On a cold morning in January 2010, Jen McDonald, head of Bank of America Corporation's (B of A) Digital Marketing group, walked briskly to the conference room to discuss the future of the bank's mobile strategy with Douglas Brown, senior vice president, Mobile Product Development, and David Carrel, senior vice president, Strategy and Analysis at Starcom, the company which the bank worked with for internet. Bof A launched mobile banking in May 2007, which allowed customers to access the bank through a mobile application (or app) on their smartphones, and through mobile web on their phone's browser. Brown, who was responsible for the development and launch of mobile banking, reported on the current status, "In less than three years we have four million mobile banking customers.
Brown was hesitant to make the bank's mobile app complex by adding more features. The added complexity could slow down the app and negatively affect user experience. He explained, "App comple xity has led to some high-profile failures in the marketplace. This carries a huge risk." It was also unclear if users were ready to sign up for mortgages or credit cards on their mobile phones. Carrel reminded them, "Don't forget that competitors view mobile as yet another platform to differentiate themselves. Just last month, Citi integrated credit card account information in its iPhone app. Citi customers can even track their credit card rewards on their mobile devices now."
Carrel floated a second option, "Why not create different apps for different target groups, say an app for Merrill Lynch brokerage, or for small business customers? Citi and Wells Fargo have done this, feeling they can provide users a more customized solution." (See Exhibit 1 for mobile banking apps for major players.) McDonald, Brown and Carrel agree that they have to come up with a new strategy on mobile banking.
Financial Services Industry
The U.S. financial services industry was fragmented, with thousands of banks offering retail and wholesale banking services. In 2009 the 10 largest banks held 46.4% of total deposits, with BofA the largest U.S. bank holding company, followed by JP Morgan Chase, Citigroup, and Wells Fargo. In 2008-2009, the financial services industry went through the most stressful times in recent history. The collapse of the U.S. real estate and subprime mortgage markets caused a dramatic fall in the value of mortgage -backed securities, which led to a deep recession in the U.S. and financial troubles abroad. In 2012 they situation in the banking industry has improved.
Bank of America
By 2009, BofA's businesses included retail banking (i.e., deposits, debit and credit cards, mortgage loans), global wealth management, middle market lending, large corporate lending, global treasury services, and investment banking. By December 2009, BofA's markets covered 82% of the U.S. population, and the bank served over 53 million customers and small businesses.
U.S. Mobile Banking Market
Mobile banking was introduced in the U.S. in 2007. Consumers could access their bank accounts on the move from their cell phones. Many banks saw it as yet another channel to differentiate themselves from competitors and engage customers that could potentially lead to both higher income and increased customer retention. While mobile banking introduced some new capital investment and operational costs, analysts projected it to be one of the least costly banking channels. Costs per transaction were estimated at about $0.10 in 2009, but these were
expected to drop to $0.03-$0.04 as the service scaled, running approximately the same as online costs per transaction. In contrast, average cost per transaction for interactive voi ce response or IVR (computerized voice responses to callers) was estimated to be $0.13, with call center costs about three times IVR costs. ATM costs were about $0.16 per transaction, and bank office interactions were about $1.34 per...