I had an interesting conversation with Scott Loftesness, partner at Glenbrook Partners, and the man behind the curtain at the most successful blog in the financial services arena, Payments News, on my fave five list.

We were debating the merits of the various mobile banking models as he updated the mobile section of his Payments Boot Camp material. For the most part, we agree as to how the market is likely to evolve. But one small difference is our outlook for SMS/text services.

In the report I wrote at Online Banking Report in February (here), I predicted that SMS/text services would be an important bridge technology to get us to full browser-like mobile banking interfaces. Scott's not so sure.

 Apparently, the major U.S banks agree with Scott, so far. There has been little activity in this area. Fremont Bank is the only one throwing their support behind this technique (previous post here), partnering with ClairMail (see FINOVATE below), the biggest proponent of this model in the United States.

Here's the short-term forecast we published Feb. 23, 2007, in our Mobile Banking report (we go out on the limb through 2016 in the full report). The number shown below is U.S. households that have ever used the given mobile technology to access their bank account balance or transactions:

Original 2-Year Mobile Banking Forecast (23 Feb 2007)

                                        2007  2008

SMS banking 400,000 2 million
Mobile website 600,000 1.2 million
One-touch banking (1) 100,000         250,000
     Total (2)                        900,000 2.5 million

Source: Online Banking Report estimates, +/- 33%, Feb. 23, 2007 (report here); estimates are for Dec. 31 of each year
Notes:
(1) Downloadable banking app, eg. rich user interface
(2) Total is less than the sum, because some households use more than one access method

As you can see, six months ago we expected SMS to be the major driver, especially in 2008 and 2009. However, we are somewhat dubious now. Not because we don't think customers will like it, but because it doesn't look like the big players are planning on supporting it. It's too early to revise our entire model, but based on what we know today, here's how we see the next two years.

Revised 2-Year Mobile Banking Forecast (30 Aug 2007)

                                         2007          2008            2008 Change (from 23 Feb)

SMS banking 50,000 300,000 (1.7 mil)
Mobile website 600,000 1.5 million +250,000
One-touch banking (1) 100,000         350,000        + 100,000
     Total (2)                        700,000 2.0 million  (500,000)

Source: Online Banking Report estimates, +/- 33%, Aug. 30, 2007 (report here); estimates are for Dec. 31 of each year

Why we still like SMS banking

As I was rethinking the forecast, I read Walt Mossberg's column this morning and was reminded why I believe the United States is on the verge of mass-adoption of text-messaging. Mr. Mossberg was extolling the virtues of the new upgraded Yahoo Mail, specifically how it supported text messaging, e.g., users can send a text message to a phone directly from Yahoo Mail on their desktop PC.

Our take: As text-messaging is added to popular desktop email programs, Gmail, Hotmail, and even Outlook, it will make messaging a common activity among the core online banking constituency, the 30-to-55 crowd. As this group warms up to the convenience of text messaging, they will be far more receptive to retrieving basic bank and card-balance data in the same manner.

More important, what do you think? Comments are open. Everyone that leaves a substantive comment on this thread, and emails me their mail address, gets a $5 Starbucks card (note 1).

See the major mobile vendors DEMO their latest at FINOVATE 2007

ClairMail, along with four other mobile banking platform providers, will be DEMOing their latest solutions at our FINOVATE 2007 conference. The Aug. 31 deadline for early-bird admission is approaching quickly, so reserve a seat now.

Note:

1. Industry participants only.

CIO Insight recently published a long article called, Will Mobile Banking Take Off? Reporter Dan Briody discusses Wells Fargo's mobile efforts and how their implementation parallels the early days of online banking. Wells EVP Steve Smith is quoted at length.

There's not much new for anyone closely following the space; however, about two-thirds into the article, we discover Wells Fargo is testing SMS banking, using ClairMail as its service provider. Not a huge surprise, but it lays to rest the rumors.

With Bank of America, Citi, and Wachovia grabbing the headlines this year with mobile initiatives, Wells Fargo could create a buzz with an SMS offering by being the first major U.S. bank to go that route. Several weeks ago, Bank of Stockton became the first U.S. bank to align with ClairMail (link here).

On a personal note, I can't wait. The ever-diligent Wells Fargo fraud department, which must have my home phone number on speed dial, will hopefully start texting me when I use their card outside of Seattle, saving us both a lot of time and expense.

For more info see our Mobile Money and Payments report here.

ClairMail landed its first bank client last week,
Bank of Stockton <bankofstockton.com>, a $2 billion financial institution headquartered in Stockton, California. It's big news for ClairMail in need of a U.S. contract signing to legitimize its text-based banking approach in its home market. The company made the most of the win with a detailed press release (here), proactive outreach to journalists, and a prominent link on its website.

Bank of Stockton, however, missed a great opportunity to bag some free publicity. There is not a single mention of the new mobile service on the bank's website. They didn't even bother posting the press release. A search for "mobile banking" and similar terms all returned "no results found" (see screenshot below).

If you are about to launch a pioneering service in a hot area, at least post a "coming soon" page and grab email addresses and/or mobile numbers to alert customers when it does become available.

We've finally wrapped up our latest report, Mobile Banking & Payments 2.0, published by Online Banking Report, our by-subscription research division (see note 1).

• Link to the PDF abstract and table of contents here
• Link for subscriber access, or to purchase, here

Work on this report started at BAI's Retail Delivery Conference in mid-November where we scheduled a series of briefings with the three mobile players in attendance: ClairMail, Firethorn Mobile, and mFoundry. As reported here previously, we were mightily impressed with the opportunities available in the mobile space.  

After three months of looking at mobile banking, talking to more players, and trying to develop a reasonable forecast, we have slightly tempered our initial enthusiasm. While we remain optimistic that the mobile channel will someday eclipse desktop online banking in terms of pageviews and routine transactions, in North America mobile banking is NOT a new channel, but rather an extension of existing sales and service channels (see note 2). And with few fees expected, the business case must be made on the softer retention benefits and customer service savings.   

The Forecast
Even with a challenging business case, most top-10 retail banks are headed to market in 2007-2008 with some form of mobile banking. We forecast that 25% of U.S. households will use mobile bank access by the middle of the next decade. The mobile banking adoption curve for the next 10+ years will be virtually identical to that of online banking from 1995 to the present (see inset above and note 3). 

But we are much less certain on which method of mobile banking will cross the chasm. Unlike Web-based banking, there are powerful entities, called wireless carriers, that stand between the bank and its customers in True Mobile Banking. So it seems that text/SMS-based services will lead the initial wave, because they are less dependent on the carrier and most under-40 users are already using them. However, long term, we believe more complete one-button (see note 4) solutions will prevail. And while we do forecast the adoption for all three methods, there are too many variables to be certain. A year from now, things should be quite a bit clearer.   

Subscribers, please post your comments about this report below, or email them directly to jim@netbanker.com.

End Notes:

1. For those of you that may be new readers, this blog is written by the publishers of Online Banking Report, an industry newsletter that began 12 years ago. Many of our blog postings are a by-product of the research we are doing for Online Banking Report, so you'll often see references to our more in-depth research published there, available by subscription only. 

2. This is different in other countries where branch and PC-based banking is less pervasive.

3. U.S. adoption by household, +/- 25%. The underlying data and assumptions for this table are in the full report, OBR 138/139, as referenced in the opening paragraph.

4. One-button mobile banking is our name for banking functions that may be called up on the mobile screen through a link on the main menu. It could be a WAP-based mobile website or a downloadable application.