When Bank of America’s Brian Moynihan talks about bringing fintech firms into “the tent,” he isn’t talking about inviting the folks of Silicon Valley, New York’s Silicon Alley, London, and elsewhere into BofA headquarters for a management retreat. He’s talking about equal regulation.
Regulation makes a lot of people in banking roll their eyes and groan, but Moynihan saw from firsthand experience during the financial crisis the results of untethered financial innovation. It nearly brought down the entire financial system. The former lawyer is concerned that some of the same seeds are being sown again.
One of Moynihan’s concerns is that the widespread expansion of fintech competition has created new classes of players only partially covered by regulation, or not at all, as they go head-to-head with traditional players.
“Not being in the tent as a fintech company today is no better than not being in the tent as a broker-dealer” pre-crisis, says Moynihan.
The BofA leader doesn’t use regulation as an excuse to not innovate. Traditional players need to find ways to be “as efficient, as secure, as fast, as accessible, and as cost-effective for our consumers” as fintechs and other new competitors are, he states.
This reality keeps Moynihan energized to keep BofA moving forward, as he believes all traditional institutions must. “We need to close the gaps that start to emerge when new players start to come in,” he explained at a Consumer Bankers Association event. “Usually it means that they are understanding some customer demand better than we are.”
Yet, “they are threats that we can handle,” Moynihan added. Asked by an interviewer how he felt about the teamup of Apple and Goldman Sach’s Marcus, he observed that “they are a threat to us, but everybody’s a threat to us.”
Paranoia isn’t his style — continuing preparation is. Over the last decade, BofA has invested between $2.5 and $3 billion annually in coding, he frequently says in industry speeches and interviews. He regards this spending as essential to maintaining BofA’s status.
“We’re a technology company, wrapped around a great bank, and that’s going to be the future of what we do,” Moynihan insists. “And that’s because our customers demand it.”
Maintaining superior tech represents an essential differentiation factor for BofA. Moynihan explains that the spending goes into maintaining efficiency, upgrading and modifying existing approaches, and adding on brand-new features and functionality to stay ahead of the curve.
That’s just a taste of what BofA does to maintain the tech edge. The company works with a consortium that mentors fintech startups in New York, for example, and the company sponsors its own technology conference as a means of finding potential tech allies.
Moynihan was asked by an interviewer at the CBA event about the various models that BofA could adopt as fintech becomes more tightly wound up with traditional players. He allowed that the company would consider many approaches, but added that he resisted one that other banks have chosen: becoming the all-but-invisible banking engine behind a fintech’s “banking” services, especially if it involved taking on assets originated by others. Typically notice of such arrangements appears on disclosure pages, in footnotes, or way at the bottom of a web home page. To the public there is no bank equivalent of the “Intel Inside” branding that the chip maker uses to make its presence known.
Why the resistance? Thinking back on the post-crisis period, Moynihan answers, “We learned a lot of lessons about not having the direct customer relationship.”
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Climbing Out of the Recessionary Crater
Arrangements like that were among the causes of some of the problems that culminated in the crisis. When Moynihan stepped into the top job at BofA in 2010, he inherited a fearsome set of challenges. He feels that some of the talk during that period was irresponsible and inaccurate, especially out of some parties in Washington. On the other hand, due to the centrality and importance of banking to the U.S., he believes the government had the right to step in the way it did during the crisis.
“From an aggressive growth for growth’s sake mentality, Moynihan pushed BofA to adopt and formalize an attitude he dubbed ‘responsible growth’.”
Earlier on in his career, there was little that would have indicated that Moynihan would someday find himself at the helm of a megabank working its way out of bad credits and litigation left by the crisis, and finding a new path to success. Moynihan is an attorney — he’s a graduate of Notre Dame Law School — and not a banker by background.
His path changed when, as an outside attorney he helped Fleet buy Bank of New England from FDIC in the early 1990s. Fleet was on an aggressive buying campaign, and its CEO, Terrence Murray, impressed by Moynihan, brought him aboard. However, Moynihan never did any legal work there. His first project consisted of heading the reengineering of Fleet. In 2004 BofA acquired Fleet and six years later Moynihan became CEO.
The cleanup and turnaround of such as huge bank took time. Analysts and large investors often complained about the lack of progress, but most everyone likes the results now. Moynihan gives much credit to the teams working under him for the quality of the cleanup, but he’s now credited for much of the spirit behind that success. A key point that he speaks of a great deal is the shift of BofA’s culture. From an aggressive growth for growth’s sake mentality, he pushed the organization to adopt and formalize an attitude he dubbed “responsible growth.” The intent is to avoid a repeat of the last mega-dip.
“When the next recession hits, we’ll come through it better than anybody else,” Moynihan declares. In recent years BofA has been riding high, though Moynihan seems as proud of preparing the huge bank for today’s tech-driven competition than for the turnaround.
Over the course of his tenure, BofA has had the help of Warren Buffet who at a critical point put $5 billion in preferred stock into the company during the cleanup period. Later, Buffet bought more shares at market prices. The investor now owns about 9% of BofA.
“He’s been a great supporter of the company, and he sees the value of it,” says Moynihan. “It was really important at the time.”
“If you take any solace in what happened yesterday, you won’t be ready for tomorrow.”
— Brian Moynihan, Bank of America
The banker didn’t think the bank actually required additional capital. However, he explains, “it was not a mathematical need but an emotional need. You needed someone to say, ‘This company has something’.”
Even now, out of the woods, Moynihan believes a little praise goes a long way. “The words I use with my team about the turnaround is ‘Nice start’,” says Moynihan. “If you take any solace in what happened yesterday, you won’t be ready for tomorrow.”
Indeed, as high as Moynihan has risen in banking, he tends to pokes fun at himself with off-the-cuff remarks at industry appearances. Asked some questions about personal tech, he admitted at one event that he still carries a Blackberry, and not because of the company’s vaunted security measures.
“After 20 years of typing on it, I don’t want to learn how to use those non-touch keyboards,” Moynihan admitted. Turning to his host, he added, “I’m one of the few people who still carries a Blackberry, so thanks for embarrassing me.”
Another story he tells on himself is about his visiting a branch shortly after he’d stepped into the top job. He greeted an employee who was reading a book at his desk. “I’m Brian Moynihan,” he said. “Good to meet you, Mr. Moynihan,” the banker answered, and then he returned to his book.
That branch was later sold, says Moynihan, but for strategic reasons, and not to do with his poor reception.
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Innovation and Banking aren’t Strangers at All
Naysaying the types who run banks down as stodgy old has-beens, Moynihan believes that the industry has sometimes not only been up to date, but actually ahead of what consumers were really looking for at the time. He points to the days when AOL was the state of the art, and institutions were introducing “home banking” service. The uptake was often slow, especially when it took $2,000 to buy a basic PC.
“What changed things was the smartphone,” says Moynihan. Suddenly being digitally connected to your financial institution didn’t cost nearly so much.
“We want a cashless society. It costs BofA $5 billion a year to move checks and cash around our company. We have more to gain than anybody.”
— Brian Moynihan, Bank of America
Deciding what technology to deliver to the public — and when — hinges on “doability,” according to Moynihan. Speaking at the Fortune Brainstorm Finance Conference in 2019, the banker explained that “there are lots of things that sound interesting, but you have to scale it across the platforms.” Just being cool isn’t enough to make it over Moynihan’s threshold.
And even when an idea passes muster, Moynihan added, a key ingredient is time and patience. BofA’s Erica chatbot has been doing well, passing 7 million active users, he explained. However, that’s still early days in his mind. “We have to get across 20 or 30 million users,” he said.
Innovation in banking isn’t always about matching what the fintechs come up with. In a fireside chat before the Economic Club of Washington, D.C., Moynihan pointed to online lenders as an example.
“We realized we were taking 20 days to do our underwriting,” said Moynihan. “Now, we’re not going to do it in 20 minutes, because we don’t think that’s wise. But what if we did it in two days? So, we were able to rearrange our processes for the smaller loans to do it faster. And, you know, our loans have been growing fine.”
For those who scoff at the banking industry’s tech prowess, Moynihan points to the increasingly efficient banking payments system, boosted by the industry’s own Zelle person-to-person payment platform. Moynihan points out that Zelle has already passed Venmo in volume, and additional work on faster payments by The Clearing House will improve things further.
He suggests that scoffers consider this: “We want a cashless society. It costs BofA $5 billion a year to move checks and cash around our company. We have more to gain than anybody.”
And this: “We have more blockchain patents than anybody else does.”
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Branches in Transition, Not Extinction
It’s a funny thing, for all the talk about the day of the branch being over, the top two banks in the country agree on one thing: There’s lots of life in branches yet, so it pays to build more of them.
Over the next 24 hours, Moynihan said at an industry event, “800,000 people are going to walk into our branches. So we are a high-tech, high-touch business.”
“It used to be that you had to pull the toughest questions out of the branch. You tried to answer them through a centralized function where the expertise was located. You have to flip that now because of self-service.”
— Brian Moynihan, Bank of America
Of course, the smartphone has changed the branch’s role, continues Moynihan. At BofA, 75% of deposits now come through tech channels like mobile remote capture — and even more could come using those channels, he explains.
As a result, the role of the branch has been changing. With technology taking transactions out of branches, what keeps bringing people in is the need for advice.
“The branches don’t look like they used to,” said Moynihan. “There are fewer tellers, and there’s a lot more automation in them. But more importantly, there’s a lot more sales people there now, answering the toughest questions.”
Essentially, the mobile device has turned the branch’s purpose on its head, he explained
“It used to be that you had to pull the toughest questions out of the branch,” said Moynihan. “You tried to answer them through a centralized function where the expertise was located. You have to flip that now because of self-service. All the tough questions are being pushed out to the furthest nodes, because those matters have to be handled face-to-face.”
As a result of this trend, Moynihan said, BofA branches are actually becoming larger in some cases, as they are renovated, and can be situated further apart. The reasoning is two-fold. First, you have to house more expertise closer to the consumer — more seating for more meetings. Second, the need for geographical convenience isn’t as strong because people don’t have burning questions every week. So a trip to a branch for help on a question isn’t as big a deal.
For BofA itself, the big appeal of opening new branches is growth. The bank has announced plans to open new offices in a number of major cities where it had no branches before. But Moynihan and company aren’t just sticking pins in new places on the U.S. map.
Pittsburgh serves as an example of the reasoning behind the strategy. Moynihan said that the company already had a quarter of a million customers in the city through business lines that didn’t require a physical presence, which it didn’t have. A huge base like that can be built on, but Moynihan believes that it requires coming in and building a branch network underneath, so to speak.
“We’re going to the largest cities where we have a lot of customers,” said Moynihan.
Throughout the system, Moynihan said, BofA is looking for “optimized presence.” That entails renovations, closures, new branches, and many more advanced ATMs, all to refocus what staffers do for customers.
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America’s Biggest Millennial-Only Bank?
Periodically analysts and others razz BofA about Millennials, in spite of its technological prowess, because of its reliance on brick and mortar. Moynihan typically counters, look to the record.
He works out the numbers convincingly: “The Millennial population in the U.S. is about 20% of the total population. About 40% of our accounts opened each quarter are opened by Millennials. Our Millennial customers have checking account balances with us of about $140 to $150 billion.” That’s twice the rate that Millennials represent in the country.
That’s just deposits. In a July 2019 interview with CNBC’s Jim Cramer, a fan of BofA, Moynihan fleshed out the picture further. He noted that Millennials have $200 billion in investments, deposits and loans with BofA.
“If we were a Millennial-only bank we would be one of the biggest banks in the country,” says Moynihan.