Do Consumers Want Mobile Banking?

SWACHA's Dennis Simmons on Electronic Payment Trends How strongly do consumers embrace electronic bill payments, and do they really want mobile banking as much as industry analysts say they do?

These were the questions on Dennis Simmons' mind when his trade organization, SWACHA, the electronics payments resource, launched a recent survey on consumer usage of electronic payments.

In an exclusive interview, Simmons discusses:

Survey results and their message to banking institutions;
Payment/security threats currently menacing the financial services industry;
Ways institutions can help vulnerable businesses fight fraud.

Simmons has over 20 years experience as the senior operations officer of several Dallas area banks. A frequent speaker and recognized expert on payments system issues, he is currently a member of the Board of NACHA, the immediate Past Chair of NACHA's Electronic Check Council and immediate past Co-Chair of NACHA's Risk Management Advisory Group. He was recognized by Transaction World as one of its 2007 "Movers and Shakers" in the payments business and is the recipient of two public service awards from the Federal Bureau of Investigation (FBI). He is an Accredited ACH Professional (AAP).

SWACHA is an official source for the ACH Operating Rules and represents its members in national issues and the rule-making process. SWACHA's mission is to be the resource of choice for education, training, representation and knowledge regarding payments and payments system risk.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. We are talking about payments today and with us is an expert in the field, Dennis Simmons, the President of SWACHA. Dennis thanks so much for joining me today.


FIELD: Why don't you tell us a little bit about yourself and your role with this organization?

SIMMONS: I have been with the association almost 13 years now and have been the President for the last nine years. Prior to joining SWACHA I worked 20 plus years in all aspects of commercial banking. I come from a banking family. Both my mom and dad were bankers and my son is a banker, so I have been in and around banking pretty much all of my adult life.

My role with SWACHA is implementing the strategic vision of the association's Board of Directors as the leader of the association and I am also charged with being the public face of the association.

FIELD: Now for those in our audience who aren't familiar with SWACHA, why don't you tell us about the organization, the type of work that you do?

SIMMONS: SWACHA is an acronym for the Southwestern Automatic Clearing House Association, which was started back in 1974 as one of the regional clearing houses that were set up in the early days of the development of ACH to handle the processing and transactions within regions.

Over the years that function has been consolidated into the main operators in the ACH network. So we have evolved into what we refer to as a knowledge-based organization. We provide training, education and support for our members in the area of electronic payments. We have over 1,000 members, which are primarily financial institutions located in the Southwest, and we also run a subsidiary company, SWACHA Services Corporation that provides rule compliance audits and payment systems, risk assessments and payment system consulting and expert witness services.

FIELD: And I would venture a guess that you have been very busy the last year or so.

SIMMONS: That is an understatement.

FIELD: Now Dennis what got my attention, you recently conducted a survey on consumer usage of electronic payments. What can you tell us about that survey?

SIMMONS: We found that when we had done a lot of research, looking around, reading the existing research on the topic, we found a lot of information but we were skeptical about how some of the national surveys played here in the Southwest. We were also skeptical of some of the results because a lot of the surveys that revolve around electronic payments and bill payments especially didn't focus on talking to the person in the household who actually pays the bills. So we wanted to make sure that we were doing that kind of a focus and we also wanted to explore where mobile payments were going, mobile banking and all. And so I found myself a little skeptical of the high percentages of people who have been touted as the early adopters of using mobile banking on their cell phones and their handheld computers and that sort of thing.

So we commissioned a survey in Texas of over 400 people who paid bills to make an assessment of their pattern of usage. A couple of the results we saw were quite startling to us and caused us to rethink some of the notions that we held.

First is a near 100% understanding of direct deposit and how it works and that is significant for us because our members have been funding a consumer awareness campaign about direct deposit. Based on that, we think SWACHA and our members may have to redirect our marketing strategy because it is tough to get over 100% penetration. We may need to talk about some of the other alternatives that are out there in the electronic payment space. We found that to be very enlightening.

One of the other things we found that we think is going to be beneficial to our members is the use of direct deposit as a savings tool. We found that only 30% of the folks that responded to the survey indicated that they put some portion of their payroll into savings via direct deposit. That means that there is an education opportunity for financial institutions and employers that start to emphasize the fact that you can split your payroll into various accounts and using that as a savings vehicle. What was really interesting was that of the 30% who do save through direct deposit, 58% put more than 5% in another account and 14% put more than 25% in another account.

The takeaway there for the financial institutions is that their customers who use direct deposit of payroll are very valuable candidates for some of the other investment vehicles that the banks have. We think in light of where we see some of the upward trends in savings patterns being touted in the press recently, there is an opportunity for banks to grab their share of that increased savings dollar.

Then we asked questions about electronic bill payments and we found that 82% of the respondents indicated that they pay at least one bill every month, and that is a very high penetration. And almost 60% responded that they have been paying bills electronically for more than three years. We found an opportunity for banks and credit unions in this space because 39% of the folks that we talked to use the biller's Web site, which means that they are going to two, three or four different Web sites to pay their bills versus only 34% using their financial institutions bill payment site. What that indicates is that there is an opportunity for financial institutions to cement the relationship with their customers by tying them more closely with the institution's bill payment services so they should ramp up their promotion of the bill payment services. We think that is a good customer retention tool.

The other thing we asked was how willing the consumers would be to pay a convenience fee if they were going to have to make a last minute cusp of a payment being past due, and we found that 50% said that they would pay a fee to avoid a late charge.

This is an opportunity for banks to look at their auto loan payment programs and their home equity line of credit programs to offer that as a convenience to be able to generate some fee income. Understand that the current regulatory activities may dampen that a bit going forward, but it is still an opportunity for some fee income for the financial institutions.

We asked questions about currency, debit and credit cards, trends, check writing and how people use their cards and we also asked questions about security. And I was pleased to note that about 70% of those surveyed said they don't have any concerns regarding security of electronic payments. There was one thing that was really startling for me. As a banker who has been around for a long time, the joke is that customers never open their bank statements because they just don't care or they don't worry about it too much. But what we found was that two-thirds of the individuals indicated that they checked their online statement at least once a week. I thought that certainly breaks the perceived stereotype that customers don't pay attention. I think that means that financial institutions have been very good about educating and involving their customers in taking care of their business. We still have to reach out to that other 30% but I think that the continued outreach is going to be a major focus for the DFIs going forward.

Another thing, tying back to the security issue, is that folks told us that 70% of those surveyed did not have any concerns about electronic payments and 83% of them knew what to do if they had a problem.

The other one that really was startling, it just seemed almost counterintuitive, is that 95% said that they have never had a problem with an electronic payment. That is an astoundingly high percentage of people that said they have never had a problem.

I think there is some good information there for financial institutions in the security space, but I think when we start talking about some other concerns that we have, there are some that are out there that we certainly want to talk about.

The last thing that we wanted to take a look at was mobile banking. We asked if they used it and less than 10% surveyed said that they are currently using it and almost 80% said they wouldn't use it if their DFI offered the service.

That is the overall survey so when you start to get down into the demographics and look at the age, education and geography of the folks who were saying they would or would not use it, obviously you could see the pattern of the people who are a little bit more technologically astute or younger folks who will tend to say they will use it.

The point there is for the bankers to make sure they understand to whom they are marketing and not just try to have a blanket approach to their marketing or mobile platform. It has to be very targeted.

FIELD: That makes sense. Well Dennis to get back to your original premise do you find that the statement from your constituency really was different from what you have been seeing from some of the national surveys?

SIMMONS: I was in a meeting recently talking with an organization that has done a lot of work in this and they were saying that 40% of consumers that they surveyed would use mobile banking and that does not sync up well with what we are hearing from our consumer who we surveyed.

It is almost a touch point that if you talk to anybody in the household, they may say they are going to use it but talk to the person who actually controls the purse strings. At my house it is my wife, and if somebody called me up and asked would you use mobile banking and I said sure, I can just hear the response from her being, "Over my dead body you would." [Laughter.]

That is one of the reasons we focused on asking the questions about the person who is actually going to be controlling the purse strings. We think that is a very important question to ask.

FIELD: Just to talk about some other payments and security concerns that you see in the industry, from our perspective we hear an awful lot about ACH fraud, we hear a lot about electronic payments, what do you and your organization see as some of the bigger security concerns that everyone is facing now?

SIMMONS: When we hear payment fraud and we hear ACH fraud, I think one of the things that happens is that it is traditional types of fraud. Check fraud has migrated into ACH with the check conversion applications so it is still that people are writing bad checks, it is just clearing through a different set of rails.

One of the things that has happened recently that has been a great concern to us is that as we saw in the research, consumers are aware of some of these issues. They are checking their bank statements at least once a week online and they are taking steps to mitigate it, but I have a real growing concern about small businesses.

We have seen with some of the small businesses a recent rash of t-logging incidents where a Trojan was inserted into an unprotected PC, which ultimately resulted in the compromise of the credentials that they use for their online banking system. And that comprise was exploited through some online treasury management applications and ultimately resulted in some transfers of funds of a lot of accounts and some large losses to some DFIs and their customers. I think it just points to vulnerability.

I really sympathize with the idea that they are focused on running their business and making money, especially in this economy. Making sure that their security procedures on their laptop or workstation at home is the latest, greatest updated McAfee or Norton anti-virus to keep the Trojans off their machines is not what they are focused on. We have to get their attention. The banking industry needs to focus on security issues for small business customers.

I think that any banking organization regardless of size that is offering any kind of online treasury management services, that include the ability to do wire transfer or ACH origination, has to have some effective tools in place to monitor and detect some of these out of pattern behaviors and put procedures in place to interdict the bad guys.

One of the things that we noticed was that where the breakdown was that a processor put some new controls in place and forgot to turn on some switches and the banks ended up having to scramble around to recoup some of the money. It requires constant vigilance. You can't just sit there and say everything is great and we haven't had a problem because we know from experience that something is going to happen. I would encourage your listeners to make sure that they are encouraging, especially their small businesses.

I think consumers are good and they are on a good track. I think the large national companies are good and they understand all this. They have IT departments. But those small to mid-sized enterprise don't have a lot of the resources, perhaps something as simple as the bank subscribing to a service and giving that customer these various tools to make sure that they use them because it will ultimately protect the bank long-term.

FIELD: You make a good point that the small businesses certainly don't have the resources but you find that some of the smaller institutions don't either. What are some of the ways that an institution can address some of the concerns of their customers with the available resources that they have?

SIMMONS: For a long time Positive Pay was out in the marketplace and we found banks were charging for it, but over time what happened was that, especially within some of the smaller institutions, they were getting so burned by fraudulent checks that they basically took the position that if you want to be a business customer you have to deploy Positive Pay and we are not going to charge you for it but you have to deploy it. It has cut down dramatically on the losses that these banks have incurred from check fraud.

I think you take the same kind of approach. You cut a deal with an anti-virus vendor or a security vendor and maybe some of the institutions band together and they do this cooperatively and they deploy this to all of their small business customers that have wire transfer and ACH capabilities. Basically say it is free and if you use it we will take responsibility but if you don't use it we are not going to take responsibility. You shift that liability to the customer but you make it free so nobody can argue that it was too expensive or that sort of thing.

FIELD: Makes sense Dennis. I appreciate your time and your insight today, especially on the survey and your conclusions to it; very informative.

SIMMONS: I certainly appreciate the opportunity and we are going to be doing this survey at least annually going forward so hopefully we will have a baseline and we can maybe track the trends and talk again next year about what happens.

FIELD: Dennis we look forward to that. For Information Security Media Group, I'm Tom Field. Thank you very much.

About the Author

Tom Field

Tom Field

Senior Vice President, Editorial, ISMG

Field is responsible for all of ISMG's 28 global media properties and its team of journalists. He also helped to develop and lead ISMG's award-winning summit series that has brought together security practitioners and industry influencers from around the world, as well as ISMG's series of exclusive executive roundtables.

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