Big Bank Earnings Highlight Irreversible Digital Transition
Big banks’ earnings show that the significant digital shift in financial services is still going on.
Last week, J.P. Morgan, Bank of America, Citi, and Wells all gave different takes on a few themes: This year, there is a good chance of a mild recession. Even though consumer spending is steady, loan loss provisions must be increased because of the risk of credit losses.
And the number of people who do their banking online keeps growing. The same clients are digitally active and use online financial assistants, peer-to-peer payments, and electronic checks.
The number of branches has also decreased or, at best, stayed about the same. This helps prove that the fundamental change of doing more online and on multiple devices means there is less need to build up expensive brick-and-mortar footprints.
Statistics stand out
In its earnings presentation and commentary, Bank of America said that digital “sales” made through the company’s online channels were up 22% yearly and now makeup 49% of that business. 35.5 million people used mobile banking, which is more than 7% more than the same time last year.
“Verified digital users grew to 56 million with 73% of our consumer households fully digitally active,” CEO Brian Moynihan noted on the call. “We have had more than one billion logins to our digital platforms each month, and that’s been going on for some time.”
He also said that Erica, Bank of America’s virtual financial assistant, was used 146 million times in the last quarter, 18.7% more than the 123 million times she used a year ago. Last year, there were 24.6 million Erica users. This year, there were 33.5 million.
As an example of consumer activity, the 178 million Zelle transactions that were “sent” in the quarter were much more than the 115 million checks that were sent.
Management also said on the call that the digital shift had helped the bank’s operating structure. Since the pandemic, Bank of America has had 387 fewer financial centers or branches than it does now. At the end of last year, the bank had just over 3,900 financial centers, down from more than 4,170 the year before.
Active mobile customers of J.P. Morgan rose by 9% to 49.7 million. A year ago, there were 4,788 branches, but now only 4,787.
Justifying Brick and Mortar Ops
During last week’s conference call, Wells Fargo’s CFO, Mike Santomassimo, said, “We continue to focus on branch rationalization digital adoption, and usage among our customers has steadily increased.”
At 4,598, the company had 3.7% fewer bank branches than it did a year ago. Wells said that it had 28.3 million active mobile customers, up 4% from the previous year, and that there had been 6.6 billion mobile logins.
Management talked about how attractive the recently announced digital banking platform Vantage is. Vantage uses AI and machine learning to give clients a “tailored” set of recommendations and insights. Santomassimo said that the bank would keep moving more applications to the cloud this year and merging data centers.
Citi’s active digital users grew by 6% to 25 million. Its active mobile users grew even faster, by 10%, to 18 million, while the number of branches went down by 1%. Digital deposits (at the end of the period) were up 21% to $24 billion, according to the filings. During the call, CEO Jane Fraser said that 80% of the bank’s customers used digital services. Management says the bank spent 13% more on technology than it did the previous year.
The digital shift must continue, making banks even more critical to the connected economy than just making transactions and building accounts. The end of 2017 showed that more than half of consumers trust banks to offer super apps, which are digital front doors that lead to various financial and non-financial channels. The more they use mobile and online banking services, the more trust they’ll have in those services.
