The 1 Trend Banks Can't Afford to Ignore

Banks are naturally skeptical of change, and they were slow to adapt to the Internet age in the 1990s and 2000s. But with the explosion of smartphones and mobile technology, now is the time for banks to double down on mobile banking.

And if they do, banks will have a profit center in the pocket of every mobile customer across the world. 

The Internet is changing
According to Mary Meeker of the venture capital firm Kleiner Perkins Caufield and Byers, 78% of Americans today are on the Internet -- which gives banks approximately 244 million potential online customers. But as Meeker explains, the Internet is currently undergoing a sea change. Since 2009 mobile use has been multiplying 1.5 times per year; today, mobile use constitutes 15% of total Internet traffic.

The Internet is going mobile. Banks, therefore, must be prepared to compete and win in this new, mobile marketplace.

How do the banks stack up?
Wells Fargo (NYSE: WFC  ) and JPMorgan Chase (NYSE: JPM  ) are good representations of the industry at large. Both banks reported a 32% increase in active mobile customers year over year. Both banks mention mobile in their investor presentations and reporting, but the reports leave me feeling that mobile is not a major focus for them. The growth trends in mobile customers more likely result from the broader trend, and do not reflect innovative products at either bank.

In contrast, Bank of America (NYSE: BAC  ) has embraced the trend to mobile banking, repeatedly mentioning mobile when it discusses consumer strategy. The bank reports that more than $9.3 million in deposits were processed via smartphone camera in Q1, a 36% increase over Q4 2012. The renewed focus is helping boost Bank of America in mobile banking, with 30% year-over-year growth in mobile users. That acceleration, based on the momentum shown in Meeker's presentation, is likely to continue.

BofI Holding's  (NASDAQ: BOFI  )  subsidiary, Bank of the Internet, is a $2.8 billion online-only bank and an excellent case study in the benefits of engaging customers primarily online. Without a large branch network, the bank is able to produce a stellar efficiency ratio -- a measure of non-interest expenses to revenue -- of just 36.3% as of March 31, 2013. And, most importantly, the bank is viable as a business; it has been in operation for 12 years, has 40,000 customers with either a loan or deposit account, is profitable, and grew its loan portfolio by 37% year over year as of March 31, 2013. For larger national banks, Bank of the Internet is a proof of concept: Financial services can profitably exist online.

The only thing constant is change
For banks, the mobile web is a trend that cannot be ignored. Consumers clearly demand access to financial services on the go. Now it's up to the banks to meet that expectation.

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  • Report this Comment On July 03, 2013, at 2:56 PM, mccrawf wrote:

    Jay,

    Good article; for BAC, their CEO is quoted at saying they have "100,000 checks a day [deposited] by people taking pictures of them". Are you sure you didn't misquote and insinuate the amount deposited in dollars versus volume? Else it insinuates $1 average check amount. Would love to see that source.

    My quote comes from the 1Q13 earnings transcript: http://seekingalpha.com/article/1348091-bank-of-america-s-ce...

  • Report this Comment On July 09, 2013, at 3:21 PM, Gilseki2U wrote:

    Jay,

    Nice article. I was a bit surprised there was no mention of GDOT, as their mobile bank officially kicked off over the 4th of July weekend. Additionally, GDOT's 'pay what you want' fee schedule is both intriguing and worth a comment or two. BAC is on the right track; unfortunately, their "screw the little guy" philosophy or the perception thereof, is bound to eventually derail that train.

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