ANNUAL CONVENTION NOTES

 

Regulations slowing community bank readiness for mobile banking

 

November 10, 2011

 

 

By Michele Gula, m.rae associates, as guest writer for ABA Banking Journal, from ABA Annual Convention


When 16,000 banks and 5,000 mobile carriers try to push out in-demand services to millions of consumers eager to adopt, there are many compliance issues that can hang things up, especially for community banks.

With more individuals toting smartphones than traditional and flip phones, the industry is dealing with advanced mobile technology that has opened up a myriad of banking solutions in virtual space. But the slow adaptation on the regulatory side is fragmenting oversight and compounding the sea of stakeholder challenges.

Cynthia Merritt knows this better than most. She is the assistant director for the Retail Payments Risk Forum at the Federal Reserve Bank in Atlanta. She was joined by presenters Jeffrey Smith, chairman and CEO, Ohio Valley Bank Corp., and Sumit Deshpande, vice-president, mobile and messaging, at BB&T for a strategic solution session on mobile banking and mobile payments at this year’s annual convention.

In 2008, Merritt’s forum went to work identifying potential gaps between banking regulations and relevant agencies in the area of mobile banking. She lives and breathes regulatory considerations surrounding the subject of mobile banking. In her opinion, the evolution of mobile banking has come a long way in a very short amount of time, a stark contrast to the long adoption timeframe of online banking.

Online, while introduced in the 1980s, did not take hold until the mid-1990s. Consumer adoption of mobile banking spiked in 2011, after a flat point in 2010, according to Javelin Research & Strategy. 

 

 

Non-industry competition
With innumerable touch points existing across many regulatory bodies, oversight is fragmented. There is little attention being paid to the stakeholder challenges listed herein, and every passing nanosecond is abbreviating the timeframe community banks have to stand a chance against non-industry competitors like Google, PayPal, and Visa. These companies have catalyzed consumer conversations about banking behaviors. And they are talking to banks’ customers.

Merritt said that currently there are three functions that exist across most mobile banking systems at community banks today:
•    Checking balances
•    Viewing transactions
•    Accessing other accounts besides checking and making transfers

In spite of such adoption, the session prompted many questions. Among them: With evolutions like Google Wallet quickly democratizing wave-and-pay applications, how can community banks align their institutions to offer “what’s next” to consumers who want it now? While Google Wallet is in talks with more financial partners, will community banks have a seat at the table? And will they have a share in the success?

Questions like those in the case of Google Wallet exemplify the sort of questions that are making the much-needed coordination extremely difficult. All involved parties have different ways of doing things and different levels of liability and responsibility, and all of them are trying to anticipate and support consumers’ expectations.

 

 

Continuing to speak on community banking’s behalf
In 2010, Merritt was tapped for the self-named Mobile Payments Industry Workgroup, an initiative with representation from the Federal Reserve Banks of Boston and Atlanta and key players in the arena of mobile payments.

Over 15 months the group discussed how it could develop successful mobile payments practices in the U.S. The group released a paper on its efforts and has agreed to continue talks and aims to bring their suggested solutions before “a broader group of industry players.” 

 

 

Not new for community banks
Of course, regulatory oversight is not a new-fangled development for community banks. The core of the critical risk factors they must weigh is customer security, and that idea well predates even the 16-bit operating system. Speakers noted that today’s security factors include:
•    Secure access and authentication
•    ID protection
•    Malware and viruses
•    BSA and AML
•    Third-party due diligence

 

 

About the author

Michelle Gula entered the industry as a financial analyst in early 1999 and later assumed the role of senior financial analyst, overseeing financial analyses of over 130 community banks every quarter. In the years that followed, Michelle challenged banks to realize opportunities for high performance beyond the balance sheet. This diversified her into strategic planning, tactical consulting and enterprise education.  In recent years, propelled by her long-held belief that the human element is at the same time a bank’s most valuable resource and volatile risk, she created an independent consulting firm focused on succession planning, strategic planning, and training and education.   << BACK TO MAIN PAGE