Consumers gain confidence in mobile banking, slower to pay by phone

As mobile phones have become an extension of the body more consumers are gaining confidence in how they use these smart devices, especially when it comes to banking.

A new report from The Federal Reserve says 39% of phone owners with bank accounts use mobile banking, a 6% increase from last year. Of those surveyed, 94% use banking apps to check account balances and recent transactions, and 51% said they deposit checks on their smartphones, an increase of 13% from the previous year.

It’s not just the Millennial generation delving into mobile banking. East Texas resident David Reese, older than 50, said he doesn’t remember the last time he wrote a check. 

“I use mobile banking to pay all bills (including from my business) and have done so for over 10 years. I have never have had a single issue with any type of problem,” Reese told The City Wire.

The main reason cited by survey respondents for not using their mobile phones to conduct banking services and making mobile payments was fear of a security breach.  But that’s not the case for Reese or Richard Lobb of Philadelphia – also in his 50s – who uses a Bank of America app on his iPhone. 

Lobb said Bank of America would have to make up any losses from a security breach, and he’s confident the bank is aggressive about security. That said, the majority of consumers aren’t so sure, according to the report.

“Despite the increased prevalence of mobile banking and mobile payments, a significant share of consumers believe the technology to be unsafe or do not know how safe it is,” the report states.

Among all mobile phone users, 25% believed people’s personal information is “somewhat unsafe” when using mobile banking and 19% believed it is “very unsafe.” Another 15% of mobile phone users did not know how safe it is to use mobile banking, and only 7% said it is “very safe” to use mobile banking.

The survey indicates that despite the wide use of mobile phones for surfing the Internet and browsing e-commerce sites, the majority of consumers (70%) still question how safe it is to pay for a purchase using their phone. The report found 22% of respondents said they had made one mobile payment in the previous 12 months. This was up from 17% in the prior year.

The survey shows that while the underbanked make up 14% of consumers, 90% of that group has access to a mobile phone. The underbanked represent a higher incidence of mobile banking (48%) than the fully banked (37%).

The report cites “interest and adoption of the mobile payment services are poised for growth as a number of developments in technology and security take hold in the mobile financial marketplace.”

Recent efforts to enhance the security of mobile payment transactions and to apply emerging technologies to a payments context could shape consumers’ attitudes about and use of mobile payments in the coming years, according to the report. 

The payments industry is taking steps to enhance transaction security at various points in the process, including by working toward conversion to a “chip and pin” or “chip and signature,” system. To encourage merchants and card issuers to adopt this technology, the card networks have set a deadline of October 2015, after which they intend to shift liability for fraudulent transactions to the party that is not-compliant. 

Retailers like Wal-Mart are not buying the safety guarantee of the chip-based credit cards. Mike Cook, Wal-Mart's assistant treasurer and a senior vice president, said at a recent Electronic Transaction Association's Transact conference in San Francisco that Wal-Mart would have preferred a "chip and PIN" system that Europe and Africa have in place. He said PINS would protect cards from being stolen. Cook predicted the switch to chip-based credit cards in the U.S. will be a disappointment.

“The new ‘chip & signature’ program is barely an improvement on security and fraud. The fact that we didn't go to PIN is such a joke," Cook recently told CNNMoney.

Cook said PINs on debit cards were a major improvement to stop thieves decades ago. They'd do the same for credit cards which is why banks should use them for all cards. To make his case, Cook said not a single PIN debit card needed to be reissued in Target and Home Depot breaches. The card number was worthless to the individual thief and fraudsters, because they didn't know the PIN.

The latest security breach to make the news was at AT&T which is believed to have impacted 280,000 customers. AT&T agreed to pay a $25 million civil penalty, after the names or full or partial social security numbers of its customers were compromised. The breaches occurred at call centers used by AT&T in Mexico, Colombia, and the Philippines when employees accessed sensitive customer data without adequate authorization. Those employees took payment from third parties who were apparently interested in customer names and social security numbers so they could unlock stolen cell phones for sale on secondary markets, the FCC said.