to provide customers what they want.  It is anyone’s guess as to what evolutionary or complementary services may be produced as a by-product of mobile banking, but the possibilities are very exciting, in my opinion.

 

With services such as P2P, micropayments and contactless payments already well on their way, financial institutions can feel confident that mobile banking will ultimately pay off in one way or another; it just may take awhile to empirically justify the costs.

 

I personally cannot imagine banking with an institution that does not provide online account balances, bill pay or even easy integration into Quicken or Microsoft money.  Of course, I don’t care if it saves the bank money; it makes my life easier thus I require it.  Perhaps mobile banking will revolutionize banking in the same way.

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Name: Kent McNeil Title: Principal Company: DonRiver View Kent McNeil's Blog