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1 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 1 White Paper: The Future of Mobile Banking by Andrew Tilbury managing content through innovation bluepointsolutions.com

2 The Future of Mobile Banking by Andrew Tilbury WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 2 Mobile banking has evolved considerably over the past several years. Changing consumer preference and behavior, differing approaches and solutions offered by solutions providers, and developing trends in mobile technology have considerably increased the value of mobile banking to both consumers and financial institutions. Two years ago, when the first version of this paper was published, mobile banking was still in its infancy. Mobile deposit was a new technology that was relatively untested. Mobile payments were still in the early development stage and not yet widely available. Very few financial institutions treated the mobile channel as the primary way they would engage their customers. Instead, they considered it to be an extension of online banking. Consumer use cases and pricing models for new features were not fully understood. Generally, there were strong indications that mobile banking was becoming a significant channel for financial institutions, but it was unclear what the ultimate impact would be on traditional banking models. From a technology perspective, WAP and SMS functionality were both seen as necessary components of a mobile channel that included native apps - usually called the mobile banking triple play. Smartphones were growing in popularity, but had not yet come to dominate the market for mobile devices. BlackBerry appeared capable of returning to a reasonable level of market share, even though it was clearly struggling to compete with Android and Apple ios. Tablets were new to the industry and seen by some as a game-changer, others a fad, others a PC replacement, and others the continuation of what had already begun with smartphones years before. From the perspective of the financial institution executive trying to understand the mobile channel, it was unclear what consumers expected and what the viable options were for delivering a product that addressed their needs. Would consumers widely adopt mobile banking or would it be specific to a particular demographic or income bracket? Would mobile banking replace online banking, or supplement it? What platforms, operating systems, and devices were going to survive and how many would need to be supported? Were WAP versions of existing online banking services sufficient, or were native apps specific to each operating system required? And, most importantly, what was the business case for the financial institution - cost savings, fee income generation, competitive necessity, or a blend of all the above? We now know that mobile banking appeals to all demographics and is augmenting existing online banking services rather than replacing them. The need for WAP and SMS solutions has given way to an overwhelming preference for native apps. And, the operating ecosystem which, a few years ago, had twice as many options, has been distilled into a two system world dominated by Google s Android and Apple s ios. Tablets have been firmly established as a new device category with a different value to consumers and are rapidly gaining adoption at about the same pace as smartphones during the same phase of their development more than a decade ago. Mobile banking is now as fundamental to the product offerings of financial institutions as debit cards, ATMs, and online banking and a clear separation Copyright Bluepoint Solutions Learn more / / bluepointsolutions.com

3 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 3 exists between the institutions that understand the unique value to consumers and the institutions that are struggling to create a compelling mobile product offering. banks. i The rapid adoption of this feature alone demonstrates the speed with which mobile banking is evolving, creating an ongoing challenge for financial institutions to stay current with their products. Mobile banking is disrupting traditional banking models as it becomes a key driver behind new business models and modes of consumer engagement, particularly with the self-service channel. This paper identifies the key trends that have shaped mobile banking in the last several years and future developments that will continue to disrupt established banking models. It is meant as a framework for financial institutions that can be used to craft an intelligent mobile strategy. Mobile Banking: From Niche to Necessity Mobile banking is now widely available, widely used, and has become the cornerstone of self-service banking. Since 2011, there has been an 11% increase in the number of financial institutions that offer mobile banking. It As an increasing number of financial institutions are offering mobile banking products, consumer usage has similarly grown. In the last year, 28% of Americans have used mobile banking. However, in the coveted age range, usage was at 45%. ii The variation shows that as younger consumers age, they will demand a greater level of mobile engagement from their financial institutions. It also implies that future generations will have even more fluency with smart phones and mobile banking and financial institutions will need to connect with these future consumers where they spend most of their time: on their smartphones and tablets. This change will happen suddenly. Forrester research predicts that 108 million adults will be using mobile banking by 2017; which is equivalent to nearly half (46%) of the checking accounts in the country. iii US MOBILE BANKERS (MILLIONS) Actual Forecast is now offered by 81 of the 100 largest financial institutions in the U.S. Key features such as mobile deposit, person-to-person (P2P) payments, mobile bill pay, and personal financial management (PFM) differentiate products offered by different institutions and these are quickly becoming the benchmarks by which consumers judge and compare institutions. Mobile deposit, for instance, is now one of the most visible and cutting-edge features of mobile banking. In the short period of time since it was launched in 2009 by USAA, it is now a common feature in use by 64% of the 25 largest retail Source: Forrester Research Mobile Banking Forecast 2012 to 2017 (US)

4 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 4 Credit unions have fallen behind. Nearly all of the nation s largest banks and 80% of the largest regional banks offer mobile banking, but only about 50% of the largest credit unions have a mobile banking product. iv Credit unions are now in a position of playing catch-up with their bank counterparts in order to stay current with their mobile services. Not only does this deficiency make credit unions as a whole appear technologically stagnant and out-of-touch with consumers and trends, but it poses an additional threat since they are almost always geographically based and limited by their branch and ATM networks. Mobile banking is a critical way to lessen these problems, yet many credit unions are not taking advantage of it. Internet Connectivity is Quickly Becoming Dominated by Mobile Devices The amount of time spent accessing the Internet on mobile devices could soon eclipse the amount of time spent on PCs. Consumers now spend 37% of their Internet-connected time on their smartphones rather than their PC. With an estimated 56% of US adults now owning smartphones and 34% owning tablets, the large-scale shift of eyes off of the computer monitor and onto the smartphone screen is revolutionizing how consumers access information, absorb content, and transact business including how they bank. v SHARE OF DIGITAL MEDIA TIME SPENT: DESKTOP COMPUTER VS. MOBILE TABLET AND SMARTPHONE OWNERSHIP % 56% 63% 37% 34% 35% 18% Desktop Mobile 8% Percentage of U.S. Adults TABLETS SMARTPHONES Pew Internet & American Life Project: Smartphone Ownership 2013; Pew Internet & American Life Project: Tablet Ownership, 2013 Source: comscore Media Metrix Multi-Platform (Beta), U.S., December 2012 There is no single way that a consumer uses a mobile device, but it is rather a customizable experience that each consumer creates by assembling an assortment of personalized apps from a limitless range of possibilities.

5 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 5 This trend has affected how consumers engage with their financial institutions. The ability to access and conduct transactions at any time of day using any type of device has become the new normal for consumers. Advanced mobile banking applications have more features than their online counterparts. For instance, high-resolution cameras on smartphones enable mobile deposit and location-based services are unique to devices with GPS, just to name a few. Whereas mobile banking once appeared to be online banking-lite, it is now firmly situated as a unique product that offers greater benefits to many consumers than online banking. In 2012 alone, both Android and ios reported over 20 billion apps being downloaded from their respective app stores. For Android alone, this represented a doubling of download activity within a single year. To the smartphone user, apps are everything. To financial institutions, apps offer the ability to customize the user experience through the app that can be useful for building brand loyalty, reducing potential fraud, and marketing additional products to consumers. Using apps on smartphones also offers financial institutions the ability to see where, when, and how long users are logged into a mobile banking app. The Next Wave of Mobile Disruption Tablets have had a disruptive effect on the mobile industry, and as tablet adoption intensifies, they have the potential to impact banks and credit unions by forcing them to rethink online and mobile banking in the context of this new device category. The ipad launched in 2010 and 17 million tablets were shipped that year alone. In 2012, the number of tablets shipped grew to 121 million and are forecasted to reach 442 million by vi By the end of 2012, 25% of Americans over the age of 16 owned a tablet device such as an ipad or a Kindle. vii The early adopters of tablets are distinct from those of smartphones adopters in that they are older and more affluent. The highest penetration is among those aged and with annual incomes over $75,000. viii Not only are the user segments different from smartphones, but usage style differs as well. Tablets are designed to be sit-down devices, not on-the-go devices; 94% of Internet usage on a tablet is done over a Wi-Fi connection versus 42% on smartphones. ix And, most importantly, they can have up to three times more viewable surface area than smartphones. The differences in size, connectivity, and viewable area influence the types of activities that are performed on them. It is easier to look at a tablet screen for an extended period of time than it is a smartphone screen. The larger screen size encourages a longer, sit-down session that is usually not based on any immediate need (transferring funds, checking balances prior to purchase, seeing if a check has cleared), but instead based on research, consuming information, and performing more time-intensive transactions such as stock trading, applying for loans, or opening new accounts. This shapes not only the features of the app, but also their navigation structure and aesthetic design. The best apps are the ones designed specifically for each type of device, not the apps that are created for a smartphone and then simply enlarged for a tablet screen size. This creates a challenge for financial institutions to produce an entirely new suite of apps for tablet devices and maintain them as a separate and distinct product that is unique from smartphone apps.

6 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 6 Financial institutions need to account for these differences when designing apps for tablets. A tablet is not simply a larger smartphone without a data plan; it is a completely different category of device. The most innovative financial institutions understand this and are already tailoring their apps for the different types of devices. This broadens the appeal to consumers looking for the best suite of apps for all of their devices and it creates a richer and more valuable overall user experience by providing the consumer with multiple options for them to engage with their institution. New Technology, New Competitors Mobile platforms present new opportunities for banks and credit unions, but they also present potential threats, such as non-financial institution entities that are using mobile apps as the core of a strategy to capture market share. The combination of superior mobile products and a general increase in the level of distrust with larger financial institutions has resulted in a willingness on behalf of consumers to look at alternative financial services providers as a replacement for traditional banks and credit unions. There are multiple players who are capitalizing on these trends and are positioning themselves as viable alternatives to traditional financial institutions PayPal, Simple, and American Express, just to name a few examples. American Express s Bluebird product, launched in October 2012, is one instance of a non-retail bank provider launching a product that competes with checking accounts and is based on a compelling mobile app that appeals to an underserved market segment. This prepaid card offering contains a suite of smartphone apps and a web platform that offers the purchasing ability and travel insurance of American Express combined with checking account-like attributes. With features such as direct deposit funding, free ATM withdrawals, remote deposit capture, P2P payments, and electronic bill payment, this product represents a serious threat to the more traditional checking accounts provided by banks and credit unions. It is products such as Bluebird that will be able to use a superior product offering to erode the customer base of banks and credit unions that are failing to connect with consumers through their mobile devices. Winning with Mobile The winners in mobile banking will be those institutions that approach their mobile channel as critical to their organizations - both internally and externally - as their core processing systems. Winners in mobile realize that the utility of their apps is not defined by the aggregate sum of their features, but by the overall experience of consumers who are using the apps. Utility is a function of experience and functionality - ease of use, accessibility across devices and platforms, reliability, the immediacy of performing critical activities, and other measures. It is not just a checkbox of functionality that can be easily copied by different financial institutions. The winners in mobile are making mobile technology a core competency, not an ancillary offering that they deploy simply to keep pace with competitors. They understand that designing a compelling user experience is not just about designing an app that looks good. To quote Steve Jobs, It s not just what it looks like and feels like. Design is how it works. x Utility is more defined by the experience itself, not just the functionality offered.

7 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 7 Catering to this need to deliver a personalized user experience will force financial institutions to offer different apps for the smartphone and the tablet, and this will be substantially different from their online banking products. Each form of device offers different benefits that will shape how consumers perform their banking activities. This is shaped by device size, screen size, Internet connectivity, built-in features such as GPS, cameras, etc. There will be overlap in the activities that are performed on each type of device, but how those activities are accessed and performed will be different on each. The Future of Mobile Banking Expect More Disruptions, Faster The rate at which mobile technology is evolving is not slowing down; it is speeding up. New features are quickly becoming available that are driven both by hardware and software voice recognition within apps, higher resolution cameras, and faster data connectivity are just a few of the recent improvements that enable new features for mobile banking. One dramatic example that created a significant challenge for financial institutions is Android. The first Android-powered phone was shipped in 2008, and only five years later, Android is used more than any other operating system on any type of device that connects to the Internet - including smartphones, tablets, and PCs. Financial institutions need to stay aware of shifts like these to understand how they impact consumer behavior and expectations, and how to adapt to this changing landscape. Similar disruptions will undoubtedly occur in the future, but it is impossible to predict what they will be. Future adoption of HTML 5 standards and Firefox OS are just two examples of potential future developments that could have a profound impact on how banks and credit unions will need to approach mobile banking. Apps Designed for Individuals A good mobile banking strategy is one that allows consumers to customize the app itself. Analogous to the fact that smartphones allow the consumer to create an infinitely customizable interface through the selection and configuration of apps, mobile banking will morph into a personal financial services experience. Not every consumer has the same needs, will want the same product mix, nor will use the same feature set; in the future, mobile banking apps will need to be designed in a way to appeal to the consumer s craving for customization. One way that this can be done is by allowing the app user to prioritize their most frequently used features to help them get the most out of their app. Intelligent Data, not Just Big Data The opportunities for financial institutions to use big data in their mobile channel are significant. One opportunity is on the consumer side. The ability to capture and process data in real time will allow a bank or credit union to tailor the user experience to each individual member. Institutions will be able to use data for marketing purposes, for fraud prevention, and to give the consumer what they want almost before they know they want it. One example of this predictive ability already being used is Google s Google Now product. It uses information that Google knows about the user to create customized alerts and immediately accessible information that is

8 WHITE PAPER: THE FUTURE OF MOBILE BANKING JULY 2013 PAGE 8 relevant to that user s calendar, location, search history, and preferences. Banks and credit unions should be able to apply the same type of feature customized to a user s financial life. Mobile is the Future of Customer Engagement Mobile banking has become an essential component of financial services products. It is enabling institutions to engage with their customers in a flexible, personal channel based on convenience and on-demand access. It is creating new opportunities for customer engagement that can lead to greater wallet share, customer growth, and lower operating costs than branch and ATM networks. Mobile banking allows credit unions and community banks that have traditionally been limited by their geography to redefine themselves as full-service financial institutions that can move with their customers, instead of being replaced when their customers move. Any financial institution no matter the size, membership composition, or location will quickly find itself obsolete without a compelling mobile banking offering. i ii iii iv v vi vii viii ix x Javelin Strategy & Research, Mobile Imaging: Going Beyond Mobile Remote Deposit Capture to Bridge the Consumer Transaction Gap, February 2013 Board of Governors of the Federal Reserve System, Consumers and Mobile Financial Services, March 2013 Forrester Research, The State of Mobile Banking 2012, August 2012 Javelin Strategy & Research, Mobile Banking Leaders: Credit Unions Surpass Community Banks, December 2012 Pew Internet & American Life Project: Smartphone Ownership 2013; Pew Internet & American Life Project: Tablet Ownership 2013 Business Insider Intelligence, Tablet Owners: Who They Are and Where the Next Wave of Growth Will Come From, December 2012 Pew Internet & American Life Project: E-book Reading Jumps; Print Book Reading Declines, December 2012 Business Insider Intelligence, Tablet Owners: Who They Are and Where the Next Wave of Growth Will Come From, December 2012 comscore Media Metrix Multi-Platform (Beta), U.S., December 2012 Walker, Rob. November, 2003: The Guts of a New Machine, The New York Times