Busy Signal

With the advent of fourth-generation mobile phones and high-speed networks, banks are seizing the opportunity to offer new wireless services aimed at reducing their dependence on branches and call centers.

NetBank, one of the most successful online banks, has enrolled 13,000 customers (out of a total of 163,000) for its wireless service, launched in 2000 with the aid of Air2Web, a provider of software that links customer account and transaction data to wireless networks. "Air2Web hosts the wireless platform for us. We're supplying the content," said Tom Cable, chief technology officer at Atlanta-based NetBank, adding that the typical wireless banking user is 43-years-old, married with children, possesses an undergraduate degree and has an income of at least $50,000 a year.

The NetBank service incorporates a range of mobile protocols (e.g., SMS and WAP) and devices (e.g., Palm VII). NetBank worked with Air2Web to cram as many features as possible into the smallest electronic real estate. "It's just a matter of user interface and design," Cable said. "What can you do with that given space to create a satisfying user experience? The Palm VII has a better display, but with a cell phone you have to keep it to a minimum."

For example, NetBank lets users log in through an easy-to-remember nickname rather than an account number. "That's also a security feature. If someone stole your phone, they won't have gained your checking account number," Cable said.

Enrolling in the service is as simple as filling out a registration form on NetBank's Web site. "They input their cell phone number, and Air2Web will call them and ask them to reply on their cell phone," he said.

Seeking ways to bridge the gap between legacy-based systems and mobile networks, banks have hit on the idea of sending wireless communications to alert customers to account activity such as recent transactions, low balances and new e-bill arrivals. Some systems allow users to request a full financial summary in the form of a mini-statement, which can be set to arrive daily, weekly or monthly.

Electronic one- or two-way notification involves timely message delivery based on user- or bank-defined events. Alerts can be delivered in multiple formats, e.g., voice, e-mail, instant message, to a phone or other mobile device regarding account status or unusual account activity. Messages can also be used to drive customers to other low-cost channels, such as the Web site. In the case of fraud and collections alerts, the financial institution will generate the alert and deliver it to the contact information on file, usually a phone number.

Sprint and 724 Solutions together introduced such a service earlier this year, along with a Mobile Account Access service, which provides accountholders with anytime, anywhere access to information via wireless handsets, PDA, or other smart devices.

ON THE ALERT

Alerts aim to trim bank expenses by offering a self-service channel for routine inquiries like checking balances, verifying transactions, securing statements and confirming payments.

For example, Charter One Bank's FYI Alerts service, launched a year ago with the aid of Centerpost's SmartDelivery software, lets customers choose the types of information they wish to receive and the format in which they want to receive it, e.g., text, text-to-voice, e-mail or HTML. "The idea of pushing information to the user through the channel they prefer is the right direction," said Mike Dobbins, senior vp at Charter One's Direct Bank division.

The alerts service arrives two years after the Cleveland-based bank introduced wireless banking, which is linked to its Web delivery platform. "Our wireless service is similar in design to the Web service," said Dobbins. "Centerpost is a push service, as opposed to having them log in."

The push principle adds a real-time dimension to banking services. "You're building this Web banking system with all this robust information, but you're still making the customer come to it," Dobbins said. "If you can tell them as soon as things happen, that's the right channel."

The use of wireless isn't limited to customer service, however. Many financial institutions are also using it for internal voice and data transmission. Some, such as Hawaii Home Loans, a one-year-old mortgage lender, have gone so far as to abandon wireline connections altogether.

"When we got started in April 2002, we decided to chuck land lines and go entirely with mobile phones," said Leonard Loventhal, senior vp at Honolulu-based Hawaii Home Loans. "We also decided to go with Web-based e-mail."

The lender has installed PCS Connection Cards from Sprint on its loan officers' laptops, enabling them to access mortgage rates and e-mail from anywhere on the island. "Whether we're in the office, at home, or on the road, we can connect to the Internet via the Sprint cards, regular cable modems or DSL," Loventhal said.

Information is carried over Sprint's data network, Vision, at speeds averaging 50-70 kB per second. "We're faster than a dial-up, though not as fast as DSL or cable," said Bill Esrey, vp of sales, West Region, at Sprint PCS. "But as we evolve our network, we will be at equal or higher speeds."

NORTHERN LIGHTS

Still, with the exception of institutions like NetBank, Charter One and Hawaii Home Loans, wireless banking has yet to gain a foothold in North America. Part of the reason is the relative slowness with which North America has adopted e-payments.

The situation isn't much better in western Europe. Only 4.6 percent of the total western European population will access financial services and information, including banking, investing, and insurance, via mobile connection by the end of 2007, according to IDC. But IDC also forecasts that the percentage of online banking users accessing online services using a mobile device will rise to 11 percent in 2007, from only one percent in 2001.

Although wireless banking has been offered by western European banks since 1999, it's been limited to playing a supporting role in a broader multichannel strategy. "European mobile banking has experienced some difficult years due to low rates of adoption in almost all European countries," said Mirko Corbetta, research analyst with IDC's European Vertical Markets center.

Mobile banking is also hampered by the state of the wireless communication market, which despite rapid growth still doesn't offer more complex services such as financial applications, which require speed and tariffs through a wide range of products and services.

A notable exception to this bleak forecast is Finland, where banks have been working for years to build a seamless integration between wireless and Internet banking channels. There, when people talk about alternative channels, they probably mean branches. "E-banking and m-banking are developing into the general standards for customers to receive banking services," said Harry Leinonen, adviser to the Bank of Finland.

In recent decades, retail payments in Finland have changed from cash to giro transactions and debit cards, while checks have virtually disappeared. "In Scandinavia, banks haven't used paper for 10 years or more," Leinonen said.

With fourth-generation mobile phones on the horizon, the future of mobile banking, or m-banking, appears even brighter. Banking services delivered by mobile phones will be intertwined with the bank's Internet-based applications, said Leinonen. "Whether you're using a GSM telephone or a PC, you're always served by the same application."

Finnish banks have developed new real-time Internet-based payment services, including Nordea's Solo system, OKO Bank's kultahara payment system and Sampo Bank's NetBank, and Avant electronic cash cards.

These efforts are but the latest in the drive toward mobile payments. In 1985, for example, there were only 5,000 network-based customers in Finland. By 1990-one year before the Web was born-the number had jumped to 43,000. Another plus was the adoption of self-service payment/giro ATMs, which gave Finnish consumers a taste for e-banking well before PC and Internet banking services were introduced.

In building an efficient mobile payments system, however, banks in Finland have faced a number of challenges, such as integrating back-office and customer-facing systems, employing new technologies to improve the efficiency of payment systems and achieving international standardization of banking systems.

All large, medium-sized and even small corporate customers handle payments automatically with their banks, according to Leinonen. An increasing number of customers also handle their payments online via PCs or mobile phones.

"There's not a big difference between e-banking and m-banking," he said. " In each case, you send a payment instruction to your bank to be executed."

With the newer smart phones, customers have a PC literally at their fingertips. Yet here, a battle is brewing between Nokia, the Finnish-based electronics manufacturer, and Microsoft.

In January, Microsoft introduced its Windows-based Smartphone and Pocket PC software for CDMA networks. The new release delivers the same software that it's had available for GSM networks. CDMA and GSM are mobile telecommunications standards.

Nokia, on the other hand, has been backing a competing cell phone operating system called Symbian, which works with both CDMA- and GSM-based phones. By pitting themselves against each other, Microsoft and Nokia are speeding up the delivery of more advanced mobile devices, Leinonen said. "Competition is always helpful. But after a whole, one standard will predominate. In the long run, the fourth generation will be everywhere."

Microsoft's investment in CDMA has come in response to the technology's growth both in the United States, where CDMA is the most widely deployed network, and abroad, where its adoption has jumped 31 percent since last year. The Redmond, Wash.-based software giant been working closely with leading CDMA companies such as Sprint, Samsung and Hitachi.

ADOPTION PROCEDURES

For all that, the automation level in Finland is still among the highest in the world. Eighty-eight percent of all banking transactions are handled in self-service mode, mainly via the Internet. To achieve this level of integration, banks have cleared a number of technical barriers, such as uniform and clear data communication standards, universal messaging standards that enable direct transmission of messages from customer systems to banks electronically, and payment identification data (i.e., a reference code whereby customers can readily identify funds transfers in their own systems.

On an international scale, however, these developments are several years away, due largely to the dependence on legacy systems.

Legacy systems have two drawbacks, said Leinonen. One is that they lack a standard account number, and the other is that they're batch-based.

"If I sent a euro payment order now, it would probably take four or five days at least before you got it," he said. "That's due to the legacy system. If you would put the legacy system to work the same way as e-mail, you would get the money as quickly as you receive an e-mail."

So accounts for the popularity of Paypal. "Paypal has two advantages," he said. "They have a very good addressing system, because they use e-mail addresses. Second, there isn't a clear account number standard in the U.S. In order to make a payment from one account to another, you need an account number standard."

An international account number standard would spur wireless banking by putting payments on a high-speed rail. One solution, which is being adopted in Europe, is the International Bank Account Number or IBAN. Based on an international prefix and the domestic bank account number, the IBAN is analogous to a telephone number: when the user inputs the IBAN, a bank directory can automatically provide other bank-related information.

Other elements of standardization include an international reference number for automatic identification of payments, basic payment messages based on XML and OFX (Open Financial Exchange) defining transactions between customers and banks, and bank-to-bank messaging such as SWIFT (see Cover Story, page 24).

The goal of all these efforts, according to Leinonen, is to achieve a network-based payment system, in which banks can address each other without a centralized processing and routing site. All banks would operate independently, with SWIFTNet supporting direct communications. Some countries have built such a network within their own borders, such as Finland's Pankkiverkko.

Several scenarios are possible, said Leinonen. The banking sector could reach a common understanding on developing a new payment system. Banks might fail to reach understanding on a solution, and non-bank competitors could come up with one instead. Or central banks could be pressured into creating a new, more effective payment system, partly by using their regulatory powers. "It seems reasonable to expect a combination of these scenarios with shifting time and pace."