Smart Phones Will Jumpstart Mobile Banking, Report Says

A dramatic downdraft in overall mobile-phone ownership has robbed mobile banking of its forward thrust, but the rapid rise of smart phones is compensating for much of that loss, a new research report says. Indeed, smart phone ownership will exceed that of so-called feature phones as soon as next year, the report predicts, a result that will re-shape how financial institutions sell mobile banking to consumers.

While the number of U.S. adults who use mobile devices to access their accounts climbed 50% from 2008 to 2009, reaching 36 million, that torrid pace cooled off considerably this year, with only 39 million expected to adopt the service, says Javelin Strategy & Research in the recently released report, “Mobile and Smart Phone Forecast: Fast-Growing Smartphone Market Will Offset Lost Momentum in Mobile Banking.” The culprit is the sour economy, with stubbornly high levels of unemployment leading many people to give up mobile phones as an unaffordable luxury, Javelin says. “A mobile phone is not a necessity,” notes report author Mary Monahan, managing partner at Pleasanton, Calif.-based Javelin, in an interview with Digital Transactions News.

Indeed, says Monahan, Javelin researchers were shocked to discover that mobile-phone penetration has plummeted over the past year from 85% of adults to 74%–a loss of 26 million users. “That’s a huge drop, a huge swing in behavior,” she says. As a result, banks have found fewer customers have the technology to do mobile banking. And many banks themselves have pulled away from the service, instead devoting scarce resources to other priorities created by the recession, the report says.

But mobile banking isn’t likely to be yet another casualty of the long downturn. The dramatic increase in smart-phone ownership is compensating for much of the lost momentum, Javelin says. Smart phones, which are mobile devices with browsers and the capability of running specialized applications, are held by 59 million users, up from 36 million last year and 23 million in 2008. While about one-third of adults own the devices this year, that percentage will climb rapidly next year to a stunning 52%, Javelin projects. That means more people (89 million) will own smart phones than will own what were once the more common feature phones (some, of course, will own both). “We’re very confident about that number,” says Monahan, who says Javelin looked at shipment figures, pricing trends, and consumer buying intentions.

With smart phones supplying new momentum, mobile banking will resume its growth trajectory. Users will grow to 49 million next year, nearly one quarter of all adults who have mobile phones, and will hit 86 million by 2015, Javelin predicts, or 41% of mobile-phone users.

This new dominance by smart phones, though, means financial institutions will have to adapt their marketing techniques to draw in more mobile bankers. Javelin recommends banks target these users specifically, since they are statistically much more likely to use mobile-banking services than are feature-phone owners. Banks should also promote not just mobile banking but also security, since smart-phone users are especially sensitive to malware and fraud concerns. “For smart-phone users, security is the number-one inhibitor” to using mobile banking, says Monahan. “[Banks] are definitely going to have to start marketing that mobile banking can actually make banking more secure.”

And as for apps, banks might be well-advised to start offering ones suited to the Android platform, Javelin advises, and soon. Google Inc.’s Android operating system now accounts for 21% of the smart-phone market, up from just 4% last year. Yet just 37% of the 24 largest banks with mobile banking products offer Android apps.