Banking Processors Quietly Grab Market Share in Mobile Services

Mobile-banking installations grew by 44% last year, and should more than double in 2009 as the technology picks up even more momentum. But the vendors serving this market, often startups without other product lines, now face potent competition from processors that have entered the business only recently and are already grabbing market share. That's according to a report released this week by Aite Group LLC, a Boston-based research firm. U.S. installations rose from 170 in 2007 to 245 in 2008, and will balloon to 614 this year, says the report, which bases its figures on an analysis of 14 leading vendors. While more banks are adopting the technology, which allows consumers to perform tasks ranging from balance inquiries to bill payments, much market potential remains. Aite estimates only 1.5% of all U.S. financial institutions offer mobile banking, a proportion it sees growing to 3.7% by the end of 2009. Startup vendors like ClairMail Inc., Firethorn Holdings LLC, and mFoundry Inc. have reaped much of the publicity so far for equipping banks to bring basic banking services to customers' handsets. But core processors and online-banking vendors have jumped into the market and are quietly gaining ground by offering mobile banking to their clients at a fraction of the cost levied by the startup specialists says Nick Holland, an Aite analyst and author of the report. Indeed, two processors now rank first and second among mobile-banking vendors in number of installations. Jack Henry & Associates Inc., Monett, Mo., had 75 installations late last year, while Lake Mary, Fla.-based Harland Financial Solutions had 64, according to Aite's analysis. Holland says Jack Henry's installations have exceeded 100 since he conducted his research. Both vendors only began offering mobile-banking technology within the past year, but have been able to shoot to the top of the rankings by making it easy for their existing processing clients to add the service and by charging far less than the specialist vendors, says Holland. Whereas the price tag for a mobile-banking product from a specialist vendor might run into six figures yearly, including integration and maintenance costs, a core processor with existing links into clients' systems might be able to offer the service for a few thousand dollars in annual fees, Holland estimates. The rapid progress by these processors poses a threat to the startups that blazed the trail in mobile banking, Holland says. “It's an eye-opener for them,” he says. “They need to come up with a value proposition that's more compelling.” Some of the startups have responded by working with processors to offer their services through them to their clients. Both Clairmail and mFoundry, for example, have struck deals with Fidelity National Information Services, a major Jacksonville, Fla.-based processor. But more heavy-duty competition might be coming soon. Holland says he expects Internet Service Providers will enter the market next. Mobile banking, he says, “is getting the attention of bigger companies” that see the product as a natural complement of other client services. While competition heats up, vendors are starting to add text-messaging capability to go along with downloadable applications and services that rely on the mobile Web. Text-message capability for bill payment and other banking functions is “crucial,” Holland says, to reach the widest possible audience of customers, many of whom may have phones that aren't capable of accessing the Web or running banking applications.