Bank of America Takes Another Step Toward Branchless Banking

Bank of America announced on Tuesday that customers can now access its mobile app with their fingerprints, doing away with the need to enter a passcode. It's a tiny tweak, but it nevertheless represents an important step in the direction of branchless banking.

One of the biggest challenges for a bank like Bank of America concerns what to do with its expansive (and expensive) branch network. Ten years ago, its coast-to-coast network of physical locations was arguably its greatest competitive advantage. But today, it's evolving into an albatross.

A consulting firm that tracks the performance of bank branches, FMSI, estimates that transaction volumes at credit unions and community banks have fallen by 45% since 1992. Meanwhile, the hourly pay rate of branch employees has increased by 90% over the same period. The net result is that the cost of each in-branch transaction has risen by 133.3% in just over two decades.

JPMorgan Chase addressed these issues at its investors day earlier this year. According to its estimates, it costs JPMorgan Chase $0.65 to handle a deposit transaction in a branch. The cost falls to $0.08 per ATM transaction. Meanwhile, customers who deposit checks using JPMorgan Chase's mobile app cost the bank just $0.03 per transaction.

Many customers, particularly in older generations, still prefer the face-to-face interaction that branches offer. There are also certain transactions that are best handled in person as opposed to online or over the phone. These typically include more complicated transactions or ones where trust or the safety of personal information come into play.

But there's reason to believe that the downward trend in transaction counts will only accelerate as technology continues to mature. Specifically, once banks crack the code, so to speak, on addressing customers' concerns about the safety and security of remote banking, it seems reasonable to assume that the migration toward digital banking will capture an even larger proportion of customers.

The key to cracking this code, according to multiple industry participants I've spoken with over the past two months, lies in biometrics and enhanced video technology. The former, which encompasses Bank of America's fingerprint recognition software, solves the problem of confirming a customer's identity. The latter takes care of the desire for real-time but remote customer interaction.

Thus, to get back to Bank of America's announcement on Tuesday, while it may initially come across as much ado about nothing, it has a much deeper significance that could one day help the nation's second-biggest bank by assets continue to cut its expenses and streamline its operations.

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