Banking Apps – The Digital Building Blocks of Banks’ Omni-channel Strategy

• Worldwide increase in supply and usage of banking apps

• Expanding functional scope of apps, but studies point to major differences between what apps have to offer

• Personal Finance Management (PFM) tools as an important segment among banking apps set the tone for development

• Banks face the challenge of harmonizing banking apps with their comprehensive omni-channel strategy

Nowadays, banking apps form part of the standard services offered by many banks. In the US, the majority of smartphone and tablet users have installed their bank’s app, and 44% of them use the app. In Germany, 26% of all smartphone and 37% of all tablet owners state that they often use their devices for banking activities. The future success of these banking apps depends on several factors: their ability to satisfy customer needs; the extent to which they are designed to be compatible with future developments in terms of technology, functions and business potential; and the extent of their integration into a strategy that harmonizes all customer-reaching channels, a so-called “omni-channel strategy”.

Increasing numbers of banks are offering their customers the possibility to access banking services on the go from smartphones or tablets. The growing number of banking apps offered by banks is accompanied by an expansion in the functional scope of these apps. A study by MyPrivateBanking points out that “explosive growth” in the number of apps as well as in their functions has occurred since the publication of last year’s study. The study looked at about 200 apps from 50 institutes in the retail banking sector, including, among others, the Bank of Montreal, CommBank of Australia, Commerzbank, Deutsche Bank, Credit Suisse, Santander, and UBS. The expansion of mobile banking services is finding favor among bank customers: According to the study, some banks are experiencing more hits on their websites from smartphones than from PCs.

However, the study shows that great differences exist between the services offered by the individual institutes. At the moment, there are decidedly fewer apps available for tablets than for smartphones. This does not reflect the differentiated use of mobile devices by customers, who switch devices during the course of the day and who prefer to use tablets in the evenings in order to access banking services. Furthermore, numerous banks continue to focus on established standard functions such as balanace inquiries or simple banking services. Supporting services such as the search for cash machines and bank branches or the capability to register a stolen bank card have not been widely adopted. Noticeable differences exist between apps in regard to the provision of additional information – such as financial news – and the availability of content for marketing and customer retention. Here, banks are particularly focused on providing targeted support for customers in their Personal Finance Management (PFM).

It is precisely the apps for Personal Finance Management that are gaining increasing popularity among customers. Almost every fifth smartphone user in Germany regularly uses one of the three apps with PFM functionality offered by banks (Sparkassen-App, VR Online Banking, (i)Postbank). The primary goal of these PFM apps is to provide customers with a simple, fast, and secure overview of their finances. The PFM apps don’t exist simply to provide advantages to customers, but also to allow banks to profit from customer use of the apps by providing banks with insight into customer needs and the financial goals of their customers, thereby revealing cross-selling potential. The improved financial self-management of customers creates increased brand loyalty among bank customers, and increased customer profitability for banks.

The basic PFM functionality provided by banks is increasingly unable to satisfy the demands of customers. In addition to a display of their financial data, many customers desire an interpretation of their personal financial situation, whether it’s a comparison with their peer group or financial advice. They expect information on and support in making financial decisions, either through the community or a financial advisor. Equally, they believe their bank should proactively support them in managing their personal finances. According to the latest study by Varolii, 64% of smartphone users in the US believe it is their bank’s responsibility to inform them if they do not have sufficient funds to pay a bill, and among respondents under the age of 24, this share rises to 73%. More than half of respondents expect to be informed by their bank in the case of unusual account activity.

In light of the increasing use of banking apps, it is vital that finance institutes create sustainable solutions. Three dimensions are of particular importance in this regard:

• Technologies: From the get-go, solutions must be designed in such a way so as to allow the flexible integration of new technologies and qualitative advancements.

• Business models: The solutions must allow the integration of business models tailored to digital channels while also taking modified value-added chains into consideration.

• Functions and customer needs: In contrast to simply transferring online banking functions to apps, the solutions should be conceived from the perspective of concrete customer needs and using the standards established in the digital world.

The increasing significance of the digital channel means banks are facing a two-fold challenge: On the one hand, they must develop this channel in an in-depth manner while taking their customers’ demands as well as their own business interests into consideration. On the other hand, they must also integrate the development of this channel into a comprehensive omni-channel strategy. Customers expect their banks to link communication channels and the channel-specific provision of full functionality, independent of location, time, and means of contact with their bank. It remains to be seen whether and how quickly banks will leverage this potential for their own interests and those of their customers.

InitiativeD21, Study”Onlinebanking Fiducia”
http://www.initiatived21.de/wp-content/uploads/2013/01/studie_onlinebanking_fiducia_2013.pdf

Statista “Die Top Finanz-Apps in Deutschland“
http://de.statista.com/themen/872/online-banking/infografik/1029/die-top-finanz-apps-in-deutschland/

MyPrivateBanking “Mobile Apps for Banking”
http://www.myprivatebanking.com/UserFiles/file/EXTRACT%20-%20MyPrivateBanking%20Report%20-%20Mobile%20Apps%20for%20Banking%202013.pdf

Varolii, Study “Can you bank with your banking app”
http://www.varolii.com/~/media/Files/Offers/FS_MobileBankingSurvey_Report.ashx

Comscore “Future in Focus – Digitales Deutschland”
http://www.comscore.com/ger/Insights/Presentations_and_Whitepapers/2013/2013_Future_in_Focus_Digitales_Deutschland