"It's the convergence of technological sophistication and a real-world need on the desire of customers," says Virginia Garcia, research director of the Needham, Mass. company's emerging technologies practice. "Within a few years, mobile banking will be the primary touchpoint for all Internet banking."

While the banking industry has had mobile banking capability for years, it has been held back by the technological limitations of cell phones. But now the technology has caught up with the capabilities, Garcia says. "Today, the downloads are faster, and the devices are better," she says.

In addition, a younger generation that has become accustomed to doing everything on the go and a more transient immigrant population are feeding the need for mobile banking technologies. "There's an entire generation of young people who have an expectation of mobility," Garcia says. "It's not necessarily [something] for the mainstream customer base, but it's going to grow as a factor in retaining and attracting new customers."

Garcia estimates that by 2012, 40 million customers will be using mobile banking. Many of those customers will be with smaller regional banks that have just begun to develop mobile banking practices, she says. While the country's top 20 banks have all developed mobile banking practices, there are roughly 17,000 banks and credit unions in the U.S., Garcia says.

According to a January 2008 study by Yankee Group, banks may want to target low-income consumers and users of pre-paid cell phones if they want mobile banking to truly catch on. According to the study, 21% of cell phone users in North America are low-income consumers, but most mobile banking programs are geared toward more affluent and tech-savvy users. The Yankee Group advised mobile banking providers to partner with physical banks or national retailers to make the service easier to use.

As these bigger banks move into the regional markets, the smaller banks will have to develop technological platforms, such as mobile banking, to maintain parity and keep their customers, Garcia says. "The competition is on a level playing field, forcing the smaller institutions to respond," she says.

And as American consumers get more comfortable receiving updates and other banking features on their cell phones, it's possible--even likely--that they'll start using their phones for payments, much as they do debit and credit cards, Garcia says. "Mobile payments will be a strong, robust segment," she says. "Mobile banking is getting people accustomed to that."

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