Despite signs economic growth in the U.S. may be moderating, Bank of America is doubling down with its digital push, betting the momentum in that area can cushion the blow from declining interest income.
In the past couple of years, Bank of America has been spending billions of dollars to grow its digital business. The efforts appear to be paying off. When the Charlotte, North Carolina bank reported first-quarter earnings earlier this week it said it ended the three month period with 27.1 million mobile banking customers that use the app regularly. That’s up 9% on a year-over-year basis. Meanwhile, Zelle, the peer-to-peer payment service had 5.4 million users at the end of the quarter while its take on the voice-activated digital assistant–Erica– now has 6.3 million users. As it stands, 77% of its deposit transactions are completed through digital methods.
It’s also gearing up to roll out a digital portal dubbed Life Plan that helps users achieve financial goals based on the stages of their lives. The platform will be customizable and provide advice and tips focused on different financial stages whether it’s purchasing a home, paying for college or saving for retirement.
“Financial services is going through a massive transformation. We know that building lifelong relationships is what really helps them achieve financial goals,” David Tyrie, head of advanced solutions and digital banking at Bank of America said. “Whether things are good or bad, whether you (customers) are doing well or not doing well the objective is to help everybody achieve their best financial life.”
When it comes to analyzing Bank of America’s prospects, fintech is becoming an increasingly important component. It’s not driving the stock like declining interest income will but it is something investors are mindful of. “This is an area that the majority of banks are thinking hard about,” John Jordan, a portfolio manager at Janus Henderson Investors said. “As one of the largest banks in the U.S. Bank of America has the scale advantage for some of these tech investments and digital opportunities. That doesn’t mean they can rest on their laurels.”
Bank of America isn’t alone. In addition to its traditional rivals, the company has to contend with fintechs that have been entering financial markets and disrupting them. It’s happening in consumer banking, lending, and payments. They are garnering lofty valuations along the way as venture capitalists pour billions of dollars into their business ideas. That hasn’t been lost on the big banks. After a period of resistance, they are now creating similar technology via internal developments, acquisitions, and partnerships.
For Bank of America, partnering is one strategy, but a lot of the work is being done internally with a focus on digital services for saving, borrowing and investing. There’s also a huge heaping of personalization. Take Erica for one example. Thanks to artificial intelligence and machine learning when asked, Erica can tick off a list of recurring payments in a bank account and provide insight into spending habits. With personalization, the bank can provide actionable advice at the right time instead of listing information that may not be applicable to the customer. It wants to cater to everyone from the pay-to-pay check consumers to the couple with more complex wealth management needs. “The wow factor is how the experience comes across,” said Tyrie. “Technology is secondary.”
On top of the digital layers, Bank of America is leveraging its physical branches, betting customers still need some hand-holding or advice from time to time. That may not be true of the youngest millennials. New research from FIS, the financial technology company, found 65% of millennials between the ages of 18 and 26 never used a branch at all in the prior month. Nevertheless, Tyrie said Bank of America’s network of financial centers is the key to bringing it all together. “I own the digital side for Bank of America as well as the Financial Centers. There’s a reason they are integrated into one push,” he said.
Complacency doesn’t appear to be on the radar of Bank of America either. In conjunction with its earnings report it said that while technology spending has been about $3 billion a year for several years now it will be 10% higher in 2019, thanks to savings from the tax overhaul. That sends a positive signal to investors who are looking for any evidence the bank could rein in spending to contend with a slowing economy. That’s not to say it was all positive for Bank of America when it reported earnings this week. The company did warn expense levels this year and in 2020 may be different given it increased the level of spending to support its physical and digital expansion and to increase the minimum wage it pays employees. “Investing in technology is very important for Bank of America and for other banks. Some of that is done in-house, some of that is done with the help of third parties and some of that is done through partnerships or investments,” said Janus Henderson’s Jordan. “Bank of America has done a good job but they will continue to need to invest and innovate.”
Date: April 25, 2019