In my last blog I asked what the ROI or value proposition for mobile banking is and what specific areas the ROI or value proposition depended upon.   A few of the obvious questions are will Mobile Banking reduce costs by converting a certain percentage of activities from higher cost channels?  Will it help retain customers?   Will it attract a new demographic?

The questions can go on and on but the ultimate factor I was after is how will this impact a banks bottom line.   Currently I cannot find a bank that can prove an ROI or cost justification for mobile banking.  There are studies out there of course but they make assumptions, sometimes broad and ambitious, which are not backed by real world results as of yet anyways. 

With a lack of tangible evidence to gain insight from I decided to turn to the ROI for Internet or online banking to try and find some possible correlations.  

The questions, skepticism and arguments with online banking (in the early stages of Internet banking at least) are remarkable identical to the ones currently facing mobile banking.   As a matter of fact they are identical in almost everyway.   Although this does not provide an ROI or cost justification this should be somewhat encouraging for mobile banking.

Reduced costs were the main argument in favor of online banking.  It was supposed to move customers from high support cost channels such as IVR over to the much lower cost channel of the Internet. 

However, online banking ultimately increased costs to banks which became acceptable as it provided other benefits but reduced costs was not necessary apart of the justification.   As the service matured and introduced additional services such as bill payments, it can be argued, it did achieve a reduction in costs but that is debatable depending on which bank you speak with.

The naysayers of online banking sound identical in rhetoric as the ones questioning whether mobile banking has value.   See this quote from the good old days.

“Yes, interesting stuff, but how connected is too connected? Do our members really need this level of access to their credit union accounts? And, don’t forget about security. This seems like a really expensive member acquisition or retention strategy.” -- Credit Union Executive, 1996.

This statement seems to imply online banking will only serve to retain and acquire new customers at an increased expense, which may or may not become a zero sum game.  Even today it is debatable how online banking impacts the banks bottom line.

So is the value proposition for mobile banking the same?  Can financial institutions only hope to implement the mobile channel to not lose customers and hopefully acquire presumably younger customers at an increased cost?

If mobile banking increases the costs but is the only way to keep customers then that is a very legit value proposition assuming it does not result in a zero sum game which could very well occur if the strategy is to aggressive.  It is hard to argue that giving your customers what they want is a bad thing especially if not giving it to them could cause them to find an alternative financial institution.   

The mobile banking ROI or value proposition may simply come down to that, listening to your customers and giving them what they want.   I understand that has little to do with ROI and the “bottom line” but you understand my point.

In retrospect the real value proposition for online banking came from the evolution of related services such as bill pay, personal financial data and paperless statements and not simply migrating traditional banking services to the Internet. 

This of course, at first, did not compute in a predefined ROI model nor did the experts accurately predict the complimentary services but you could not have achieved any of these evolutionary services without first implementing online banking.

So what does this tell us about the value proposition for mobile banking?

Well the impacts on the banks bottom line will not be easily or quickly identified.  It will most likely take years to recoup the costs and it may be impossible to directly identify and associate where these cost savings are achieved.   If cost savings is a main goal, banks will inevitable need to plan and reduce resources.

In the end, looking to the banks bottom line may not be the best way to evaluate the success of mobile banking.   It may be preferable to view the longer-term value proposition which like online banking; customers want and it is anyone’s guess as to what evolutionary or complimentary services may be produced as a by product from it.

With services such as P2P, micropayments and contactless payments already well on there way, financial institutions can feel confident that mobile banking will pay off in one way or another.   It just may take awhile to empirically justify the costs.

I personally cannot imagine banking with an institution that does not provide online account balances, bill pay or even easy integration into Quicken or Microsoft money.  Of course I don’t care if it saves the bank money; it makes my life easier thus I require it.  Perhaps mobile banking will be the same way.

Posted on: Tuesday, November 24, 2009