Please ensure Javascript is enabled for purposes of website accessibility

Bank of America Takes Another Step Toward Branchless Banking

By John Maxfield - Sep 15, 2015 at 4:38PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The role of biometrics in the future of banking.

Bank of America (BAC -1.23%) 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 (JPM -1.48%) 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$34.45 (-1.23%) $0.43
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$118.31 (-1.48%) $-1.78

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.