FRB Paper Delivers Major New Insights into FI Mobile Engagement Efforts

by Tim Sloane 0

The Federal Reserve Bank of Boston has published a must read white paper entitled “Mobile Banking and Mobile Payment Practices of U.S. Financial Institutions: Results from 2014 Survey of FIs in Five Federal Reserve Districts.” Developed by the Federal Reserve Bank of Boston’s Payment Strategies team in partnership with Atlanta, Dallas, Minneapolis, and Richmond, the publication delivers major insights into the mobile banking practices and mobile payment plans of banks and credit unions.

The response rate for each district was significant. Boston had the highest total response rate, with 28% of their 639 banks and credit unions responding. The lowest response rates were received from Minneapolis and Richmond at 5%. There were 625 total responses received from all 5,453 recipients which is an average response rate of roughly 11% — which is well represented across banks and credit unions of all sizes which is also detailed within the publication.

The report identifies the suppliers banks have relied upon for mobile banking solutions in Figure 12 which is also described in the report:

“Figure 12 presents FIs’ use of mobile banking vendors. Not surprisingly, the three large core processing vendors – Fiserv, FIS, and Jack Henry – are the chief providers of mobile banking solutions to most respondents. Fiserv leads for banks and credit unions, with 27 percent of all respondents selecting them as their mobile banking vendor. For banks only, the number two choice was FIS (15 percent), which is used by 12 percent of all FI respondents, but only 3 percent of credit unions. Overall for credit unions, the number two choice was Access Softek (18 percent). The FI results for Atlanta, Boston, and Minneapolis are consistent with the consolidated FI results in terms of the top three vendors. In Richmond, however, the second ranked vendor for all FIs was Digital Insight, and in Dallas, First Data was third.

Credit unions tend to rely on a host of smaller local or regional providers, too many to enumerate except as “Other” providers. Moreover, compared to banks, credit unions differ significantly in how they use core processing providers – in part due to their smaller size and scope of business. Credit unions in all districts, except Boston, selected Fiserv as the primary provider. (Boston credit unions selected Access Softek.) Credit unions in all districts other than Atlanta ranked Digital Insight second, while in Atlanta Access Softek edged out Digital Insight (13 percent to 11 percent). These outliers, however, reversed the consolidated credit union second and third positions.

In aggregate, however, the three large core processors are used by 50 percent of FI respondents and the next four processors are used by another 25 percent. The remaining 22 percent encompasses many other providers with at least one percent share of the market, as well as the 16 percent using “Other” providers.”

The publication asked for input on a range of mobile technologies, including:

“The 2014 survey asked about 18 different mobile offerings in the following categories:
– Basic information about the institution (e.g., ATM, branch locator)
– Account and transaction information and history
– Funds transfer
– Bill payment and presentment
– Advanced services (including person-to-person (P2P), mobile RDC, international remittances)
– Credit and debit information and history

Five basic services are offered by about 75 percent of the respondents, and most of the remaining percent plan to offer them by 2016. They are:

– Checking balances (DDA, Savings) – 84 percent
– Transferring funds between a single owner’s account within the FI – 82 percent
– Viewing statements and transaction history (DDA, Savings) – 79 percent
– ATM / branch locator – 75 percent
– Bill payment – 74 percent”

Also interesting is the consistency with which financial institutions indicate services they have no interest in offering:

“Respondents were also consistent in their decisions about the mobile banking services that they do not plan to offer, which include:

– International remittances – 97 percent
– Access to brokerage services – 95 percent
– Viewing prepaid account history – 88 percent
– Checking prepaid account balances – 87 percent
Many smaller institutions do not offer these services via the online channel or at all, so the fact that respondents have no plans to support them in the mobile channel is not surprising.

Three informational capabilities are considered standard for any mobile banking program: the ability to (1) check DDA and savings account balances; (2) view statements and transaction history (DDA, savings); and (3) locate ATMs and branches (Figure 14). Richmond led the districts in all three measures (87 percent, 82 percent, and 89 percent respectively) compared to consolidated averages of 84 percent, 79 percent, and 75 percent. Minneapolis results were about 20 points lower than those of other districts because its respondents are newer to mobile banking. However, they “plan to offer” these services to close the gap in the near term.

By the end of 2016, all respondents plan to have balance-checking capabilities, and upwards of 94 percent plan to have statement and transaction history available for viewing. Providing ATM and branch location information – clearly a convenience feature – remains lower on the priority list.”

This publication provides a review of current use and future adoption of internal and external mobile A2A transfers, mobile P2P transfers, mobile Bill Pay and Remote Deposit Capture, and more futuristic functions such as mobile account opening.

We will skip over the sections that investigate the financial institutions motivations for developing mobile features and how the features are communicated to customer and propects, but the publication does an excellent job of breaking out which features are considered relevant to satisfying existing customers versus needed to attract new customers. It also identifies that applying mobile to the needs of businesses lags substantially behind consumer engagement.

The publication offers significant insights regarding consumer adoption of the mobile products offered by financial institutions:

“Financial institutions have been cautious about rolling out mobile banking services to consumers and, more recently, to businesses. The survey history from New England shows a pattern of FIs progressing from a soft launch (often with FI employees), to selected retail customers, and then to retail customers more generally. Until the 2014 survey, no more than five percent of an institution’s consumer base and less than one percent of its business base (if any) were actively using mobile banking services. From early 2013 to July/August 2014 (when the FRBB-NEACH surveys were conducted), however, there was a significant jump in consumer adoption rates. For the first time in the survey’s history, 2014 saw rates jump from “less than 5 percent” to “5 percent to 20 percent,” or more. Today, there is a more active environment for enrolling and engaging mobile banking users, with active users only slightly lagging enrollments. Of the consolidated responses, just 28 percent and 24 percent, respectively, are from FIs with fewer than five percent of their retail customers actively using or enrolled in mobile banking (Figure 27). The largest group of FIs (52 percent) has active users in the 5-to-20 percent range. For 16 percent of FIs, active mobile banking users range from 21-to-50 percent of their retail customers. Although only four percent of the FIs have more than 50 percent of their retail customers actively using mobile banking, the shift from 2013 to 2014 represents substantial progress, especially given that most respondents are smaller banks and credit unions.”

The publication also identifies the top barriers inhibiting the deployment of mobile banking. In the section that looks at the technologies that financial institutions are adopting to enhance security, it is interesting to note that out-of-band authentication, Geolocation, tokenization, and biometrics are the least adopted technologies, despite the greatly increased use of these technologies by retailers and internet solutions providers.

The publication also looks at mobile payments, but it must be recognized that the survey was conducted two months before Apple Pay was launched:

“Now that many FIs have fully implemented mobile banking, they need to concentrate on increasing mobile banking adoption and building a mobile payments strategy. If the percentage of FIs currently offering mobile payments (10 percent) is combined with FIs planning to offer mobile payments in the next 1-2 years (47 percent) the results are promising. Nearly 60 percent of FIs should be offering mobile payment services by the end of 2016 (Figures 33 and 34). (Among New England FIs this percentage rose from 39 percent in 2013 to 58 percent in 2014.)

It is possible that the 43 percent of FIs not planning to offer mobile payments may change within the next two years – as was evident from the New England district’s experience. Findings from the earlier New England surveys indicate that FIs change their strategies for a variety of reasons and find themselves offering mobile services when they originally had no plans to do so.”

This is incredibly important and timely information for everyone in the payments industry, so don’t delay in downloading this important publication!


Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

download the whitepaper here