Mobile banking adoption is changing the economics of consumer banking as customers increasingly use smartphones and ATMs for transactions that once required assistance from branch employees. For financial institutions, shifting routine activity to digital and self-service channels can significantly reduce transaction costs while giving customers more convenient ways to manage their accounts.
Bank of America provides a clear example of the financial impact of this transition. With 19.6 million active mobile users and a rapidly growing share of deposits completed through mobile devices and ATMs, the bank has been able to automate more transactions, reduce its branch network and lower staffing levels across its consumer banking operations.
Bank of America has had its fair share of missteps over the past decade, but it’s also had successes. Topping the list for the latter is the progress it’s made in mobile banking, which has enabled the bank to slash operating expenses in its consumer banking segment.
You can get a sense for Bank of America’s success in this regard by looking at the number of people who use its mobile application. In the most recent quarter, the bank boasted 19.6 million active mobile users. That’s five times the number it had in 2009. To put this in perspective, Bank of America has 60 million total clients within 45 million households.The impact on Bank of America’s transaction mix has been dramatic. Mobile check deposits are up by a factor of 10 since 2012, and now account for 16% of all deposit transactions at the North Carolina-based bank. If you also factor in ATM transactions, two-thirds of Bank of America’s deposit transactions are now automated. That compares to only 35% in 2009.
Transactions that are conducted on a mobile phone or an ATM are much more cost-effective for Bank of America. It estimates that an automated deposit costs 90% less than an assisted deposit. The average cost per $100 in deposits has accordingly dropped by 34% since 2010, going from $2.61 to $1.71 as of the first quarter of 2016.
These trends have allowed the bank to cut costs in two ways. The headcount in its consumer bank has dropped by 40,000 people, or 37%, since 2009. And it’s closed approximately 1,500 branches, equating to a 23% reduction over the past seven years. Bank of America now has the greatest value of deposits ($122 million) per branch of any bank.
The widespread movement toward mobile and digital banking has had a profound effect on the day-to-day operations of today’s banks and credit unions. And while the largest banks have the size and resources to focus their attention on expanding and leveraging their mobile and digital banking capabilities to include more types of transactions and services, smaller institutions are increasingly offering such solutions as well, often with the help of fintech partners.
The growth of mobile banking adoption demonstrates how changes in customer behavior can directly affect a financial institution’s operating model. When customers deposit checks, transfer funds, review balances, and complete other routine activities through digital channels, banks can process those transactions at substantially lower costs than transactions requiring employee assistance.
For Bank of America, the shift has contributed to significant changes in both staffing and its physical branch network. As more deposits have moved to mobile devices and ATMs, the bank has been able to operate with fewer employees and locations while handling a larger proportion of transactions through automated channels.
These economics are not limited to the largest financial institutions. Community banks and credit unions may not have the resources to develop sophisticated digital platforms independently, but partnerships with fintech providers can give smaller institutions access to many of the same capabilities. That can help them meet changing customer expectations while improving operational efficiency.
Mobile and digital channels therefore represent more than an additional way for customers to interact with their financial institutions. As mobile banking adoption continues to increase, these technologies can fundamentally change how banks and credit unions allocate resources, structure their branch networks, and control the cost of serving customers.
Overview by Ed O’Brien, Director, Banking Channels at Mercator Advisory Group
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