WhatsApp Deal Proves Banks Need to Embrace Social Mobile, and Fast

WhatsApp has 450 million active mobile users. JPMorgan Chase & Co. has 15.6 million, most among any bank in the US.

WhatsApp has 32 engineers. JPM employs 260,000.

That’s the deficiency of banks in a nutshell.

If you don’t “get” why Facebook has agreed to pay around $19 billion for WhatsApp, you don’t get the future of banking. The future, put succinctly, is social mobile. The new technology order is built on MAUs, mobile active users. More than 70% of those 450 million WhatsApp MAUs are daily MAUs. The app, in and of itself, creates its own social sphere, and it is for this social sphere that Facebook, which has nearly 1 billion MAUs, is willing to spend 10% of its current market capitalization.

It has become apparent that certain mobile apps, such as WhatsApp and Instagram (both now owned by Facebook), are spinning up vast social webs. The mobile device is such that the social networking there ends up centering on specific apps, rather than across a bundle of applications, like on the web, as evidenced by Facebook’s bundle of services. (There are several reasons for this, which are beyond the scope of this post.) However, if banks do not realize that mobile is really nothing more than a series of social mobile applications, they will be forced to “pay to play” on any number of these social circles or simply be locked out of whole swatches of mobile financial services by ventures — some perhaps yet to be seen — that apply social mobile to banking.

Citibank released a new version of its mobile app last week and it has so far gotten positive attention for its design and the way it packs many features into a small interface — but it doesn’t have any social mobile elements. (UPDATE: Citibank reached out to say its P2P payments service, Popmoney, does access the contacts list if allowed.)  Banks do not understand that they are now not just technology companies, but mobile app companies. The current crop of mobile apps are designed to accommodate existing features — find an ATM, transfer funds — and while that is convenient and cool, it is nothing like what the major tech companies are doing. It is certainly not attracting vast quantities of MAUs. Mobile apps should not be new versions of desktop experiences — mobile offers a completely different experience, as evidenced by WhatsApp.

Few fintech apps feature social elements — the P2P app Venmo is a rare exception. It requests access to the user’s contact list, which is important. Lenddo also fits the bill. Benedict Evans, a blogger who is now at Andreessen Horowitz, outlines four of the key advantages mobile social has over mobile desktop in a penetrating analysis of the Facebook-WhatsApp deal:

• Smartphone apps can access your address book, bypassing the need to rebuild your social graph on a new service
• They can access your photo library, where uploading photos to different websites is a pain
• They can use push notifications instead of relying on emails and on people bothering to check multiple websites
• Crucially, they all get an icon on the home screen.

Bank apps don’t need to be social networking platforms in themselves — “Hey! I paid my mortgage!” — but allowing access to contacts for P2P functionality would be helpful, as would the ability to communicate with the bank as if it were your friend. This means availability via the means of communication to which we’ve become accustomed, text messages or live chat.

Yes, Twitter and Facebook customer service and occasional cheerful message is good, and the big banks, at least, pretty much cover this. But the new breed of social media — you could say we’re on version 3.0, with Friendster as 1.0, Facebook and Twitter as 2.0, and now WhatsApp, SnapChat and Instagram as 3.0 — is quicker and smaller. And the stakes are huge, as Evans indicates:

[M]obile is the next computing platform and it is several times larger than the desktop internet. There are now roughly the same number of smartphones and PCs on earth — those PCs are mostly shared and immobile or locked-down corporate boxes, while the smartphones are mobile and personal. Meanwhile, the widely-discussed collapse in the cost of creating a startup in the last decade combines with both the much larger scale of mobile and the routes to market and virality offered by mobile platforms to mean that if you’re very good (and lucky) you can get to astonishing scale in a short time. This scale is at the heart of the valuations we’re starting to see – WhatsApp is probably now sending more messages than the entire global SMS system.

Banks are getting the third point of Benedict’s above — alerts are growing in importance. US Bank is beginning to move into the shopping experience by allowing users to snap pictures of items and buy them. Moven offers instant feedback via SMS on purchases. But the social mobile social part, not so much.

Learn more about what’s next in banking at Bank Innovation 2014 on March 3-4 in Seattle. Request an invitation here.