Are Banks Ready for the Smartphone Revolution?

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Mobile and online banking services are hot, and several banks have been jumping in, developing new and better apps for mobile phones and tablets. Bank of America (NYSE: BAC  ) , a trailblazer when it comes to mobile and tablet banking, found out just how popular these services are when a service outage earlier this month sparked outrage among users -- many of whom took to social media sites to vent their anger.

Despite the gains made by banks like B of A, customers are thirsting for more mobile services, and banks may be falling behind in some key areas: providing apps that give consumers the services they consider the most important, and developing these desired apps specifically for smartphones.

Customers find banking apps lacking
A recent study found that banking apps are woefully deficient when it comes to providing the types of services consumers crave. One of the main issues for customers is a lack of communication from their bank regarding the status of their accounts.

Almost two-thirds of those surveyed felt that their bank should notify them when their balances were low, and 70% were adamant that such a notice would have saved them an overdraft fee in the past. Users in the 18 to 24 age group were even more critical of this lack of communication on the part of their bank, with 73% saying that it is the bank's responsibility to supply them with this type of information.

Banks are responding, slowly
Mobile bill payment is another sought-after feature, and more than half of respondents considered this very important. On this score, at least, banks are making an effort to please. B of A, JPMorgan Chase (NYSE: JPM  ) , Wells Fargo (NYSE: WFC  ) , First Niagara Financial (NASDAQ: FNFG  ) , and First Financial  (NASDAQ: FFIN  ) all currently offer this service, and US Bancorp   (NYSE: USB  ) plans to roll out a mobile bill payment option next month. Except for First Niagara, which will offer the service later this year, all of these banks also offer apps for mobile check deposit, another feature coveted by customers.

Smartphones: The future of mobile?
The biggest wave breaking on the shores of mobile banking involves smartphones. A recent study by Forrester Research reveals that 84% of U.S. adults who use the Internet on a daily basis now own smartphones. By 2016, the company expects more than 200 million people to have these devices -- more than half the country's total population.

That's a lot of smartphones, and people want to use them to perform banking chores. A survey of smartphone and tablet users last October showed that over 70% of respondents plan to use their devices to do their banking. While the bigger banks have apps for smartphones that perform basic banking functions, some analysts note that more creativity is required to keep customers happy.

For example, a recent American Banker opinion piece suggested that apps could be used to enable customers to apply for credit cards or mortgages. This idea is already in the works -- but for ATMs, not smartphones. But these new ATMs are envisioned as adjuncts to teller service, not as a mobile banking feature. However, as the author suggests, a useful app could let consumers pre-qualify for such financial products.

Banks need to get on the smartphone-banking bandwagon
As banks close branch locations, mobile banking becomes an even more important way for institutions to retain customers, and attract new ones. While offerings such as mobile deposit are considered "table stakes," that don't necessarily give the particular banks an edge over others, there are good reasons to continue improving the quantity and the quality of these mobile services -- and to give customers the features they clamor for.

One very good reason is cost. While transactions involving tellers cost the banks nearly $4 a pop, online and mobile transactions weigh in at a mere $0.56.

Another is that, since almost half of smartphone users reported that mobile offerings factored heavily in their decision to switch banks, keeping customers now seems dependent upon making these services available.

Some banks have heeded the call for more personalized features for smartphones. PNC Financial (NYSE: PNC  ) , for instance, has developed a smartphone app that notifies customers of activity on their accounts, and privately held Dollar Bank allows customers to sign up for alerts for account activity, balance levels, and bill payments.

Why is PNC so well-informed regarding customers' needs? Simply put, it makes an effort to keep up with consumer demands. PNC officials note that the bank keeps up with new technology, but more importantly, it pays attention to consumers themselves. The bank constantly monitors Facebook and Twitter to garner feedback and gauge developing trends, thus giving it an edge.

Will other banks take PNC's lead? If they want to stay competitive, they will. PNC has proved that it's really not that hard to find out what consumers want. If banks are serious about fostering long-term relationships with their customers, they will take the time and make the effort necessary to make smartphone banking more convenient -- and save themselves money in the process. 

The big banks may be rushing to renew their focus on traditional banking, but well-run regional banks like PNC Financial are already there. PNC saw its share of hardships during the financial meltdown, but its management team thinks the bank is now back on track and ready to deliver for investors. Does this mean it's time to buy PNC? To help you figure that out, one of The Motley Fool's top banking analysts has authored a brand-new premium research report, delving into everything investors need to know about PNC today. To claim your copy, simply click here now for instant access.

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