BOSTON - While the Android OS may be leading the smartphone pack in sales, it's not the phone for which banks are writing applications. That would the No. 3 iPhone instead.

Banks are writing applications for mobile services such as account access and online bill pay for the iPhone because that's the phone for which most other industry developers are creating applications, says TowerGroup.

The market research firm says Android smartphones have 31.2% of the market share; 30.4% is owned by RIM; 24.7% bnelongs to Apple and its iPhone; Microsoft Window 7 phones hold 8%; and Palm devices have 3.2%.

"But support for the Android is surging," said Andy Schmidt, TowerGroup's research director for commercial banking and payments, speaking at TowerGroup's annual financial services conference here.

Schmidt went on to say that "very few banking applications" support the BlackBerry.

Schmidt urged financial service firms to not be "fast followers" when it comes to embracing mobile applications because the institutions that do may find themselves losing customers.

He also cautioned against charging fees for those services, as financial services firms either don't know or will soon choose not to in order to build a "critical mass" of adoption. "You'll lose market share to organizations giving it away for free," he said.

Of about 200 conference attendees who were polled during Schmidt's breakout session about whether they were offering mobile bill pay and mobile gift cards, 56% indicated they had neither. Another 30% said they had mobile bill pay, 7% said they used both, and 7% said they only used mobile gift cards.

"I'd encourage you to at least go the mobile bill pay route so customers can manage their affairs when they want to, but also because you can save on your costs as opposed to having them call you in to solve some of their issues," Schmidt said. "Bill pay is currently in pilot, but it's expected to be commercially available by the end of the year."

About 60% of phone purchases this year will be completed on a smartphone, Schmidt said. Combine that with $91 billion spent on retail store gift cards over 2010, and you've got the potential for another popular mobile app: mobile gift cards.

Mobile gift cards are being offered by retailers in cooperation with credit card companies and financial services firms, who offer points for purchases that can be used toward future physical store or online purchases.

For example, in December JPMorgan Chase began piloting its GiftShel electronic gift card with more than 20 participating merchants, including Home Depot, CVS, The Gap, and Pizzeria Uno.

One mobile application that's been having difficulties catching on is contactless payments, where a cell phone with an RFID chip can be swiped across a point of scale terminal in a retail store and money will automatically be deducted from the phone owner's account.

A major problem is that many cell phone owners don't even know they have the capability; the other problem is retail stores don't know whether their scanners support the app or not, Schmidt said. "So a person will stand there tapping their phone on the reader, and the cashier will ask what they're doing," he said.

The other problem is there are no standards for how to process contactless payment information, which has lead to concerns by banks and others as to whether the transactions can be fully secured.

One of the fast growing mobile applications is peer-to-peer, or P2P, payments, which allows consumers to pay for goods over the Web using their phone.

"They're not just for PayPal anymore," Schmidt continued, pointing to Chase, Fifth Third Bank, USAA, U.S. Bank and Mercantile Bank as institutions that have deployed P2P mobile apps.

When polled as to whether their financial services firms have deployed mobile banking, payments and/or RDC, 14% of the audience indicated they've deployed none of them.

Forty-six percent were split evenly between having deployed only mobile banking (23%) and mobile banking, mobile payments and remote deposit capture, or RDC, (23%), while 31% said they'd deployed mobile banking and payments. The remainder of those polled said they'd only deployed mobile banking and RDC or just online payments.

RDC allows corporate financial services customers and consumers to take a photo of or scan a check and transmit the image over a secure network to a bank for posting and clearing.

PayPal is currently considering an RDC application, while USAA deployed their mobile app two years ago.

Schmidt said that through its mobile RDC system USAA cleared 1.5 million checks valued at $1 billion as as of July, 2010. "That's 1.5 million checks that they never had to touch," he said. "It allows you to outsource almost all your check scanning to the consumers themselves."