Mobile and Internet Banking Is on the Rise, and Big Banks Are Fine With That

 Image source: Getty Images.

The internet has totally changed the face of some of America's industries. The bookstore, travel, and newspaper businesses all interact with customers totally differently than they did a couple of decades ago. I remember when buying a book, or an airline ticket, or a newspaper meant getting up going down the street buying it, and returning home with my purchase in my hands.  Now, I can do my shopping from my living room.  I buy things using an app on my smartphone, and I wouldn't even know where to go if I wanted to buy most things in person.   People buy books on Amazon and buy airline tickets on Expedia, and the book stores and travel agencies that I remember from my youth don't exist anymore.  Banks, however, are different.  The same banks that were big years ago are still big now.  Those large banks are using the new technology, and are in no danger of being disrupted. The advent of mobile banking has done nothing to change the actual revenue-generation activities of banks -- namely, loaning money.

Smartphones are ubiquitous

The Fed published a study earlier this year with some insights on the rise of internet and mobile banking. Currently, 87% of Americans have some kind of cellular telephone. Some of them are flip-phones, etc., but a growing percentage of them are internet-enabled "smart phone". Currently 71% of those 87% are internet-enabled smart phones. . 71% of 87% is about 62%, meaning that over 3/5 of all Americans have a mobile device that they can use to connect online. 

Of all of the people who have both a phone and a bank account, 43% have used mobile banking -- 53% if you only count people with smartphones. And both numbers are trending up over time. Of the people who use their phones to interact with their bank accounts, 94% are keeping tabs on their checking-account balances, 58% are transferring money between accounts, and 54% receive alerts from the bank. Only 24% of mobile phone users have made any kind of payment using their phones.

Banks need a brick-and-mortar presence

According to the same Fed study, the vast majority of bank customers (84%) use an in-person branch at least once per year, and the vast majority of bank customers (75%) use automatic teller machines (ATMs). That tells me that a bank without branches and automatic teller machines in a lot of places is not going to succeed.  Customers know that they will have to visit from time to time, and they choose familiar banks that have branches near their work places and near their homes.

Americans have "sticky" relationships with their banks. That means that once a bank gets a customer, that customer tends to stay with that bank. Choosing a bank is not like deciding to try Lyft instead of Uber one day. Between your paycheck being on direct deposit and automatic bill payment, and saving on fees because of your mortgage, switching banks is a very big deal. Even with banking by computers and smartphones becoming more common, the top few banks are still dominant.

The key difference between banks and other businesses, like bookstores and travel agents, is that in banking, the same companies are connecting with customers in new ways. The innovations in internet banking are coming from the big established banks, not from new upstarts. 

The big established banks are gaining market share

Here's the market share of banks in the United States as of 2016. There are currently over 6,000 banks (plus credit unions), but just the top 12 banks have a majority of the deposits.

Data source: FDIC. 

And here is the same table from 2006. This is more evidence that mobile and internet banking is not a threat to the big banks because the same three banks are at the top, but they are even more dominant now than they were in 2006, before mobile and internet banking became really popular. 

Data source: FDIC.

The largest bank by deposits, Bank of America has over 21 million mobile customers, and 33 million customers on its digital platform (online banking). They averaged 46 logins per person over the last three months.  That bank has thousands of offices around the country and has tens of millions of mobile customers.  That tells us that customers are doing mobile banking with a bank that also has a big physical presence in their community. .

The next bank, JPMorgan Chase, has not disclosed its number of customers, but it does have over a million reviews of its app, between the iTunes and the Android App store.  That is more evidence that the same banks that are big in physical branches are also big with mobile and internet customers..

The point is that, as internet usage has become more and more ubiquitous, the top few banks have become even more dominant.  Their dominance is not necessarily because of internet and mobile banking, regulators have been pushing that trend along for many years, but the technology is clearly not stopping the dominance of the large banks.  . The largest banks clearly have nothing to worry about from the internet, and are in fact thriving and gaining even more market share from the smaller banks in the internet age.