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Lessons Learned: Eight US
Financial Institutions Reveal
Mobile Banking Benefits
!
!
!
George Tubin, Senior Research Director
Cross-Industry, TowerGroup
October 2010




Is the US Market Ready for MobiIe Banking?
The current rate of deployment and consumer adoption of mobile banking in the United States is
unprecedented. Each month, dozens more banks deploy some form of mobile banking.
TowerGroup believes that approximately 20 million consumers will be using mobile banking by
the end of 2010. This report provides TowerGroups perspective on the value of mobile banking
to consumers and financial institutions based on ongoing TowerGroup research and the results of
a recent survey of a cross-section of US banks that have deployed mobile banking.

In the first quarter of 2010, TowerGroup interviewed mobile banking executives from eight US
consumer banking institutions that utilize ClairMails mobile banking application. The sample was
drawn to represent a variety of locations, sizes, and types of institution. Included were tier 1
(over $100 billion (USD) in assets) global and regional institutions; tier 2 ($1 billion to $100
billion in assets) statewide and regional institutions; and a tier 1 (over $5 billion in assets) credit
union. Data collected from this diverse set of financial institutions was consistent yet exhibited
some differences noted in this report.

The report highlights the key business case considerations used by the institutions interviewed
as well as their mobile banking results measured after deployment.



Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




2
2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.

The MobiIe Banking VaIue Proposition
Mobile banking is outgrowing its status as a "nice to have innovation and emerging as a
mainstream offering for banks of all sizes. Despite current economic pressures generally
depressing the bank technology market, the momentum behind mobile banking services shows
no signs of slowing. Adoption and usage are increasing faster for mobile banking than for any
other channel in the history of banking. For example, several US banks have reported that up to
10% of their customers who are users of online banking have already embraced the mobile
channel; one bank even reported that 25% of its online banking customers also use its mobile
banking channel.

TowerGroup estimates that, as shown in Exhibit 1, the number of active users of mobile banking
in the United States will grow from 10 million in 2009 to over 53 million in 2013, representing a
compound annual growth rate (CAGR) of 51.8%. Note that outbound e-mail and Short Message
Service (SMS) alerts are excluded from this forecast. TowerGroup defines active users as those
accessing mobile banking at least once in 90 days.

What is driving adoption and usage of mobile banking? Mobile banking is becoming more widely
available to consumers as the number of banks offering mobile banking grows by dozens every
month. Midtier and lower-tier institutions feel more comfortable deploying mobile banking today,
having observed the deployments by larger institutions. Late adopters can benefit from the early
experiments of their larger counterparts as well as the increased consumer awareness of mobile
banking fostered by the large banks. Additionally, the rising popularity of smart phones, in
particular the Apple iPhone, is proving a boon to consumer adoption of mobile banking.
Consumers are latching on to the rich user experience of these devices to access financial
services functionality from mobile application stores and from their devices fully functional
browser.

Exhibit 1
US MobiIe Banking Active Users (2008-13P)
Source: TowerGroup
(n Millions)
4.9
10
17.8
27.4
39.3
53.1
0
10
20
30
40
50
60
2008 2009P 2010P 2011P 2012P 2013P


Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




3
2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.
It is important to keep in mind that any new channel offered to consumer banking clients must
provide a unique value proposition to drive meaningful consumer adoption beyond initial take-up
by curious technology-savvy consumers.

Online banking provided "anytime but not "anywhere convenience, since it still required the
consumer to have access to a computer with an Internet connection. Online banking has become
primarily home and office banking. The online channel is more geographically convenient than
visiting a branch or an automated teller machine, but it still lags the contact center with respect
to the "anywhere convenience factor, a void that can be filled with a comprehensive mobile
banking offering.

TowerGroup believes that mobile banking adoption and usage will continue to rise for three
primary reasons. First, todays mobile banking launches are coming at a time when mobile
device penetration in the United States is high: The approximately 240 million wireless
subscribers represent a mobile phone penetration of about 90% of the adult US population aged
20 and above. Most estimates put Internet penetration, in comparison, at only about 70% of US
households.

Second, consumers banking preferences have evolved. Banking customers are now accustomed
to and experienced with the self-service model, thanks largely to online banking and to a lesser
extent the ATM, both of which allow customers immediate access to information. Recent
TowerGroup estimates indicate that "remote transactors, defined as customers that perform
over 75% of their banking transactions via a self-service channel, will represent almost half of all
US banking customers by 2012. The unique value of mobile, which will increasingly be expected
by mobile device users, is anytime, anyplace access to the institutions where they bank. This
puts the mobile client in control and provides an immediacy and persistence not always available
with the existing delivery channels.

Third, the fast third-generation (3G) wireless networks used to access mobile banking services
are available in the majority of large, densely populated portions of the country, and even faster,
4G services are being rolled out. Of course, not every subscriber has a 3G phone, but even
slower network speeds are sufficient for access to basic account information such as balance
checking or SMS alerts. Devices today are richer in almost every aspect, from screen resolution
to operating system and user interface, further increasing the appeal of using data services.

The mobile channel provides a level of availability and immediacy not attainable with the
traditional mix of retail banking delivery channels.

Exhibit 2 illustrates the sharp increase in mobile transactions, which TowerGroup expects will
represent almost 10% of all retail delivery channel transactions by 2012. The mobile channel
almost transcends the other delivery channels because the "always available mobile device
allows an account holder to monitor, track, and coordinate all past, current, and planned events
in an account anytime, anywhere.

The immediacy of mobile allows the consumer significantly more pertinent interactions across the
spectrum of needs, from validating a suspected fraudulent transaction, to verifying funds
availability at point of sale, to receiving specific discounts or advice based on current location. As
the mobile channel increasingly integrates itself with consumers for nonbanking lifestyle
activities, financial institutions must ensure their continued relevance in the mobile space.

Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




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2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.
Exhibit 2
US Banking DeIivery ChanneI Transactions
(2008-12P)
Source: TowerGroup
Transactions (in Billions)
14.6 14.9 15.1 15.1 15.1
14.4 14.7 14.7 14.8 14.8
15.9
16.8 17.5 18.1 18.5
19.7
23.3
26.8
30.0
33.3
0.3
1.2
3.0
5.6
9.4
0
20
40
60
80
100
2008 2009P 2010 2011P 2012P
Mobile
(CAGR = 138%)
Online
(CAGR = 14%)
Call Center
(CAGR = 4%)
Branch
(CAGR = 1%)
ATM
(CAGR = 1%)



BuiIding a Business Case for MobiIe Banking
In the first quarter of 2010, TowerGroup interviewed mobile banking executives from eight US
consumer banking institutions that utilize ClairMails mobile banking application. Six of the eight
banks interviewed had deployed ClairMails SMS-based mobile banking application, and two more
were close to deployment. Most of the institutions also offer, or plan to offer, mobile banking via
an application download or the mobile Web. In some instances, SMS-based mobile banking was
an addition to other mobile modalities; in other instances, it was the sole mobile banking
modality.

US financial institutions have struggled to develop a business case for mobile banking. This
difficulty arose when mobile banking was a nascent technology and implementation results still
elusive. The financial institutions participating in TowerGroups survey indicated three primary
reasons for implementing consumer mobile banking: an executive management directive, a
reaction to a competitive deployment, or a business case based on best estimates derived from
industry sources. Three of the institutions interviewed did not require a formal business case,
while the remaining institutions required business cases containing various levels of detail.

The institutions in this study approached their business cases quite differently. At one end of the
spectrum were institutions that were directed by their CEO or executive management to deploy
mobile banking. These institutions therefore assembled a "loose business case that included the
deployment costs and expected outcomes. At the other end of the spectrum were institutions
that not only had to develop a comprehensive plan detailing all vendor and internal costs but
also had to commit to the institution achieving specific goals. For example, these institutions had
to get commitment from the contact center for staff reductions promised in the business case.

Most of the mobile banking executives interviewed pointed to high mobile usage, skyrocketing
iPhone adoption, and a groundswell of mobile banking that would put their institutions at a
Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




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2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.
competitive disadvantage should they fail to provide mobile banking and at risk of losing
customers who desire mobile service. An executive from one institution commented that mobile
banking is virtually table stakes at this point and that the institution needs to be "in it to win it.
Another commented that his institutions investment in the mobile channel was recognition of
what will be achieved two to three years from now.

Two fundamental commonalities were apparent regarding the decision to launch mobile banking
among the institutions TowerGroup interviewed for this research. The first is that competitive
pressures were a key driver in implementing consumer mobile banking. The second is that most
institutions recognized that clients who adopt mobile banking tend to exhibit the characteristics
most desired by consumer banks. That is, they tend to carry higher balances and more products
and have longer tenure at the institution. Therefore, it is advisable to support these clients and
continually engage them with the technologies and services typically expected by this segment.
Note that the business case factors listed below are not mutually exclusive but represent the
most common elements shared by the institutions.

Competitive Deployments
Competitive pressures drove many of institutions surveyed to deploy mobile for fear of losing
customers or generally not appearing as current as their competitors. Based on initial market
information that mobile banking users tend to be more profitable customers than others, the
banks did not want to see these potentially valuable customers move to a competitor to access
mobile banking. This argument resonated with executive management, which, in turn, did not
want to be responsible for losing customers for lack of mobile accessibility. Most institutions
identified specific competitors that offered mobile banking.

Some of the banking executives interviewed by TowerGroup mentioned their perception that
while mobile banking may not provide significant benefits immediately, it is important for the
institution to "get into the game. They expressed the belief that mobile banking will become a
critical component of consumer banks delivery channel infrastructure over the next three to five
years. Waiting to deploy mobile banking would allow their competitors a definite timing
advantage in terms of customer adoption and the banks own ability to understand and stay
abreast of the evolving technology.

Deepening Relationships
Relationship deepening in retail banking refers to increasing interactions, products, balances, and
share of wallet with clients to make them more profitable to the bank and their attrition less
likely. Banks that focus on relationship deepening believe that the more conveniences they
provide the customer, the more likely the customer will be to increase usage and stay with the
bank. As one institution put it, "When you get out of the customers way and allow them an
easier way to do things, it ultimately leads to higher retention and higher profitability.

One institution reported an overall lift in brand perception among mobile banking users. A
positive impression of the bank is critical if customers are to view an institution as their
household's primary bank and consolidate accounts and assets there. Ideally, customers will
appreciate their bank for providing conveniences and multiple ways to interact, one being mobile
banking.

Reducing the Cost to Serve
Several financial institutions believed that mobile banking usage would lead to a reduction of the
number of contact center interactions. These institutions pointed to the high volume of costly live
agent calls simply to request account balances and verify online banking transactions. These
institutions believed that mobile banking would allow them to migrate some of these calls away
from an expensive live agent, which would result in tangible cost savings.
Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




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2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.

For example, one institution reported that approximately 40% of its live agent calls are for
balance inquiries, even with very high utilization of voice response units (VRUs) for this
transaction. Deflecting even a small percentage of such calls, which have a stated average cost
of $4 per call, would provide tremendous cost savings. This institution recognized that overall
transaction volume would increase, as it tends to do with new channel availability, but the ability
to instantaneously access balance information with a simple SMS seemed to bode well for
reducing call center transactions.


MobiIe Banking ResuIts
The institutions TowerGroup surveyed built business cases for mobile banking based on
anticipated benefits that may or may not have been realized. However, some institutions are
recognizing measurable results from their mobile banking deployments, as summarized in Exhibit
3. Several institutions commented on the difficulty of obtaining the necessary data from their
systems to measure results. The unfortunate truth is that most financial institutions do a poor
job of measuring the actual economic value associated with investment initiatives because they
lack the data, expertise, and resources to do so.

Exhibit 3
Summary of MobiIe Banking Business Case
EIements
Source: TowerGroup
Business Case EIement ReaIized ResuIts
Mobile adoption 510% of online banking customer base within
first 12 months, depending on marketing
intensity
Customer acquisition 12% of new mobile banking customers due to
mobile availability
Client retention 1020 percentage point increase in client
retention for mobile users
Contact center cost savings 50% reduction in both VRU and live agent calls
for mobile banking users
Fraud reduction 1025% reduction in fraud losses for mobile
users depending on breadth of account alerts


Mobile Banking Adoption
All of the banks interviewed that had deployed mobile banking (some were still in development)
reported that actual adoption exceeded expectations by up to 100%. Many reported penetrating
10% of the online banking customer base within 12 months of launch. Accelerated adoption is
usually highly dependent on effective marketing, but many banks experienced mobile banking
customer penetration of 5-6% within the first 12 months with virtually no marketing at all. Many
customers are aware of mobile banking or highly accepting of new technologies and quickly
understand the value proposition of mobile banking and are willing to give it a try.
Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




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2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.

Mobile Banking Customer Profiles
Banks reported that mobile banking customer profiles skew slightly younger than those of
nonmobile banking customers but mostly are representative of overall mobile user profiles.
Mobile customers tend to have attractive demographic profiles and predominantly fall within the
age range 18-35. They tend to be heavy transactors and carry more debt products and higher
debt balances than nonmobile bankers. One factor is certain: Mobile banking customers are
comfortable with and more reliant on technology than nonmobile banking customers,
independent of age, income, education, or other demographic factors. One result reported
consistently is that mobile customers tend to be among banks most profitable customers. The
institutions recognize that providing advanced technology to increase convenience will help retain
these more profitable customers and perhaps even deepen their relationships.

Improved Client Retention
Virtually all the banks interviewed expected mobile banking usage to lead to an increase in client
engagement and client satisfaction. At the least, these institutions anticipate increased client
retention. One institution reported that attrition rates for mobile banking customers have
dropped almost 15% for certain account types (basic checking, savings, and student checking
accounts), compared to the attrition rates of nonmobile banking consumers. The banks
recognized that as mobile solutions become more widely deployed, client attrition will likely rise
for those institutions that lack a mobile solution. TowerGroup believes that a 10- to 20-point
reduction in attrition rate is a reasonable expectation for mobile banking users over the next two
years.

Reduced Contact Center Interactions
The primary business case driver for most institutions whose mobile executives TowerGroup
interviewed was cost reduction directly related to migrating call center inquiries to the mobile
device. Mobile banking customers tend to perform an average of 15 to 20 mobile transactions
per month, many of which would otherwise have been contact center transactions, according to
the institutions surveyed. Migrating these transactions to mobile thus results in tangible cost
savings.

One survey participant reported an apparent 3% reduction in overall contact center calls
following deployment of mobile banking although stating that the institution lacked the
appropriate resources to scientifically attribute this result directly to mobile banking. Another
institution reported a 70% reduction in VRU usage by mobile banking users. TowerGroup
believes that mobile banking users will reduce contact center transactions by half because they
can fulfill simple inquiries in a fraction of the time by using an SMS-based service.

Improved Fraud Detection
None of the institutions reported having considered fraud reduction as part of their original
business case. They had omitted fraud because they were not comfortable trying to quantify
expected savings. However, several survey participants commented that they believe real-time
access to account information will improve their institutions ability to identify and prevent fraud.
One institution did report awareness of instances in which mobile users identified fraud that they
might otherwise have missed until they reviewed their monthly statements, when it would have
been too late either to block the transaction or to recover the funds. TowerGroup believes that
fraud detection will become an increasingly important element of a mobile banking business
value although it is not yet a consideration in this technology. We believe it is reasonable to
expect mobile services to reduce fraud by 10-25% for mobile banking users by providing
immediate knowledge of all account transactions.

Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




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2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.
Customer Acquisition
At least one institution interviewed measures the apparent effect of mobile banking in attracting
new customers. This institution essentially attributes mobile banking availability to influencing a
new account if the new account holder registers for mobile banking within a week or so of
opening the account. Although the observed results are not scientifically accurate, the institution
believe that mobile banking availability strongly contributed to those sales and therefore it tracks
and reports the results on a monthly basis. TowerGroup expects that 1-2% of new SMS-based
mobile banking customers will be new customers to the institution, partly or wholly influenced by
mobile banking access.


Moving Forward with MobiIe
The banks were fairly consistent regarding their next steps for mobile banking. Almost all plan to
roll out all three mobile banking modalities: SMS-based, application download, and mobile Web.
(Several expressed regret about not having deployed the three modalities originally.) Because
each modality brings unique use cases, the banks felt that all three are required to ensure that
customers can access the bank through mobile according to their needs and preferences. For
example, those customers who only want to know their account balances might be better served
by receiving the information via an SMS text message rather than having to log into a mobile
banking application and navigate to the account balance screen.

The banks also expressed a desire for mobile registration outside online banking (and they regret
not initially providing it). That is, all the banks require customers signing up for mobile banking
to be registered online banking users. This requirement severely limits the pool of mobile
banking prospects. Online banking users typically represent 30-50% of an institutions customer
base, which means that 50-70% of an institutions customers are not eligible for mobile banking.
An ancillary issue is that this approach positions mobile as a subset of online, which limits
executive managements perception of the channels value. All of the banks that have mobile
banking are planning registration outside online banking.

In the short term, the primary focus for the banks will be to support all three mobile banking
modalities and continue to learn the best way to serve customers through the mobile channel.
The banks are focused on driving mobile adoption and usage while actively testing features and
use cases to determine which ones best increase usage and interactions. Several banks are
staying abreast of mobile payments initiatives and considering entering mobile payments, most
likely through some type of person-to-person (P2P) offering in the near future.

Lessons Learned: Eight US Financial Institutions Reveal Mobile Banking Benefits




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2010 The Tower Group, Inc.
May not be reproduced by any means without express permission. All rights reserved.

ConcIusion
TowerGroup firmly believes that mobile banking is a market mandate that all retail banking
organizations that wish to remain competitive must pursue. Todays mobile-savvy consumers will
soon view banks that do not offer mobile access as irrelevant, and banks without mobile banking
will risk losing these customers. Mobile banking vendors provide highly capable, fully vetted,
easily implementable solutions that can be deployed at relatively low cost and low risk. Financial
institutions will be compelled to implement mobile banking for a variety of reasons, including
deepening customer relationships and fostering consumer engagement, more effectively
communicating marketing messages to cross sell additional bank services, and to supplement
and enhance channel distribution reach.

Forward-thinking organizations are deploying mobile less as a competitive reaction than as a
platform for innovation. These banks realize that the world is on the cusp of a mobile evolution
that will bring highly differentiated and far more personalized services and capabilities to the
market. Entering the fray now will enable organizations to ride the mobile wave rather than
stand on the shore and watch their competitors succeed.












ClairMail commissioned TowerGroup to conduct independent research and analysis of SMS-based
mobile banking practices and trends in financial services. The content of this report is the
product of TowerGroup and is based on independent, unbiased research not tied to any vendor
product or solution. Although every effort has been taken to verify the accuracy of this
information, neither TowerGroup nor the sponsor of this report can accept any responsibility or
liability for reliance by any person on this research or any of the information, opinions, or
conclusions set out in the report.