Mobile banking is growing at a feverish pace to emerge as a powerful "right here, right now" channel for banks to connect with their retail and business customers, as well as reach new customer segments. Mobile banking is already a strategic business and technology priority for the top U.S. banks. While these major players have the financial and technical resources to make a strategic commitment to the mobile channel, most mid-tier and small banks are innovation and/or cost- challenged on this front.

New research from TowerGroup finds that core banking technology vendors have a big role to play in helping mid-tier and small institutions take advantage of this emerging channel that will soon be a cost of doing business.

Core banking vendors sit at the center of a significant portion of the bank technology market in U.S. When new technology becomes available, mid-tier and small financial institutions look to their core processing vendors for leadership and innovation. In light of the surging interest in mobile banking services, TowerGroup believes that these financial institutions should move ahead with the deployment of mobile banking solutions with confidence that their core banking vendors will provide the key to start the engine of mobile banking.

"Demographic shifts and new customer expectations along with technology maturity are converging to create fertile ground for mobile banking," said Virginia Garcia, TowerGroup research director in the Emerging Technologies practice. "Within a few years the mobile device will be the primary access point for consumer banking, with 40 million U.S. consumers using mobile banking by 2012. Core banking vendors will be important contributors to the widespread proliferation of integrated mobile banking services and will fundamentally reshape the vendor ecosystem for mobile banking solutions. As the focus shifts from 'technovation' to return on investments, the core banking vendors are ideally positioned to enable proper business economics in support of mobile banking."

Highlights of the research include:

- Increasingly, U.S. banks are recognizing that offering mobile banking services can help them to reach new customer segments, such as the youth market and the unbanked, which have a strong affinity for mobility.

- TowerGroup believes that in 2008, mobile banking will finally emerge as a basic, necessary service for U.S. banks and therefore a "must have" in the solutions arsenals of core banking vendors.

- Recent mobile banking announcements from such technology vendors as Fidelity Information Services, Jack Henry & Associates, Metavante, and Open Solutions Inc. represent the first step in a multi-pronged, evolutionary strategy with regard to integrating mobile payments more deeply into the U.S. banking infrastructure.

- As the mobile banking and payments market evolves throughout 2008, the associated vendor ecosystem will change markedly. Core processors' strategies may eventually call for internal development or even acquisitions of boutique suppliers that are struggling to win the confidence of financial institutions looking to push forward on the mobile delivery channel.