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 Bank of America 
Online and Mobile banking 
KAN-CBUSO1001U, Strategic and Tactical Tools for E-Business 
Mandatory group assignment, group 5 
Students: 
Frida Hammel, 92933 
Mounier Laccoste, 115885 
Temur Makhsudov, 114114 
Characters: 9.372 Side 2 af 5 

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1. What is BoA’s motivation to offer mobile banking to its customers? What are the associated costs and risks to the bank? 
Douglas Brown, Senior Vice President of Mobile Product Development clearly answers what the banks motivations to offer mobile banking is:”There are four people born every second, but there are 32 mobile phones sold every second. Mobile banking allows us to provide an unprecedented convenience to consumers so that they can do banking on the move. This rich experience will engage consumers, build our brand, and increase customer satisfaction and retention rates. We think mobile banking also has the full potential to reduce costs significantly by reducing the number of calls to call centers”. 
A new banking channel emerged due to the development of smartphone. Data shows that mobile banking has a huge potential. In 2010, it was estimated that 10 million consumers were using mobile banking, and this number was expected to grow to 37 million by 2014, representing 30% of total online banking users. Moreover, the number of annual transactions for mobile banking services were expected to increase from 180 million to 2.4 billion during the same period. 
One of the advantages of mobile banking is its cost. According to analysts, it is one of the least costly banking channels. Cost per transaction in mobile banking was estimated to be about 0.1$ in 2009, and it was expected to decrease to 0.03$ – 0.04$ as the service scaled. Costs of traditional banking channels were considerably bigger. For example, ATM cost per transaction was 0.16$ and branch interactions were about 1.34$ per transaction. 
Mobile banking also offers new way of marketing to customers. It can be used to promote services in many ways: using SMS messages, location-based marketing or display ads on mobile devices. It was found that mobile had a much higher click-through rate than e-mail, five to six times higher to be exact. 
Furthermore, mobile banking could introduce a whole new segment of customers. In 2009, almost 1.5 billion people were unbanked and around 3 billion were underbanked. There is a whole market of people who did not have bank accounts, but had phones. Mobile banking would enable Bank of America to reach these customers. Side 3 af 5 

However, there are also costs and risks associated with mobile banking. Firstly, app development could cost from 40,000 $ to several hundred thousand dollars. There is also opportunity cost, investing it in mobile banking means withdrawing potential investment into other banking channels such as online banking or ATMs. Moreover, even though there was a huge potential in mobile banking, it was still unpopular channel for customers. According to a survey, only 1% of respondents considered mobile banking as their preferred banking method, compared to 25% online banking, 21% for branches and 17% for ATM, which implies that BoA was facing huge risk. 
2. What lessons can the bank learn from its online banking operations? What are the costs and benefits of having customers migrate to online banking? 
In the late 1990’s, Bank of America started offering online banking, which, in essence, made it possible for their customers to do almost any activity online instead of visiting the bank. 
One of the lessons the bank can earn from its online banking operations is that it is an advantage to digitalize, as their online service has shown to be beneficial to themselves as well as to their customers. For the customers, online banking provides them with convenience, which has made the customers more satisfied with Bank of America’s service. In return, this has created a benefit for the bank, as they have secured loyal customers, since the retention rate among online users is high. Another benefit of online banking is that it has made it possible for the bank to reduce costs, as transactions online is the least costly of the bank’s transactions services less. 
However, even though online banking has shown to be an advantage to the bank, customers were reluctant to try the new technology in the beginning due to several factors such as security concerns, having to pay for the service and because it was too difficult and time consuming getting started on the online service. One of the lessons the bank can learn from its online operations is therefore also that some customers show resistance towards new technology and that it is the bank’s responsibility to make the new technology easy to adopt, which in Bank of America’s case means making sure that adoption is not resource-demanding in relation neither time or money. 
In sum, looking only at online banking the benefits associated with the bank’s online operations is that it has secured loyal customers and reduced costs. In that sense, active online users has turned out Side 4 af 5 

to be very beneficial customers, and Bank of America’s online operations has shown as a good example for extending their digital offerings to mobile banking. 
3. How is mobile technology likely to influence the banking industry in the future? 
The first milestone for development in technology was the emergence of smartphones such as iPhone, Android and BlackBerry, which allowed banks to provide a richer experience to users through apps. By optimizing the user interface specifically for these devices, apps had the potential to engage users. In addition, the apps allowed users to locate bank branches and ATM machines, by implementing the use of GPS. According to the text the use of smartphones were expected to grow from 10% in 2008 to 46% of the total U.S. mobile phone market by 2012. In 2009 an estimated 10 million consumers used mobile banking in the U.S. 
By the 2014 this number was expected to grow to 37million, representing 30% of the total expected online banking users in the U.S and the total amount of mobile transactions were expected to increase from 180 millions in 2008 to 2.4billions in 2014. The growth was caused mainly by improved mobile devices, faster networks and increasing awareness among users. 
? Improvement of technology caused much faster and more flexible transactions for example by using mobile device which had Bluetooth, radio frequency identification, Infrared or Near field communication – a consumer were able to make “contactless” payments to a merchant via mobile phone. 
? Implementation of mobile technology caused reduction of operational costs. According to managers of BofA – mobile banking has the potential to reduce costs significantly by reducing number of calls to call centers. By customers adopting technology, branches and ATM’s will soon be outdated. 
? New way of marketing: 

Mobile technology such as mobile banking serves dual role for BofA. It allows the bank to provide services for their customers and at the same time it is a new channel for advertising and promotion. McDonald explained that the succession of mobile technology depends on the right balance between customer service and promotion and the main cause is to create a good experience for the customers. Side 5 af 5 

There is different forms of mobile marketing campaigns such as SMS messages with customized service information (similar to e-mail marketing), location based marketing such as telling customers in a bank branch that they could save time by using their mobile services. 
4. How should McDonald and Brown respond to the LOB managers request to include more functions in the bank’s mobile app? 
In less than three years, Bank of America has grown its client base of mobile banking users to four million. This represents an adoption rate of five to eight times that of the online banking service offered by BOA in May 2007. Bank of America’s line-of-business managers are aware of the success of the adaptation of mobile banking and are making requests that the app should also have functionalities for each of their specific business area. McDonald and Brown therefore need to make a decision and respond to the business-line-managers requests. In order to give a response, it is worth considering what the outcome of including more functionalities will be. 
First, it should be considered that the simplicity of an app is crucial for its success, whereas Bank of America’s app should not be too complex, as this could have a negative influence on the adoption rate and ultimately on the app’s success. Second, it should be considered that making changes to the app requires a large resource commitment. However, it should also be taking into consideration that including more functionalities could fulfill more of their customers’ needs and make banking even more convenient, whereas the return of investment for the bank could be large. 
Based on this, McDonald and Brown should respond that more functionalities could be included in the app, as long as the app is still user friendly and efficient. In that sense, functionalities such as including credit card could be a benefit, but functions such as mortgage can make the app complex and thereby not appealing to average customer. So in essence, the app should include functionalities that the average user needs, but for more complex banking areas the bank should not include it in the app before a large enough group of customer’s shows an interest in more specific areas. Our team thinks that users were not yet ready to perform complex functions such as setting up mortgage contracts using mobile devices. 

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