Bank of America Debit Card

There was a lot of information in last week’s Bank of America webcast. I think a key metric got buried.

Bank of America’s Doug Brown said that they had found a direct correlation between mobile banking and increased debit card transaction amounts. To my knowledge, this is the first time we’ve had hard evidence that mobile banking can drive higher transaction revenue in traditional payment channels.

Brown surmises that mobile bankers spend more on their cards because mobile banking gives them the confidence to make larger purchases because they have complete, always-with-them control of their account information.

Higher card spending by mobile banking users means that mobile banking is good for everyone: banks, merchants, card associations and consumers.

It’s good for consumers because they have access to more of their money when they need it. It’s good for merchants because mobile banking is driving higher sales. It’s good for bankers because of increased transaction revenue both on the consumer side of the transaction and the merchant side of the transaction. Furthermore, checking balances creates a positive brand experience that can generate strong loyalty to the bank.

Next, I want to know how much mobile banking increased spending…

Doug Brown of Bank of America provided an update today on the success of mobile banking at BofA in a webcast sponsored by InformationWeek and VeriSign. Brown provided his insight on mobile banking and shared key statistics from their experience with mobile banking.

Bank of America now has over 3.5 million customers and represents over a third of all U.S. mobile banking customers. They have seen adoption increase significantly since they first went live in the first quarter of 2007. It took them 13 months for the first 1 million customers to adopt mobile banking. The second million took 9 months and the third million took 6 months. This represents an acceleration rate of roughly 30%.

Brown describes general mobile adoption as historically faster than other technologies such as telephone landlines, televisions, etc. Roughly 10% of online banking customers (30 million) now use mobile banking (3.5 million). BofA attributes their mobile banking adoption success to two key factors:

First, mobile banking is made available to as wide a customer base as possible. BofA noted that they support over 850 handsets via their mobile web application while providing native applications on iPhone, RIM, and Android platforms in addition to SMS banking. While mobile banking is limited to online bankers and isn’t available to customers in Washington State or Idaho, Bank of America’s mobile reach is far broader than most or all U.S. implementations.

Second, Bank of America embarked upon a marketing and customer education campaign to share the value proposition to end users and to alleviate their security fears. BofA has tried to completely integrate mobile banking into their existing operations to reach all kinds of customers and provide consistency to the consumer regardless of what channel they use. For example, Brown noted that mobile banking customer service and technical support is handled by the same team as online banking.

Notably, Brown described the technical support impact of mobile banking as a “non-event” that was “seamless to support.” This statement should put a lot of prospective mobile bankers at ease. Many banks and credit unions considering mobile banking are concerned by the potential impact of mobile banking on their support operations. Many bankers will be relieved by BofA’s experience as the largest mobile banking implementation in the U.S., however results depend upon how mobile banking is implemented. For example, a bank implementing SMS balance alerts with no other form of mobile banking risks dramatically increasing calls to the call center.

Mobile banking has also provided significant ROI to Bank of America. In particular, Brown says mobile banking is directly responsible for attracting 150,000 new customers. Additionally, Brown describes the type of customer mobile banking attracts as a “very valuable customer segment.” Brown describes these customers as more deeply engaged and typically using more products than average. Brown also shared some customer comments indicating how deeply customers appreciated mobile banking which creates stronger loyalty and engagement with the bank.

Verisign also provided cost figures for various channels based on a study commissioned by MCOM. Banks can find significant savings by serving customers in the mobile channel ($0.08) rather than through the contact center ($3.75), IVR banking ($1.25), ATM ($0.85) or even online banking ($0.17).

Banking service costs and channel usage

Interestingly, Brown noted that mobile banking users tend to spend more on their debit cards providing additional revenue to banks and retailers. Brown surmised that consumers can spend more confidently knowing that they have ready access to their account balance — even when purchasing on a whim. Mobile banking customers have also moved over $9.5 Billion since 2007, presumably reducing bank and consumer costs to move money. Bank of America provides payment capabilities between user accounts, to any other Bank of America customer, and through bill payment functionality. Brown described future interest in supporting point-of-sale (POS) payments, remittance, and value-added marketing such as location-based coupons.

Bank of America also uses mobile to provide additional security in other channels. Specifically, Brown mentioned that all high-value transfers in other channels like online banking require confirmation from their SafePass product on the mobile phone. Brown described the mobile phone as a unique security tool because almost everyone has a mobile phone with them and it is almost always on. Brown stated that the same anti-fraud scanning algorithms used in online banking are also used on mobile banking activity. He described mobile security as having industry-wide importance to ensure overall consumer trust in mobile commerce.

In summary, this type of specific case study is what the industry needs. 48% of webcast attendees not currently doing mobile banking cited Lack of ROI as the primary reason. Most bankers I talk to know in their gut that mobile banking will have a huge impact on future banking. However, almost every banker is struggling to build a solid business case for moving immediately, especially during the recent financial crisis.

Bank of America’s experience validates many bankers’ expectations and provides fuel for further experimentation. While sharing this data is bound to increase competition, the metaphorical tide is likely to raise all boats by increasing overall customer comfort with mobile banking and mobile commerce in general which will lower costs and drive up profits through new customers and more profitable transactions.