Mobile Banking: Banking on Your Smartphone

Last Updated May 3, 2011 10:54 AM EDT

Picture this: You're at the airport waiting with your wife to board a plane to some warm weather spot when you get a frantic call from your daughter at college. "Dad, I need money," she says. "My tuition was due yesterday. If I don't pay the bill tomorrow, I can't start classes!" What do you do?

Just a few years ago, you might have had to head to the bank to wire your daughter the money, while your wife flew off to the islands without you. But today, with a smartphone, you can transfer the money directly into your daughter’s account right from the terminal and have enough time left over to enjoy a pre-flight cocktail and some overpriced airport food.

The mobile revolution means that you can now check your balances, transfer money, pay bills, and even make deposits from your smartphone or tablet computer. “The Internet is now a preferred method of banking for consumers,” says Doug Johnson, vice president of risk management policy for the American Bankers Association. “To the extent that the phone is becoming a PC, we have to provide that same functionality on a phone.” Eventually, banks are hoping that you’ll even be able to use your phone or other mobile device as a way to pay for things directly via an embedded or affixed chip.

Whether you’ll actually want to do all these things is another story. While 60 percent of consumers already bank online, fewer than one out of five consumers have tried mobile banking, according to Mark Schwanhausser, an analyst with Javelin Strategy & Research. The main reason? Consumers aren’t sure they see the value in it. For financial institutions, every transaction you carry out on your phone or online is one less that requires the assistance of a human being, but banks have to do a better job of convincing consumers that mobile banking is good for them, too, say Schwanhausser and others.

According to a 2010 survey by Javelin, the top three reasons consumers gave for not banking by phone were that they didn’t see the value of it (cited by 47 percent of respondents), concerns about security (38 percent), and the cost of data access on their wireless plan (25 percent).

What’s Possible Now

There are currently three main ways to mobile bank:

  1. Via your smartphone’s browser. Think of this as mobile banking 101. You launch your browser, type in your bank’s web address and log in, and do transactions just as you would if you were at your computer. Except the screen is 3 inches tall.
  2. Via a customized mobile app. The banks that are at the forefront of mobile banking, including Citi, Chase, Bank of America, and USAA, have created downloadable apps that are optimized for the small screen. The only catch is that not all of them support all the different mobile operating systems yet. So, for example, Capital One makes an app for the iPhone, but not for Android, Blackberry, or the Windows mobile OS. “The banks are focusing on the iPhone and the Android first,” says Javelin’s Schwanhausser.
  3. Via text message. About half of the banks that offer some form of mobile banking also let you bank by SMS text. You message your bank with simple commands and instantly receive basic information such as account balances, a tally of your most recent transactions, or details about your credit card payments.

Only 42 percent of banks with some type of mobile banking offered all three access methods, according to Schwanhausser. But in addition to familiar activities like transferring money between accounts and paying bills, there are a few other things you can do on a smartphone that you can’t do elsewhere.

  • Make a deposit: If your phone has a camera, you can download an app that allows you to make a deposit from anywhere by taking a photo of the front and back of a check. The app reads and validates the information and when you’re done, you simply destroy the check. To limit the possibilities for fraud, banks limit the amount you can deposit each day and month. Currently, Chase and USAA are the only large banks to offer mobile deposit, but some smaller institutions, like US Bank, have also rolled it out, and analysts expect to see several more institutions offering it before year’s end.
  • Get text and email alerts: Want to know when your credit card or mortgage payment clears? How about when the balance in your checking account dips below a certain amount so you can avoid paying a fee or bouncing a check? You can set up text or email alerts to get notified immediately. Right now these are only one-way alerts, meaning you’ll have to launch your browser or app if you want to do something in response. But eventually, experts say, these messages will become ‘smart’ alerts that let you take action directly via a text response.
  • Find an ATM or branch: Until Steve Jobs figures out how to build a phone that can print money (iBenjamin?), there are some things you can’t do remotely. So most banks offer the ability, via apps or their mobile websites, to find the nearest place to get cash.
  • Reach customer service: With text banking, you can send a question via text message to your bank and receive an answer back in seconds. Some banks, including Citibank, are even using Twitter to answer some customer service questions.
  • To be sure, only about 12 percent of consumers say they regularly bank by smartphone — primarily early adopters, those with high incomes, and people under the age of 35, according to Forrester Research. But as applications like the above start to become more widely available, their ranks will grow. After all, it wasn’t too long ago that the idea that all of us needed to carry phones around with us all day seemed crazy too.

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