NEEDHAM, Mass. -- The time has come for mobile banking to gain serious traction, and core processors will have a particularly crucial role, according to a veteran observer of the financial services technology scene.

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

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

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

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

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

"Who owns the technology relationship with most of these institutions? Enter the core processors," Garcia said in her report, titled "The Ignition of U.S. Mobile Banking in 2008: Do the Core Banking Vendors Hold the Key?"

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

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

Their unique position also will allow the core processors to take the lead as the multiple participants in the complicated payments system work to incorporate mobile banking while staking their claim to a piece of the pie.

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

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

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

"They also have decades of experience collaborating with telecommunications firms for data processing. If anyone can bring cohesion to the complex mobile banking and payments ecosystem, it is the core processors."

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

Her report noted that major players such as Fidelity Information Services, Jack Henry & Associates, Metavante Corp. and Open Solutions Inc. already have partnered with mobile vendors to roll out mobile banking to their core processing clients.

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

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

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

"Taking some extra time to come to market with a holistic solution that capitalizes on the integration opportunities of the CheckFree bill pay and Corillian Voyagers Internet banking platform, not to mention the acquired intellectual capital, seems a wise course."

"Fiserv will no doubt carefully weigh build-buy partner options before 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 tie between online banking and mobile banking in preparation for a convergence that is sure to come."

She concluded that the recent wave of announcements is the first step in what will be a "multi-pronged and evolutionary strategy" for mobile banking and that "core banking vendors are uniquely positioned to drive best-in-class mobile banking solutions because of their role as technology integrators and ecosystem conductors."

So, what's a credit union to do?

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

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