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Will Mobile Wallets Kill Bank Branches?

Technology Allowing for Anytime, Everywhere Banking
November 9, 2011
The convenience of the "mobile wallet" for making payments and accessing bank accounts from anywhere, at any time, could change the definition of "banking hours" -- and the need for bank branches.

In a recent Deloitte LLC video presentation, Brian Johnston, principal, Deloitte Consulting LLP, said that, "Out of the top 25 banks, I am not sure that there is one out there that doesn't have some type of focus or initiative in place right now on the mobile channel."

In terms of sizing it up, Johnston said mobile technology is currently an $86 billion market in terms of mobile payments, having grown 300% over the last three to four years.

"We see significant growth over the next three to four years," he said. "By 2015, there are forecasts out there that say it will be a $400 billion market."

Right now, banks are trying to figure out how to create and set up the mobile channel, he said.

"For instance, certain transactions that occur within a branch are 50 times cheaper if it occurs through a mobile application or mobile channel," Johnston said. "So, how do you shift customer behavior from a branch into that mobile environment?"

The Great Recession has already taken the steam out of new bank branching activity. In the last two years, there has been more bank branches closed than opened. New branch openings per year have been cut by more than half the annual activity in 2006 and 2007; whereas annual branch closings have increased by about 50%, according to FDIC statistics.

Now there is also a threat out there on the banking side from mobile technology: disintermediation, Johnston said.

"We are seeing certain applications pop-up recently that really aggregate financial accounts and aggregate bill pay providers and that application is really linking it," said Johnson. "So, it is really taking the bank out of the loop. The barrier to entry is probably low, so we are not quite sure how that is going to play out, but at any time you have some type of aggregation device which can really bring financial accounts together, I think there is some type of reason for concern."

With the growth of mobile wallets, customers will want to bank any time, everywhere, Johnston said.

"So banks really need to be able to cater to those needs and understand that it is a much different sort of behavior than what we have seen in the past with other generations, and if they don't focus on that type of behavior, I believe it could be a lost generation," he said.

"When I look out five to 10 years and see how the banking industry is going to evolve, I wouldn't be surprised if we see a pure mobile bank, (one with) no branches, no call center," Johnston said. "All of the legacy channels won't be there. It will just be purely a mobile-channel bank, and we will see how things evolve, but I think the technology exists and the customer behavior in terms of the younger generation is there that we may see that evolve over the coming years."

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