In today's age of advanced technology on every front, even stalwart institutions need to ride the digital wave to enhance the customer experience and generate innovation to stay ahead. Bank of America (BAC -1.30%) is leading its industry toward the digital transformation as it expends its energy on keeping up to date with technology.
Why are investors excited about Bank of America?
At first glance, Bank of America's third-quarter earnings looked disappointing. Total revenue stayed flat, and net income declined from $7.2 billion to $5.8 billion.
But the dry numbers don't tell the whole story. Revenue beat expectations on Wall Street, and without a $2.1 billion hit it took from ending a merchant services joint venture, earnings would have shown a 14% increase from the third quarter of 2018.
There was a lot more to be excited about as well. Consumer checking, credit card, and investment accounts were all up, as were relationships with small businesses. All of this caused a spike in the company's share price after the third-quarter earnings release.
So where is all of this growth coming from?
Building technology, building a brand
Bank of America is the second-largest bank in the U.S. and the seventh-largest in the world. One of the highlights of its strategy for reaching those ranks is a strong focus on technology.
"We're a technology company, wrapped around a great bank, and that's going to be the future of what we do," according to Bank of America CEO Brian Moynihan. He's a strong believer in the power of artificial intelligence (AI) to transform banking. To back that up, Bank of America received more patents from the U.S. Patent Office in 2018 than any other bank, most related to advances in technology. This approach fuels the company's operations and allows it to streamline customer experiences as well as simplify its own processes. For example, it has several patents related to its virtual assistant, Erica, that allow it offer a higher level of digital service than any standard chatbot, and other patents that make possible a cardless debit card that customers can use for many types of interactions.
Part of what ended its 18-month growth streak in the third quarter was its own investments in technology, including "$3 billion in technology, new branches, [and] new team mates," according to Moynihan.
On the consumer end, Moynihan sees a clear correlation between growth and digital capability: "Deposits with our consumers grew $38 billion in total ... reflecting the value clients place on the relationship benefits offered by the convenience of our network. (They see) the value of our leading digital capabilities and our unique preferred rewards program" and that's why they keep coming."
On the company side, Bank of America has been able to reduce the size of its workforce by optimizing digital capabilities. One of the company's premier assets is its ability to grow operating margins by expanding product while keeping expenses in check, and it has been able to accomplish that by applying digital competencies wherever possible, such as new abilities to store and move data through networks and machine learning.
Moynihan believes that as consumers take more of their business online, banks need to reflect that in their offerings. For instance, since 75% of Bank of America's deposits are not coming in on the physical premises, the company has to improve its digital platform, adding new features and making it easier to use.
So while the investments pull down the numbers for this quarter, client engagement keeps growing, and the company is confident that putting in the money and effort now will certainly pay off later.
Bank tech in real time
These are some of the highlights of client engagement with technology at Bank of America during the third quarter:
- Mobile channel usage was up 45% among wealth management clients.
- Use of the company's Mobile CashPro, where customers can easily and quickly access their accounts, make transactions, and even sign documents digitally, doubled year over year to approved payments of $144 billion.
- Close to 2.5 billion consumer interactions across digital channels and digital sales coming in at 26% of total sales.
- Roughly 13% of the company's financial center platform traffic came from appointments set up digitally, as opposed to walk-ins, which helps the teams prepare for the meetings and provide a better experience.
- By August 2019, customers had made more transactions year-to-date using the Zelle customer-to-customer funds transfer platform than in all of 2018.
One of Bank of America's premier digital services is Erica, a virtual financial assistant using AI technology. Erica answers customers queries in a more advanced way than a standard web site help system so customers get the answers they're actually looking for, and more quickly than using a different method. For example, a customer can ask Erica, by voice command, text, tap, to find all transactions with Amazon, a feature not usually accessible in a search function, and less practical with a live representative. The service has 7 million active users and has assisted with more than 75 million transactions.
Chief Operations and Technology Officer Cathy Bessant said: "Our competitive advantage is driven by innovation and creativity ... [we are] not only leading the way in financial services but also shaping the direction of the technology landscape overall."