When trying to identify the main causes of the recent development of mobile banking services, the significant evolution of mobile technology always comes first. While mobile phones only started to support rudimentary communication channels in the form of sms messages about two decades ago, modern smartphones contain processing power comparable to top-of-the range PCs sold only a few years ago. Mobile devices are predicted to become the primary Internet access tool by 2020.

This technological development has clearly supported the trend of consumerisation of technology as mobile devices have become an integral part of our daily lives. The often cited generation Y, also sometimes referred to as digital natives due to their interaction with such technology from an early age, represents one of the main customer segments targeted by the banking industry.

Recent developments and trends

The banking industry usually takes a rather cautious approach when it comes to embracing the latest technological trends. It can be partly explained by the fact that banking is first and foremost a business of trust that cannot be jeopardised by new and unproven technologies. This helped new players within the financial services industry with no or little previous expertise or credibility to gain a foothold in the market. These new players were able to respond to existing consumer needs, notably in the field of e-commerce (e.g. PayPal) and micro payments via digital wallets (e.g. mobile network operators in developing countries). The Commission de Surveillance du Secteur Financier (CSSF) in its role as supervisory authority of the financial services sector, is responsible for the supervision of several entities holding the status of payment and electronic money institutions. These institutions are offering banking-related services to their customers, some of them without any significant prior experience within the banking industry, but instead with a strong customer focus and agility.

The Banking community has only recently begun to invest significant efforts into building a comprehensive mobile service offering, from basic features such as locating a nearby branch or an ATM to moving funds between different accounts of the same account holder via the customer's smartphone. Again, recent technology developments such as the scanning of QR codes to settle an invoice or NFC to transfer e-money between smartphones is increasing the level of sophistication of offered services.

Challenges faced by the banking community

The multiplicity of market players

Banks are competing with leaner organisations. The new players are not faced with the necessary changes that legacy systems and long established processes require. In absence of a well-defined M&A strategy which could help a bank to close existing gaps, this internal change process represents a significant challenge. Certain capabilities related to mobile technology, distribution management and marketing expertise need to be developed or recruited.

Rising customer expectations and lack of trust

Customer expectations are currently being shaped by experiences outside of the banking industry, where content, ease of use, interactions and features deliver a more engaging and rewarding experience. In addition, the credibility of the financial services industry has significantly suffered in the recent past due to the financial crisis. This means that new services and related technology will need to work properly once launched, as any technical issue potentially leading to fraudulent activity or data leakage could have a significant impact on the reputation of the financial institution.

Device fragmentation and tablet popularity

Mobile banking platforms will need to continue to be developed for multiple platforms supported by the current and future smartphone market. Apart from the established operating systems iOS, Android, as well as Windows and Blackberry, new operating systems such as Tizen are emerging. Depending on their market success, these platforms will also need to be serviced. In addition, the growing success of tablets means that mobile app developers will also need to adapt the banking solutions to the tablet experience of a wider screen, similar to that of a PC.

The need for a common regulatory framework

Mobile payment and banking activities require a common regulatory framework, for both established players and emerging institutions. Given the complexity and fast pace of the roll out of new services, the different market players will have to support the regulatory authorities with regards to defining applicable playing rules and ensuring that necessary control can be exercised. The European Central Bank has recently issued draft recommendations for the security of mobile payments with the ultimate aim to foster a harmonised minimum level of security within the European Economic Area. In addition, a foreseen revision of the existing Payment Service Directive by the European Commission further illustrates the need to improve the level playing field for payment service providers, including new players.

Key success factors

Market segmentation and understanding customer needs

High net worth individuals as clients of a private bank have different needs compared to clients of a retail bank. Services such as tailor-made reportings and real-time information provided by the client relationship manager should help a bank differentiate from its competitors. Retail banks could primarily consider the development of solutions to automate common banking activities such as transfer payments, transaction histories and automated notifications related to negative account balances or security concerns.

Strategic partnership

Strategic cooperation could be considered for specific projects. For example banks could join forces to identify a suitable IT supplier to provide an established mobile banking platform and share the development costs and resources necessary for the development of new solutions. Cityzi in France is a mobile payment platform based on cooperation between mobile network operators, banks, software developers and city councils.

Embracing social media

Social media platforms are no longer regarded by corporations as gimmicks for teenagers. A well-defined marketing strategy which embraces these communication channels will allow organisations to better understand the needs of customers as well as to humanise their brand with direct and personalised relationships. Besides, social media platforms provide large amount of data that can be analysed for business purposes and used to define their strategy.

Ongoing assessment and continuous improvement through customer feedback

Seeking direct feedback from customers via a mobile banking app or social media platforms is a crucial source of information to assess if their expectations are met. Individuals use them to express their opinion, which should help banking institutions to continuously improve their service offering.

Outlook

Usage of smart mobile devices will continue to grow and to impact the future of the banking industry. The recently published "Retail Banking 2020" report by PwC predicts that traditional bricks-and-mortar branches will no longer be necessary in a few years due to the migration of activities towards digital channels. The need to invest in technology ranks high on the agenda of senior management, in order to provide innovative and tailored solutions to customers while reducing costs. Banks which are either unwilling or unable to properly adapt to this global trend will be facing an uncertain future with regards to customer retention and sustained profitability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.