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Study Case Analysis

Bank of America: Mobile Banking

Keni Galmai

November 03, 2014

University of Maryland University College

AMBA 650 Section 9040 Professor Tom Tritippo

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Presentation of the facts surrounding the case

Started in the late of 1990s, BofA introduced the online banking system for the first time

as a way to provide its customers with more convenience ways to access their financial accounts.

At the beginning, customers were reluctant to adopt this new technology because of the monthly

charge of $5.95, concern over security, and the non-user friendly features. In order to ease the

adoption process, BofA decided to make its online banking service free in 2002. Slowly, together

with customers’ increased awareness and knowledge over its features, by the end of 2009, 30

million customers have become active online banking users globally.

Back in early 2006, Douglas Brown, a Senior Vice President for Mobile Product

Development proposed a case for mobile banking to BofA’s senior management. He raised an

idea to provide customers with an extended feature on online banking which allowing customers

to do banking on the move without depending solely on the call center. Further, Brown ensured

that the rich experience of mobile banking will engage more customers, enhance brand

awareness, and increase consumer satisfaction and retention rates.

However, according to an American Bankers Association survey, only 1 percent of

respondents considered mobile as their preferred banking method because of concern over value

of mobile banking, security, and cost of data access. On the other side, analyst projected mobile

banking would offer advantages for banks’ profitability as banking channels and when the

service scaled, costs per transaction can be reduced approximately to $0.03-$0.04.

BofA management agreed with Brown’s idea and considered three alternatives for its

mobile banking technology: (1) mobile messaging, (2) mobile internet, and (3) mobile apps. It

turned out that implementation of mobile apps is costly and estimated would spend as little as

$40,000 - $50,000 by reprioritization critical bank technology resources from other important
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business areas, such as online and ATM. However, the increased sales of smartphone from 10%

in 2008 and 46% in 2012 made mobile apps were more potential to engage customers because its

ability to allow users to locate bank branches and ATMs in the vicinity through GPS.

Citi and Wells Fargo are two of major competitors of BofA who have started to give their

customers with more customized solutions for different target groups. For example, Wells Fargo

CEO Mobile was designed for corporate and business customers who enable them to monitor

balances in corporate bank accounts, approve outgoing payments, and manage exception items.

Another example, Citi Mobile allowed customers to view current exchange rates for more than

40 currencies.

In May 2007, mobile banking service was officially rolled out and customers who already

had an online banking relationship with BofA could sign up for it. Customers could check their

account balances, update transaction information, pay and transfer money, locate and get a

direction to the nearest ATM or banks, and receive mobile alerts. The customers were

overwhelmed and exceeded BofA’s expectation. There were over 15 million location searches

annually, and 99 percent of them viewed an account balance. Based on further research, mostly

debit card holder customers were using mobile banking to check their balance before making any

purchase at retailer stores.

Two months after that, in October 2007, mobile banking app was launched and within

one year, BofA was able to provide service to over one million active mobile users. The study

research showed that majority of customers had higher satisfaction levels in using mobile

banking, and 24 percent among them said the mobile app service was extremely important.

Customers were amazed to know the mobile app was able to locate the nearest ATM or banks,

and most of them would likely to recommend BofA to their friends or relatives.
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During the financial crisis in 2008 - 2009, BofA was successfully maintaining their

position. With more than two million active users in 2009 and increased into four million active

mobile banking users in 2010, BofA became one of the 10 largest banks held 46.4% of total

deposits with revenue of $119 billion and a net income of $6.2 billion.

Identification of the key issues

The key issue in this case is: “What BofA should do to manage their mobile banking

system in the most effective way to make customers more convenient and also profitable for

BofA both short and long term?” With financial crisis issues and a rapid change on technology,

BofA is facing challenges to prepare a set of strategies to improve their positioning in a wider

market, as well as to meet the needs of line business managers in leveraging mobile platforms to

be customized for specific business purposes.

BofA management was aware that they needed to consider in the broader strategic

context of how mobile banking would affect the overall growth of BofA and the entire financial

services industry. Despite its huge success in mobile banking, BofA’s line-of-business managers

demanded leverage on their mobile platform and build some specific mobile app functionalities

for specific purposes (as requested by customers).

Adding more features or integrating new features to the existing mobile banking channel

would probably cause problems, such as complexity and costs. Remember, in 1999, customers

were hesitant to adopt the newly offered online banking due to unfamiliarity to its features. There

are also risked that customers may not be ready to sign up for credit card or mortgages using

their mobile phone. Building new apps can be another alternative to maximize customer’s

experience by creating customized solutions. Some of BofA’s competitors have done this and by

doing the similar step, perhaps it will lower the risks.

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Listing of alternative courses of action that could be taken

There are three alternatives of action for BofA to manage their mobile banking system:

1. Increase the functionality of current mobile app.

Competitors of BofA like Citi have been using mobile as a platform to create differentiation. For

example, Citi offered an integrated system by including credit card account information in its

iPhone app. The customers of Citi also allowed checking their rewards from their mobile phone.

2. Build a new app.

This alternative means to bring fully rich experience to some specific target market by creating

new apps. For example, Wells Fargo CEO Mobile was designed for corporate and business

customers who enable them to monitor balances in corporate bank accounts, approve outgoing

payments, and manage exception items.

3. Do nothing or refuse to increase the functionality of current mobile app

BofA’s current position is very good with over four million mobile banking users. This number

is predicted to increase over several next years. However, the dynamic market, tough

competition, financial crisis, and technology changes would make BofA let far behind if they

decide to do nothing and refuse, whether to increase the functionality of current mobile app or to

build a new app.

Evaluation of alternative courses of action

Increase the functionality of current mobile app.

A study by American Bankers Association revealed that only 1 percent of total

respondents considered using mobile phone to do their banking activities. Majority of the reasons

showed that not only customers didn’t recognize the value of mobile banking, but they also

concern over security and the costs of data access. Brown’s analysis might be true that adding
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more features means more complexity, and it has been potential to draw customers from trying

the new technology. This happened when BofA just introduced the online banking system in

1990s. Although the online banking system gave the customers more control over their finances,

still, customers hesitated to try.

However, the introduction of online banking has changed customer’s behavior in using

various bank channels, such as ATMs, call centers, interactive voice response, and online

banking. This explains the adoption rate was far different between online banking and mobile

banking. When BofA introduced mobile banking to people, only within 3 years there were four

million mobile banking customers.

Enrichment functionalities of mobile app such an SMS service may have some negative

effects both on the system, especially for a complex app which requiring integration. The

adoption rate on the new functionalities in their current mobile app would probably be high

because customers already familiar with mobile app. However, there is a possibility that adding

more features in the current channel will create confusion and make the system become more

fragile to virus or hacker. Considering about cost, refer to a trustable source, integrating

additional features to the existing channel also only require several hundreds of thousands

dollars.

One important consideration, an SMS service will allow customers to use their cell phones to do

banking activities; therefore, BofA will be able to reach a wider target market. If BofA decided

to increase the functionality of its current mobile app to build an SMS service, they will be able

to reach almost 85 percent customers with regular cell phones, and it will lead to positive overall

profitability.

Build a completely new app.

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Creating different apps for different target groups is a way to provide customized solution

for each customer. Even though it is cheaper to build a new app, it can only reach a smaller

target market as they are purposed as a customized solution. Based on one source, BofA will

spend at least about $40,000 to $50,000 to build a new app.

Do nothing.

This option means that BofA will choose to maintain its current mobile banking system

without putting any changes.

Recommendation of the best course of action

I recommend BofA to increase the functionality of current mobile app by integrating an

SMS service to the existing channel.

Integrating new features into the existing channel might be more expensive and risky.

Choosing this recommendation, not only BofA has to invest more money, customers may also be

confused with some unfamiliar features. However, when BofA introduced a mobile banking

system, it took only a year for customers to become familiar and adopt it. Differentiation can be

one of BofA’s marketing strategies to stay on top of the game. One more time BofA will be the

pioneer and creating a breakthrough in financial industry by taking a chance that never been

done by other banks. Last, BofA will be able to reach almost 85 percent customers with regular

cell phones and surely; it will lead to positive overall profitability, more than the other

alternatives. In order to solve problems with the managers who request for mobile platform

leverage, BofA can utilize the SMS feature sending some customized information to different

groups. By modifying the marketing strategy, BofA can also use SMS to send some

advertisements and promotions to customers.

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References

Gupta, S., & Herman, K. (2012). Bank of America: Mobile banking. Boston, MA: Harvard

Business School.