LL: Mobile banking is the next big technological development. Have you quantified the opportunity?
OG: So, it might be argued that the first big wave of mobile banking has passed through already. Companies like Intuit, Firethorn, and Fundamo (in Europe) have been producing mobile banking solutions for some time, mostly as white-label offerings.
Consumers expect the freedom to manage their finances on the go, and their choice in financial institutions increasingly hinges on this need being met. With mobile banking services provided by financial institutions, including Text Message Banking and downloadable smartphone applications, consumers can turn their phones into a reliable financial management tool. In fact, these services have been universally popular, producing millions of queries for bank balances per month and enable banks to deliver a consistent, connected experience across the online and mobile channels.
What is happening now is the expansion of mobile banking solutions into financially-related areas where consumers and small business really need more help. No longer will we (as consumers) be restricted to only getting our account balance, or confirming a check has successfully cleared. We'll be able to replace our wallets and pay for goods and services with our phones, and perhaps even manage our budgets (which we do to some effect with our Mint product today).
In the small business realm, we're already able to accept credit cards (with products like Intuit's GoPayment), and approve wire transfers (with services like our mobile banking solutions for small and medium-sized banks). Soon we'll be able to perform even more complicated tasks.
From a revenue perspective, there's an awful lot at stake in the payments and banking fields as this new expansion of mobile financial solutions comes. One stat that I find promising is from Generator Research which pegs the mobile payments business alone at over $600 billion by 2014. Even if that estimate is off by half, it’s a huge opportunity, and that's not even the biggest number I've read an analyst cite.
LL: There are some fears that this may not be safe. How safe is it? Should be concerned?
OG: Intuit Financial Services’ mobile banking platform meets the same privacy and security thresholds as online banking, which is regulated by the FFIEC. Our banking offerings, systems and processes are annually audited to the strictest standards in the industry. You can find out more about our specific security measures on the web at Intuit Financial Services.
Our GoPayment product has been tested and certified to comply with the highest standards of the Payment Card Industry, and not only uses the strongest encryption available on mobile devices but literally encrypts the credit card information from the moment the credit card is swiped through the phone. Your data is never out in the open or stored in the device. In some ways GoPayment is more secure than a traditional credit card machine.
As for the future, if a technology called Near-Field Communication gets widely deployed on phones (which Google has delivered on and Apple is hinting about), there will be an additional layer of security added by that technology that will make these payment transactions even more secure.
LL: So essentially, your android or iphone can replace your wallet. How fast do you expect adoption?
OG: This is actually a pretty complicated question, as getting the cell phone part to work is arguably the easiest part of making all this happen. We've (Intuit) had the technology to do this for almost 10 years.
There are really three problems left which have each been solved to some degree (and hopefully enough that mobile wallets take a big leap forward this time out). They include how banks, credit card associations and handset manufacturers work together to split up transactions fees, how the industry is even going to be able to get enough consumers to use the mobile wallet (and merchants to accept them) and making sure that the user experience remains easy to use—as easy to use as a real wallet.
But even after all these problems are solved, I believe there's one more that looms, and it's a problem that every single mobile wallet outside the US has had trouble overcoming (and one reason it's taken so long for us to get here):
Consumers just don't want a new way to spend their money faster; they want a way to spend it more wisely. This is why for Intuit—we think making a smart wallet is the ideal solution to help meet customer needs, and we think we have the solutions that we can make this a reality.
Having a wallet that is actually smarter about managing your money than you are is what customers are really looking for. It'll help you choose the best credit card to use (so you maximize your cash back or your mileage or your points), remind you of overdue bills, help you avoid unnecessary banking fees, and even work with you to ensure you stay on budget and reach your financial goals. Once that wallet hits, everyone will want one, and the market will take off like a rocket.
Until then, though, expect a pretty big hype cycle, and some limited but promising results among early adopters for a year or two.
—OG: Definitely, and beyond. In the next few years, all of your payment vehicles (some the average consumer has heard of, and some only really available to small businesses) will be accessible through your mobile wallet. A joint venture by Discover, Verizon, AT&T, and T-Mobile called Isis is already working really hard to make it a lot more likely that you'll leave behind the plastic and go mobile. If they manage to hit their stride, you can expect that more credit card companies will follow
LL: Brett, what does mobile banking mean for the banking industry?
BK: Mobile banking is part of an individual's basic expectation of a service proposition from a bank these days. Some banks are reporting extraordinary results. St George Bank in Australia reports that transactions through their Mobile App exceeds that of their Top 40 branches these days. Others are reporting increase in customer profitability, increase in use of Internet Banking and other effects from the mobile engagement phenomenon. By 2015 Mobile will be the most interacted channel, day-to-day, for retail banks in the USA.
So what does it mean? It means a change in the way you see your bank, the way you involve your bank day-to-day in your life, and accessibility to banking services.
The first bank in the US to launch "App-based" Mobile Banking was Bank of America back in August of 2007, immediately after the launch of the iPhone that year. That App now supports more than 6 million customers, 100,000 customers a day, and it has resulted in more than 250,000 new customers joining Bank of America. When USAA launched remote check deposit via the iPhone/Android platform, it had a similar effect, with customers joining the bank just to get access to the App. This isn't because they are great banks, it isn't because they have great Apps (B of A's app gets a 1.5 of 5 rating on the iTunes store)—it's because customers are increasingly mobile and demand access to a wide range of services and content through their mobile device.
LL: Are the banks ready for this innovation?
BK: Not at all. Although the iPhone, Android-based phones, the iPad and other technologies are run away successes for their respective brands, it is astonishing that less than 7 percent of US banks offer a mobile banking service today. So I think those stats speak for themselves. HSBC , one of the worlds' leading global banks, still doesn't offer mobile banking today.
LL: Why the slow response?
BK: Two reasons. Firstly, they don't understand customer behavior, so they have been caught off guard by the rapid take up of mobile smart phones or App phones, and secondly, the organization structure is still very heavily biased in most cases toward the branch as the primary customer channel. So often the reason an App is not developed is that they aren't willing to take the budget from the traditional 'bank'—certainly this was the case during the financial crisis. The simple question to ask a bank to find out if they are ready… "Who's your head of Mobile?"
There are very few that have made this step. First, they have to support the technology. Secondly, they have to shift direction to understanding how banking can be 'contextual'. Banks need to start thinking about why a customer would want to have access to banking services when they are on the move. By understanding what triggers the need for access to banking services on the mobile, banks will find a whole range of revenue and service opportunities for their customers.
LL: Which banks stand to profit form this?
BK: The first movers in this space are already profiting. Bank of America , USAA, JPMorgan Chase all recorded rapid adoption of their respective Apps, along with acquisition of new customers. However, the real risk is that it is pretty easy to create compelling mobile experiences that are very much like traditional banking. So the reality is that many non-bank players are raking it in with this technology too.
Let's take Kenya for example. There are 4 big banks in Kenya, the oldest of which was founded in 1896. Between these big 4 banks, they have around 3.5 million customers, and 750 branches. In 2006, however, Safaricom (Kenya's largest mobile operator) launched mobile payments technology through their M-PESA product. Today, M-PESA has 12 million customers, 18,000 physical outlets, and represents close to 10 percent of Kenya's total GDP. Arguably M-PESA is the biggest bank in Kenya, and one of the largest in Africa. But it doesn't have a banking license… Think of the 50 to 70 million unbanked in the USA, 50 percent of whom are college graduates, 25 percent of whom have prime credit ratings, 90 percent of whom own mobile phones…you get the idea.
LL: Who are the losers?
BK: Obviously smaller regional banks are really challenged by this because they will find it difficult to invest in building the capability, and because they will likely believe that their customers won't be reliant on mobile technology. Thus, the opportunity for competitors to take away customer/market share is acute.
However, I think the real losers are likely to be the banking sector as a whole. I foresee a world in the next 10 years where more and more banking and payments activities move to the mobile enabled by the Googles and Apples of the world, and where banks are once removed from customers. If bank's don't want this to happen, then they need to focus on closing the gap between customer behavior and the institution.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."