We remain a different company today than that which had entered the last downturn.
It’s a familiar declaration from many a finanacial services firm, but this time it comes from Brian Moynihan, CEO of Bank of America (BoA), who expands his point:
We start with a clear strategy to serve the core financial needs of the customers. We’ve gotten out of businesses, portfolios, products and client relationships that don’t meet those strategic goals.
That’s all good and well, but is it working? Well, it’s a long road to travel, of course, and also a bumpy one. Last week BoA's first quarter net profit slumped by 13% to $2.68 billion from $3.1 billion in the comparable quarter last year. Meanwhile revenue came in under expectations at $19.5 billion, down from $20.9 billion in the same period last year.
So, still work to be done, with Moynihan admitting that he’s still focused on removing cost from the organization. In that objective, tech and digital play a key enabling role, which is why, he says:
We’ve continued to invest in the areas we can grow. $3 billion in technology-related growth initiatives, especially in areas of digital practice, whether it’s in Consumer Banking, Commercial Banking, where we lead the industry with mobile and online platforms.
Certainly on the mobile front, BoA has a good story to tell, adding 2.5 million mobile banking customers in the last year. The number of total active users is up to 19.6 million, up from 17.1 million in the first quarter of 2015. Equally encouraging is the rise in customer mobile enagagenent with 16% of all deposits occurring via on mobile devices in the first quarter.
For the bank’s senior management, it’s a simple equation - get more customers to move online to complete transactions and save the bank time and money in the process, removing the need for in-store activities or at least redefining the role of branches. As BoA Chief Financial Officer articulates it:
I think the branches are going to become not a destination where people come to transact, but a destination where people come because they need a product or service because of something changing in their lives. They need to start saving for their kids’ college or they need a mortgage or they need a credit card. It’s more about they are coming there because of some life event or because of some product or service they need, not for every day transaction banking.
That’s a vision we heard pitched last year by Sean Gilchrist, Managing Director for Commercial Digital at Lloyds Banking Group, who said:
We need the industry to move back to the kind of conversations that in my day a branch manager would have had with their customers. If you talk to customers and clients , that’s what’s missing…actually moving back and seeing more branch managers and people with that credibility just having that kind of conversations with their customers, shaped around how we help people to manage their finances.
But to achive this shift - getting basic transactional activity online to free up offline time - requires engagment with customers to encourage the move. For BoA, Donofrio points to various mechanisms in place to achieve this:
One way we are promoting adoption is by deploying digital ambassadors in our financial centers. Digital ambassadors engage with customers who come to our branches to transact. They educate these customers on alternatives to branch banking which are not only more convenient for them but also less expensive for us. Digital sales, digital appointments, digital satisfaction all continue to achieve new highs.
That is working, argues Moynihan, pointing to a growth in what he calls “computer-based customers’ of over one million people year-on-year. But it’s the mobile customers that are of the greatest interest:
Last year this quarter we had 17 million mobile users; this year we have 19.5 million. And as Paul said, there was an interesting point that the nominal rate of growth this quarter was one of the highest we've ever had. So even though smart phones have penetrated the customer base, it's still growing fast.
This then feeds into mobile wallet activity, he adds:
The online mobile part of the spend is now up to 20% of the spend and it's growing 15% per year versus the 4% [for credit cards]. Just in the last week the growth rates in enrolled cards was 12% week-to-week growth in terms of volume enrolled, 100,000-odd cards came on. The payment usage was up 3% week-over-week, so you see this phenomenal growth rate.
But there’s still a harsh reality-check to come into play here, as Moynihan acknowledges:
The mobile wallet payments are still less than 0.2% of the total payments made with plastic at Bank of America. So you still have lots of opportunity to convert activity to a platform which is more convenient for the customer.
To drive such adoption, BoA is working in a consortium to build a new P2P banking deployment offering. Moynihan says:
We still have a few more months before the rest of the colleagues in the consortium get up and then we'll start to push that out in the market heavily. I think it's a tremendous improvement over what we have today, even though we have a fair amount of volume on it today through ClearXchange.
We've got the Visa Checkout work that's going on where we're preloading customers' cards in their wallet. We're about, as best we can tell, 13% or 14% of all the spend in Visa Checkout today and we've got one million-plus cards. We’ll drive that forward.
And if you put that altogether you're seeing tremendous volume off of all these mechanisms. And in the month of March, to give you an example, we had almost $60 billion of payments off the computer-based platform and about $20 billion off the mobile-based platform. So think about the size of that.
Eventually this could lead to the elimination of writing checks, although Moynihan is cautious here:
Yes, eventually is always an operative word. Even today I think there's about a quarter million checks a day, people take a picture of them and send them in on their mobile phones and that didn't exist three years ago. But there's still a quarter million of them that would have to go way, so it will be a while.
At times when I've found myself raging internally (and externally) at the lamentable state of the UK banking system, I've found some cold comfort in the knowledge that compared to the US retail banking sector, the British version is forward-thinking.
The very fact that Moynihan still talks about checks amuses me. It's literally years since I wrote or cashed a check in the UK. And for those in the US who had to visit a branch to pay your tax bill in the past week or so, I feel your pain.
So there's a long way to go for the likes of BoA on a digital transformation journey. This isn't just about throwing tech at a problem or an organization. This is about rewriting an entire industry.