Mobile Banking: Will This New Banking Channel be Evolution or Revolution?

Bob Landry, Vice President Banking Group

September 12-14, 2010 AFT 2010 Annual Meeting

Agenda
How does mobile expand / improve the multi-channel delivery capabilities now offered by financial institutions. How is the mobile channel evolving, and its impact on existing channel volumes. What are the unique opportunities that mobility and always on availability offer to banks to build relationships and profits.

Mercator Advisory Group 2010

Bank Delivery Channels Are the Key to Customer Satisfaction

Banker CRM - Inside Out
Customer Knowledge
Segmentation Profitability Demographics Behavior Life Style Next Best Product

Customer CEM - Outside In

Customer Satisfaction
Loyalty Advocacy Brand Promise Measurement:

Interaction

Across Channels Within Channels By Process

Mercator Advisory Group 2010

Companies With High Satisfaction Scores Are Worth Significantly More

Average Market Value Added - High & Low ACSI Firms

MVA = Market Value Added measures the difference between the market value of a firm (debt & equity) and the amount of Capital Invested Source: ACSI, MVA from Stern Stewart & Co Mercator Advisory Group 2010 4

Delivery Channels Are Important Bank Selection Factors

Importance Of Factors In Selecting A Bank For Checking Or Savings Account (all ages)
Other fees and terms associated with the account The financial strength of the bank Interest rate/APY on the account Convenience of branches to home Ability to access account online Convenience of ATMs to home Convenience of branches to workplace Convenience of ATMs to workplace Availability of mobile (phone) banking

80% 75% 73% 71% 69% 60% 46% 45% 15%

Channel BRANCH ONLINE ATM BRANCH ATM MOBILE

Convenient To Home NA Home

Office
Office NA

Source: Mercator Advisory Group Primary Research 2009

Mercator Advisory Group 2010

New Channels Have NOT Reduced Cost They Have Increased Convenience
Work Units (000)

Delivery Channel Capacity Growth 1980 - 2009

Delivery Channel Growth 1980 2009 3.8% CAGR
4.5% CAGR 1990 - 2000 3.1% CAGR 1980 - 1990 3.8% CAGR 2000 - 2009

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Branch Teller Merchant Cash Dispenser Internet Banking
Source: FDIC, Mercator Advisory Group Mercator Advisory Group 2010

Online Telephone ATM & Cash Dispenser

Branch

Branch Sales Contact Center Agent Mobile Banking

Bank ATM & Cash Dispenser Interactive Voice Response

Internet Channel of the Future BUT Overall Access to Internet Limits Access and Adoption
Change in Internet Access By Age Group in US 2000-2009 December 2009

74%

Source: Pew Internet & American Life Project, February 3, 2010 http://www.pewinternet.org/Infographics/2010/Internet-acess-by-age-group-over-time.aspx Mercator Advisory Group 2010

Internet Adoption Has Slowed Just Like ATM & Contact Center Growth Did
Online Banking Adoption of Internet Users 2001 - 2009
80% 70% 60% 50% 40% 30% 30% 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 17% 9% 5% 9% 12% 15% 18% 21% 19% 24% 39% 34%
2001 2005 27% CAGR 2006 2009 6% CAGR

53% 49% 44%

55%

57%

Have you ever done any banking online? Did you do any banking online yesterday?
CAGR = Compound Annual Growth Rate Source: Pew Internet & American Life Project, Usage Over Time, http://www.pewinternet.org/Trend-Data/Usage-Over-Time.aspx, Mercator Advisory Group Mercator Advisory Group 2010

How is the Mobile Channel Evolving

Multi Channel Experience

Customer

Centric

Multi Channel Integration

Mercator Advisory Group 2010

Just Like Internet, Mobile Device Ownership Limits Access & Adoption
Mobile Device Ownership By Device Type
(Base = All Consumers - June 2010)
47% 43%

29% 21% 17%

31%

12%

12%

Smart Phone Device

Voice & Text Messaging Cell Phone

Basic Voice Cell Phone

Do Not Own a Phone of Any Type

2009
Source: Mercator Advisory Group CustomerMonitor Survey Series June 2010

2010

Mercator Advisory Group 2010

Cant Ignore Non-Smart Phone Alternatives In Near Term

Key segments indicate they are likely to purchase smart phone device In Next 12 Months Smart phone adoption rate hyped unless carriers change cost structure Cost & acceptance will impede further rapid growth
Early adopters saturated next year Data plan cost inhibits further growth
Key Segments Will Purchase Smart Phone This Year
(base = own mobile phone, probably or definitely will purchase)

35% 30% 25% 20% 15% 10% 5% 0% Age 18-34 Income $100k+ College degree Use text 17% 12% 14% 27%

Overall Adoption of Adult Population Will be Further out Than Many Project
Base = All adults

100% 80% 60% 40% 20% 0% 2009

2010

2011

2012

2013

2014

2015

2016

Source: Mercator Advisory Group CustomerMonitor Survey Series June 2010 Mercator Advisory Group 2010

Smart Phone

Other Phones & No Mobile

Telephone Delivery Channels Will Get A New Life With Mobile IVR Mobile
Delivery Units (000)

600 500 400

13.4% CAGR 1990 - 2000

2.6% CAGR 2009 - 2015

3.5% CAGR 2000 - 2009

300 200 100 0

46.8% CAGR 1980 - 1990

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

Contact Center Agent

Source: Mercator Advisory Group

Interactive Voice Response

Mercator Advisory Group 2010

Mobile Banking

What Are The Unique Opportunities That Mobility Offers

Multi Channel Experience

Customer

Centric

Multi Channel Integration

Mercator Advisory Group 2010

OLB Strategies to Increase Adoption, Access, Usage and Relationship Depth

High

Adoption
Quality Experience Continuous Promotion & Education Cross Sell Message Targeting Preferred Channel Pricing

Mobile Phone
Access
Always On, Convenience, Immediacy, Location Awareness

Adoption Number of Customers

Usage and Relationship Value

Online Banking Strategies

EBPP Expedited Payments & eBills eMail and Mobile Alerts Personal Financial Management Consumer Check image Deposits

Low

Usage and Relationship Value

Mercator Advisory Group 2010

High

Mobile Is Necessary to Increase Online Banking Adoption, Access, Usage and Relationship Depth
High

Adoption
Quality Experience Continuous Promotion & Education Cross Sell Message Targeting Preferred Channel Pricing

New Capabilities
Merchant Discounts, P2P

Adoption Number of Customers

Access
Always On, Convenience, Immediacy, Location Awareness

Usage and Relationship Value

Online Banking Strategies

EBPP Expedited Payments & eBills eMail and Mobile Alerts Personal Financial Management Consumer Check image Deposits

Low

Usage and Relationship Value

Mercator Advisory Group 2010

High

Mobile Banking Offers By Type

Mobile Banking Installed Base by Solution Type
(Top 30 Retail Bank Web Sites 7/2010)

25
21

20 15 10 5 0 Mobile Banking
Source: Mercator Advisory Group 7/2010

19

13 9 7 5 6 3 4 4 9 6

12 8

Total Top 10 Banks Banks 11-20 Banks 21-30

3 1

SMS Text

Browser

Smart Phone App

Mercator Advisory Group 2010

Mobile Banking Alternatives Offered

Number of Mobile Banking Alternatives Offered
(Top 30 Retail Bank Web Sites 7/2010)

7 6 5 4 3 2 1 0 Offers 3
Source: Mercator Advisory Group 7/2010 Mercator Advisory Group 2010

6 5 4 3 2 1 1 1 1 2 1 3

Top 10 Banks Banks 11-20 Banks 21-30

Offers 2

Offers 1

No Mobile Banking

Banks Are Deploying New Online Banking Capabilities

Online Banking Capabilities
(Top 30 Retail Bank Web Sites 7/2010)

Mobile Banking Alerts

21

Mobile Focused Mobile Enhanced Mobile Focused

Electronic Bill Presentment - eBills

17

Personal Financial Management

Home Check Image Deposit Capture 0

10

15

20

25

30

Number of Banks
Source: Mercator Advisory Group 7/2010 Mercator Advisory Group 2010

New Capabilities Are Key To Expanding Usage & Relationships

Deeper Relationship Increased Usage

Manage Your Net Worth

Personal Financial Management

Control Your Finances

Achieve Your Goals

3
Bill Payment & Presentment Basic Online Banking

Electronic Bill Payment

Bill Presentment eBills

P2P & Bank Transfers

1
Balance Inquiries Account Alerts

Home Check Deposit Image Capture

Transfers

4
Mercator Advisory Group 2010

Mobile Applications For Routine Financial Tasks Are More Openly Received
Openness To Mobile-Based Financial Applications
(base = own mobile device, top 2 box agreement , excludes current app users)

24% 22% 19% 14%

Receive electronic Check my bank Receive bill payment coupons on my phone account balances using reminders through text from merchants I select my mobile phone alerts on my mobile that I could redeem phone

Transfer money between my bank accounts using my mobile phone

Mercator Advisory Group 2010

Alert Usage Remains Stable; More Common With Smart Device Users
Use Text Alerts From Banking Or Credit Card Providers
(base = own mobile phone, excludes dont know)
23%

Segment Percentages Using Alerts

(base = own mobile phone, excludes dont know)

8%

10%
16% 12%

21%

13% 11%

12%

13%

92%

90%

2009
Do Not Use Alerts

2010
Use Alerts

Age 18-33 Use Smart Use Text Phone

$100k+ Income

2009

2010

Source: Mercator Advisory Group CustomerMonitor Survey Series June 2010 Mercator Advisory Group 2010

Mobile Security Confidence Increases With Experience, But Remains Low Overall
Confidence In Mobile Phone Security For Use In Payments
(base = own mobile phone, 10 point scale)
46% 49% 39% 39%

Security
Most Important Consideration When Selecting Payment Type

Segments That Were Most Confident

15% 12%

Percentage Indicating Top 3 Box Confidence (base = own mobile phone) 35%
31% 26% 22% 25% 24% 18% 15%

Not Confident (bottom 3 box)

Mid-Range

Confident (top 3 box)**

2010

2009

Age 18-34*

Use smart device 2009

Use text**

Use text alerts**

2010

Source: Mercator Advisory Group CustomerMonitor Survey Series June 2010 Mercator Advisory Group 2010

What is the P2P Opportunity?

Cash Monthly Usage - 28.3 TX: 17 Retail Goods, 5.2 Other Services Convert a portion of other services to electronic

Who Receives Payment Types

Consumers Businesses Government

Paper Instruments
Cash Check

Consumers

C2C

C2B

C2G

Payment Cards Debit

Credit Prepaid

Who Pays

Businesses

B2C

B2B

B2G

Other Online Bill Payment

Bank account Debit

Government

G2C

G2B

G2G

Source: Federal Reserve Survey of Consumer Payment Choice 2008 Mercator Advisory Group 2010

Most Cash Transaction are Consumer to Business P2P Opportunity Small

US Consumer 2 Consumer Payment Transaction Volume

Billions Tx

180 160 140 120 100 80 60 40 20 0 2002 Consumer 2 Business Consumer 2 Consumer Electronic (P2P) 13.4 0 2007 14.8 0 131.4 144.9

166.5

17 1.5 2012(E)

Consumer 2 Consumer Cash

Mercator Advisory Group 2010

Payment Acceptance Based On Attributes

Solution Attribute Solution Attribute Description Acceptance Is the recipient willing to take it? How easy is it for the recipient to receive funds?

Convenience (Accessibility)
Speed To Spendability Cost Risk Security Bi-directional Currency Capability Solution Attribute

Are both sender and recipient able to connect to the process?

How soon is the recipient likely to have irrevocable use of the funds? What are the fees to the sender, the recipient, or both? How reliable is the transmission mechanism? What is chance of non-delivery? What is chance of theft or misdirection of the payment? Can payments be sent in reverse? Can value be delivered in different currency? How many currencies? Solution attribute description
Mercator Advisory Group 2010

Cash Outperforms P2P Alternatives Overall and For Top 4 Criteria

90 80 70 60 50 40 30 20 10 0 Cash Check A All Attributes B C Top 4 Attributes D E

Mercator Advisory Group 2010

USAA Pioneers iPhone APP for Consumer Check Image Deposits

Mercator Advisory Group 2010

Chase Offers iPhone Based Consumer Check Image Deposits

Mercator Advisory Group 2010

Questions
Thank you!

Mercator Advisory Group 2010 Mercator Advisory Group 2010

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