Case 3: Bank of America: Keep the Change Service Design

What is best practice in service development? It is very similar to product development as the following combination financial product/service project illustrates.5 The goal of this service development project was to get debit-card holders to open savings accounts. In the spring of 2004, a team of Bank of America researchers and consultants spent two months observing a dozen boomer-age women and their families when they shopped, balanced their checkbooks, and used ATMs.

They observed a mother who always rounded up her checkbook entries because it was quick and easy, and they observed many women who could not save because of lack of money or because it was hard to control their impulse buying.

After 20 brainstorming sessions by a team of product managers, finance experts, software engineers, and operations gurus, a boiled-down list of 12 product concepts was compiled, but one emerged as an overwhelming favorite.

A Web-based cartoon was used to explain the service concept: A woman buys a cup of coffee for $1.50 using her debit card. The amount is rounded up to $2 and charged to the debit card account, with the 50cent overcharge transferred into a savings account. An online market research survey of 1,600 potential customers gave the concept sky-high ratings for uniqueness.

In a nice example of the usefulness of focus groups, a female participant gave the name to the concept Keep the Changeand it was approved and marketed with a very generous promotion: The rounded-up transfers were matched in the first three months up to a limit of $250. The transactions were also summarized in the consumers checking and savings accounts.

Launched in October of 2004, in the first 18 months 2.5 million customers signed up for Keep the Change. With a 99-percent retention rate, 700,000 new checking accounts and one million new savings accounts were opened. More importantly, the new product has given Bank of America a big new boost of confidence and reputation for with it products in the marketplace.

This is a case study of understanding consumer behavior in depth, in the real world: A simple extension of one womans behavior through high-pressure team brainstorming developed a simple service, easily executed, simply explained, simply tested, simply promoted. Superbly simple, simply superb.

2. Keep the Change is a clever way of encouraging savings that builds a savings account with a contribution margin of 2 percentage points of interest: It pays one percent on a savings account that can be invested in three percent, no-risk government paper, but will probably return more in its use by the bank management. Another way to say this is that the spread between the cost of the savings account and earnings from it is two percent. Let us say Bank of America spent an average of $200 per new savings account in this Keep the Change promotion. Bank of America shareholder required rate of return (RRR) is 20 percent. Assume a retention rate of 80 percent a year. What must the average balance in the Keep the Change savings account be over 10 years to have this campaign create shareholder value?