Mobile banking enables customers to manage financial services – such as their balance, transfers, standing orders, statements, direct debits, overdrafts, and bill payments – via their smartphones.
For this reason, mobile banking – compared to other legacy banking channels such as branch, internet, and even carrier pigeon – is the fastest-growing channel in history.
According to
Statista, mobile banking usage in the United Kingdom “increased between 2019 and 2024, with 73% of all bank account holders processing banking matters via mobile banking in the first quarter of 2024.” Statista's Consumer Insights goes on to note that “the
share of respondents who processed banking affairs via smartphone or tablet increased from 63% in 2019 to 73% in 2024.” Branch banking usage has considerably slumped in the same period.
This article explores the evolution of mobile banking, how it works, its importance to sustainability, and what the future might have in store.
What is the history of mobile banking?
In the 1990s, the fledgling iteration of mobile banking was conducted via handsets’ Short Message Service (SMS). Naturally, the services offered were limited and inflexible. Largely, customers could check their balance or request to be warned if they were
about to become overdrawn.
By 1999, the world’s first Wireless Application Protocol (WAP) enabled mobile banking services in Norway. This soon spread, opening greater opportunities for banks to serve their customers on the go.
The invention and eventual ubiquity of the smartphone in the late noughties was the real turning point – giving customers access to online banking services via web browsers on their handsets. This is also when banks began developing their own apps.
The first mobile banking app offered in the UK was from RBS in 2011, and was available on iOS. Since then, every large high street bank has moved to offer its customers some form of mobile banking application – each iteration with increasing complexity and
utility.
How does it work?
The basic idea of mobile banking is that a person can move cash to a mobile wallet in the form of electronic money, or e-money. The money in the mobile wallet can then be used to pay merchants or other people.
For retail Customer A to send funds to retail Customer B, Customer A might start by depositing cash with Agent C (the bank or mobile money provider) to buy e-money for their mobile money account or wallet. Once the application is told by Customer A to whom
the money is going (a name or phone number suffices), the funds are withdrawn from the mobile money account by Agent D (the receiving bank) – enabling Customer B to receive the e-money in their wallet, in lieu of cash. These funds can be used thereafter to
pay loans, bills, and so on.
The most modern banking applications, such as Monzo’s, provide add-on features in addition to the traditional transfer services, such as virtual cards, advanced roundups, custom budgeting categories, auto-spreadsheets and transaction data, credit insights,
and short-term loans. All mobile money services are delivered by application programming interface (API) technology, which
transports the requests – in the form of data – from system to system.
For institutions that are yet to offer mobile banking services – and which do not wish to
build their own solution – there are third-party
cloud-based, scalable options available. Pulling this service from the cloud means that banks do not need to host, run, and manage their own systems in-house.
How sustainable is mobile banking?
Mobile banking has the potential to bring basic financial services and security to millions of underbanked people around the world. According to the World Bank, over
one billion people are entirely unbanked, which is about 13% of the globe’s population. As the price of manufacturing smartphones continues to fall, however, more of these individuals will have the opportunity of financial access. This is no trivial matter.
Banking enables individuals to save or borrow for imperatives such as medical needs, education fees, housing, and so on.
More often than not, an underbanked individual is a poor individual. This positions the roll-out of mobile banking as a tool of sustainability, since it goes some way to addressing the United Nations’ third Sustainable Development Goal (SDG3) of
financial inclusion. In 2015, Bill Gates
predicted that by 2030, mobile banking will be so freely available that an additional 2 billion individuals will have gained access to financial services. With more control over their assets, the poor
will gain greater dominion over their lives.
What does the future have in store?
According to UK Finance’s 2024 annual fraud report, scams are becoming a serious problem, with over
one billion pounds stolen from UK consumers in 2023. Authorised push payment (APP) scams are some of the most common today, though they have been around in various forms since the dotcom boom.
Unfortunately, since the invention of the smart phone – with its banking applications, mobile wallets, and easy access to social media – the attack vector for APP fraud has broadened.
In July 2024, The Guardian acknowledged
widespread alarm as fraudsters are, with increasing success, taking over handsets and emptying customers’ bank accounts. These “scams underline the risks of banking on mobile, with not all lenders prepared to refund victims,” it reported. Such
issues will continue to be a sizeable preoccupation for banks and mobile money providers in the short to mid-term.
One of the means of legislating against financial crime is regulation. Here are two key categories – each with room for improvement:
- Know-Your-Customer (KYC)
The better a bank knows its customers, the more successful it will be at combatting identity theft. Commentators are calling for the widespread roll-out of
fingerprint or retina verification, as well as facial recognition. Having lower limits on the amounts of money that can be transacted without a lot of regulation to check identities
is a starting point. As limits are raised, the level of information required of the transactors should increase in-step.
- Contract enforcement
Having a consumer protection site – or a place for individuals to go when they suspect themselves to be victims of cybercrime – should be vital. The World Bank’s ‘Good Practices for Financial Consumer Protection’ guidelines are a good place to start for
institutions looking for
guidance with their regulatory policy in this area.
Evolving sustainably
Mobile banking is a relatively recent innovation, which has evolved and grown rapidly since the noughties. If it is to fulfil its potential of helping to bridge the one-billion-person financial inclusion gap before the end of the decade, it must evolve again
– looking to the regulation for safe and equitable guidance.