Mobile Banking a Money Maker for U.K. Banks

See main article: "Mobile Banking Takes Off ... Or Does It?"

As U.S. banks ponder how they can make money from mobile banking, the U.K.'s top banks recently began charging customers for text alerts, typically the equivalent of $5 or $6 a month to subscribe to a message service from the bank plus 50 cents every time a customer requests information via text.

For example, after customers received an initial free trial, London-based Lloyds TSB Bank ($622 billion in assets), the U.K.'s largest retail bank, now charges customers who wish to receive texts that warn them when they are about to overdraw. And another London-based giant, HSBC ($2.35 trillion in assets), recently began charging customers 2.50 pounds sterling a month, or roughly $5, for personalized text alerts. Both banks continue to provide basic account balance summary texts for free.

HSBC's phone and Internet subsidiary, Leeds, U.K.-based First Direct, has sent more than one billion texts since 1999, when it became the first U.K. bank to offer customers account information via SMS texts. While HSBC USA has yet to launch its mobile banking service, spokeswoman Francine Minadeo says, "We will implement the technology the U.K. and Hong Kong are using, but since markets vary, we would not charge for online services or text messaging in the U.S." She adds, "Our overall mobile banking program is being driven out of the U.K."

Barclays Bank ($2.27 trillion in assets), the U.K.'s third-largest retail bank, is about to enter the SMS-text fray commercially, but it has not decided whether to charge for text alerts, according to Phil Sowter, head of mobile and self-service initiatives for the London-based bank. Of Barclays' 2.7 million customers who regularly bank online, each month 2,500 access their bank accounts from a mobile device, such as a cell phone or BlackBerry, Sowter notes.

Although Barclays is later than its major U.K. competitors in introducing text-based banking commercially, Sowter says its SMS service will have unique elements that he cannot disclose before the launch. "There's certainly money-making potential" in text alerts, Sowter says. "The big caveat is, 'What is the adoption?' It would be unfair to categorize this as an immediate cash cow when it is being tested."

That said, he adds, "It has the potential to be a solid, new income stream. Let's say you put one million customers onto the service, each paying 2 pounds a month. That's a new revenue stream of 24 million pounds [$47 million] a year." Although banks' text offerings and charges differ somewhat, Sowter says, "What's typical for 'push' messages [those initiated by the bank] is a few pounds a month [$5 or $6] and for 'pull' messages [those initiated by the customer], 25 pence [roughly 50 cents]."

Thus far, there hasn't been any apparent consumer backlash. "It's a choice," Sowter comments. "There's no indication that customers don't feel it's a value-added service."

Sowter points to twentysomethings' willingness to pay as much as $3 to download a new ring tone to their cell phones as evidence of the revenue potential of text messages. And that potential isn't limited to just Gen Y.

Still, sources in the U.S. consider it unlikely that domestic banks will follow the U.K. banks' lead and charge consumers for text messages. Emmett Higdon, a senior analyst with Forrester Research (Cambridge, Mass.), contends that it's too late now for domestic banks to change their approach. "In the U.S. we've already positioned that as a free service to the customer," he says.

Brandon McGee, product manager for mobile banking with Columbus, Ohio-based Huntington Bancshares ($56.1 billion in assets), says banks have succeeded in charging for services that previously were free, including ATM surcharges. But, he adds, nobody wants to be the first to charge. "Bank of America [Charlotte, N.C.], one of the first [U.S. banks] in m-banking, has proposed it as this great new service that's free," McGee notes. "It's hard for others to do anything different."