Can US Retail Banks Survive the Mobile Revolution?

This piece originally published in Forbes.com.

What would you miss more for a day, your wallet or your mobile phone? Some 54% of US consumers who Bain & Company surveyed recently chose the phone, and in China and South Korea, that share rose to more than 75%. It’s just one marker of how mobile has evolved from being a separate banking channel to becoming the hub of personal finance.

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US bankers should be worried. In the race to take a mobile-first approach to the entire banking experience—which reduces costs and adds convenience for customers—US banks are lagging banks in many other countries, as well as lagging financial technology start-ups at home and abroad.

For both winners and losers, the race to mobilize carries high stakes. Mobile offers banks a path to sustained profitability, because of its sharply lower cost structure than the branch—where most bank costs are tied up—or the contact center. For a typical national US bank, each branch visit for a routine interaction, such as depositing a check, has an average variable cost of about $2. Each call answered by a contact center agent costs about $4.50. The variable cost of a mobile interaction via app or browser, by contrast, is just a couple of pennies.

Beyond its huge cost savings, mobile also provides a much better experience for customers. Bain’s survey of 114,700 consumers in 17 countries, including 24,600 in the US, found that a routine interaction on a mobile app is 32% more likely to delight customers than a routine interaction in the branch (see figure below). Moreover, frequent mobile users said they are 40% less likely to switch banks than customers who rarely use banks’ mobile apps.

The shift to mobile banking also underscores how today’s branch model is obsolete. A branch visit is 2.3 times more likely to annoy customers than a mobile interaction. And surprisingly, customers who use branches frequently said they are almost three times more likely to switch banks than infrequent branch users. Clearly, banks should help their customers avoid routine trips to the branch—not only to reduce costs but also to stop wasting customers’ time.

US banks have a long way to go in seizing this once-in-a-generation opportunity to migrate transactions from the branch to digital channels. For a glimpse of how far, consider that in the US, the level of routine branch interactions per customer is almost quadruple that in the Netherlands, the global leader in this regard. Despite the rapid rise of mobile, more US customers (67%) still visited branches for routine interactions during the past quarter than used their banks’ mobile apps (53%). This compares with just 26% of Dutch customers who used the branch for routine business.

At all cost, US banks should avoid policies—such as ceilings on remote deposits—that force customers to go to a branch and stand in line. The good news is that most banks have developed robust, functional mobile apps. But banks should not assume that all customers will adopt mobile on their own. Instead, banks need to guide some customers in learning how to use their apps.

As customers increasingly mobilize, the next big opportunity lies in product sales. Already, 57% of customers in the Netherlands who bought a banking product during the past quarter, 55% in the UK and 33% in the US did so digitally (see figure below). Customers’ expectations will only keep rising as their mobile usage expands in other areas of life.

Succeeding in the mobile world will require US banks to change how they conceive and develop products. Mobile takes extraordinary design discipline, given the small screen, slow speed of accurate typing and impatience of users. Products and processes need to be radically simplified and personalized so only relevant information is displayed to the user. And banks must work in faster technology development cycles to keep up with the pace of innovation.

If they can master mobile, US banks stand to reap significant cost savings as they drive bad and avoidable interactions—generated by errors or better routed to digital channels—out of the branch and the contact center. The benefits of smart mobile design extend to greater loyalty, with customers buying more from their main bank, and referring more friends and colleagues. The question is whether they can accelerate mobile adoption before they sink under the weight of their obsolete branches.

Gerard du Toit and Maureen Burns are partners with Bain & Company’s Financial Services practice.