Wireless-Retail Financial Services: Adoption Can't Justify the Cost

Slow adoption by retail investors, costly services and bankrupt vendors has prompted banks and brokerage firms to turn off their wireless applications.

Today, everyone knows that demand for wireless-retail banking and brokerage services is not only on the decline, but has fallen off a cliff. Not only that, several banks and brokerages are suspending the service - or postponing it indefinitely - because they cannot justify the operational costs.

Others have turned off the wireless-brokerage service because they were paying on a per-user basis or their wireless vendor went bust.

What happened?
According to a report published by Boston-based Celent Communications entitled, "No Signal: North American Wireless Retail Banking & Brokerage," the decline in retail-trading volumes, the tightening of IT budgets and the bursting of the telecom bubble are the main catalysts behind the retrenchment in wireless-financial services. Other factors, such as the need to support myriad new protocols, devices and partnerships, as well as costly and confusing data charges being levied on top of voice charges, are making for a tough wireless market.

Wireless is no longer a priority as financial-services institutions focus on more pressing initiatives such as STP. In addition, some firms are shifting their spending to B2B applications for mobile-investment bankers and analysts or to B2E - the business to employee market - to support mobile workers. Since 1998, an estimated $250 million was spent on wireless banking and brokerage services and annual spending reaching a high of $80 million in 2000. But, as IT budgets were slashed, wireless spending dropped to $45 million in 2001 and could shrink to slightly over $20 million in 2002.

Over-hyped and under-delivered, wireless has not been a commercial success. Only four of the top 10 U.S. banks (Bank Of America, First Union, Fleet Bank and Wells Fargo) and four of the top 10 U.S. securities houses (Merrill Lynch, Fidelity, Charles Schwab and E*Trade) launched retail-mobile services.

Citibank's wireless-retail-banking application never went live, even though the bank was an investor in 724 Solutions, its wireless-technology provider. Salomon Smith Barney did manage to launch wireless brokerage and Citi has a wireless credit-card service, comments Celent Analyst Mike Haney, who authored the report.

With the failure of wireless pure-plays, such as w-Technologies and Brokat, and the massive layoffs and losses recorded by Aether Systems and 724 Solutions, many top financial institutions are halting their wireless-banking and brokerage services. Celent is even advising firms they can turn off their wireless services without suffering any customer backlash or competitive disadvantage.

On July 31, Bank Of Montreal canceled its Canadian wireless-retail-banking and brokerage service and its U.S. wireless-banking service, citing low consumer adoption. "We will re-enter the market when customer demand picks up. This is simply a pause," says a bank spokeswoman, who declined to discuss numbers of customers. "Bank Of Montreal was such a shock to me because they were such a supporter of 724, they were the first customer, they were a huge investor and they still own 6.8 percent," reacts Celent's Haney.

At its peak, during the third quarter of 2001, Celent contends that about 250,000 retail consumers were using wireless services - which is about half of one percent of total U.S. subscribers to mobile phones. But usage has been steadily declining, says Haney, who estimates there are currently 180,000 to 190,000 total wireless-consumer-banking and retail-brokerage users and that, by the end of 2002, the number will fall to around 178,000, and as low as 150,000 in 2003.

While some financial firms are reluctant to release the number of users, Celent estimates that most firms have only between 5,000 and 10,000 active users of their transactional services - with the exception of Fidelity, E*Trade and Charles Schwab. Haney stops short of calling their programs successful, but says, "They're definitely doing better than peers who kind of stuck their toe in the water and just timidly went after wireless."

But Celent's numbers are much lower than the firms' user tallies, suggesting that they define "user" differently. Celent reports that Fidelity has around 48,000 users, E*Trade less than 25,000 and Schwab has about 20,000 users. Both Fidelity and Schwab say they have well over 100,000 users.

According to Robert J. Sofman, senior vice president, Schwab Wireless, Schwab has more than 152,000 users that have accessed Schwab Wireless since its launch in June 2000, and has seen steady growth since the middle of last year, based on a customer survey as of May 2002 with 600-plus responses. During a typical month, about 20,000 to 25,000 of the total Schwab-Wireless users access the service, with each user averaging 14 times during a typical month. However, this means that not all 152,000 registered Schwab-Wireless users are actively using the service at the same time.

Celent defines active user as someone who is consistently using the service -requesting information or initiating a trade as opposed to passively being pushed alerts.

Schwab's Sofman says the firm is optimistic about the space and that he is not worried about the early numbers. "We're bullish on the space because we believe that wireless connectivity to the Web is an inevitability," says Sofman. "What's emerging is a belief that this channel has broad appeal, is relevant in a variety of locations and for a variety of reasons," says Sofman, adding, "That's one of the reasons why we're bullish for today on the channel and that it's going to grow over time." Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio