A digital-only institution, in our mind, is not the way that you should go.
Of course, when you’ve built up a nationwide network of physical infrastructure, there’s a temptation to think ‘well, he would say that, wouldn’t he?’. But BoA is putting its money where Moynihan’s mouth is in terms of building out, rather than consolidating, its branch network:
We have announced plans to open several hundred more branches across the entire franchise over the next three years. As well as opening new branches, we have renovated 700 financial centers over the past couple and have another 1,200 planned of these in a couple of years ahead.
In fact, transactions per branch are going up, he adds, which justifies continued investment offline:
Over the last three years, we’ve added 103 brand new financial centers with improved layouts and technology capabilities for customers. This included entering 4 new markets so far and 5 more to come where retail footprint didn’t exist but the rest of the franchise was well established. In that case, we have an installed customer base already and we can serve them more broadly.
But while there’s a commendable awareness of the fact that people do actually like - need? - to go into branches and talk to human beings for certain banking functions, there’s also an investment in digital tech that’s starting to deliver some interesting stats:
- 26 million mobile users, up 10% year-over-year.
- Digital payments were up 14%.
- Mobile and ATM now account for more than 3 quarters of deposit transactions. A
- Mobile is now approaching half of all digital sales.
All that comes at cost. Moynihan reckons that since 2012 the bank has spent around $20 billion on new tech:
That’s a $3 billion a year pace or nearly a third of our current annual technology and operations budget. These consistent investments allowed us to replace almost every major platform the company operates and add new and exciting platforms for growth at the same time.
In addition, we have reduced data centers, migrating two-thirds of our applications to our internal cloud…We created an internal cloud. There was an external cloud at the time. People didn’t even talk about the concept. We brought about 80% of our applications onto that cloud. That makes us much more efficient in our server costs and environment [through] standardization of platforms.
There’s also been scope for successful innovation, he adds:
We rolled out digital capabilities across our lending consumer online platform. We rolled out Erica, our digital assistant, our digital mortgage, our digital auto, and on and on.
In our wealth management business, we are rolling out a sleeker Merrill Lynch digital platform with more integration between banking and investing, along with adding industry leading capabilities or market data, enhanced document scanning and texting capabilities between advisors and our clients.
In Global Banking, we enabled additional cash pro digital capabilities, giving CFOs and treasurers more mobile capabilities and insights to see and move cash at the companies just as our consumers do. Usage and adoption continues at a steady pace, and we’re investing heavily in our capabilities and funding for both domestic international treasury services.
Across the firm, we continue to use robotics and other automated processes, replace for better than office work, driving operational excellence.
But it’s the omni-mix to which Moynihan returns, arguing that BoA has an enormous advantage over rivals simply through the name recognition attached to its brand:
It’s really a competitive advantage of our brand, our capabilities, and our customer base that we can then get fuller relationships from that already exist. That’s why we’re doing [expansion]. It’s not a de novo expansion, i.e., we’d never been heard about. Bank of America’s brand name is recognized and there’s a customer base in these markets.
We’re trying to build that high-touch, high-tech service model across all the businesses, including the ability for middle-market and business banking clients to have branches nearby and small business clients to interact with for their business banking needs. And so, it takes both physical plant and digital. A digital-only institution, in our mind, is not the way that you should go.
Moynihan is preaching a pragmatic message and one that for the moment appears to be delivering on the bottom line. The bank just turned in net income of $6.7 billion, up 35.1% year-on-year, on revenue of $22.8 billion, up 4% year-on-year. Clearly there are macro-economic factors in play here, not least rising US interest rates. But the combination of tech-enabled consolidation of operational platforms with more ‘bleeding edge’ innovation can also be seen. That said, Wall Street was cool on the latest numbers, so Moynihan has some work to do yet.