Bank of America now selling more digitally than in person - tech budget increases to $3.6 billion

Bank of America has once again highlighted how its digital investments are complementing its traditional banking, with its technology platforms fuelling cost savings, customer growth and revenue acquisition. 

The executive team at Bank of America were bullish about the organization’s future prospects, despite some macroeconomic uncertainty, as its Q1 2022 results were trending positive across most metrics. 

Revenues at the bank were up 2% to $23.2 billion and a net income of $7.1 billion. Bank of America also added 228,000 net new consumer checking accounts this quarter and the global wealth and investment management division saw client balances increase by $234 billion, up by 7%. 

The bank said it saw record digital sales, which increased to 53% of total sales. 

Notably, Bank of America was the only US ‘mega bank’ to report an increase in revenue for the first three months of 2022. 

Commenting on the Q1 results, Brian Moynihan, Chief Executive Officer at Bank of America, said: 

I want to step back and focus on the big picture about Bank of America this quarter. In a quarter that had a lot of variables show up, we delivered responsible growth again.

We reported $7.1 billion in net income or $0.80 per diluted share. We grew revenue, we reduced costs, and we delivered our third straight quarter of operating leverage coming out of pandemic.

Net interest income grew 13% and is expected to grow significantly from here. We saw a strong loan growth. We grew deposits. We saw strong investment flows. We made trading profits every day during the quarter. We grew pre-tax pre-provision income by 8%. We had a return on tangible common equity of 15.5%.

All this came in that quarter that saw geopolitical conflict, rising interest rates, a pandemic, rising inflation concerns and much, much more. I want to thank our team for delivering on responsible growth once again.

Digital investments pay off 

Moynihan said that the message to get across to the market is that there continues to be a “shift away from cash and checks” towards “digital alternatives”. This use of digital across Bank of America’s core divisions continued to trend upwards. 

The key stats for digital usage in consumer banking include: 

• 71% of overall households actively using digital platforms

• 42.3 million active digital banking users, up 5%, or 2.0 million

• Over 1.7 million digital sales, up 26%

• Over 2.7 billion digital logins

• 2 million active Zelle users (Bank of America’s primary banking app), now including small businesses, sent and received 213 million transfers worth $65 billion, up 26% and 31% YoY, respectively

• Clients booked ~813,000 digital appointments

On the global wealth and investment management front, the bank saw: 

• Record 85% of clients digitally active across the enterprise

• Record 76% of checks deposited through automated channels

• Zelle transactions up 41%

• Digital wallet transactions up 66%

Commenting on Bank of America’s digital growth, Moynihan said: 

We grew and expanded customer relationships across every business. In fact, we grew net new checking accounts by more than 220,000 this quarter alone. We opened new financial centers, and we renovated many others. We added more digital capabilities and crossed 50% in digital sales.

From a broader enterprise perspective, part of managing costs comes from the drive we have in the company to provide enhanced digital capabilities to our customers, which in turn drives adoption for digital engagement and lower costs.

We are now selling more digitally than we are in person. It takes both to be successful. What makes them even more impressive is all the financial centers are now open and back to operating at their usual great capacity. So adding the digital capacity clearly increases our total production capabilities. You can also see our digital sales are now twice the pre-pandemic level just three years ago. Even more impressive, look at Zelle and Erica volumes, up more than four times in pre-pandemic levels.

We're now processing more outgoing Zelle transactions than checks. In our cash pro mobile app with our commercial clients, we see many $5 billion usage days. 

Continuing to invest

Alastair Borthwick, Chief Financial Officer at Bank of America, said that the organization would continue to invest heavily in technology, people and marketing across all lines of business. He said: 

We modestly increased our full year new tech initiative budget for the year to $3.6 billion. And on top of more than $35 billion that we put to work over the past 12 years to help us build powerful, more secure, and scalable technology platforms. 

This is the investment that allowed us to maintain a leadership position in patents among our peers. We had 512 of them granted in 2021 and we're maintaining a similar pace this year. We think this is one of the things that's happened to protect our moat around leadership positions in places that matter most to customers.

Bank of America is also adding up to 100 new financial centers this year and is renovating more than 800. But Borthwick added that the company’s technology investments are helping to pay Bank of America employees more per hour in the coming years. He said: 

We will also continue our upward march on minimum hourly wage toward $25 by 2025. So, how do we pay for all that? Through continued work on operational excellence and digital engagement.

My take

Bank of America continues to buck the trend within the financial sector in the US as an organization that seems to have a good understanding of balancing traditional banking relationships with ease of use via digital channels. The bank has had a string of successful quarters, where the numbers continue to point in the right direction and investment continues strong. Macro concerns obviously could be a significant risk factor in the coming months, but the executive team seem confident that it has the right foundations in place to weather any incoming storms.