The Expansion of the Banking Industry Through Mobile Applications

Mobile Banking has quickly become a part of American society just within the past few years. As more people are starting to carry cell phones with Internet access, or smartphones, the possibilities continue to grow. Smart Phones have arguably penetrated the market since inception faster than any other technology in American history, which also brings the applications that smart phones have to offer. There are more than a million different apps that have been created for use on Smart Phones with uses in almost every conceivable category.

With the Internet more commonly in the palm of one’s hand, online banking, a concept that was just introduced just twenty years ago, quickly turned into what is known as mobile banking. The incredible technological growths we have experienced over the last few decades in the banking industry have yet to stop making advances.

Since the introduction of the automated teller machine in 1969, which would deliver cash to the bank’s customers, banking technologies have come a very long way.

The Automated Teller Machine or ATM alone has come from simply delivering cash to customers, to allowing customers to make deposits, check their statement, view recent activity, transfer funds, and in some cases much more.3 ATM’s were designed to allow customers to withdraw cash after hours and on weekends and without the inconvenience of waiting in lines at individual bank branches, but as people began to realize how convenient it really was to be able to access the money in their bank accounts without having to write checks or stand in line, they rapidly became an everyday uses, regardless of time of day.

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The Birth of Online Banking Just as America had become familiar with the ATM and thought that banking just could get no easier, Internet Banking was born. internet Banking, introduced just 20 years ago, allowed customers to transfer funds to friends and family, pay bills, and check the balances and statements of their checking and savings accounts.

Although online banking possessed the enormous potential to make banking more convenient for all of its customers, its popularity grew very sluggishly in comparison to banking technologies such as the ATM. This was predominantly due to technological difficulties and customer trust issues. Many customers just simply did not like the idea of handing their money over to someone they could not see in person.4 Although online banking got off to a slow start, Internet banking has grown to be a huge part of the banking industry, nearly taking over the entire industry. According to a survey taken by the US census Bureau in 2005 nearly 35% of US households conduct their banking transactions online. Although that may seem like a small number of households conducting online banking, only 65% of households had a desktop computer, and only half of those had internet access at home at the time the survey was taken.

Also, this census concluded that of these households with Internet access, only 50% have broadband.5 Since the survey was preformed in 2005 the number of people in the United States with Internet access has exponentially increased. Over 80% of the population in North America now has access to the Internet, whether it is from a personal computer, laptop, or a public computer such as ones found in libraries and schools. High speed Internet quickly became essential if one was going to attempt to preform online banking activities. With so many constant security settings and identity protections active during an online banking session, high speed Internet proves itself necessary. Even with the introduction of laptops into the market, and faster internet service every year, one could not do much with their banking institution without being at home on their PC or at the bank or ATM.

Just as high speed internet had begun to wedge itself into most regions of the country in the early millennium, the most widespread, technological surge in the public American lifestyle would be the introduction of the smart phone. The Beginning of Mobile Banking As smart phones were introduced into the market, the online banking world quickly became the mobile banking world. With the Internet now in the pockets of the vast majority of people in the United States, customers can access their online banking sites from wherever they may be at any given time. The ability to send and receive money, check bank statements and current balances online has become almost second nature to many people throughout the United States and the entire globe. There are two predominate ways that Smartphone users, depending on their financial institution, can access their bank accounts.

They can utilize either Wireless Application Protocol or Standalone Mobile Applications, and now many financial institutions allow their customers to choose whichever way best suits their needs” Wireless Application Protocol, or WAP, is more or less when a Smartphone operator uses the Internet browser on their phone to access their online bank accounts. This provides a banking experience that is very similar to online banking on a desktop or laptop. While at first this format may look more familiar to the customer, many banks are steering away from Wireless Application Protocol, as the interface can be more confusing and often hard to see for many users, especially as they go deeper into the website. With most smart phones your fingers are your courser, and with full websites they can be difficult to navigate through because the sites are designed for computer usage. Because of this many banks are transforming their mobile sites into mobile applications.

Standalone Mobile Apps are more than likely the future for online banking. As of now most major financial institutions have apps that allow their customers to conduct banking activities, but there are still some major issues that are being addressed each and every day by these companies. The first major issue is that the apps are inherently more vulnerable than the websites they were born from, often only taking a four digit code to access all of the customers information. However to even get this far in the process of setting up a passcode, each individual user must take the time to download the app. In many cases this is not even possible if they do not have an apple or android smartphone.5 Since mobile applications have to be specifically designed for each individual Smartphone operating system, creating a Standalone Mobile Application can become very expensive and time-consuming process.

As most banks offer their app for free, they have to budget for this from other areas of their business, which some banks just cannot do, being another reason that WAP is a better option for some financial institutions. Mobile Banking Applications Today Most Banks have launched their own mobile applications at this point, but a few of them in particular stick out when comparing development and advancement of the technology. Two of the most established mobile banking interfaces are the Bank of America and Citibank, which are undeniably two of the nation’s leading banks. Bank of America chose WAP for their medium of mobile online banking. This enables users to access their bank account information from their smartphone without downloading anything to their device. With Bank of America, once a customer sets up their online banking account via their personal computer, they can access virtually the same things they traditionally would be able to do from their home computers on the go. These activities include accessing their checking accounts, savings accounts, credit cards, mortgages, lines of credit, loan balances, and other information and more.

Customers are also able to pay bills from anywhere at any time, transfer funds from one Bank of America account to another. Bank of America also does not charge their customers for this service.9 Citibank, also having a well—developed mobile banking process, conducts their mobile business via a standalone mobile app. Customers still have to set up their online banking account via a computer first, and then they are able to download the software for the app from their mobile phone application store. Once the app is downloaded, activated, and set up on the users phone the customer is able to access nearly the same information that Bank of America customers can with the addition of some useful features. Since the customer actually downloaded the app to their phone they can enable it to interact with their phones GPS to locate ATM’s and Branches that are nearby.

Citibank has also furthered their Mobile Banking App by partnering with MasterCard and Nokia to include near field communication chips, or NFC’s, in some models of their smartphones. This is one of the newest and most exciting technologies that has been introduced into the mobile banking industry, and is promising even more convenience to customers than mobile banking already delivers. NFC chips are what allow some MasterCard users to tap their card or wave it over a pin pad, without even leaving their wallet. Having this technology in their phone will allow customers to make purchases without even having to take their wallet out of their pocket. Payments that are completed via swiping a smart phone over a pin pad are referred to as m-payments.10 Wells Fargo is also a company that has made huge developments in their mobile banking options over the past few years. Wells Fargo offers their customers the option of downloading an application or using their mobile site via WAP. and even offers a variety of actions that can be completed using text messaging.

The text banking service allows Wells Fargo customers to quickly and efficiently receive information about their accounts by just simply sending a text message. The information typically requested from these text messages includes balance information, recent activity, credit card due dates, and ATM locations. Wells Fargo has also taken certain security measures to go along with their innovative line of mobile banking options. Accounts are viewed by nicknames and not by account numbers, enabling someone to access all of the information they need on a day to day basis, without ever sending any detailed personal information.“ Wells Fargo also developed one of the more innovative tools in mobile banking, now used by most big banks, the ability to take photos of a check with your smart phone and deposit it directly into ones account without ever leaving the house, car, office, or wherever they choose to make the deposit. Wells Fargo also offers bill pay, fund transfers, detailed account activity, and balance information just like many of the other major banks.

When accessing Wells Fargo through their smart phone, customers are able to do anything that they would be able to do one their desktop or laptop. Wells Fargo has taken important measures in protecting their customer’s identities and money as well. When a customer is using a web browser to access their accounts, there information is protected by a 128 bit inscription process, masking sensitive data. Also when a mobile banking session is closed, an auto sign out feature is enabled, further protecting the customer’s information. To top it all off all mobile banking usage on the application and browser are both covered by the online security guarantee. The Value Chain of Banking A Value chain is a representation of the full range of activities that a company uses to bring a product or service from its formation to its end use. Activities for a value chain include customer support, distribution, promotion,

design, and manufacturing. The value, or “worth” so to speak, of a product or service is created in a six-step process. The first step being research and development, the second design of the particular product, and the third being the actual production. Once the product or service is created step four, being distribution or logistics is initiated. Marketing the Product will come next and the sixth step will entail setting up a means of service.” The supply chain is a process in which the value chain is created. The supply chain begins with the raw materials and follows the product or service through to the end. Supporting industries affect the supply chain which inevitably affects the product. These can include anyone else who is associated with the product, some for example are the material providers, universities for research, testing labs, government programs, and much more.

The value chain of the banking industry is different from most other industries because it focuses solely on the production of services rather than goods. Lenders are the raw materials, and the products are credit and financial intermediaries. A business process of an industry is all of the activities and tasks that a business preforms to get a product or sen/ice from conception to completion, generally meaning possession by the customer. Commercial banks are the first thing one might think about when they hear financial institution, but commercial banks are just a small part of the financial institutions of the world. Banks work with investment banks, investment managers, insurance companies, and other organizations and businesses that grow from the creation and movement of capital. At the most basic level, a banks ultimate purpose is quite simple. They receive deposits from their customers to keep their money safe and accessible; they raise money and capital from lenders, and turn around and make loans themselves, making a percentage off of every load they issue.

Once a bank is able to loan out enough money in which the interest of that loan covers the banks operating cost, then anything over that is how banks make a profit. For example a bank pays three percent interest to a customer who keeps their money in the bank, then charges another customer six percent on the loan that they took out to buy a house, car, or anything else they might need a loan for. The additional three percent on the dollar, after paying the first customer who has money in the bank, is profit. This is explained in an old story of a banker who would follow the 3-6-3 rule, Pay three percent interest on a loan, collect six percent on another, and be on the golf course by three o’clock.lg One might ask why they would ever let a banker make a profit off of their money so easily, but on the contrary people want their money in the banks. Not only do they make a certain percentage just for having it in there, but it is safe.

When money is in the bank it doesn’t have to be kept in a mattress, in the freezer, or a tube sock. It cannot get burned in a house fire, or ruined in a flash flood. It doesn’t weight 500 lbs. because it is in the form of quarters, dimes and nickels, and certainly can’t be misplaced. Keeping their money in banks offers people a sense of security and the luxury of convenience, and since the great depression, up to a certain amount is guaranteed safe by the federal government. Banks also act as payment agents for people. With money in their accounts people can swipe a debit card and spend hundreds or thousands of dollars without even touching a dollar bill. Someone can also write a check, and because it has a banks name on it, as a promissory that the money is going to be transferred from the customer’s account to the business or individual being paid. One of the most important functions of a bank or the banking system is the creation and issuance of money.

The Federal Reserve buys money and coins made by the treasury and issues them into the banking system as needed. Banks creating money however does not mean they actually print money, but instead it means that they lend money they do not necessarily have in reserve. This is called fractional reserve banking. Fractional reserve banking is a process in which banks only keep a fraction of what is deposited to them on hand; the rest is lent or used to pay for stocks or bonds. Customers have the right to their money at any time, and are able to withdraw that money at any given time. Banks often pay for people to put their money into a savings account, although this rate is significantly lower than the US bond rates, it is still more than nothing to the customer, and unlike a bond, and they can have it tomorrow at its full amount. Paying its customers significantly lower rates than the US Treasury bond rates allows the banks to still profit off of the money in “holding“ because they have more than likely allocated a great percentage of it elsewhere.

Types of banking There are four main types of banking, the first being Retail Banking, as previously discussed, is the act of depositing money, and in exchange receiving conveniences such as checks, debit cards, and ATM’s. Without these things a bank could not expect many customers to just let them hold their money for them. The second type of banking is business banking, also previously discussed, and very similar to retail banking, but different in the fact that businesses expect the bank to help them manage their payables and their receivables, instead of giving them as many conveniences that retail customers are eligible for. Private Banking, the third type of banking and also the fastest shrinking market, is typically designed for the customer with a net worth of seven digits or more.

This banking sector is quickly dissolving because retail banks are beginning to participate more in the actions that separate retail from private banking. Other services that these banks offer are trusts, tax services, and estate planning. The fourth and perhaps most profitable sector of banking is investment banking. These banks focus on creating market securities, underwriting equity, trading for their own accounts, and providing advice to corporate entities. While investment banking is usually the most profitable it is also the most unpredictable, making it the most risky banking service.