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Bank of America’s Future Is Digital, and It’s Now

Brian Chappatta

(Bloomberg Opinion) -- Bank of America Corp. likes to brag about its online and mobile banking capabilities. Just as it did at this time last year, the bank on Wednesday trumpeted its “leadership in high-tech” in its third-quarter earnings news release and boasted that it’s “No. 1 in mobile banking, online banking and digital sales functionality,” citing accolades from J.D. Power, Javelin and Dynatrace.

It’s true that the company’s number of active digital banking users has climbed 5% over the past year to 30 million and the number of active mobile users has increased by almost 11% to 28.7 million. Logins are up, the share of consumer mortgage applications coming from digital has doubled in the past year, and, at a time when banks are increasingly sensitive about costs, Bank of America has trimmed its number of branches by 1.9% to 4,302.

Fairly or unfairly, though, Bank of America is going to be compared with JPMorgan Chase & Co., which reported its third-quarter earnings 24 hours earlier. They are the two largest U.S. commercial banks, after all. And in the digital space, the hard numbers show JPMorgan is outpacing Bank of America.

Active digital customers? JPMorgan increased that number by 6.5% year-over-year, ahead of Bank of America’s 5%. Active mobile customers jumped 12.2% compared with 10.8%. JPMorgan even cut back on physical branches at a slightly faster clip. Both banks highlighted the increased use of the Zelle digital payment service, which they own along with other retail institutions like Citigroup Inc. and Wells Fargo & Co. 

None of this is to say Bank of America’s earnings were disappointing. To the contrary, its resilience on just about all fronts was nothing short of impressive. It scored the biggest jump in investment-banking fees on Wall Street, its advisory fees surpassed that of rivals, and both trading revenue and net interest income beat estimates. That all showed up in its share price, which soared more than 2% in an hour after the earnings release. And that was on top of a surge Tuesday on news that Warren Buffett’s Berkshire Hathaway Inc. is seeking permission from the Federal Reserve to potentially increase its stake in the bank to more than 10%.

Bank of America ought to use this widespread success and its strong market position among consumer banks to continue to invest in its digital and mobile capabilities to keep pace with JPMorgan and stay ahead of other peers. It’s hardly a stereotype to say that younger adults, millennials and Generation Z are consistently on their mobile phones and demand convenience from the companies they use. It’s what they know — filling out a deposit slip at a bank branch is most likely as foreign to some as sending a fax.

CEO Brian Moynihan seems to understand this. In a statement about the earnings, he said: “In a moderately growing economy, we focused on driving those things that are controllable. We made continued strong investments in our capabilities to serve customers, more relationship management teammates, more and refurbished branches and offices, and more digital capabilities.”

When every bank is facing questions about the Fed cutting interest rates and the global economy potentially slowing down, focusing on aspects of the core consumer business makes a lot of sense. As Chief Financial Officer Paul Donofrio noted on the earnings call, investing in a strong digital platform doesn’t just provide “ease of use, but also efficiency.” For example, he noted, 13% of traffic at its financial centers now comes from scheduled appointments, which allows the company to better staff those locations. Corporate treasurers are also looking for the same kind of convenience, Donofrio added.  

In JPMorgan’s second-quarter earnings call, CEO Jamie Dimon quipped that “fintech, of course, is always going to try to eat your lunch, and I think that’s good, that’s called American capitalism, and we have to stay on our toes to compete.” The same goes for competition among the biggest U.S. banks. Even in 2019, digital and mobile banking is still in a formative period.

Bank of America is in an enviable position along with JPMorgan. They both have taken big leaps forward in mobile and digital services and have the size to heavily invest now to ensure efficiency and security later. That’s the path Bank of America needs to take if it wants to continue to advertise its “No. 1” ranking in earnings reports to come.

To contact the author of this story: Brian Chappatta at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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