Personal finance, mobile banking, and mobile wallets
I’m a tech geek, but being a bleeding-edge early adopter is more hassle than benefit. For example I’ve been a photovoltaic enthusiast for over three decades, but we weren’t in a good position to “go solar” until after I retired from the military. I was all over computers in the 1970s and an early Internet user in the 1980s, but we didn’t buy our first PC until 1987. I’m one of the last people on earth to buy a cell phone. (No, it’s not a smart phone.) It drives Verizon nuts that I only “pay” when I’m about to “go” on travel.
But I still enjoy keeping up with the tech while waiting for it to make a serious difference in my life. This time it’s coming from mobile banking & mobile wallets. As one analyst has noted, they’re “The latest thing any day now for the last 10 years.”
I’m interested in two parts:
- I’ll carry a smart phone when it holds everything that I have to carry in a wallet.
- A mobile wallet could automatically update my personal-finance software.
Consumers aren’t willing to pay a premium for mobile tech. This means that mobile banking is only going to take off when the financial industry (and merchants) can use it to cut their costs. They’re not going to spend their capital on infrastructure until they see a payback.
I had a chance to talk about mobile banking with Neff Hudson, USAA’s AVP for Emerging Channels. He pointed out that last month was the fifth anniversary of their remote deposit capture tech that lets their bank customers deposit paper checks with a scanner. RDC has expanded to smartphones and tablets, too, and over $20 billion has been deposited at USAA. It includes more than 27.5 million checks totaling $17 billion through Deposit@Home. Another eight million checks (nearly five billion dollars) has come through smartphones since 2009, and $12.5 million has already arrived in just three months via iPad2.
USAA’s rate of Deposit@Mobile overtook Deposit@Home three months ago, and both iOS and Android customers are using the system. The system gets it right on the first try 80% of the time. (Um, don’t ask about Blackberry.) Although you’d expect this convenience to also offer tremendous crime opportunities, Neff says that mobile deposit fraud is actually lower than USAA’s paper-check fraud. This is a convenience that consumers don’t want to lose, so they don’t abuse it.
Consumers of mobile banking have doubled since 2009, and the industry projects at least 20% annual growth for the next five years. Checks as a percentage of retail payments have dropped from nearly 60% in 2000 to just 4% in 2010. When’s the last time you ordered paper checks? For some of you, have you ever even used a checkbook or did you go straight to debit/credit cards?
Account switching and bill payments are especially useful features of mobile banking. For example, when I recently switched my web billpay program from Fidelity to Navy Federal Credit Union, both were free. However, I had to re-enter my billing data at NFCU’s website, and then enter each merchant into the system. Over the next month of paying bills I replicated my Fidelity billpay system… one keystroke at a time. The irony of this switch is that both institutions are using Checkfree as their billpay provider– so all of my banking and billpay info is in the same database, twice, with different financial institutions. It would have been a lot more convenient (to me!) for NFCU’s billpay website to consult Checkfree’s database and then offer to port over all my data from Fidelity.
Bill payment is another laborious data-entry task. At a minimum you type in the name of the company and hope that it’s already in the billpay system’s database. Worst case you end up typing everything, and learn that your “online billpay” provider is just a remote check-printing and snail-mailing service for paying a company that still processes paper checks. Neff points out that this would go a lot faster (and with fewer errors) if mobile deposit’s image-capture tech could take a photo of your paper bill and immediately transcribe the information into the billpay database. USAA is already offering insurance comparisons when customers e-mail an image of a competitor’s insurance bill. USAA’s image-analysis software recognizes the format of major insurer’s bills and produces a comparison quote on the spot. Now it’s being expanded it to bill payment systems.
Neff says that the next evolution step in the mobile wallet “primordial soup” is “chip & PIN” payment (the EMV standard). EMV has been common in Europe for nearly a decade, where a number of USAA customers are either stationed or traveling. Now that Europe has set the standard (and subsidized the industry’s conversion costs), the rest of the world will follow. Some of the tech is already here– several American banks have issued RFID cards for several years and are now shifting to EMV systems. The challenge is persuading merchants to upgrade their point-of-sale hardware. Incentives includes lower fraud and automated checkout systems.
Next, consumers want to be able to bypass ATMs and bank branches. As much as he likes mobile wallets, Neff doesn’t think RDC will kill the traditional bank branch. Many servicemembers, especially recruits, still want to have a bricks-and-mortar office where they can talk to a service rep face-to-face. USAA’s advantage of a physical office is that a problem-solving session can be turned into an in-depth financial upsell review of investments, insurance, and other USAA products. The physical branches support mobile banking while other products and services pay for the building.
But mobile wallets are getting closer. Google’s was finally launched last month and smart-phone companies are starting to include near-field chips in their latest models. American Express is partnering with other financial companies and developers. Notably, one major phone company appears to be slightly behind. Until Apple rolls out a NFC iPhone, both consumers and merchants will be slow to change over their hardware (yet again).
In the meantime even Google might not be able to move the market for another five years. Neff estimates America’s conversion costs to be as high as three billion dollars. Consumers won’t pay for that (at least not without a cool iPhone) and banks are already spending large sums on EMV hardware. Merchants won’t pay once to convert to EMV and yet again to convert to mobile wallets– unless both pay for themselves in a very short time. Until then the industry is waiting for a cheap standard to emerge that will dramatically lower merchant processing fees.
But when mobile wallets are everywhere, personal-finance software will step up. Imagine if your latest transaction was automatically updated and categorized to your Quicken account (no downloading required) and an electronic receipt was available to both you and the merchant for returns. No more paper charge slips in my pocket, on my desk, or in my files! Once your mobile wallet has your receipt it could check the retailer’s website for sales, deals, or club offers. Based on your phone settings, it would also decide whether to add its number and e-mail address for more texts or e-mails announcing future discount codes or contests. Every time you’re near that retailer’s location, the mobile wallet could let you know about unadvertised discounts or drop-in deals. Companies are already offering these services, and a mobile wallet will just make it easier.
I can wait. My mobile wallet would also need to hold my military ID, my driver’s license, and my library card– either on plastic or in bytes.
I’ll be even happier when a mobile wallet is a subcutaneous microchip. I want the video display & microphone painted onto the palm of my left hand and a speaker implanted in my earlobe. It’d be sweatproof and surfproof, too. But maybe that’s just crazy talk…
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