22% of Consumers Use Alternative Financial Services (and Other Insights from the Latest Fed Mobile Banking Report)

By Gina Cocking

The Federal Reserve has released this year’s Consumer and Mobile Financial Services.

Key insights include:

Mobile phones are prevalent among unbanked and underbanked consumers.

• 9% of consumers were unbanked at the time of the survey. 40% of the unbanked had access to a smartphone, 28% had access to a feature phone, and 32% lacked access to any type of mobile phone.
• 22% of consumers were underbanked, meaning they had a bank account and had used one or more alternative financial services (typically from a nonbank including a money order, check-cashing service, tax refund anticipation loan, pawn shop loan, payday loan, auto title loan, or a paycheck advance/deposit advance) within the past year. 70% of the underbanked were smartphone owners, and 17% owned a feature phone.
• Among the underbanked with mobile phones, 55% used mobile banking.

Adoption of mobile financial services continues to increase. A majority of consumers using these services cite convenience or getting a smartphone as their reason for adoption.

• Use of mobile banking continues to rise. 43% of all mobile phone owners with a bank account had used mobile banking in the 12 months prior to the survey, up from 39% in 2014 and 33% in 2013.
• 53% of smartphone owners with a bank account had used mobile banking in the 12 months prior to the survey, up from 52% a year earlier.
• The three most common mobile banking activities among mobile banking users were checking account balances or recent transactions (94%), transferring money between an individual’s own accounts (58%), and receiving an alert (e.g., a text message, push notification, or e-mail) from their bank (56%).

Mobile Payments

• Use of mobile payments continues to be less common than use of mobile banking. 24% of all mobile phone owners reported having made a mobile payment in the 12 months prior to the survey.
• 28% of smartphone users made a mobile payment in the 12 months prior to the survey.
• The three most common mobile payment activities among mobile payments users with smartphones were paying bills through a mobile phone web browser or app (65%), purchasing a physical item or digital content remotely using a mobile phone (42%), and paying for something in a store using a mobile phone (33%).

The main impediments to the adoption of mobile financial services cited by some consumers continue to be a preference for other methods of banking and making payments as well as concerns about security.

• Of those not using mobile banking, the primary reason respondents cited was a belief that their banking needs were being met without the use of mobile banking (88%).
• The primary reason non-mobile-payment users gave for not using mobile payments was that they believe it is easier to pay with cash or credit/ debit cards (80%).
• Concern about the security of the technology was a common reason given for not using mobile banking or mobile payments (73% and 67%, respectively, of non-users).

Most consumers with bank accounts reported using a mix of online and offline channels to interact with their financial institution. For those who have adopted mobile banking, use of the mobile channel appears to complement their use of other banking channels.

• Among all respondents with bank accounts, the share using mobile banking is higher than the share using telephone banking but lower than the shares that have visited a branch, used an ATM, or used online banking in the last 12 months.
• Among mobile banking users with smartphones, 54% cited the mobile channel as one of the three most important ways they interact with their bank, below the shares that cited online (65%) and ATM (62%), but above the share that cited a teller at a branch (51%).

The security and privacy of personal information remain common concerns for mobile phone users, and many smartphone users reported taking steps to guard against possible risks.

• Among those with a mobile phone, 42% think that people’s personal information is “very unsafe” or “somewhat unsafe” when they use mobile banking, and an additional 15% “don’t know” how safe these activities are.
• The majority of smartphone users reported taking actions that can reduce harm in case of a security incident. The most common actions were installing updates (84%), password-protecting the phone (70%), and customizing privacy settings (58%).
• Consumer awareness of security threats may influence behavior: 78% of smartphone users reported they do not download or install apps from sources outside their primary app store, and 76% reported they do not send or access sensitive data over public WiFi networks.

Consumers use their smartphones to inform financial decisions.

• Most mobile banking users who receive low-balance alerts from their bank reported taking some action in response, such as transferring money into the account with the low balance (43%), depositing money into the account (36%), or reducing their spending (32%).
• 62% of mobile banking users checked their account balance on their phone before making a large purchase in the 12 months prior to the survey. Half (50%) of them decided not to purchase an item as a result of their account balance or credit limit.
• 41% of persons with smartphones used their phone to browse product reviews or get product information while shopping at a retail store, and 79% of them changed the item they purchased based on this information.

Note: substantially all of the text above is directly quoted from the Fed report.

To read the Consumers and Mobile Financial Services 2016 from the Board of Governors of the Federal Reserve System in its entirety, click here.