Debating the Rising Digital Banking Price Tag
Call it sticker shock. Some credit unions are expressing dismay and anger at what they perceive as sharp jumps in their monthly fees for online and mobile banking, mobile remote deposit capture and digital bill pay.
Others have begun grumbling about the disjointed experience members get in digital banking as they move from one vendor's online banking to another's mobile banking to yet another's MRDC. Some have even threatened to bring some of the functions in house, essentially severing ties with their established digital vendors.
Mark Vipond, CEO of D3 Banking, an Omaha, Neb.-based developer of digital banking tools, offered a case in point that highlights the enormity of the numbers.
“An FI with 70,000 online banking users has been paying $1.10 monthly for every online banker, plus (50 cents) for bill pay transactions. Then it's being charged an extra $1.25 for mobile banking users and transactions. With 10,000 mobile banking users, the extra $150,000 annual mobile bill is cumbersome, but as the channel increases, so will the burden.”
That is the rub. Each channel, which is often provided by different vendors, results in a separate charge.
“When mobile banking was layered on top of online, that's where the costs grew,” said Robb Gaynor, a co-founder of apps developer Malauzai in Austin, Texas.
Vipond added, “(Vendors) have kept adding costs incrementally. Are (credit unions) getting ripped off? Yeah, probably.”
Experts say do the math. As many credit unions see substantial growth in digital and especially mobile, they are faced with sharply rising costs. Mobile adoption, according to some sources, probably is occurring at the fastest rate in history for many institutions and every new user represents another cost. Now, some credit unions have questioned where that money will come from.
Mark Ranta, a senior product marketing manager with Naples, Fla.-based ACI Worldwide, which provides payment and electronic banking tools to thousands of financial institutions, said in 1998, 4% of customers used digital banking. That figure has increased to 60% and an increase in costs.
Another rising concern is that in some cases, tools from various vendors do not integrate smoothly. For some credit unions, the upshot is a disjointed digital experience that is unlike what is offered from those big banks that have recently focused on delivering a unified experience across multiple channels. As a result, the mounting frustration is about not just cost, but also quality.
“The traditional vendor model is ripe for disruption and rationalization,” said Neil Hartman, a director in the banking practice at Chicago-based consulting firm West Monroe Partners.
Hartman said he has seen more financial institutions move digital channel development in house.
“These capabilities are almost becoming commoditized and there could be real cost savings in doing the work in house,” he said.
Hartman has also spoken with some financial institutions that are exploring terminating their mobile banking apps. The idea is to provide a mobile, Web optimized experience that lets smartphone users surf into the online banking site via browsers such as Safari or Chrome and get out of the costs of native apps.
There are other possible cost-cutting avenues. Over at Malauzai, which develops mobile apps, Gaynor said the company is testing a way to run one in an Internet browser on the desktop. If that works, theoretically, financial institutions could cut the cord on online banking. Members who wanted to do banking on a desktop or laptop computer still could, it just would be via an app accessed via a browser.
As for the digital banking vendors, some of the industry leaders have their own takes on what is occurring.
For instance, at FIS, the Jacksonville, Fla.-based financial technology company, Doug Brown, a senior vice president who heads mobile banking, said he has not been hearing complaints from customers about pricing, although he acknowledged that adoption has gone up extraordinarily so they are paying more. What he is hearing is louder demands for more and better features, he noted.
Inherently, digital banking channels are much more cost effective than analog, bricks and mortar channels and, as usage of analog channels diminishes, financial institutions have to focus on capturing the possible cost savings, Brown said.
At Digital Insight, in Redwood City, Calif., Jose Resendiz, a vice president, said: “When they had little adoption, the costs did not matter. Some financial institutions are not prepared for the rapid growth in mobile. Some financial institutions had not budgeted appropriately.”
He also disagreed with the suggestion that some credit unions may take mobile banking functions in house.
“The changes in technology in mobile are much faster than the changes have been in a browser on a desktop. Their perspective is they’d rather have a dedicated provider,” Resendiz said.
At Fiserv, vice president Steve Shaw acknowledged that some customers had been caught unprepared for what he called a tsunami of adoption. In several instances, Fiserv has worked with financial institutions to train frontline staff to encourage consumers to use the lower cost digital channels, Shaw said.
“Drive people to the lower cost channels and digital will save you money,” he offered.
At Q2, a developer of digital platforms in Austin, Texas, Adam Anderson, executive vice president, said that some of the grumbling about price was what he called “consultant instigated grumpiness.” That is, a third party consultant suggested complaining about channel pricing without regard to whether the complaint had merit.
However, Anderson acknowledged that when institutions pay multiple digital vendors, it feels like layered cost.
For its part, Q2 may also be working on a single digital banking platform that provides an optimized experience to whatever device connects to it, Anderson said, adding it's almost always less expensive to deal with one vendor.
“Single platform access will catch on. That seems certain,” he predicted.
As this approach from Q2 and many others now in the chase gains adopters, multiple benefits will flow, proponents said. Users will get a unified experience and financial institutions may see lowered costs through vendor consolidation. Inevitably, analog banking costs may diminish as fewer people use branches, IVR and even ATMs.
How fast will this happen?
“In the next 12 to 18 months, the economics will go down by a dollar per user per month,” Gaynor said.
His belief is that it will not long be tenable to charge equal amounts for online and mobile and, out of that squeeze, a dollar will be saved. Add in analog channel cost reductions and, possibly, there is light at the end of the tunnel, some experts have said.