Bank of America Corporation (BAC) Earnings Call Transcript & Summary

Okay. Thanks, everyone, for joining. Up next is Bank of America, and with us today is David Tyrie, Head of Digital. David has a number of slides that he's going to go through, and then we're going to move to the Q&A portion of the presentation. So David, thanks so much for joining, and let me kick it over to you.

Matt, are you there?

I am. Can you hear me?

Okay. Now I can hear you.

Okay. All right. Thanks for your patience. Let's kick it over to you.

Okay. Terrific. Well, number one, thanks for having me. I thought I'd do a couple of things to kind of prime the pump here, Matt, and talk a little bit about maybe like the past 10 years or so and what we've been focused on at Bank of America on the digital front. Then I thought I'd transition in and talk a little bit about what we typically talk about, which are users. We talk about feature adoption. We talk about the numbers around the digital space. But I'd want to end with 2 additional things that we haven't really talked about. One was the expansion of digital beyond consumer and into the wealth management space, and Merrill Lynch and Private Bank and also onto the Global Banking side, Bank of America. Some interesting things going on there. And then what I thought would be, I'd end with a couple of future slides, maybe give you some ammunition first questions as we ask. So let me kind of dive in, and I'll move right along. So I think one of the key messages that I always try to deliver is that digital is nothing new at Bank of America. We've been doing this since Brian became CEO back in 2009-ish. And our focal point around that has always been in order to be a successful bank, we have got to continue to be focused around integrating digital into our business lines and simply being put, it's because it makes it easier, more convenient and safer for our customers to interact with us. So way back when Brian made a commitment that every year in and out, we'd be investing in the digital spectrum. And as you can see from this chart here, it shows kind of some progress that we've been making since 2015. We have officially crested 40 million-plus digitally active users. And when I say digitally active, I mean those users within the last 90 days who used our digital properties. We're now tracking at about 10 billion digital log-ins, and that's grown over that period of time about 100-some-odd percent. You'll notice, Matt, that our users isn't growing as fast as our digital log-ins. And what that tells you is that existing customers who are digitally active are using more and more of the features, and we can get into that in a little while. And then last but not least is, if you think about the evolution of the digital within a bank, first, it was migrating transaction behavior into the digital channel for all the obvious reasons. And then you start switching gears and going from the expense side of the ledger to the revenue side of the ledger. And one of our key metrics that we set up years ago was let's try to make sure that we can drive sales. So end-to-end sales with our customers. So leveraging digital to go direct to consumers, enabling them to develop a relationship with Bank of America, and we're now at about 50% of all the consumer sales are digital or digitally assisted. So you can see the giant increase there. When I talk about Brian's commitment to the digital space, we'll make one point, down underneath the axis, the X axis there, you'll see those are just icons of all the different kind of features that we have been developing over the years. We're now unleashing about 2,000-plus feature and enhancements to our digital properties every year, 2,000. And we have migrated away from a traditional bank approach of doing a digital release once a quarter to now we do them every 28 to 32 days. And so we've really kind of transitioned away from an older school mentality to kind of the new world. It's really made a big change, right? If you take a look at 2015, it was all about online. Mobile was just starting to come into vogue. Functionality was limited at that stage. And if you look down the left-hand side of this grid I created for you, Matt, you can see all of things we didn't even have in 2015, from P2P payments with Zelle, there was no such thing as Erica back then. Even basics like budgeting tools and the ability to do things that you used to have to walk into a financial center for like financial currency orders and making sure that you're onboarded the right way. All of those things weren't even in existence. And now we have a strategy of 1 mobile app that enhouses everything. So think of it as a super app within Bank of America. It has all products, it has all functionality. And the most important thing is it's connected to our high-touch channels. So we're not professing that this is -- it's digital 100% of the time. Is digital 100% of the time our customers want it to be? And if they want it to be high-touch, we can give that, and it's a seamless experience. I show you this 1 stat, and this is specifically for you, Matt, at the bottom, which is we have 15 billion, 15 billion annual client interactions at Bank of America's consumer business. And back in '15, by my calculations, about 66% of those were digital or automated. That means digital ATM machines, IVRs, et cetera. And now we're almost at 85% of all of our interactions are digital. So it changes the meaning of what your focus in digital is and how you're focused on delivering for end customers on that side. So let me quickly transition over here, and let me go back one. I thought this was also interesting, Matt, which was the pandemic really changed behavior. You hear that all the time. But what I would submit to you and the folks listening to this is that my observation pre-pandemic, when people ask me about digital adoption by generation, I used to say it was just different pace. Think about it. If you're a new to bank customer, whether it's Bank of America or any other customer or other bank, what happens is you're engaging with that bank, and right then and there, as you're opening the account, you're learning all the features and functionalities and the benefits, the so-called value proposition is put right in front of you. So you're going to adopt all these kind of capabilities much faster as you come into the relationship. Whereas if you've been a customer of a bank for 10 or 15 years, you've developed habits. And the key there is trying to drive adoption. So making people aware of actually what capabilities are there. I always give the example of my mom who's a kindergarten -- owns a kindergarten forever. She was -- every Friday, she take her weekly tuition payments down to the local Bank of America Financial Center, say hi to the person, deposit them and then head home. And now that -- when the pandemic hit, it's now mobile check deposit. So it actually forced a behavior change. But what you can see is the pace increased -- reincreased for seniors and baby boomers faster than any other of the generation. So that's one takeaway that we might want to dive into a little bit later on. The other thing that is a really important learning, and Lee McEntire and I always talk about this, which is disclosure of our data when it comes to digital. And I think we're one of the most forward thinking and advanced players when it comes to data because it tells you everything. And this is a new one that I'm introducing here, Matt. We've been using it internally for quite some time. But this is the first time we've actually gone and talked outside of the 4 walls of Bank of America with it, which is the industry standard is actually digitally active users, those 90 days and how many people have used it. Well, one of the things that we are really focused on is household penetration. So Matt, if you've got 5 people in your household, what you can then do is say, okay, well, maybe Matt's the one who's doing all of the banking in the household. And even though there's 4 other accounts, let's wrap it up and see who's managing that household. That's a really important point to focus on when you're thinking about a customer holistically. And at Bank of America, when you take a look at it, we have, roughly speaking, 74% are -- actually, in this case, 70% of our household penetrations across all segments. So for example, if you take a look at it, you have our retail segment, which is at 64%, but that's skewed a little bit because we have a whole bunch of customers in the retail space who only have a credit card with us. And their digital activity is much less, for obvious reasons. But if you look at our mainstay business lines: preferred, small business, Merrill Lynch, Private Bank and even Global Banking, which is coming on, you're in the 80% range. So that means 8 out of 10 households that are banking with Bank of America are actually digitally active. So it really changes, and that's growing quickly. Another one for us to dive into later, Matt. This is a staple when I talk about digital because the theory is that it doesn't do you any good to have a lot of digital users. It does you good from a business perspective to have users who are using your features. So we very early on coined our focus as digital adoption and usage. And if you take a look at some of this, you'll see things like Zelle, you'll see highlighted, Erica, even things like mobile check deposits. All of those individual features, we have people who are focused exclusively on trying to make our customers, the 40 million people who are in there, the 52 million people who are actually digital customers. So let me pause there for a second and explain the difference. 40 million-plus who use it within 90 days, 52 million who have a password and ID, right? So there's a 12 million delta that they're not using it in 90 days. They might be using it in 95 days or whatever it may be. Excuse me for a second, Matt, the light went off here. And so for us, it's around focusing on the feature adoption because when we learned that 14 million customers are using Zelle, and we've driven that, we're the highest adoption of Zelle amongst all the banks. We've been most aggressive about making our customers aware of it. But we're also aggressive about learning once they do, do the adoption, what's the benefit to Bank of America? So here's a stat for you. Of the 14 million customers that are -- have adopted Zelle, 75% of those customers no longer write checks, 0 checks. And the other 25% of those reduced the amount of checks that they write from 5 down to 2. So think about the benefits of that to a place like Bank of America with size and scale. And virtually every feature has that kind of focus behind it to drive the adoption rate. This is a standard in our earnings. I'm just going to focus on 3 of these slides because you've seen it. If we need to, we can go back to it later, Matt. But I would like to point out the first chart in the upper left-hand side. We had a very big first quarter of 2021. As you can see from this, we added roughly 1 million customers in the first quarter. So if you went back to our earnings call in December, we had roughly 1 million less than the first quarter that we had. So it was a very big first quarter, and that was driven by really renewed marketing and focus of driving adoption. And you'll start seeing our rate of customers and penetration continue to be driven up. However, what you'll also see is that we're at that threshold of 80% of all households are digitally active. So there's only so much more room that we can get to. The second point is, I'd like to point out, is the Erica chart right underneath of it. There was a massive increase from first quarter '20 to first quarter '21. There are 3 phases of Erica. There's the phase that we started off with, which was much more of an if-then statement. If Matt, you asked for Erica to give you your balance, she will give it back to you. Then phase 2 became you saying, Erica, please Zelle David $20. So it actually carrying out an activity. And now we're into the third stage where we're actually creating what we call insights. So now Erica is looking at you as an individual and making suggestions. "David, take a look -- you might want to look at your spending this month because you're spending more than you did last month. We don't want you to overdraft." Or, "David, you can improve your credit card score by doing X, Y and Z." So these insights are what really are driving digital engagement. And the satisfaction scores with customers are really on the rise because of that. And then the last thing I'd want to point out is the lower right-hand side, digital transactions by channel. We really hit a big milestone in the first quarter where we went over 85% of all of our deposits are now being done through the mobile check deposit, mobile app or the ATM machines. So that is a major number for us. Okay. So I'm just going to hit the highlights here, Matt. As you know, we started our focus around the consumer business in digital. We have now expanded out and are focused, same capabilities and same construct in the wealth management space. So the things that stay the same are clients wanting ease, convenience and safety. Clients wanting to have relevant and timely information presented and clients wanting to always understand what's the best next step for them. But It's also -- there's a tweak on it, and I'll give you a couple. So we have 4 major building blocks as we look at the wealth management space and how we're digitizing. The first is everything we just talked about, which is driving online and mobile adoption. And you can see by some of the stats here, numbers are really positive. Those are all lessons learned from our consumer business being applied over in the Merrill Lynch and the Private Bank side of things. Number 2 is, there are different ways that clients are looking for interactions. So remember, in the wealth management space, we have essentially an intermediary in the form of a financial adviser. And so what becomes critically important in our digital efforts here are things like e-signature processes, much higher net worth individuals, a lot of documents being passed back and forth. So digitizing those has become a really important thing, and it makes a huge impact not only on the advisers' book of business because they're more effective and efficient, but also that ease and convenience for our customers. Same thing when you think about the ability to have memorialize all your conversations when they're being done through this exchange, the messaging exchange, you have a running history of it as well. And customers really like that piece of it. The second last piece I'd point out is that we have to focus on modernizing the tools and capabilities specific for financial advisers. One that I'd point out here is something we call, My Financial Picture. So that's essentially the ability for our customers, Merrill Lynch customers, Private Bank customers, to go in. We know that they don't have 100% of their relationship here at Bank of America, but to actually use our aggregation capabilities pull outside assets in, then share those with our advisers so that you have a better financial picture and a better plan of action across the board. We just launched the full spectrum. So you as a Merrill Lynch customer, Private Bank customer, can go in, and no matter where your assets are, we can aggregate those together in the digital space. Since November of last year, the clients that are using that capability have shared $180 billion of outside assets with their financial advisers. So it gives them a much, much more holistic picture. And all 3 of these things have really kind of wrapped up And we're starting now to start getting recognized for these efforts, whether it be Wealthmanagement.com or Celent awards, et cetera, et cetera, and those will continue as we move forward. So I know time is running short here, Matt, and we want to get into some questions. Let me just hit the last 3 slides. Same picture on our global banking side of things. The difference here is you're not dealing with an end customer. You're dealing with an end customer who happens to be representing a business. And so we're using the same basic building blocks, same user interface design, skills, the same strategy skills, the same adoption skills, and we're applying it to businesses. And when you start doing that, you're starting to see some pretty significant results. So we're growing the digitally active client base there. We're now starting to marry in the transaction-based capabilities, a great example of we've increased the number of global digital disbursements by 35% in 1 year. You can see the check deposits now are starting to go through the roof at over almost 100% increase. And when we talk about payment approvals, automation of these business owners, we're looking at $211 billion worth of approvals. So that's making it easier, more convenient for those business owners to actually not be manually processing but just simply approving in the digital space. So some good work being done there, early stages, but we're making really good early progress. Okay. Last 2 slides. One, I would be remiss if I didn't talk about what we're actually solving for, right? What we are solving for is: one, Bank of America digital client experience. In the past, we had mobile applications for each of the lines of business. And we now have advanced technology that allows us to actually, no matter what line of business you're coming in through, log into 1 app and then we create a personalized experience that is tailored to you. So a couple of years from now, we will end up be focusing 100% of all of our efforts will be done once as opposed to having 1 stand-alone version of Zelle for small business banking, 1 stand-alone version of Zelle for Merrill Lynch, 1 for our consumer banks. It's actually 1 version used across the entire enterprise. So tremendous efficiencies that are there, plus it creates a better experience for our customers because as their lives change, we can then direct them to the right capabilities, the right, as Lee always calls, right high-tech channels. And it doesn't matter if you're a mass market customer or an ultra-high net worth customer, it works. And it's that vision that really allows us, at the end of the day, to be seeing already with a long way to go, client loyalty scores going up, relationship deepening, actually improving, and the efficiency, just pure operating efficiency improving as well. I'm going to end with one provocative slide for you, Matt, and it's an example of a new capability. Back in October, we launched what we call Life Plan. And people misunderstood it. People thought, okay, this is another investment planning tool, where I can input risk and return and it'll give me a portfolio allocation. It does none of that. What Life Plan allows you to do is go in and tell Bank of America, what's important to you. Is it home? Is it family? Is it health? Whatever it may be, we have 7 life priorities. We can go into a little bit more detail, but what's important to you. And then once We understand what's important to you, we will actually assemble content, think of personalization coming into play, that is relevant to you around that. So gone are the days where you have static application or an online site where you have to navigate through. What Life Plan does is it assembles everything for you, gives you a choice of what next best steps are, but also gives you and lets you set up goals. So one of the most highly used features here is -- and as you can imagine, millennials and Gen Xs make up about 63% of the 4 million. This says 3.2 million, but we're actually over 4 million life plans now. When we look at those customers, things like budgeting and starting savings and improving their credit. What happens is they come in and for the very first time, they're not researching. Oh, okay, improving credit is an important thing. It pulls it back up and says, here are the 10 things you should do to improve your credit. So very, very dynamic across the board. And we've got high hopes for this being a critical part of how we personalize. And the reason being is it's the first instance I've seen commercially, where you're not leveraging data that is rearview mirror-looking, transaction-based data. This is actually asking a customer for what their aspirations are and then giving them a return with a better experience. Well, based on that, we can better understand our customers. So the beauty of this is that it's very early stages. But since October, the customers who have engaged with us on Life Plan, their assets have grown by 14%. So that really is making a difference, and we can get to other info after that. So Matt, that's it for me. I'll close with that and open it up for any kind of questions you may have.

Well, that was a great overview, especially helpful touching across the firm, seeing how digital helps a number of businesses. So one follow-up on Slide 7, you highlighted how about half of all sales were digital.

Hey, Matt, I can't hear you. Sorry about that.

Operator?

I just heard that. Now I can hear you.

Now you can hear me? Okay. So I want to follow up on the sales -- hello, Dave?

Yes, I can't hear you either, Matt. Every once in a while, I can.