NEEDHAM, Mass. -- The time has come for mobile banking to gainserious traction, and core processors will have a particularlycrucial role, according to a veteran observer of the financialservices technology scene.

"In 2008, mobile banking is emerging as a strategic business andtechnology priority for U.S. banks and credit unions," saidVirginia Garcia, research director at TowerGroup in Needham,Mass.

"TowerGroup expects 2008 to be the tipping point for mobilebanking in the United States," she said in a new report.

Garcia said that while many of the top 20 banks have alreadylaunched mobile banking (as have more than 100 credit unions), it'sstill not as ubiquitous as the headlines may suggest.

"Given that over 17,000 banks and credit unions operate in theUnited States, mobile banking has a lot of room for growth beforeit can ever be considered truly mainstream," Garcia said.

"What's interesting about the thousands of banks and creditunions outside the top 20 is that, unless they do their own coreprocessing in-house, they tend not to make technology decisions inisolation."

"Who owns the technology relationship with most of theseinstitutions? Enter the core processors," Garcia said in herreport, titled "The Ignition of U.S. Mobile Banking in 2008: Do theCore Banking Vendors Hold the Key?"

Here's how the TowerGroup analyst defines their role: "Intechnology innovation, core banking vendors may not betrendsetters, but they are pacesetters."

That's because their familiarity with core operations lets them"excel at seeing through the hype regarding new technology andwaiting to act until the market has matured to the point whereinnovation and profitability converge," Garcia said. As an example,she pointed to the initial emergence of mobile banking severalyears ago, which faded in the face of the immaturity of thetechnology and lack of consumer interest.

Their unique position also will allow the core processors totake the lead as the multiple participants in the complicatedpayments system work to incorporate mobile banking while stakingtheir claim to a piece of the pie.

"This evolution to date has been stymied by confusion about howto bring all these players together in an economic model that makessense for everyone," Garcia wrote in her report.

"Arguably, no vendors are better equipped to figure this outthan the core processors, whose business models depend ondelivering solutions that span an ecosystem of hardware, software,networks and services."

"This is where core banking vendors shine," she added. "As thelinchpin of the banking and payments system as a whole, they haveclout with regulators and industry associations.

"They also have decades of experience collaborating withtelecommunications firms for data processing. If anyone can bringcohesion to the complex mobile banking and payments ecosystem, itis the core processors."

That said, she also warned the core processors themselves not belaggards. Garcia argued that while they won't win deals basedsolely on mobile banking solutions, "they can and will lose dealsif they are perceived to be weak on innovation or 'behind thetimes.'"

Her report noted that major players such as Fidelity InformationServices, Jack Henry & Associates, Metavante Corp. and OpenSolutions Inc. already have partnered with mobile vendors to rollout mobile banking to their core processing clients.

Missing is the biggest provider of core banking solution in theUnited States, Fiserv Inc.

"The challenge for Fiserv lies in deploying a solution across amultiplicity of banking and credit union cores and adjacenttechnologies such as Internet banking, bill payment, remote captureand payment processing," Garcia said.

She said Fiserv's recent acquisition of CheckFree could be astrategic catalyst.

"Taking some extra time to come to market with a holisticsolution that capitalizes on the integration opportunities of theCheckFree bill pay and Corillian Voyagers Internet bankingplatform, not to mention the acquired intellectual capital, seems awise course."

"Fiserv will no doubt carefully weigh build-buy partner optionsbefore launching a solution," the TowerGroup analyst wrote.

Online banking specialists such as Digital Insight and S1,meanwhile, "may pursue an ownership model to form a closer tiebetween online banking and mobile banking in preparation for aconvergence that is sure to come."

She concluded that the recent wave of announcements is the firststep in what will be a "multi-pronged and evolutionary strategy"for mobile banking and that "core banking vendors are uniquelypositioned to drive best-in-class mobile banking solutions becauseof their role as technology integrators and ecosystemconductors."

So, what's a credit union to do?

"Mid-tier and small institutions considering the deployment ofmobile banking solutions should press ahead with confidence thattheir core banking vendors are the key to start the engine ofmobile banking."

[email protected]