Twenty years ago, cell phones were appropriately called “bag phones” because their functionality was limited to making and receiving calls on a device so large that it was carried in a bag. Since then, cell phones have advanced significantly to become an integral part of life, a necessity as important as keys and a wallet.
Given the indispensability of cell phones, as well as their broad capabilities, banks are rapidly developing banking solutions that use cell phones to provide unparalleled convenience and value to customers. The majority of large banks began offering mobile banking products in 2007, but the industry expects 2008 to be a breakout year.
Upcoming mobile banking products and solutions will offer wireless access to multiple account features and to new payment systems.
Some new features that banks expect to implement would permit a traveling businessperson to use a cell phone to approve and schedule payroll while waiting to catch a plane, to pay a taxi driver with a simple text message and to pay invoices while waiting for clients to arrive at a restaurant.
Although such impressive benefits are on the horizon, the current state of mobile banking is limited to balance inquiries, intra-bank transfers among accounts owned by the same person and basic bill payments. Each of these services can be accessed by one of three methods: text messaging, built-in Web browsers, and propriety applications that are installed on the phone.
Each method has its advantages and disadvantages, and many banks implement multiple solutions to cover the varied capabilities of cell phones.
The most sophisticated and secure mobile banking solutions are application-based, but mobile banking applications are generally available only for smartphones. Some banks recently began offering applications that integrate into a phone’s calendar and address book, allowing customers to approve and schedule payments from virtually anywhere. Other applications will allow customers to wirelessly review and pay bills and invoices.
Downloadable applications offer the greatest promise for the future, but text messaging and browser-based banking are likely to dominate mobile banking in 2008. A few banks recently implemented systems that allow customers to use a cell phone to send money to others. The phones are linked to prepaid debit card accounts, and payments are initiated via text messages or by using the phone’s Web browser.
The ability to generate payments from a cell phone represents a significant departure of the cell phone from a communication tool to an integrated payment device. Imagine paying a taxi fare securely and quickly from your checking account without ever having to present cash, a check or a card. Imagine being able to monitor the progress of bill payments in real-time from anywhere in the world.
The idea of using cell phones as payment devices has broad appeal, but the interest thus far has been tempered by the limitations inherent to linking a device to a prepaid card. But, this year, some banks will introduce the ability to initiate text-based transfers using cell phones that are linked to checking accounts, which allows customers to pay with their cell phones instead of their checkbooks.
Despite the advantages of person-to-person transfers using text messages and built-in browsers, the next major step in mobile banking is contactless payments. Currently used in some credit and debit cards, this technology uses a tiny chip to transfer payment data. Nokia has already introduced phones embedded with this technology, which might ultimately lead to phones replacing credit and debit cards as the primary method of payment at brick-and-mortar stores.
Some believe that few banks have incorporated contactless chips into their cards because merchants have not purchased readers that accommodate such payments. But, with the introduction of this technology into cell phones and the anticipated popularity of mobile banking, merchants soon may have no choice but to install contactless readers in their stores.
Despite enormous advances in encryption technology, security concerns remain one of the biggest impediments to the widespread adoption of mobile banking. Criminals already have found ways to exploit unsuspecting mobile banking users. “Smishing,” a variation of the maligned e-mail “phishing,” occurs when a person disguised as a financial institution sends a text message requesting personal information. Despite security concerns, mobile banking is generally more secure than Internet banking because phones have smaller screens and are less likely to be shared.
Recognizing that cell phones have become more than simple communication devices, banks are rapidly developing convenient mobile solutions that are designed to take advantage of the phone’s permanent place in our pocket.
Jason Kuwayama is an attorney in Godfrey & Kahn’s Financial Institutions practice group in Milwaukee and focuses his practice on bank mergers and acquisitions. For more information on mobile banking, contact him at (414) 287-9278.
