Identification of Strategic Issues and Problems of Bank of America - Case Study Example

Identification of Strategic Issues and Problems of Bank of America Identification of Strategic Issues and Problems The Bank of America operates in an industry marked with rapid changes, the financial crisis and evolving technology. There are two challenges faced by the Bank of America at this point. For the long term, the Bank faces a challenge in positioning itself. This is because the mobile banking is evolving rapidly and could have a significant influence not only on the Bank of America but also the whole financial services industry. In the short term, the Bank of America needs to decide the future of its smartphone application. It needs to be decided whether the Bank should introduce a new application, or whether they should add to the functionality of the existing application, thus making it complex, or whether to avoid making it complex altogether. The problem with upgrading the application (making it complex) is that it carries a risk as the application could slow down, depending on the level of complexity. Additionally, the executives at the Bank of America cannot be sure whether their customers would prefer signing up for mortgages and credit cards using the mobile banking platform. On the other hand, mobile banking is one platform that is the basis of differentiation. Citibank incorporated credit card account information in its application for iPhone. This is just another reason for the Bank of America to upgrade its application. In this regard, another option available to the Bank of America is to create separate applications for the various functions (e.g. a separate application for small business customers). Here lies another problem; this would mean reprioritizing important technology from other areas such as ATMs and online banking. There are two more options available for mobile banking. These include mobile internet and mobile messaging. It should be noted that the application mentioned earlier is applicable only for smartphones. A significant 85% of the mobile banking customers do not have smartphones, which leaves the option for using the SMS facility for the Bank. This method is costly for the Bank. Mobile internet (WAP) is available to most customers. And because most banks had the option of online banking, it was feasible for the banks as well. But most customers require a data plan for using the mobile internet and the small screen size of feature phones is not appealing for the customers. Analyses and Evaluation In 1975, there were more than fourteen thousand banks in America. But in 2009 this number had declined to 6,911 because of mergers and consolidation of the banking sector. Furthermore, many banks declared bankruptcy and were closed down. As of 2009 46.4% of the total deposits were held by 10 of the largest banks including Bank of America, JP Morgan Chase, Citigroup and others. In 2008-2009, the global recession hit. This resulted in the collapse of real estate in the US. And this, in turn brought about the sharp decline in securities that were backed by mortgages. What followed was a severe economic crisis not only in the US but also the entire world. The Mortgage securities were the prime source of income for the banks and due to their collapse the financial services sector in the US faced a “credit freeze”. The financial crunch hit hard and forced many customers as well as businesses to curb in their spending. To boost their business in these testing times, some banks waived their ATM fees so that people would do business with them. The Bank of America was founded in 1904 and has become one of the largest banks in America. By 2009 the Bank catered to 82% of the population of the US and was the top bank in 23 out of 30 metropolitan cities across the country. In addition, the Bank was the top mortgage originator and servicer in the US. Its investment banking business was counted in the top 2 for raising debt and equity in 2008. The major competitors of the Bank of America include JP Morgan Chase, Citigroup, Wells Fargo and Company, PNC Financial Services and the Bank of New York Mellon. The Bank of America was also deeply affected due to the credit crises. When customers curbed their spending during the peak of the recession, it proved to be a huge blow for the Bank of America because of the huge size of its retail banking business. According to research, customers still choose their banks based on the location, low minimums on accounts and competitive rates. The banking and financial services sector has also evolved with the evolution of technology. In the late 1990s, online banking was introduced. This changed the scenario considerably. Online banking proved to be convenient for customers and was cost saving for the banks. The Bank of America also adopted the online banking system in the late 90s. This enabled them to save costs on call centres as well as customers that migrated from other branches. The online banking system was not free and that proved to be a hurdle for its adoption by customers. Another factor was that customers doubted online security. The mobile banking system was introduced in 2007. Mobile banking can be viewed as an extension of online banking. This method allows customers to avail the services of their banks on the go. The three ways to conduct online banking can be through mobile internet, smartphone applications and messaging. Mobile internet requires a data plan and many customers might not want to avail this. The added factor of internet speed is a major factor. Mobile messaging is a good option for the customers but can prove to be costly for the Bank as cellular companies charge for each outgoing message. Smartphone applications are an interactive solution. But the only problem is that only 15% of the customers own a smartphone. Hence all these issues have led The Bank of America to opt out of the messaging option because of the costs it represents. Recommendations Mobile banking is a less expensive alternative to other means of banking despite operational costs. In 2009 the costs for the bank was about $0.10 per transaction but were expected to go down to $0.03-0.04. Online banking costs almost as much as mobile banking. This is a stark contrast to traditional branch costs which amount to $1.34 per transaction. Furthermore, mobile banking is more convenient than online banking because it provides support to the customers on the go. Hence it can be logically recommended that the use of Mobile Banking should be encouraged by in order to save costs for the banks and improve convenience for the customers as well. References Gupta, S. & Herman, K. (2010). Bank of America: Mobile Banking, Harvard Business School Read More