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Mobile banking — without the bank?

About the author

Constance is a New York-based journalist who has written for the Atlantic, CNBC.com, Reuters, and other major publications.

Jibun Bank is one of several new mobile-only banks. (Koichi Kamoshida/Getty Images)

Jibun Bank is one of several new mobile-only banks. (Koichi Kamoshida/Getty Images)

Would you trust your money to a mobile-only banking service? Some analysts who cover the financial sector believe that eventually more people around the globe will be moving their money using just an app on their phones.

And many will do so without banking with an actual bank — no branches, no bank clerks, no, well, bank.

So-called ‘mobile banks’ are springing up left, right and centre as a growing number of people join the cashless economy worldwide. From those offered by traditional banks to mobile-only banking services, these apps are mainly crafted just for a smartphone screen. Customers can pay bills or analyze their finances in real-time, just by idly tapping a few keys on their smartphones — technology not always available on a traditional bank’s app.

One step ahead of traditional banks: mobile-only banking services like Simple, Moven and GoBank. Designed just for smartphones, with no branches to visit and no website to bank through, a growing number of banking experts and analysts say such services offer some functions that customers can’t get elsewhere, are easier to use and may be more secure than traditional online banking.

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While some industry analysts believe that big banks will eventually catch up with these upstarts and offer more sophisticated apps, most agree that mobile banking is the future.

“I can stand on the train and do my banking with one hand,” he said. “Why go back to a laptop where you have to log-in?,” said David Birch, a director at IT consultancy, Consult Hyperion in the UK. He doesn’t believe that bank branches will disappear entirely, but rather that they have little future in their present form.

New kids on the block

Mobile banking is already a fixture in some corners of the world. In mobile-centric Japan, for example, Jibun Bank, founded by Bank of Tokyo-Mitsubishi in 2008, already has 1.5 million customers. Its mobile-only banking app was designed specifically for the small screens of mobile phones.

Mobile-only banking service firms have launched in the US, offering low-fee banking and sophisticated money management for tracking spending. Simple, Moven and GoBank work in similar ways: after downloading a free app, the customer’s banking is done purely through a phone, a debit card or sometimes online.

But they aren’t exactly banks.

Moven and Simple offer banking services rather than acting as real banks. Neither are owned by large financial institutions and neither is a bank itself. Instead, in the US they turn to partner banks that have Federal Deposit Insurance Corporation insurance, or FDIC, to actually hold consumers’ funds. GoBank, on the other hand, is an arm of Green Dot Corp — a prepaid debit card firm — which also owns Green Dot Bank. Unlike Simple and Moven, GoBank customers’ money is held by its parent company’s bank.

Like any new service, mobile banks have drawbacks, according to analysts. So far, the service is largely aimed at millennials, young people in their twenties who typically have tight finances. And the offering is usually limited to just cheque and savings accounts. Consumers who want more complex transactions like loans and mortgage must go elsewhere.

Then there’s the trust factor. “Mobile banks in the US are still unproven,” said Stephen Walker, mobile banking analyst at Forrester Research. “Most people only trust traditional banks to manage their money since they can manage a person’s entire financial life."

Europe’s mobile banks are more likely to be offshoots of well-known High Street banks, in large part due to regulations in the region. Hello Bank!, an offshoot of BNP Paribas, has an app with budgeting tools. It was rolled out in Germany, Italy, France and Belgium earlier this year. Its main advantage is that its customers can tap into BNP Paribas’ large branch network, said analysts, allowing for more complex banking transactions such as loans.

BNP Paribas’ approach to mobile banking makes sense because customers still have access to bank branches, which are still seen as “security blankets,” said Daoud Fakhri, senior analyst in retail banking at research company, Datamonitor Financial.

And in Africa, low-tech mobile banking has practically transformed the way money is moved around.

Lower fees to attract customers

Of course, many traditional, well-established, banks in both Europe and the US, also offer comprehensive downloadable apps for mobile banking. But, established banks often charge higher account fees than the upstarts, making them less affordable and less attractive for millennials.

For younger customers, low fees and Federal Deposit Insurance Corporation insurance that protects deposited money are big draws. GoBank lets its customers name their monthly fee — somewhere between $0 and $9 per month. There are no overdraft fees or minimum balance requirements. And it offers features like ‘Fortune Teller,’ which runs affordability checks on an account before you make a purchase, said Fakhri. GoBank also has a network of 40,000 free cash machines. Deposits can be made using your mobile phone, by snapping a picture of a cheque and then ‘depositing’ it using an app.

Competitor Simple holds its customers’ money at Bancorp Bank, which acts as a custodian of sorts. Simple charges no monthly fees or fees for overdrafts and small fees for paper statements and other services. It offers free access to 55,000 cash machines in the US. Simple’s app has a handy feature that shows a current account balance, minus pending bills and expenses.

“This helps people spend smarter and save more,” said Josh Reich, CEO of Simple. “They know what they can afford to buy.”

That plays to what Mary Monahan, a research director at Javelin Strategy & Research , said is one of the significant advantages of mobile-only banking services is that you can pay bills as the money appears, which will help people who “live pay-cheque to pay-cheque” she said.

Moven, which is currently in testing mode but has apps available for download, will offer low fees and tools for tracking spending in real time. It also has more advanced features, such as the ability to deactivate lost debit cards with a smartphone. Customers’ money is held at Kansas-based CBW Bank.

Another appeal of these services, according to Monahan: “Most banks don’t let you sign up for mobile banking unless you have an online account.” But “try to do online banking on a small mobile screen and you’ll go crazy.”

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