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1 Monetizing Mobile Banking FOR Small Business Customers 2014 Simon-Kucher & Partners RateWatch Sales and Service:

2 Executive Summary Mobile banking offers huge potential to improve interaction with small businesses, and yet too often financial institutions give core mobile banking services away for free. Unlike consumers, a wide range of small businesses is readily willing to pay for mobile banking services. For instance, they would be willing to pay up to 5 a month to conduct peer-to-peer transfers or add money to prepaid cards. Financial institutions, however, are blindly following broad mobile banking industry trends, offering packages dominated by basic informational services, for which small businesses are unwilling to pay. In many cases, little thought goes into which features institutions should offer to meet the needs of different small businesses or what the optimal price metric and level should be. This leads to mobile banking solutions that are not oriented on creating value for small businesses and consequently, not generating revenue. Ensure the commercial success of mobile banking offerings Small businesses are willing to pay up to 5 a month to "conduct peer to peer transfers" or "add money to prepaid cards" through mobile banking. The commercial success of mobile banking, not unlike many other products and services institutions already offer, relies on four key aspects: 1. Understanding customer needs, 2. Designing a mobile value proposition, 3. Determining how to price, and 4. Setting the right price levels. Our four-step Monetizing Mobile Banking framework for defining and pricing winning mobile banking solutions (see Figure 1 on page 3) will enable financial institutions to better realize the commercial benefits of small business mobile banking and provide answers to critical questions, on which institutions frequently deliberate: How are small business clients different in their mobile usage needs and behaviors? Which features are important and of value to small businesses? What combination of features will reach the greatest number of small business customers? Should differentiated packages be offered to target different types of small businesses? What is the optimal price metric? What is the optimal price point or range for the offering? Given the complexity of issues that financial institutions face when developing and launching a new solution in the market place, adopting a systematic approach, such as our four-step framework is highly recommended. Monetizing Mobile Banking For Small Business Customers Page 2

3 B ased upon our experience supporting financial institutions over the last two decades, pricing is almost always an afterthought when bringing a new solution to market. It should be present in every step of the process. Additionally, solutions designed without reference to customer needs or values, often result in over- or under-engineered solutions, or in the case of i. Simon-Kucher & Partners framework for defining and pricing winning mobile banking solutions Figure 1: Simon-Kucher & Partners four-step monetizing mobile banking framework 01 Understand Customer Needs Design Segment small businesses according to banking behaviors, understand their different needs, and prioritize features that are of value to them How are small business clients different in their mobile usage needs and behaviors? What features are important and of value to small businesses? 02 mobile Value proposition Create a mobile banking solution to meet the identified needs of small businesses What combination of features will reach the greatest number of small business customers? Should differentiated packages be offered to target different types of small businesses? About Simon-Kucher & Partners mobile banking services, institutions may experience difficulty in charging for the final mobile solution. The monetizing mobile banking framework identifies four key steps to reap the full commercial benefits of a small business mobile banking solution. 03 Determine how to price Set 04 the right Pricing levels Identify preferences for the pricing structure and metric by which to charge customers What is the optimal price metric? Understand small businesses willingness-to-pay for features and determine the optimal price level or range What is the optimal price point or range for the offering? Simon-Kucher & Partners is a global consulting firm with 700 professionals in 27 offices worldwide focusing on Smart Profit Growth SM. Founded in 1985, the company has almost 30 years of experience providing strategy and marketing consulting and is regarded as the world s leading pricing advisor. Monetizing Mobile Banking For Small Business Customers Page 3

4 ii. Summary of Research Panel and Methodology T he 2014 Monetizing Mobile Banking for Small Business Customers Study is based on a total of 147 unique survey responses completed by small businesses (of up to 4.99 million in annual revenues) based in the U.S. Over 20 major industries were represented, including retail trade, construction, finance, insurance, professional, scientific, and technical services. Over 75% of respondents are individually responsible for managing all of the dayto-day banking for their business, and therefore are well-placed to respond to questions around small business mobile banking solutions. All survey results were completed in First Quarter All responses are weighted according to the revenue category in which they fall, using U.S. census data of small businesses as the total population. A range of statistical and analytical methods, including factor analysis, cluster analysis, and TURF analysis, has been used to develop key insights (for more details, please refer to the appendix). Definition of Mobile Banking: Access to, and provision of, banking and finance services through, mobile devices. Mobile banking sits at the crossroads of banking/ financial services and mobile technology. We see three broad categories of services that institutions can offer (see Table 1 on page 5): Informational services: provide basic facts such as accessing account information and finding branch or ATM locations. Transactional services: allow customers to use their mobile phone to transfer money between accounts, pay vendors or conduct peer to peer transactions, for example. Interactive services: Basic: allow customers to schedule appointments at a branch or monitor fraudulent activities through their mobile phone, for example. Advanced: enable customers to use their mobile phone for actions such as requesting payment flexibility on loans, mortgages or credit cards or negotiating credit increases to support short-term borrowing needs. These services can be categorized in terms of the value they create for businesses (low to high) and the level of technology that they require (currently available technology vs. future directions for mobile banking) (see Figure 2). Figure 2: Mobile banking services along the value and technology dimension Future directions for mobile banking Currently available technology Basic Interactive Services Low Informational Services Value created for small businesses Advanced Interactive Services Transactional Services Informational and transactional services are commonly seen within mobile banking solutions today. On the other hand, interactive services represent features of the next generation of mobile banking solutions. In terms of the services offered today, we see that transactional services create more value for consumers compared to the more basic features included within informational services. Furthermore, with regards to the mobile banking features of tomorrow, we see the advanced interactive services as the ones that will create the most value for small businesses compared to basic interactive features. High Monetizing Mobile Banking For Small Business Customers Page 4

5 Table 1: Mobile banking services Service category Informational Services Transactional Services Interactive Services Basic Advanced Service Accessing account information (balances, recent transactions, statements) Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates) Checking due dates for payments/bills Changing your ATM/Debit PINs Accessing tools that make it easier to manage your finances (day-to-day banking or payroll) Setting up and managing authorized users for mobile banking Receiving service guarantees and knowing how you are protected when you use mobile banking Accessing tips and information to help you better manage your business and finances Reviewing features and rates for new business checking accounts or loans Finding branch or ATM locations Activating your ATM/Debit card Transferring money between accounts to optimize your savings portfolio or to pay off a loan Adding money to prepaid cards Reporting/blocking lost/stolen cards Requesting payment from another party Conducting peer-to-peer transfers Depositing a check Stopping payment on a check Withdrawing from ATMs using your mobile without the need for a card Paying vendors and suppliers via bill pay, ACH, wire, or mobile wallet Receiving payments from your customers via ACH, wire, or credit card Applying for business loans or opening business checking accounts or credit cards Receiving location-based offers (e.g. extra loyalty points when buying something at a specific vendor) Monitoring fraudulent activities (e.g. confirming unusual transactions) Receiving actionable promotion/alerts (e.g. ability to purchase items at a special price) Interacting with institution representatives via video Scheduling appointments at a branch location Reaching your institution when you need to, such as calling customer service or placing an inquiry Receiving cash management advice that is specific to your needs Negotiating credit increases to support short-term borrowing needs Requesting for payment flexibility for loans, mortgages, or credit cards Receiving transaction verification and advanced warning (e.g. identification of a due bill payment and confirmation for the payment being received) Capturing and storing receipts Monetizing Mobile Banking For Small Business Customers Page 5

6 Mobile Usage W e see that there are broadly two categories of small businesses when it comes to the usage of mobile banking services. Firstly, there are small businesses that already use mobile banking and would like to use it more. We find that over 60% of respondents already use mobile banking services, with 34% of respondents using mobile banking services on a weekly basis. Secondly, there are those who do not currently use mobile banking services and do not appear to have a need for such services, but there is iii. Key research findings along the monetizing mobile banking framework potential room for growth. Approximately 33% of respondents have never used mobile banking services (see Figure 3). Among those small businesses that have never used mobile banking services, we see that many remain open to the mobile banking concept. For instance, over 45% of small businesses that have never used mobile banking services, expressed that they do have a need for these services or that the services would be nice to have (see Figure 3). Figure 3: Current mobile banking usage and potential to increase mobile banking usage with those who have never used it over 45% of small businesses that have never used mobile banking services, expressed that they do have a need for these services or that the services would be nice to have NO NEED never USed MoBile 33% Over 80% of small businesses either use mobile banking now or show potential to use. infrequent USe QUent USe 33% weekly USe 34% Monetizing Mobile Banking For Small Business Customers Page 6

7 01 STEP ONE Understand customer needs Segment small businesses according to banking behaviors, understand their different needs, and prioritize features that are of value to them. 2:30 PM MOBILE BANKING Monetizing Mobile Banking For Small Business Customers Page 7

8 How are small business clients different in their mobile usage needs and behaviors? A key element in the design of an optimal mobile banking solution is determining which services to provide in order to maximize appeal. This requires a deep understanding of the banking needs of small businesses and will dictate the ability to charge for a mobile banking offering. Among small businesses, certain groups were found to embrace the concept of mobile banking more than others. Various combinations of banking behaviors were compared and customer types were grouped into four categories using Factor Analysis (see methodology): embrace mobile banking, willing to pay for mobile banking, relationship driven, and cash flow confident. Cash flow confident Step 1: Understanding Customer Needs Embrace mobile banking Willing to pay for mobile banking Relationship driven Monetizing Mobile Banking For Small Business Customers Page 8

9 Step 1: Understanding Customer Needs Then, using these four behavior groups and cluster analysis, six distinct clusters of small business customers were identified based on their overall banking behaviors (See Table 2). (Thirteen banking behaviors were considered for the factor and cluster analyses. See Appendix for methodology.) Table 2: Six clusters of small businesses Behavior Groups Willing to pay for mobile banking Mobile banking savvy Confident & mobile banking savvy Clusters =Above average value ~ = Average = Below average value Relationship driven Financially confident Not engaged Embrace mobile banking ~ Willing to pay for mobile banking ~ ~ Relationship driven ~ ~ Cash flow confident ~ ~ Population % 7% 22% 7% 24% 17% 23% 1 Willing to pay for mobile banking: Businesses in this segment have a willingness-to-pay for mobile banking services, as well as demonstrate a readiness to adopt mobile banking features. They are likely to be tech savvy and are also more likely to have higher annual revenues. They predominantly come from the retail trade industry. Mobile banking savvy: Firms in this cluster embrace 2 mobile banking, however are not cash flow confident and are not willing to pay for mobile banking services. They are likely to be tech savvy and in general they are more likely to have lower annual revenues. They predominantly come from the professional, scientific, and technical services industry. 3 Confident and mobile banking savvy: Within this cluster small businesses embrace mobile banking and also appear willing to pay for mobile banking services. They are cash flow confident, however, are not relationship driven. They are relatively tech savvy and in general they are more likely to have mid to low annual revenues. They come from industries such as finance, insurance, professional, scientific, and technical services. 4 Relationship driven: The banking behaviors of this cluster are strongly driven by the banking relationship. They do not embrace the mobile banking concept and are infrequent users of mobile banking services. On the other hand, they are regular users of online banking, and they are more likely to have lower annual revenues. These businesses come from a wide range of industries including construction, manufacturing, wholesale trade, retail trade, real estate, and rental leasing, among others. 5 Financially confident: Small businesses within this cluster are cash flow confident. They are not relationship driven and are not willing to pay for mobile banking services. They predominantly have low annual revenues and come from a range of industries including construction, retail trade and arts, entertainment, and recreation. 6 Not engaged: These bankers do not embrace the mobile banking concept. Furthermore, they are not relationship driven and they are not cash flow confident. They are not tech savvy and predominantly have low annual revenues. They come from professional, scientific, and technical services. Monetizing Mobile Banking For Small Business Customers Page 9

10 Thirty-six percent of small businesses embrace mobile banking (clusters 1, 2 and 3) and are likely to be interested in a more sophisticated range of mobile banking services. However, financial institutions need to develop an offering that appeals to the remaining 64% of small businesses to ensure adoption by the majority of small businesses and not simply a tech savvy minority. Among small businesses that embrace mobile banking, clusters 1 and 3 also demonstrate a significant willingness-to-pay for these services, while cluster 2 is more price sensitive. Figure 4: Usage of mobile banking by small business cluster 1. Willing to pay for mobile banking Step 1: Understanding Customer Needs 2. Mobile banking savvy 3. Confident and mobile banking savvy 4. Relationship driven 5. Financially confident 6. Not engaged Clusters The behaviors that small businesses exhibit in relation to mobile banking reflect the current mobile banking usage of each cluster (see Figure 4). For instance, over 70% of small businesses in cluster 1, who indicate that they have a strong willingness-to-pay for mobile banking services, are weekly users of mobile banking services. Furthermore, over 60% of small businesses in cluster 2, who embrace the concept of mobile banking, are regular users of mobile banking services, with only 5% having never used mobile banking before. Weekly Infrequent Never 1. Willing to pay for mobile banking 72.3% 15.4% 12.3% 100% 2. Mobile banking savvy 61.4% 33.5% 5.1% 100% 3. Confident and mobile banking savvy 42.7% 11.8% 45.5% 100% 4. Relationship driven 28.5% 37.7% 33.8% 100% 5. Financially confident 16.2% 32.4% 51.4% 100% 6. Not engaged 11.9% 41.2% 46.9% 100% = Weekly User = Infrequent User = Never Used 0% 10% 20% 30% 40% 50% 60% 70% Response percentage 80% 90% 100% Monetizing Mobile Banking For Small Business Customers Page 10

11 In comparison, the proportion of small businesses who are weekly users among small businesses that are not engaged with mobile banking, such as clusters 5 and 6, is less than 15%. The channel preferences displayed by the six banking clusters also closely reflect the banking behaviors that Figure 5: Usage of online banking by small business cluster 1. Willing to pay for mobile banking Step 1: Understanding Customer Needs 2. Mobile banking savvy 3. Confident and mobile banking savvy 4. Relationship driven 5. Financially confident 6. Not engaged Clusters they exhibit. For instance, among those small businesses displaying willingness-to-pay for mobile banking services (cluster 1), over 90% use online banking at least once a week, compared to less than 60% of those that are financially confident (cluster 5) (see Figure 5). Weekly Infrequent Never 1. Willing to pay for mobile banking 91.5% 8.5% 0.0% 100% 2. Mobile banking savvy 82.3% 13.9% 3.8% 100% 3. Confident and mobile banking savvy 72.5% 23.6% 3.9% 100% 4. Relationship driven 85.0% 9.4% 5.6% 100% 5. Financially confident 57.8% 23.0% 19.2% 100% 6. Not engaged 65.1% 21.1% 13.8% 100% = Weekly User = Infrequent User = Never Used 0% 10% 20% 30% 40% 50% 60% 70% Response percentage 80% 90% 100% Monetizing Mobile Banking For Small Business Customers Page 11

12 Understanding the different preferences of small businesses is crucial indesigning an optimal mobile banking offering. In this study, we identify what are the most important features for each mobile banking service category, along with the features that would maximize total reach to small businesses. These will help enable the design of a mobile banking offering that will resonate among all groups of small businesses. As noted earlier, we divided features into three main banking service categories: Informational, Transactional, and Interactive. Overall, informational and transactionalservices in this study are regarded as the most important mobile banking services for small businesses. In the top ten mobile banking features ranked by importance, there are four informational and three transactional services (See Figure 6). Interactive services, both basic and advanced, are regarded as less important to small businesses. This could possibly reflect the fact that these services are not widespread in terms of their availability within current mobile banking solutions or that these services appeal to a niche, smaller group of more tech savvy small businesses. Step 1: Understanding Customer Needs Which features are important and of value to small businesses? As we consider how to design the mobile solution, we assess, in the next step, the most important features for each mobile banking service category. Figure 6: Top 10 overall most important mobile banking features = Informational = Transactional = Basic Interactive = Advanced Interactive Accessing account info (balances, recent transactions, statements) Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates) Monitoring fraudulent activities (e.g. confirming unusual transactions) Depositing a check Reporting/blocking lost/stolen cards Reaching your institution when you need to, such as calling customer service or placing an inquiry Transferring money between accounts to optimize your savings portfolio or to pay off a loan Receiving transaction verification and advanced warning (e.g. identification of a due bill payment and confirmation for the payment being received) Receiving service guarantees and knowing how you are protected when you use mobile banking Checking due dates for payments/bills 0% 10% 20% 30% 40% 50% 60% 70% % respondents who regard a feature as somewhat or very important 80% 90% Monetizing Mobile Banking For Small Business Customers Page 12

13 Informational Services W e Step 1: Understanding Customer Needs find that for informational services, the top three features in terms of the most respondents who regard the feature as somewhat / very important across sectors are: Accessing account information (balances, recent transactions, statements), Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates), and Receiving service guarantees and knowing how you are protected when you use mobile banking (see Figure 7). Figure 7: Informational Services feature importance Accessing account info (balances, recent transactions, statements) Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates) Receiving service guarantees and knowing how you are protected when you use mobile banking Checking due dates for payments/bills Accessing tools that make it easier to manage your finances (day-to-day banking or payroll) Finding branch or ATM locations Activating your ATM/debit card Changing your ATM/Debit PINs Reviewing features and rates for new business checking accounts or loans Setting up and managing authorized users for mobile banking Accessing tips and information to help you better manage your business and finances 0% 10% 20% 30% 40% 50% 60% 70% % respondents who regard a feature as somewhat or very important 80% 90% Monetizing Mobile Banking For Small Business Customers Page 13

14 In general, we see that there is alignment across all clusters of small businesses around the top 2 most important informational services, Accessing account information and Receiving alerts. However, there are noticeable differences among small businesses regarding the importance of other informational services. For example, Setting up and managing Step 1: Understanding Customer Needs Table 3: Informational Services Importance of mobile banking features by cluster Informational Services Accessing account information Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates) Receiving service guarantees and knowing how you are protected when you use mobile banking Checking due dates for payments / bills Willing to pay for mobile banking Accessing tools that make it easier to manage your finances (day-to-day banking or payroll) Setting up and managing authorized users for mobile banking 3 rd NOTE: all other informational services ranked below top three *For cluster 3, Accessing account information and Receiving alerts are tied. authorized users for mobile banking is regarded by cluster 1 as relatively important, in comparison to other groups of small businesses (see Table 3). This may reflect the fact that cluster 1 is made up of predominantly larger firms; therefore, they have a need to set up many different authorized users for mobile banking. Mobile banking savvy Confident & mobile banking savvy Clusters Relationship driven Financially confident Not engaged 2 nd 1 st 1 st * 1 st 1 st 1 st 1 st 2 nd 1 st * 2 nd 2 nd 2 nd 3 rd 3 rd 3 rd 3 rd 3 rd Monetizing Mobile Banking For Small Business Customers Page 14

15 In the case of informational services, Total Unduplicated Reach & Frequency (TURF) analysis (see appendix methodology for more details) indicates that by offering the following three features, Accessing account information (balances, recent transactions, statements), Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates), and Receiving service guarantees and knowing how you are protected when you use mobile banking, 77% of respondents would be reached (see Figure 8). Offering Accessing account information would reach 60% of respondents and adding Receiving alerts would increase total reach by 13%. However, when more features are included, the incremental uplift in reach diminishes. For example, adding the third feature of Receiving service guarantees and knowing how you are protected when you use mobile banking, would only enable you to reach an additional 4% of the population. Step 1: Understanding Customer Needs Figure 8: Informational Services Contribution of top 3 features (TURF) to total reach 4% Receiving service guarantees and knowing how you are protected when you use mobile banking 13% Receiving alerts (e.g. fraudulent activities, low balance, reaching overdraft limit, payment due dates, etc.) Furthermore, a package offering including services beyond these three yields an even smaller uplift in terms of reach. For instance, including the next best feature, as determined by TURF analysis, Finding branch or ATM locations would add only 1.4% extra reach. In general, we see that small businesses are aligned in terms of the most important informational features. There are some slight differences across clusters reflecting the different business needs of clusters; however these are for relatively less important features. Offering the top 3 ranked features by TURF analysis in an informational services package would reach close to 80% of small businesses. Incrementally adding more features yields very little improvement on this, suggesting that any marketing of an informational services package should focus on these three features alone. of all respondents 77% would be reached using these top three features 60% Accessing account information, such as balances, recent transactions and statements Monetizing Mobile Banking For Small Business Customers Page 15

16 Transactional Services T he most important transactional services in a mobile banking offering are: Depositing a check, Reporting/blocking lost/stolen cards, and Step 1: Understanding Customer Needs Transferring money between accounts to optimize your savings portfolio or to pay off a loan (see Figure 9). Figure 9: Transactional Services feature importance Depositing a check Reporting/blocking lost/stolen cards Transferring money between accounts to optimize your savings portfolio or to pay off a loan Paying vendors and suppliers via bill pay, ACH, wire, or mobile wallet Receiving payments from your customers via ACH, wire or credit card Stopping payment on a check Requesting payment from another party Withdrawing from ATMs using your mobile without the need for a card Conducting peer-to-peer transfers Applying for business loans or opening business checking accounts or credit cards Adding money to prepaid cards 0% 10% 20% 30% 40% 50% 60% 70% % respondents who regard a feature as somewhat or very important 80% 90% Monetizing Mobile Banking For Small Business Customers Page 16

17 In general, there is alignment across small businesses with regards to the top 3 transactional services. However, not all small business clusters share the same preferences over transactional features. For instance, businesses in cluster 1 tend to regard Transferring money between accounts to optimize savings portfolio or to pay off a loan Step 1: Understanding Customer Needs Table 4: Transactional Services Importance of mobile banking features by cluster Transactional Services Depositing a check Reporting/blocking lost/stolen cards Transferring money between accounts to optimize your savings portfolio or to pay off a loan Receiving payments from your customers via ACH, wire or credit card Stopping payment on a check Willing to pay for mobile banking as being much more important compared to other small businesses (see Table 4). Businesses in this cluster are larger in terms of annual revenue. Consequently, they may have more accounts and generally a higher need for services that make it easier to manage their banking accounts. Mobile banking savvy Confident & mobile banking savvy Clusters Relationship driven NOTE: all other transactional services ranked below top three *For cluster 1, Depositing a check and Transferring money between accounts to optimize your savings portfolio or to pay off a loan are tied. Financially confident Not engaged 1 st * 1 st 1 st 1 st 1 st 3 rd 2 nd 2 nd 2 nd 2 nd 1 st 1 st * 3 rd 3 rd 2 nd 3 rd 3 rd 3 rd Monetizing Mobile Banking For Small Business Customers Page 17

18 For transactional services, TURF analysis reinforces a simple rank ordering of features in terms of importance. The top three features ranked in terms of importance, are also the features that maximize overall reach. TURF analysis indicates that by offering: Depositing a check, Reporting/blocking lost/stolen cards, and Transferring money between accounts, within a mobile banking offering, we would reach 73% (see Figure 10). Adding Reporting/blocking lost/stolen cards to a mobile banking offering including only Depositing checks would increase the reach by 17%, compared to only 6% from the addition of Transferring money between accounts to an offering including the other two features. Step 1: Understanding Customer Needs Figure 10: Transactional Services Contribution of top 3 features (TURF) to total reach 6% Transferring money between accounts to optimize your savings portfolio or pay off a loan 18% Reporting/blocking lost/stolen cards A transactional services solution, which includes services beyond these, would not lead to a significant increase in reach. For instance, including the next best feature, Paying vendors and suppliers via bill pay, ACH, wire, or mobile wallet would add only 1.1% extra reach. There are slight differences across small business clusters in terms of the most important transactional features and these reflect the different needs of small businesses. In general, however, small businesses are aligned around the top three most important transactional features. Including these features alone within a package would reach over 70% of small businesses. Whereas adding the next best feature would only yield a 1.1% increase in reach. Consequently a mobile banking solution containing transactional services should focus on these top three features in particular to maximize appeal across all small businesses. of all respondents 73% would be reached using these top three features 50% Depositing a check Monetizing Mobile Banking For Small Business Customers Page 18

19 Interactive Services A fter Step 1: Understanding Customer Needs closely looking at the services included in the Interactive service category, we found it practical to separate the services into two sub-groups: Basic and Advanced. Basic Interactive Services F or basic interactive services, there is wide variability in importance of different features. 83% of respondents view Monitoring fraudulent activities (e.g. confirming unusual transactions) as somewhat or very important, whereas only 11% regard Interacting with institution representatives via video as somewhat or very important (see Figure 11). The top three basic interactive services, in terms of importance, are: Monitoring fraudulent activities (e.g. confirming unusual transactions), Reaching your institution when you need to, such as calling customer service or placing an inquiry, and Scheduling appointments at a branch location. Figure 11: Basic Interactive Services feature importance Monitoring fraudulent activities (e.g. confirming unusual transactions) Reaching your institution when you need to, such as calling customer service or placing an inquiry Scheduling appointments at a branch location Receiving actionable promotions/alerts (e.g. ability to purchase items at a special price) Receiving location-based offers (e.g. extra loyalty points when buying something at a specific vendor) Interacting with institution representatives via video 0% 10% 20% 30% 40% 50% 60% 70% % respondents who regard a feature as somewhat or very important 80% 90% Monetizing Mobile Banking For Small Business Customers Page 19

20 In general, small business clusters are well aligned on the top 2 most important basic interactive services (see Table 5). This reflects that there is a strong desire for institutions to provide security and protection, as well as access to address inquiries. However, there are some slight differences among clusters on relatively less important features. For instance, clusters 1 and 2 regard Step 1: Understanding Customer Needs Table 5: Basic Interactive Services Importance of mobile banking features by cluster Basic Interactive Services Monitoring fraudulent activities (e.g. confirming unusual transactions) Reaching your institution when you need to, such as calling customer service or placing an inquiry Scheduling appointments at a branch location Receiving actionable promotion/alerts (e.g. ability to purchase items at a special price) NOTE: all other basic interactive services ranked below top three Willing to pay for mobile banking Receiving actionable promotions and alerts as relatively more important than Scheduling appointments at a branch location. This could possibly reflect the fact that clusters 1 and 2 are not relationship driven, but they are tech savvy and display a readiness to adopt mobile banking features. Mobile banking savvy Confident & mobile banking savvy Clusters Relationship driven Financially confident Not engaged 2 nd 1 st 1 st 1 st 1 st 1 st 1 st 2 nd 2 nd 2 nd 2 nd 2 nd 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd Monetizing Mobile Banking For Small Business Customers Page 20

21 For basic interactive features, TURF analysis shows a slightly different picture from a simple rank ordering of features by importance. To maximize total reach through basic interactive services, the following three services should be included with the package: Monitoring fraudulent activities, Reaching your institution when you need to, and Receiving location-based offers, A mobile banking solution offering these three services would lead to a reach of 60%. A reach of 51% would be achieved through offering Monitoring fraudulent activities alone (see Figure 12). Incrementally adding the service, Reaching your institution when you need to, would only yield an extra 8% reach. Adding Receiving location-based offers would increase by only 1% more. Going beyond the top three features identified by TURF analysis and including the next best feature in Step 1: Understanding Customer Needs Figure 12: Basic Interactive Services Contribution of top 3 features (TURF) to total reach 1% Receiving location-based offers (e.g. extra loyalty points when buying something at a specific vendor) 8% Reaching your institution when you need to, such as calling customer service or placing an inquiry a package offering, Receiving actionable promotions/ alerts (e.g. ability to purchase items at a special price), would yield only a 0.3% uplift in terms of reach. In general, although there is alignment across clusters around the most important basic interactive features, small businesses do not view this set of features as particularly important. The maximum reach given a solution with the top three features is 60%, compared to over 70% for informational and transactional services. This reflects the fact that although businesses need certain basic interactive features, such as Monitoring fraudulent activities and Reaching your institution when you need to, they can do without the remaining features. 60% of all respondents would be reached using these top three features 51% Monitoring fraudulent activities (e.g. confirming unusual transactions) Monetizing Mobile Banking For Small Business Customers Page 21

22 Advanced Interactive Services I n terms of advanced interactive services, there are three services which are ranked relatively more important compared to the rest: Receiving transaction verification and advanced warning (e.g. identification of a due bill payment and confirmation for the payment being received), Capturing and storing receipts, and Requesting payment flexibility for loans, mortgages, or credit cards (see Figure 13). However, these features are somewhat less important to respondents when compared with the top ranked informational, transactional, and basic interactive features. This reflects the fact that they only appeal to a certain subsection of the population who are more sophisticated bankers. Figure 13: Advanced Interactive Services feature importance Step 1: Understanding Customer Needs Receiving transaction verification and advanced warning (e.g. identification of a due bill payment and confirmation for the payment being received) Capturing and storing receipts Requesting for payment flexibility for loans, mortgages, or credit cards Negotiating credit increased to support short-term borrowing needs Receiving cash management advice that is specific to your needs 0% 10% 20% 30% 40% 50% 60% 70% % respondents who regard a feature as somewhat or very important 80% 90% Monetizing Mobile Banking For Small Business Customers Page 22

23 There is alignment across all clusters with regards to the top two most important advanced interactive features (See Table 6). However, for the 3rd most important feature there are differences across clusters. For instance, we see those businesses that embrace the mobile banking concept rank receiving cash management advice specific to your needs as particularly important. Whereas small Step 1: Understanding Customer Needs Table 6: Advanced Interactive Services Importance of mobile banking features by cluster Advanced Interactive Services Receiving transaction verification and advanced warning (e.g. identification of a due bill payment and confirmation for the payment being received) Capturing and storing receipts Willing to pay for mobile banking Requesting for payment flexibility for loans, mortgages, or credit cards Negotiating credit increases to support short-term borrowing needs Receiving cash management advice that is specific to your needs NOTE: all other advanced interactive services ranked below top three businesses in cluster 6 regard requesting for payment flexibility for loans, mortgages, or credit cards as relatively more important. This could be driven by the fact that they tend to have lower annual income and are not cash flow confident. Therefore, they may have a need for payment flexibility. Mobile banking savvy Confident & mobile banking savvy Clusters Relationship driven Financially confident Not engaged 1 st 2 nd 1 st 1 st 1 st 1 st 2 nd 1 st 2 nd 2 nd 2 nd 2 nd 3 rd 3 rd 3 rd 3 rd 3 rd Monetizing Mobile Banking For Small Business Customers Page 23 3 rd

24 TURF analysis reinforces a simple rank ordering of features and it reveals that by offering the top three features in terms of importance, Receiving transaction verification and advanced warning, Capturing and storing receipts, and Requesting payment flexibility for loans, mortgages, or credit cards, the achieved reach would be only 33% (see Figure 14). This is a low overall total reach and it is not enhanced by adding features. For example, adding the next best feature identified in TURF analysis would not enhance Step 1: Understanding Customer Needs the reach at all. This owes to the fact that advanced interactive services only appeal to a tech savvy niche subset of small businesses. Advanced interactive services have a lower overall appeal to small businesses relative to the other three categories. This is because they are more specialized services and are likely only to appeal to a niche set of small businesses who are tech savvy and embrace mobile banking. There is alignment across small businesses on the top two advanced interactive features. However, including all three top services in a mobile banking solution would only reach 33% of the population. Figure 14: Advanced Interactive Services Contribution of top 3 features (TURF) to total reach of all respondents 33% would be reached using these top three features 22% Receiving transaction verification and advanced warning (e.g. identification of a due bill payment and confirmation for the payment being received) 9% Capturing and storing receipts 2% Requesting payment flexibility for loans, mortgages, or credit cards Monetizing Mobile Banking For Small Business Customers Page 24

25 02 STEP TWO Design mobile value proposition Create a mobile banking solution to meet the identified needs of small businesses. Monetizing Mobile Banking For Small Business Customers Page 25

26 A lthough certain clusters exhibit varying feature preferences, we see strong alignment across all small businesses in regards to the most important services in each service category. This indicates that there may not be the need to design a mobile banking solution with packages that cater specifically to different clusters. Step 2: Design Mobile Value Proposition What combination of features will allow my institution to reach the greatest number of small business customers? One hypotheses for a mobile banking solution is a modular mobile banking offering. Each module would provide a different set of core mobile banking services (see Figure 15). By having a modular offering with three tiered packages, small businesses can self-select into the package they prefer. This modular structure also enables financial institutions to add, remove or swap in mobile banking features more easily as innovations occur. Informational Services Basic Interactive Services LEVEL 1 Informational and basic interactive features have broad appeal across small businesses and they represent core features that should be elements of any mobile banking package. Consequently, informational and basic interactive services should be offered in a base level package, Level 1 of the solution. This base level package will appeal to those customers who are not tech savvy and are not willing to pay for mobile banking, however, would still like some of the key basic features. LEVEL 2 Level 2 builds on Level 1 and adds transactional services that also have broad appeal across small businesses. They are likely to resonate with customers looking for more from their mobile banking solution than just informational and basic interactive services, but possibly are unwilling to pay for the full range of services. Figure 15: Modular mobile banking offering LEVEL 3 Level 3 offers small businesses the full set of services. This is likely only to appeal to a niche subset of small businesses who have a high willingness-to-pay for mobile banking and are engaged with the concept. Level 1 Level 2 Level 3 Informational Services Basic Interactive Services Transactional Services Informational Services Basic Interactive Services Transactional Services Advanced Interactive Services Monetizing Mobile Banking For Small Business Customers Page 26

27 With this modular concept as the solution framework, the package design should next focus on the features that would maximize the overall potential reach. Given the limited number of factors that individuals can take into account when making a purchase decision, only the most important services should be highlighted in each module. For example, in the case of the informational services, the three services that should lead the module are: Accessing account information, such as balances, recent transactions, and statements (e.g. identification of a due bill payment and confirmation for the payment being received), Figure 16: Lead features in a modular mobile banking offering Informational Services Step 2: Design Mobile Value Proposition Receiving alerts (e.g. fraudulent activities, low balance, reaching overdraft limit, payment due dates, etc.), and Receiving service guarantees and knowing how you are protected when you use mobile banking, Similarly, for the other mobile banking service categories, the top 3 services, as defined previously by TURF analysis, should take the lead (see Figure 16). Level 1 Level 2 Level 3 Accessing account information Receiving alerts Receiving service guarantees and knowing how you are protected when you use mobile banking Basic Interactive Services Monitoring fraudulent activities Reaching your institution when you need to Receiving location-based offers Transactional Services Depositing a check Reporting/blocking lost/stolen cards Transferring money between accounts to optimize your savings portfolio or pay off a loan Advanced Interactive Services Receiving transaction verification and advanced warning Capturing and storing receipts Requesting for payment flexibility for loans, mortgages, or credit cards Monetizing Mobile Banking For Small Business Customers Page 27

28 O ne Step 2: Design Mobile Value Proposition Should my institution offer differentiated packages to target different types of small businesses? key benefit of a tiered mobile banking solution is that it addresses the needs of different clusters in a simplified manner. For example, the Level 3 offering, includes advanced interactive services with one of the lead features being Capturing and storing receipts. This package may appeal, in particular, to those small businesses in clusters 1, 2 and 3, as they place a relatively stronger importance on this feature, compared to others (see Figure 17). On the other hand, the introductory package, Level 1, appeals to those small businesses which are not currently engaged with mobile banking and are currently less willing to pay for mobile banking services (clusters 4, 5, and 6). These small businesses demonstrate a lower level of interest, on the whole, for mobile banking services, and consequently may prefer a base, introductory package. While a modular mobile banking offering may well address the needs of various clusters, it represents only one hypothesis for a mobile banking solution. Other options include offering standalone, addon mobile banking features, from which small businesses can select, or integrated mobile banking features with other small business banking products. The optimal solution, ultimately, depends on the overall goals and circumstances of the institution and the needs identified within small businesses. Figure 17: Advanced Interactive Services: Importance of "Capturing and storing receipts" by cluster % respondents who regard "Capturing and storing receipts" as somewhat or very important Cluster 1 (Willing to pay for mobile banking) Cluster 3 (Confident & mobile banking savvy) Cluster 2 (Mobile banking savvy) Cluster 4 (Relationship driven) Cluster 6 (Not engaged) Cluster 5 (Financially confident) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Monetizing Mobile Banking For Small Business Customers Page 28

29 03 Determine how to price STEP THREE Identify preferences for the pricing structure and metric by which to charge customers. Monetizing Mobile Banking For Small Business Customers Page 29

30 For mobile banking features, the preferred payment method amongst small businesses is a monthly fee for unlimited transactions Step 3: Determine How to Price A good product solution does not necessarily guarantee commercial success. Arguably the most crucial steps are determining the pricing metric and finally, but by no means least, the amount that should be charged. There are a range of potential payment metrics that can be used to charge for mobile banking services. Three of the most common are: 1. Fixed fee as a % of the value of each transaction (%) 2. Fixed amount per transaction (F) 3. Monthly fee for unlimited transactions (M) For mobile banking features, the preferred payment method among small businesses is a Monthly fee for unlimited transactions. This holds true for all tested features across all four mobile banking service categories, with the exception of Stopping payment on a check. However, across different clusters of small businesses, there is some variability over the preferred payment metric for different features. Monetizing Mobile Banking For Small Business Customers Page 30

31 Informational Services T he dominant preferred payment metric for informational services is a Monthly fee for unlimited transactions. This holds true for each cluster of small businesses, with the exception of cluster 5, which prefers to pay a Fixed amount per transaction (see Table 7). Table 7: Informational Services payment preferences by cluster Step 3: Determine How to Price Willing to pay for mobile banking M = Monthly fee for unlimited transactions F = Fixed amount per transaction % = Fixed fee as a % of the value of each transaction Informational Services Accessing account info (balances, recent transactions, statements) Receiving alerts (fraudulent activities, low balance, reached overdraft limit, payment due dates) Checking due dates for payments/bills Changing your ATM/Debit PINs Accessing tools that make it easier to manage your finances (day-to-day banking or payroll) Setting up and managing authorized users for mobile banking Receiving service guarantees and knowing how you are protected when you use mobile banking Accessing tips and information to help you better manage your business and finances Reviewing features and rates for new business checking accounts or loans Finding branch or ATM locations Activating your ATM/Debit card These businesses are financially confident, may be more financially sophisticated, and are able to foresee the frequency in which they would use these services. Therefore, they may have less of a need for an unlimited usage plan Mobile banking savvy Confident & mobile banking savvy Clusters Relationship driven Financially confident Not engaged M M M M F M M M M M F M M M M M F M M M M M F M/F M M M M F M M M F M F M M M M M F M M M M M F M M M F M M M M M M M F M M M M M F M Monetizing Mobile Banking For Small Business Customers Page 31

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