Bank by Cellphone? Fed’s Trends in Mobile Financial Services

Mobile Payments

Sandra F. Braunstein, Director, Division of Consumer and Community Affairs

Before the Committee on Banking, Housing, and Urban Affairs, US Senate, Washington, DC; March 29, 2012

Chairman Johnson, Ranking Member Shelby, and members of the Committee, thank you for inviting me to appear before you today to talk about consumers’ use of mobile financial services.

The evolution of new technologies that enable consumers to conduct financial transactions using mobile devices has the potential to affect their financial lives in important — but as of yet, not fully known — ways. For this reason, the Federal Reserve has been monitoring trends and developments in mobile financial services. By “mobile financial services,” I am really talking about two categories of activities. The first we call “mobile banking,” which is using your mobile device to interact with your financial institution, mostly doing things you could also do through more traditional means, like check your account balance or transfer money between accounts. The second we call “mobile payments,” which we define as making purchases, bill payments, charitable donations, or payments to other persons using your mobile device with the payment applied to your phone bill, charged to your credit card, or withdrawn directly from your bank account.

Beyond banking and payments, mobile devices have the potential to be useful tools in helping consumers track their spending, saving, investing, and borrowing, and in making financial decisions. Such technologies also hold the potential to expand access to mainstream financial services to segments of the population that are currently unbanked or underbanked. That said, the technologies are still new, and important concerns, such as consumers’ expressions of unease about the security of these technologies, must also be addressed for consumers to feel confident adopting these new services.

To further our understanding of consumers’ use of, and opinions about, such services, the Federal Reserve commissioned a survey late last year. Nearly 2,300 respondents completed the survey. This survey is among the first to integrate questions about using mobile devices for shopping and comparing products along with questions about using mobile devices for banking and payments. On March 14, 2012, the Federal Reserve released a report, based on these responses, titled “Consumers and Mobile Financial Services.” My testimony today will draw from this report, which is attached to my written testimony.

Nearly nine out of ten adults in the United States have a mobile phone, and two-fifths of those phones are so-called “smartphones” with Internet connectivity. Among all mobile phone users, one out of five has used their phones to conduct some banking activity in the last 12 months. Those users with more traditional mobile phones, or so-called “feature phones,” access bank information via text messages, while smartphone users access their bank information by downloading their bank’s application or via the bank’s Internet site. Younger consumers, those below age 29, have readily adopted mobile banking, and make up almost 44 percent of all consumers surveyed who use such services. Adoption rates of mobile banking also differ by racial and ethnic background, with Hispanics and non-Hispanic blacks making up a disproportionate share of those who use mobile banking services. The most common transactions performed by users of mobile banking were checking account balances or checking recent transactions. Transferring money between accounts was another common transaction.