Author Archives: mronan

How Banks Can Prepare for a Mobile Wallet Future

With the proliferation and increased power of smartphones—a recent Pew Research Center survey finding that 56% of adults now own a smartphone—many more consumers use their mobile phones for a wide range of activities, including mobile banking.  The Federal Reserve Board found that 28% of mobile phone users banked with their device in April 2013, up from 21% a year earlier.

Now banks are looking to move beyond basic mobile banking to enable consumers to conduct a much wider array of banking and payments transactions over their mobile phones.  And the banks plan to package this enhanced functionality into a mobile wallet.  According to a recent survey published by Clear2Pay, 43% have plans to deploy a mobile wallet offering in the next 6-12 months. The mobile wallet would provide important customer retention, engagement, cross-sell and ultimately revenue generation benefits.  However, there are significant hurdles to overcome, including technology issues, competitive pressures, and consumer resistance.

With this in mind, the following are some key steps for banks to take to prepare for a mobile wallet future:

  1. Develop a dedicated group. Banks should create a dedicated group to develop and implement a mobile wallet strategy.  This group would include representatives from various bank departments, such as retail banking, payments, channel, marketing, and IT.  This group would also champion mobile wallets to key stakeholders—including senior management—within the bank organization.
  2. Continue to grow mobile banking subscribers.  Today’s mobile banking customers are the most likely segment to embrace mobile wallets, so banks should continue to encourage their customers to try out and continue to use mobile banking services.  Some of the leading U.S. banks have already built up impressive mobile banking user numbers, including Chase (14.0 million active mobile banking subscribers in 2Q13, +32% y/y), Bank of America (13.2 million, +28%) and Wells Fargo (10.7 million, +29%).
  3. Introduce more advanced mobile banking functionality.  As consumers have become comfortable with using mobile banking for basic banking activities (such as checking balances), banks are starting to incorporate additional functionality, such as mobile check deposit and mobile bill pay.  USAA recently introduced voice technology to its mobile banking app.  Consumers’ gradual adoption of more advanced functionality makes the jump to mobile payments less daunting.
  4. Conduct consumer and merchant research.  To get some direction on how to position and market mobile wallets, banks should conduct research into
    1. Attitudes to, and interest in using, mobile wallets
    2. Reasons for using/not using mobile wallets
    3. Preferred mobile wallet components
    4. Most trusted providers
    5. Types and levels of incentives that would drive usage
  5. Distinguish mobile wallets from mobile payments.  For many consumers–and even industry commentators—mobile wallets and mobile payments are the same thing.  However, mobile wallets encompass a wider array of services, including mobile offers and loyalty programs.  For consumers already using mobile banking services, transitioning to mobile wallets may be more seamless than switching to standalone mobile payments.
  6. Promote banks’ perception as trusted providers of mobile wallets.  A 2011 Fiserv research study found that banks constituted the most trusted provider of mobile wallets, far ahead of credit card companies and mobile phone providers.  Banks should leverage this high trust level to position themselves against alternative providers.
  7. Leverage partnerships.  Payments networks like Visa are already leading the way in the development of digital wallets.  Over the past 12 months, Visa has entered in agreements with leading banks like TD Bank, Bank of America and U.S. Bank, to distribute its V.me by Visa digital wallet to their customers.  Entering into such partnerships early in the evolution of digital/mobile wallets enables these banks to get an early start in marketing such services.
  8. Develop mobile wallet offers.  Based on consumer research and competitive analysis, develop a series of offers to drive different mobile wallet behaviors, such as initial trial, continued usage, usage of new functionality, and referral.

Tentative Recovery in U.S. Credit Card Lending Continues in 1Q13

EMI’s analysis of recently-published U.S. bank data by the FDIC reveals that credit card outstandings rose 1.6% y/y to the end of 1Q13.  Outstandings have been recovering in recent quarters, following a protracted period of declines as a result of the 2008 financial crisis.  In addition, net credit card charge-offs continue to decline, falling 12% y/y in 1Q13.

Our analysis also finds that:

  • 1,238 U.S. banks (19% of the total) have card assets, with 6% of banks having more than $1 million in card assets.  55 banks have more than $100 million in outstandings, with just 23 banks holding more than $1 billion in credit card loans.
    • Of the 55% with more than $100 million in assets, 31(56%) reported increases in their credit card loan portfolios between end-1Q12 and end-1Q13
  • The three largest credit card issuers–Citibank, Chase and Bank of America–all continued to report credit card loan declines, as they continue to deleverage.  The cumulative decline for these three issuers was 5%.
  • The former “monolines”–American Express, Discover and Capital One–all increased outstandings.  Capital One reported a 44% increase, largely due to the acquisition of the HSBC card portfolio.  American Express grew credit card loans 6%, with Discover’s outstandings rising by 7%.
  • Many regional banks continued to increase credit card lending, albeit from significantly lower bases than their national bank counterparts.

These trends in credit card outstandings–slow overall growth, declines among the big three issuers, growth for monolines and regional banks–are consistent with industry predictions that EMI published in a blog earlier this year.

Large banks continue to dominate U.S. commercial lending

EMI analysis of the latest FDIC U.S. bank data for the first quarter of 2013 reveals a number of interesting trends in commercial and industrial (C&I) and small business lending:

  • U.S. banks’ C&I loan portfolios continued to grow at double-digit rates year-on-year (y/y) in 1Q13, rising 12%, the same rate of increase as in 4Q12.  Commercial loan growth continues to outpace overall loan growth of 4% y/y.  Small business loan portfolios (defined as C&I loans with values of less than $1 million) are finally showing signs of life, rising 2% y/y.  This follows a 0.4% y/y increase in 4Q12, which was the first such increase in years, as reported in a February 2013 EMI blog post.
  • Large banks dominate C&I lending.  Of the 6,500 banks in the U.S., just 17 have more than $100 billion in assets.  But these 17 banks account for 57% of total loans and 60% of C&I loans.  In addition, the large banks (with assets of more than $1 billion) are reporting stronger growth in their C&I loan portfolios than their smaller counterparts.

  • Among the top 20 C&I loan portfolios, banks reporting above-average growth include:
    • HSBC Bank USA (+27%)
    • Bank of America (+22%): representing a significant growth rate for the bank, which has trailed other leading national banks for loan growth in recent years.  The bank reported in the Financial Times in February 2013 that it was increasing investment in its commercial bank, including the addition of 50 bankers as a first step.
    • Sovereign Bank (+21%)
    • Fifth Third (+17%): benefiting from a focus on specific vertical markets, including the establishment of a new energy lending unit in late 2012.  (See an EMI blog post from February 2013 on driving commercial loan growth through vertical industry targeting.)
    • BB&T (+17%)
    • KeyBank (+16%)
  • Turning to small business loans, smaller banks with less than $1 billion in assets have a greater share of this market, accounting for 23% of all small business loans (compared to 11% of total loans).  However, these banks trail the larger banks in terms of small business loan growth, and will need to reposition themselves (in areas like personal service and local presence) to capture a good share of any continued recovery in small business lending.

  • The 20 banks with the largest small business loan portfolios grew their small business lending 4% y/y in 1Q13.  Banks with above-average growth included:
    • Ally (+44%)
    • Wintrust (+14%)
    • Huntington (+11%): has focused internal resources by making business loan commitments, as well as deploying additional small business bankers.
    • TCF Bank (+11%)
    • American Express (+9%): built on small business card lending.

See a recent EMI blog for examples of banks that are effectively marketing to their commercial banking clients and prospects.