Market Overview

Could Banks Charge Fees for Mobile Banking?


On the warm and humid streets of Kenya, a salesman is engaged with his customer, haggling over the cost of some shoes and a shirt. The customer seems determined, and the two get quite animated, but in the end the customer pulls out his phone and proceeds to enter what looks like a text message. He is transferring funds from his mobile bank account, an account where he purchases credits, which he will forward to his debtors to buy the things he needs (like new shoes). The shopkeeper pulls out his own phone to verify that indeed the funds have been transferred, and this commonplace transaction concludes.

In America, nearly 21 percent of mobile phone users are currently engaged in some form of mobile banking, which is the practice of checking your balance, making a transfer, depositing a check, or even locating an ATM through your bank’s smartphone application. The highest concentration of these users is the 18-44 crowd, but are they setting future trends for banking or dabbling in a risky new frontier?

How it Works

There are three forms of banking that qualify in a general sense:

·  Banking through an application designed for smartphones

·  Visiting a mobile website to conduct transactions

·  Transactions by SMS text message

Larger banks often have multiple methods for reaching their institution. For example, JP Morgan Chase Bank (NYSE: JPM) offers the ability to perform basic functions like transfers and balance queries via text message with an application that can do many more functions. The Discover Mobile Banking application allows payments and rewards, and you can also use mobile banking to redeem rewards. Smartphones have made accounts more accessible, and allowed consumers to do more from a phone, but SMS was what started that trend.

Federal Reserve Mobile Financial Stats

The largest adopters of this technology have been groups like non-Hispanics, blacks and Hispanics, and usage of the service is split fairly evenly between males and females. Income levels above $40,000 are more likely to adopt the technology, as they are increasingly becoming more likely to use smartphone technology. There is also evidence that usage of these applications relates directly to level of education, with college and higher educated users making up almost 75-percent of all usage. Almost half of all users surveyed by the Federal Reserve reported transferring money, and on average, consumers reported using their phones about four to five times a month.  

Security Risks

Mobile banking carries significant risk that financial institutions have to prepare for. Of chief concern for the FDIC is identity theft, but SMS messages cannot be encrypted. Encryption uses a secure protocol to hide transmission from outside interference. In browser, you might notice “https” attached to the domain name for your bank. These are security certificates, which banks must pay for alongside other measures aimed at stopping unwanted intrusions.

Even now, new verification methods are being looked at to positively identify a user, beyond password protection. Even device authentication and security questions are viewed as outdated methods, in favor of other ways to verify a person’s identity. For example, with face matching technology it would be difficult for a thief to access your balance. Much of this technology is far from complete, but the implications are that banks will need to take more steps toward securing the customers from attack, just to remain in compliance with banking regulations.

Consumer Protections

So, what’s to stop the bank from passing these costs on to you? The truth is, nothing. Your confidence in the bank is the only thing stopping them from levying fees, but not all banks have decided against fees. Fees already exist for not maintaining a certain balance in an account, but imagine fees aimed at charging customers for depositing a check through their mobile device. True, the banks must pay the cost of encryption, but it seems logical that the money saved from a reduction of in-person transactions would offset the costs.

With tighter credit requirements, and lending restrictions, the era of extravagant borrowing has come to a head. Banks are actively seeking ways to improve their bottom line during this period of low lending activity. 90% of all transactions involve checking balances, most likely an attempt to avoid costly overdraft fees, and some banks are offering the option of receiving money immediately for a small fee to cover the risk of granting access to the deposit without verifying funds. Most consumer protections are aimed at protecting your information, but not many protect against hidden fees. Many banks do not currently charge fees and probably will continue to offer these applications a free service. It’s important for consumers to understand that the possibility for these fees does exist, so carefully review correspondence from your bank to ensure you don’t fall prey to fees you could easily avoid.

Protecting Yourself

Smartphone banking is an exciting new service that has the potential to save customers a lot of time and money. Financial institutions could also reap the rewards as a reduction in the need for in-person banking continues. With some consumers reporting upwards of 60 uses a month, the trend only stands to gain.

You can take some basic steps to ensure that your online banking activity is always protected.

·  Each time you visit your bank’s website, review the URL to verify that it is correct. Hackers can create duplicate landing pages that look like your bank’s website. These pages are designed to trick you into entering your password and granting access to your banking information.

·  Frequently change your password, and keep a secure password storage place. Applications like PasswordBox, Passpack and others offer free solutions to store and recall complicated passwords.

·  Download mobile applications from authorized application developers only. If you do not recognize the name of the developer offering an application for your bank, do not download it. Malicious software can compromise your financial information.

If your account is compromised, or your suspect someone has stolen your debit card information, contact your bank immediately and request a review of your account. Though banks must secure their institution, that safety begins with you.


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