A recent Javelin Strategy and Research study of over 5,000 respondents in the US found mobile banking usage down. The study has caused a lot of head scratching in the industry — myself included.  The report compares this year’s survey to similar surveys in 2009, 2008, and 2007.

Consumers switching for mobile banking reasons doubled and is as important as ATM locations in switching banks

The study also uncovers a number of other intriguing facts that have been less widely reported and which I think are more important to bankers and the mobile commerce industry as a whole. In particular the study finds security increasingly important to adoption and that consumers are switching banks for mobile banking.

Security was cited by 52% of non-mobile bankers as a reason for not using mobile banking. This is up significantly after holding steady around 42%-43% in previous years.

Let’s address the controversial topic first. Javelin found mobile banking usage down (not adoption, as has been reported, but usage in the last 30 days). Javelin has found mobile banking usage rapidly growing from 7% in 2007 to 15% in 2009. In 2010 they found usage down slightly to 14%.

So, what’s going on? Is the mobile banking fad over?

I immediately called Javelin to discuss. I’m seeing mobile banking adoption increasing at banks across the U.S. and Canada. Most banks are tracking their success on how many users enroll for mobile banking services. The Javelin study asks users when they last used mobile banking. The tallied result is the number of respondents that have used mobile banking within the last month. So, users are signing up, but they’re logging in less.

So one explanation may be that users are simply looking at their accounts less. I have seen speculation in that past that the recession would cause people to watch their money more closely. Perhaps the opposite is occurring. Lean bank accounts are painful to look at, so people are avoiding looking unless they must.

Another explanation is that this is a pause in the usage curve, in a technical pattern similar to stock increases. Stock prices tend to rise, then pull back up to 30% then rise again. A drop of over 30% or so would indicate a more bearish shift. A one percentage point decline in usage is only a slight decline, although it surely is a surprising lack of growth. There’s naturally a spike in usage when a service is new, then a pullback as the novelty wears off.

The full impact of the recession may also explain the pullback. Javelin found an overall reduction in mobile phone usage (74% down from 85% in previous years). The financial crisis caused many mobile plans to be put on hold in 2009 which in turn is affecting adoption of the products that would have been rolled out in 2010. Very few mobile banking projects were under active development in late 2009, and activity picked up significantly in early 2010. Those efforts are coming onto the market right now.

It also could be that users tried mobile banking then stopped using it.

Some users undoubtedly tried mobile banking and quit. But, I don’t think mobile banking is a fad whose time has passed. Javelin also found that mobile banking is as much of a factor in consumers switch banks as the convenience of ATM locations (7%). If consumers didn’t like mobile banking, they wouldn’t be switching banks for it.

I think users are abandoning mobile banking at banks with bad mobile banking offerings and they’re going to banks with good mobile banking offerings as soon as they get the chance.

I think users are abandoning mobile banking at banks with bad mobile banking offerings and they’re going to banks with good mobile banking offerings as soon as they get the chance.

That’s a big deal. Banks spend many millions to expand and maintain their ATM network. In comparison, mobile banking can move the needle in every market with far less expense.

Banks with no mobile banking implementation at all should pay attention. Mobile banking is clearly table stakes because consumers will endure the pain of switching banks to get a good mobile banking offering. So it’s not enough to “check the box” and provide a bare bones mobile offering. Customers are leaving banks without mobile banking and they’re leaving banks with poor mobile banking.

Retailers and the broader mobile commerce market should heed this example as well. Shoppers will buy from someone else if their mobile presence is better.

Universities are an under-reported but fascinating segment of mobile commerce. I’ve spent a great deal of time talking to University Advancement and Development groups (aka fundraisers) about mobile technology over the last few months. Here are the results of some research I conducted with MobileFeat, a maker of mobile applications for non-profits. I think these results are interesting to anyone focusing on the twenty-something market segment.

Half of recent graduates have an iPhone

Smartphone distribution among recent graduates

Nearly half (43%) of recent graduates would like a mobile application from their University

Less than a quarter of smartphone users graduating in the last five years have ever donated to their alma mater

The Challenge

Higher Education fundraisers are finding it increasingly difficult to stay in contact with young alumni. Alumni often move around repeatedly in their early careers. Often schools lose touch with many young alumni.

There has long been a correlation between gifts of any size by young people and large gifts to their alma mater later in life. Therefore, it’s imperative to get young people to donate now if schools want major gifts thirty years from now.

Furthermore, even if schools can contact alumni, Caller ID lets alumni simply screen out phone-a-thon campaign calls. With no prompting, one respondent specifically mentioned using Caller ID to avoid university fundraising calls. So phone-a-thon cost-effectiveness is decreasing despite being staffed by unpaid university students.

What we found

Not surprisingly, a strong majority (87%) of respondents carry smartphones. Half of respondents use an iPhone and nearly a fifth (19%) have a Blackberry.

Similarly, three quarters of respondents (75%) said they were interested in staying in touch with their school and in getting campus news, departmental updates, sports scores, etc. Many of these respondents indicated they already use email and social media such as Facebook to stay in touch with former classmates and their alma mater.

When asked directly about also using a free application to stay in touch with their school, nearly half (43%) indicated they would, even though there are few if any such applications in existence today. Presumably interest would be even higher if such applications were already widely available.

Opportunity
Less than a quarter (23%) of smartphone users graduating since 2005 have donated to their alma mater. Participation rates at colleges and universities vary widely among institutions and across fundraising campaigns. However, in my experience this participation rate falls below Annual Fund campaigns for the universities represented.

With over three-quarters not giving, there appears to be an opportunity to increase donations through more consistent communication with alumni. There is a clear interest from alumni to stay in touch with schools through both mobile applications and social media. Mobile appears to be an untapped platform for University Advancement & Development staff to maintain contact with young alumni and generate net-new donations to universities.

Methodology

We interviewed recent graduates from around the U.S. in late October and early November 2009. Universities represented include UC Davis, Penn State, Elon, Dartmouth, and Purdue. Graduation dates ranged from 2005 through 2009.

Contact me if you would like to conduct more detailed research on this or other mobile topics.

Doug Brown of Bank of America provided an update today on the success of mobile banking at BofA in a webcast sponsored by InformationWeek and VeriSign. Brown provided his insight on mobile banking and shared key statistics from their experience with mobile banking.

Bank of America now has over 3.5 million customers and represents over a third of all U.S. mobile banking customers. They have seen adoption increase significantly since they first went live in the first quarter of 2007. It took them 13 months for the first 1 million customers to adopt mobile banking. The second million took 9 months and the third million took 6 months. This represents an acceleration rate of roughly 30%.

Brown describes general mobile adoption as historically faster than other technologies such as telephone landlines, televisions, etc. Roughly 10% of online banking customers (30 million) now use mobile banking (3.5 million). BofA attributes their mobile banking adoption success to two key factors:

First, mobile banking is made available to as wide a customer base as possible. BofA noted that they support over 850 handsets via their mobile web application while providing native applications on iPhone, RIM, and Android platforms in addition to SMS banking. While mobile banking is limited to online bankers and isn’t available to customers in Washington State or Idaho, Bank of America’s mobile reach is far broader than most or all U.S. implementations.

Second, Bank of America embarked upon a marketing and customer education campaign to share the value proposition to end users and to alleviate their security fears. BofA has tried to completely integrate mobile banking into their existing operations to reach all kinds of customers and provide consistency to the consumer regardless of what channel they use. For example, Brown noted that mobile banking customer service and technical support is handled by the same team as online banking.

Notably, Brown described the technical support impact of mobile banking as a “non-event” that was “seamless to support.” This statement should put a lot of prospective mobile bankers at ease. Many banks and credit unions considering mobile banking are concerned by the potential impact of mobile banking on their support operations. Many bankers will be relieved by BofA’s experience as the largest mobile banking implementation in the U.S., however results depend upon how mobile banking is implemented. For example, a bank implementing SMS balance alerts with no other form of mobile banking risks dramatically increasing calls to the call center.

Mobile banking has also provided significant ROI to Bank of America. In particular, Brown says mobile banking is directly responsible for attracting 150,000 new customers. Additionally, Brown describes the type of customer mobile banking attracts as a “very valuable customer segment.” Brown describes these customers as more deeply engaged and typically using more products than average. Brown also shared some customer comments indicating how deeply customers appreciated mobile banking which creates stronger loyalty and engagement with the bank.

Verisign also provided cost figures for various channels based on a study commissioned by MCOM. Banks can find significant savings by serving customers in the mobile channel ($0.08) rather than through the contact center ($3.75), IVR banking ($1.25), ATM ($0.85) or even online banking ($0.17).

Banking service costs and channel usage

Interestingly, Brown noted that mobile banking users tend to spend more on their debit cards providing additional revenue to banks and retailers. Brown surmised that consumers can spend more confidently knowing that they have ready access to their account balance — even when purchasing on a whim. Mobile banking customers have also moved over $9.5 Billion since 2007, presumably reducing bank and consumer costs to move money. Bank of America provides payment capabilities between user accounts, to any other Bank of America customer, and through bill payment functionality. Brown described future interest in supporting point-of-sale (POS) payments, remittance, and value-added marketing such as location-based coupons.

Bank of America also uses mobile to provide additional security in other channels. Specifically, Brown mentioned that all high-value transfers in other channels like online banking require confirmation from their SafePass product on the mobile phone. Brown described the mobile phone as a unique security tool because almost everyone has a mobile phone with them and it is almost always on. Brown stated that the same anti-fraud scanning algorithms used in online banking are also used on mobile banking activity. He described mobile security as having industry-wide importance to ensure overall consumer trust in mobile commerce.

In summary, this type of specific case study is what the industry needs. 48% of webcast attendees not currently doing mobile banking cited Lack of ROI as the primary reason. Most bankers I talk to know in their gut that mobile banking will have a huge impact on future banking. However, almost every banker is struggling to build a solid business case for moving immediately, especially during the recent financial crisis.

Bank of America’s experience validates many bankers’ expectations and provides fuel for further experimentation. While sharing this data is bound to increase competition, the metaphorical tide is likely to raise all boats by increasing overall customer comfort with mobile banking and mobile commerce in general which will lower costs and drive up profits through new customers and more profitable transactions.