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How Mobile Banking Works


Advanced Mobile Banking Technologies
Apple iPhone
David Paul Morris/Getty Images
Smartphones, like Apple's iPhone, have functions that make more advanced mobile banking possible.

The next generation of mobile banking is the most similar to the Internet banking paradigm. It requires an application -- either a browser or a standalone application -- and a more advanced smartphone to run it. Smartphones are more like real PCs, with an identifiable operating system and advanced functionality, such as enhanced data processing and connectivity. There are two approaches to setting up this type of mobile banking.

Wireless Application Protocol (WAP)
WAP is the technology architecture that makes accessing Internet pages possible from a mobile phone. Because it includes the concepts of browsers, servers, URLs and gateways,

WAP provides a user experience that echoes Internet banking conducted on a home computer. This is an attractive feature to many banks, who also appreciate the fact that customers don’t have to download any proprietary software to enjoy robust access to a full line of services and transactions.

WAP banking does have its disadvantages:

  • The browsers that run on mobile phones must work on a very small screen. As a result, banks must create "mobile-friendly" sites that work more efficiently in cramped quarters. Even with such accommodations, the number of clicks required to complete a task can be prohibitive.
  • WAP banking requires a smart phone or a PDA, but such devices represent less than 10 percent of the phones in use. Even if a customer has a WAP-enabled phone, he or she can elect not to sign up for the more costly data plans required for Internet access.
  • Mobile phones lack the level of anti-virus and personal firewall protection now considered standard on PCs.
  • Two-way communication isn't possible. Customers can initiate a dialog, but banks can’t.

Standalone Mobile Application
Some banks are now providing a downloadable client that mobile subscribers can use to access bank services. These mobile applications offer a reliable channel and enable users to conduct even complex transactions. They also allow banks to customize the interface and brand it accordingly.

Although this solution likely represents the future of mobile banking, there are some issues. First, users are forced to download, install and learn a proprietary application. Not only that, the application must be customized to each mobile phone on which it will reside, greatly increasing development costs. And just like the mobile browsers used in WAP banking, these standalone applications are vulnerable to attacks, have limited availability and can only accommodate customer-initiated communication.

As a financial institution prepares for the mobile banking revolution, it must weigh the advantages and disadvantages of these various solutions to decide which one best meets the needs of its customers and its own technology infrastructure. In the next section, we’ll look at the specific mobile banking solutions of two leading banks.