Mobile Banking - Should you do it or not?

1. Michigan Bankers Bankers Education Summit & Trade Show Mobile BankingRaj Patel, PartnerPlante & Moran April 2011

2. Introduction & Overview Customer channel evolution Landscape & trends Should you do it? Security & regulations Closing thoughts 1

3. Customer Channel Evolution

4. Customer Channel Evolution 2 High Branch Transaction Maturity Mail Low Customer Interaction High (Size of Bubble = Relative Importance to Customer)

5. Customer Channel Evolution 2 Branch Transaction Maturity Mail Phone Customer Interaction (Size of Bubble = Relative Importance to Customer)

6. 2 Branch ATM Transaction Maturity Mail Phone Customer Interaction (Size of Bubble = Relative Importance to Customer) Customer Channel Evolution

7. 2 Branch Internet Banking Transaction Maturity ATM Mail Phone Customer Interaction (Size of Bubble = Relative Importance to Customer) Customer Channel Evolution

8. 2 Mobile Branch ATM Internet Transaction Maturity Mail Phone Customer Interaction (Size of Bubble = Relative Importance to Customer) Customer Channel Evolution

9. Mobile Banking Landscape & Trends

10. Terminology 3 Mobile Banking: Use mobile device to connect to a financial institution to view account balances and transactions, transfer funds between accounts, pay bills, receive account alerts, deposit checks, etc. Mobile Payments Use mobile device for purchase or other payment-related transaction at point of sale (proximity) or via internet (remote) May be conducted via SMS, MMS, mobile Internet, downloadable application, contactless or barcode technology Process and settle over traditional banking networks (credit, debit, ACH), mobile carrier or other third party network

11. Forms of Mobile Banking 4 SMS (Short Message Service): Send & receive text messages & alerts 90% of US phones Limited to 160 characters Uses existing carrier infrastructure Less security, no encryption WAP (Wireless Application Protocol): Browser access via mobile phone to Internet content 60% of US phones No downloads required For online banking customers Small screen, slower data Transmission, expensive data plan Downloadable Smartphone Application: User friendly apps customized to smart phone type 30% of US phones Blackberry, iPhone, Android Faster navigation, easy setup , more secure Involves custom application development 8.1 million users 35% increase 18.6 million users 58% increase 10.8 million users 120% increase Source: comScore

12. Mobile Banking Landscape 5 All National banks, most regional and many community banks offer mobile banking services National banks offer downloadable applications, SMS and WAP/browser-based mobile access (Triple Play) Community banks and credit unions may implement their core processors’ mobile packages Community banks usually start with basic, information-based services Branch & ATM locators, transaction history, balance inquiries Payment or transaction services are usually Phase 2 Most banks do not charge for mobile banking

15. Features used by Consumers 8 Source: Javelin Strategy & Research, July 2010

16. Mobile Remote Deposit 9 Use phone’s camera to capture front & back images of check & send to bank for deposit Expected high adoption rate with consumers and small businesses that process low check volumes Reduces Bank’s paper check process costs Less reliance on branch USAA first to offer m-RDS (Deposit@Mobile for iPhone & Android) Chase Quick Deposit – July 2010 BoA to launch with iPhone in 2011

17. Mobile P2P Payments 10 Mobile P2P allows bank customers to send funds to recipient accounts at another bank or to a PayPal account using a mobile phone Senders register to activate mobile phone and send via email address or mobile phone number of recipient Transactions usually settle through ACH Very few banks offer mobile P2P A few are partnering with 3rdparties to offer online and mobile P2P (e.g. CashEdge, PayPal or Obopay) Replaces cash and checks for informal, low dollar payments between people you know Popmoney by Cash Edge Popmoney allows bank customers to "Pay Other People" (POP) anywhere, at any time, using only a recipient's email address, cell phone number or bank account information. Offered directly from within the bank's current online or mobile banking applications, Popmoney provides simple, convenient and secure email and mobile payments directly from a customer's bank account.

18. For Businesses 11 Banks originally focused on consumer mobile banking Corporate/small business markets offer new bank opportunities Businesses want ability to monitor transactions, transfer funds, receive account alerts, with assurance that system is secure Examples Treasury/Cash Management Wells Fargo CEO Mobile Wall Street Systems Treasury on the Move Financial trading e-Trade Mobile Pro Small Business credit card acceptance Business T&E 40% of executives surveyed in 2010 would consider mobile banking for their businesses

19. Contact Less Payments 12

20. What else …… 13

21. Mobile Banking Should you do it?

22. Key Decisions 14 Why are you doing it? To stay competitive Customers are asking for it What services are you going to provide? SMS WAP Smart App Demographic study % of customers that would use this channel Current statistics on mobile usage Cost for implementing mobile banking Evaluate current vendors Existing core banking vendor

23. US Mobile Banking Users Forecast 15 Source: Federal Reserve Bank of Boston

24. Could you lose customers? 16

25. Other Stats 37% of all applications downloaded on iPhone, Blackberry and Android were banking/finance related applications In 2010, three out of four users are happy with their mobile banking experience (FIS study) 'We are seeing mobile deployments by banks accelerating in 2011, with our clients growing mobile users by 35% monthly,' said Douglas Brown, senior vice president of FIS. In 4thQtr 2010, 30 million Americans accessed their bank, credit card or brokerage account from a mobile device. Up 54% from same quarter in prior year 17

26. Demographic Analysis 18 Reference Group Relatives & Friends Sociability Bank clerk / marketing Usage Pattern Speed of use Ease of use Contains all banking services Independence from time and place Demographics Gender Age Marital Status Education Income Profession Technology Perception Mobile phone services E-mail Internet Security Constraints Mobile banking is reliable Electronic channels are reliable

27. Demographic Analysis 18 Source: a research study from Finland

28. Demographic Analysis 18 Reference Group Relatives & Friends Sociability Bank clerk / marketing Usage Pattern Speed of use Ease of use Contains all banking services Independence from time and place Demographics Gender Age Marital Status Education Income Profession Technology Perception Mobile phone services E-mail Internet Security Constraints Mobile banking is reliable Electronic channels are reliable

29. Operating Cost / Transaction 19 Cost per Transaction

30. Vendors 20 ClairMail Clickatell Firethorn Mobile FIS Fronde Anywhere Harland Financial Solutions Jack Henry - goDough M-Com recently purchased by Fiserve mFoundry Monitise Americas Mshift Sybase 365 Tyfone Yodlee

31. Mobile Banking Security & Regulations

32. Preventive Measures 21 Banks Secure (encrypt) communication channels: SMS, browser based, downloadable apps Assign security levels & user authentication based on payment type, transaction value, number of daily transactions, etc. Set transaction limits Know your vendor: ensure mobile apps have built-in safeguards to limit security breaches in case device lost or stolen Apply due diligence for new customers by authenticating account number and user name Educate consumers on security policies and tools

33. Preventive Measures 22 Consumers Set strong passwords, install anti-virus software on smart phones Know the developer before downloading applications How well have they tested the app? Is it certified? Do not store sensitive data on mobile phone Receive mobile alerts on potentially fraudulent transactions About a year ago, owners of Android smart phones began downloading mobile banking apps from Google's Android Market. The apps cost about $1.50 each and connected users with about 40 major banks, including Bank of America and Wells Fargo. There was only one problem: The banks hadn't put them there."

35. Risk Implications: Transaction / Operations risk and Strategic Risk

36. Message encryption

37. Password Security

38. Wireless Vendors

39. Product & Service Availability

40. Disclosure & Message Limitations

41. Other related guidance includes:

42. FFIEC - Remote Deposit Capture Risk Management Guidelines

43. FIL 84-2004 Guidance on Instant Messaging

44. FIL 8-2002 Wireless Network Risk Management

46. Thank You! Raj Patel, Partner Plante & Moran Tel: 248-223-3428 E-mail: raj.patel@plantemoran.com