Native apps account for slightly more than half the mobile conversion

Retailers focusing solely on mobile web may be missing half their customers.

I’ve been looking at conversion across Kony customers and I’m seeing a pattern that is counter to the assumptions of conventional wisdom: about half the visits are from native applications and the other half come from mobile web.

More importantly for retailers: half the conversion is coming from native apps in addition to half the visits.

This means transactional native applications cannot be overlooked as a part of your mobile strategy.

I haven’t seen any other studies to compare this observation. I was speaking with Forrester analyst Sucharita Mulpuru Wednesday and asked her if she had seen any other data along these lines and she said she also hadn’t seen any studies looking at conversion between mobile web and native channels. I suspect that Kony has a unique perspective since Kony customers tend to cover three, four, five or more channels.

Transactional native applications cannot be overlooked as a part of your mobile strategy.

iPhone conversion is 30% higher than mobile web

I think retailers have created a self-fulfilling prophesy: mobile web dominates retailing because retailers generally haven’t done the heavy lifting of offering fully-transactional native applications. Let’s face it, retailers are comfortable with web development, but native development is less familiar. There are multiple SDKs, languages, and development environments to learn. Traditional web analytics, reporting, and checkout APIs are more difficult to implement from native applications. Frequent updates are also difficult from native apps – especially with the multiple environments to support.

However, we’re seeing what bankers have seen to be true for a while now – you can’t pick and choose channels to support. Some customers want to use native apps and some customers want to use mobile web. It depends upon the person, the phone, their relationship to you, what they’re trying to do, and when they’re trying to do it.

You need to be there when the customer is ready.

Furthermore, we’re seeing over 30% higher conversion for iPhone native app customers vs. mobile web customers. Therefore it’s imperative to have a well-designed, transactional app for those customers that want to use it. It also makes sense to drive users to that app to try to increase conversion overall.

The ROI is pretty easy to calculate. Offering both mobile web and native applications significantly increases the number of visits and the number of purchases and significantly increases the conversion rate for a significant subset of native customers.

Why would you want to miss half your customers – especially the ones that are more likely to purchase?

There are two things I believe very strongly about the future of mobile commerce:

• • Mobile commerce is here to stay
• • Mobile platform fragmentation will remain a serious challenge throughout the foreseeable future

Since mid-2009 we’ve built a very successful business helping nearly twenty name-brand clients in banking, retail, insurance, fast food and other verticals wrestle with these issues.

We’ve seen the questions change from “WAP vs. App” to bewilderment at the challenge of managing an exploding number mobile product lines while simultaneously managing a flood of customer adoption and increased competition.

The mobile challenge is to develop a roadmap of continual product improvements without knowing the exact technology mix that will be in users’ hands.

Fragmentation persists because of creative destruction. The iPhone created the industry. Then, Google eclipsed the iPhone with Android devices from a variety of OEM manufacturers. Apple did it again with the iPad. Now tablet salvos from Dell, RIM, Samsung, and others are incoming. Arguably, we’ve also already seen the rise and fall of many technologies like WAP, Palm, J2ME, Blackberry, and Symbian, just to name a few.

Organizations must support the mobile devices their customers have. As customers flock to the next great innovation, companies must reach their customers on the device they have right now — and in the way that works best for them.

The days are long gone where IT picks the technologies they’ll allow their customers to use. So, the mobile challenge is to develop a roadmap of continual product improvements without knowing the exact technology mix in users’ hands at rollout, versions 1.2, 1.3, and beyond.

Companies are burning resources porting to new platforms instead of innovating and staying ahead of the competition

Most companies are rolling out their first mobile product and in some cases extending variations to other platforms. Few companies have had to manage complex product lifecycles for the mobile channel. As new platforms are emerging, companies are burning resources porting to new platforms instead of innovating and staying ahead of the competition.

Few companies have the resources to manually manage multiyear product lines across a number of platforms including product management, revision control and infrastructure, quality assurance, and development.

Organizations won’t be successful picking and choosing platforms either. It’s not enough to only support iPhone or Android (or SMS, mobile web, RIM, Windows Phone 7, iPad, etc.). The playing field is changing too dramatically and too often. Companies picking and choosing platforms may find themselves investing in a dead-end product with few customers after a release or two (or even at the first release). Two years ago RIM seemed to rule the world. Five years ago Palm ruled the smartphone world.

Browsers aren’t a panacea either. Major mobile innovation is happening with native and hybrid application technology. HTML5 solves some problems but will not make native applications obsolete. Exposing native resources through the browser create unacceptable security risks in many situations (along the lines of Java applets and Active X). Furthermore, variations in HTML5 implementations likely will continue the testing nightmare that exists with the mobile browser, where tens of thousands of browser permutations exist.

Every company interested in mobile commerce has to face the device fragmentation issue and I don’t see it going away any time soon. In fact, it usually just gets worse. We just have to deal with it.

I’m going to be spending a lot of my time addressing these issues in the future.

Mobile payments could use phones as a PIN authorization pads making transactions easier, cheaper, and more secure. Image credit: GigaOm

Speculation is heating up again about Apple including near-field communication (NFC) mobile payment capability in iPhone 5 next year after reports Monday by TechCruch that both Apple and Google are in talks with mobile payment company Boku.

GigaOm’s Darrell Etherington piled on in an article yesterday. The only new information is that Apple and Google are showing real interest in mobile payments capability.

But, here’s why it matters:

Boku has had decent success, by modest U.S. standards, in billing micropayments to mobile phone carrier bills.

A typical Boku purchase would be a game player wanting to buy a new weapon for 99¢. With Boku, they simply enter their phone number into the game and a text message is sent to their phone. The user responds “Yes” to the text to approve the purchase. The process provides a very frictionless checkout that encourages spur-of-the-moment sales.

One Click Checkout
U.S. carriers limit purchases to small amounts, sometimes as low as $25 per month. U.S. carriers also insist on keeping roughly half the revenue. Therefore bill-to-mobile purchases are often limited to digital goods with no physical cost-of-goods sold — like online game items.

By the carriers’ usurious standards, Apple’s 30% take of App Store revenue looks downright profitable. Apple has 160 million cards on file. That’s just a bit less than the AT&T and Verizon combined subscriber base. There’s no wonder Boku and their retail partners would be interested.

By comparison Amazon has roughly 80 million monthly purchases and owns the patent on one-click checkout. Google also competes with Amazon in the online checkout business.

Apple can take a company like Boku and provide an appealing alternative checkout option that benefits both consumers and retailers. Easier checkout means less frustration for consumers and more sales for retailers.

Plus, checkout continues to be a challenge in mobile commerce. Entering usernames, passwords and credit card numbers are challenging on small screens.

Mobile commerce sales would soar exponentially with a simple iTunes bill-to-mobile checkout option and Apple gets a cut of it all. Mobile commerce executives tell me they already see significantly higher conversion rates for iPhone users over Android and other phone users. An easy-to-use, built-in payments solution encourages even more retailer optimization for Apple products and encourages consumers to choose Apple products over other devices.

NFC Tops it Off

Adding NFC to the iPhone would complete Apple’s access to the entire payments marketplace. NFC enhances the bill-to-mobile capability with the potential to drastically reduce fraud. In theory, Apple bill-t0-mobile on an Apple NFC-enabled phone could be the equivalent to a card present EMV smartcard transaction. (EMV is the smartcard standard adopted almost everywhere but the U.S. which significantly reduces fraud (and transaction costs) using a chip-and-pin system).

Checkout would be super easy for consumers. They enter their phone number on the website, then are prompted for a PIN on their iPhone. The NFC-chip ensures that the phone is indeed the consumer’s phone and the PIN ensures the user is who they say they are and that they authorize the transaction.

This approach would simultaneously reduces merchant transaction costs while increasing sales. (Assuming Apple and merchants can convince the card companies that these more secure transactions warrant a lower interchange rate).

But the real excitement about NFC is paying at physical retail locations. NFC chips on iPhones would instantly let users pay at contactless terminals in retail stores. Terminals exist at many gas stations, fast food retailers, drug stores, and some home improvement stores.

Apple would instantly make a market for contactless payments by including NFC on the iPhone. Competitors would jump in just like we’ve seen with tablets, and additional POS terminals would be added as NFC became commonplace by the millions of iPhone users.

The technology exists, is thoroughly tested, is proven to work, and users like it. And if you’re going to get all these benefits from NFC, why not also use it in ingenious ways like logging in and storing preferences? See the Cult of Mac reports.

NFC is just waiting for a catalyst like iPhone 5.

[The following article is running on Mobile Commerce Daily today 10/11/2010.]

Mobile Commerce should get used to security breaches.  They’re a sign of mobile going mainstream. The mobile ecosystem needs to develop security strategies like the computing industry did in response to viruses and phishing.

Recently the U.S. Federal Government declared phone jailbreaking legal. Jailbreaking is the process for unlocking phones, like the iPhone, to do things Apple and the carriers restrict, such as changing to a different carrier or turning an iPhone into a WiFi hotspot.

While jailbreaking unlocks exciting additional functionality, it also increases the risk of a malicious attack. iPhone jailbreaking has become so mature that it now only requires the swipe of a finger after browsing to a particular website (http://www.jailbreakme.com).

Fortunately the iPhone Dev Team, the de facto jailbreak providers, seem to be using their skills for Good rather than Evil. However, the simplicity of the current process exposes an extremely dangerous vulnerability in the iPhone and, by extension, mobile commerce.

Mobile is growing rapidly. My firm, Mobile Strategy Partners LLC, has seen mobile banking adoption across the industry grow 20% per quarter over the last year. However, improving consumer perception of mobile security will drive future adoption.

“Respondents consistently cite security concerns a key reason for not choosing to use mobile technology,” says Tom Wills of Javelin Strategy & Research. “Studies over the last two years have held steady at about 42% to 43% citing security concerns as reasons for not using mobile.”

The latest jailbreak process opens up the possibility that bad guys could jailbreak and infect victims’ phones by simply visiting a web site. Once infected, the bad guys could potentially have ongoing access to confidential information on the phone, including how to access financial accounts.

Highly publicized damage from such an attack could stall mobile adoption across the industry in addition to inflicting significant financial losses.

Viruses, phishing attacks, and fraud in general, arose as computers and the Internet went mainstream. Now that mobile phones increasingly have our attention, fraudsters see the same economics as mobile marketers, and have turned their attention to mobile devices.

Like many readers here, my livelihood depends upon the success of mobile commerce. My firm works exclusively with mobile technology to help companies like banks, retailers, and insurance companies develop and execute their mobile strategy – especially as it relates to their customer facing mobile strategy.

I have a vested interest in the continued success of mobile commerce. Therefore, I also have a vested interest in mobile security.

The entire mobile community has a responsibility to educate customers on safe practices and keep mobile security one step ahead of the bad guys. Attacks will evolve continuously. Companies will face difficult challenges to protect themselves and customers. Security best practices developed from ecommerce experiences must be adapted for mobile, and organizations must stay vigilant for emerging threats unique to mobile.

Platform developers like Apple, Google, and the carriers, also have responsibilities to stay on top of the latest exploits and provide a malware protection framework for mobile commerce.

With the current system, application providers can’t protect themselves because platforms like the iPhone lack – and in some cases actively restrict – methods to detect and fix malware infections.

For example, there is no way to run virus protection on an unjailbroken iPhone, but the very risk to users is that a hacker could trigger the jailbreak at seemingly any time. Users need the ability to determine whether their phone has been compromised.

Similarly, the Google Android application developer identity verification lacks the strength of the Apple App process. Android needs a strong trusted identity authorization and validation system to make it more difficult for criminals to masquerade as legitimate businesses – and malware to masquerade as legitimate applications.

Strong security will ensure mobile thrives. As mobile commerce goes mainstream it becomes simply commerce. It’s already unthinkable to abandon using applications with sensitive information on our phones. We can’t go back to not using mobile banking, mobile shopping, or even viewing confidential email on our phones.

Mobile commerce must be secured.  Mobile platform vendors need to help companies protect themselves and their common customer.

My black suit and I just escaped from the 110º Las Vegas heat where we attended Source Media’s American Banker / Bank Technology News Mobile Banking and Emerging Applications Summit along with over 300 others from the mobile banking and mobile payments industry.

Seriously, the bankers were in the conference rooms not the pool

I was honored to lead a two-hour pre-conference workshop where we walked through relevant mobile banking ecosystem stats, building mobile business cases, and highlights of integration gotchas. The business case portion sparked particularly vigorous and interesting discussion.

Coincidentally, the next day Bob Hedges from Mercatus proclaimed provocatively:

“Making the business case for mobile banking is like making the business case for oxygen.”

Bob was making the point (after showing a ton of data for building mobile business cases) that it’s not up for debate whether mobile banking will be important in North America. Mobile Banking is important and it’s here to stay. Mobile banking is table stakes and organizations without mobile banking aren’t at the table. I doubt anyone at the conference disagreed, considering the overwhelming data supporting this that we saw from so many sources. Hundreds, if not thousands, of banks and credit unions are offering mobile banking — and it’s working.

With so many banks already providing some form of mobile banking, the general conversation not surprisingly contained many themes around what’s next for mobile banking.

• US Bank announced a number of aggressive initiatives including two separate Person-to-Person (P2P) payment offerings and a white label personal shopping and couponing application for retailers.
• Wells Fargo shared their success in offering mobile banking for commercial treasury services customers. Interestingly, Wells’ Megan Minich shared that the iPhone accounts for 30% of mobile access to their treasury services mobile app, with the majority of access (50%) coming from BlackBerrys.
• USAA also walked us through their latest innovations and hinted at an upcoming P2P Payment offering. USAA’s Jeff Dennes also noted that roughly 20% of their mobile users identify mobile as their primary channel for interacting with USAA with Android already accounting for 13% of their mobile volume.

Hands-down, I think P2P was the overwhelming theme of the conference. There was a sense of momentum and inevitability around P2P discussions that didn’t exist in 2009 or even before the Great Recession. To be sure, there’s great uncertainty as to how P2P will work best and what exactly will be the compelling factor for user adoption. However, banker after banker discussed on and off the record their plans for implementing P2P in the near future.

Notably, Wences Casares of Bling Nation bluntly said what needed to be said about the payments industry:

We’ve gotten used to high levels of fraud due to crappy [payment] networks. We put people’s full names on the cards, with account numbers, and the CVV. We put it all on the magstripe again which is easy to read. And it all gets passed along a chain of companies from the retailer, to the payment gateway to the acquiring bank and so on. We hand our card with all this information to the merchant and say, “Here you go Mr. Merchant. Here’s all my information. Do what you want with it.”

Raucous applause followed.

There’s a momentum in the industry to innovate and find ways to make mobile banking more transactional, less dependent upon cash and checks, and to reduce fraud. Venture capital is flowing into startup payments companies. Bankers are sifting through the options trying to figure out an approach that works. NFC and contactless payments are also on the horizon but are perceived (I think) to be less immediate than P2P payments (2012 or 2013 rather than 2011).

The banks that survived the Great Recession are preparing to innovate and compete. Mobile banking and mobile payments are their weapons.