How BofA Is Driving to be ‘Local’ in More Markets
BofA regional bank chief Dean Athanasia explains how branching, digital banking, business banking and wealth management work together as the bank pushes to become the top bank in each market it plays in.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
Just what does it mean when the nation’s second-largest bank says "We want to be local"?
Dean Athanasia, president of regional banking at Bank of America, said that was his ambition during a recent fireside chat session with Morgan Stanley analyst Betsy Graseck. At first glance, it seems like a surprising aspiration for a bank that has striven to cover the U.S. from coast to coast.
What Athanasia meant was that BofA aims for local relevance in the 97 U.S. markets the bank currently serves. That’s achieved through the "billboard" impact of physical branches, while deploying a plethora of expertise and services by humans, aided by Erica, the bank’s virtual assistant.
Athanasia, formerly head of retail banking, now oversees four of BofA’s eight major business lines, including retail banking, preferred and small business banking, business banking, and global commercial banking. In his conversation with Graseck he described his goal to push aspects of all those segments through the branch and through BofA’s state of the art digital channels, whenever and wherever possible.
"We can compete against the regional banks because we’re local and we have all those resources and we can bring them to bear in those markets. And then we compete with our peers because of that coordination within those markets. And with wealth management on top of it, it gives us a leg up."
— Dean Athanasia, Bank of America
He said that the bank’s goal is to "leverage all things that would add to client acquisition," putting BofA head-to-head with regional banks that will struggle to match the investments the national bank has been making.
In the course of the June analyst interview, Athanasia gave some fresh insight on BofA’s branching initiative, provided an update on Erica, covered the latest on the bank’s rapidly growing Employee Banking and Investments program, and reviewed consumer and business lending trends.
Understanding Bank of America’s Branching Strategy
Underlying everything about BofA’s branching strategy is the goal of being #1 or #2 in each market, according to Athanasia. He said the bank’s market share throughout its system ranges from 27% to as high as 62%. Athanasia said out of the top 30 markets in the U.S., there are six or seven where the bank isn’t in first or second place, "and my team knows that."
"We’ve got to be local. We’ve got to be present to get our brand out there. We will put financial centers where they will add value and we’ll do it efficiently," he said. "We’re constantly reevaluating the network and making sure we’re covering markets we’re not [already] in," said Athanasia.
A key point: Athanasia noted, "Once we get a presence in a market, digital sales double." Conversely, he said, people who already bank digitally with BofA welcome the opportunity to visit local financial centers.
The bank has 3,800 branches now but at one point had 6,000. Athanasia said the bank’s network was at "a stable range" now.
However, longer term, as younger customers come to dominate banks’ bases, Athanasia said "the [industry] branch counts will be down. Younger people need a base and a core structure to see the entity and they need to know it’s there, but they will transact digitally."
Over time, he predicted, the industry could have 10%-15% fewer branches. But he added that "that’s an industry thing versus a Bank of America thing."
New BofA markets include Pittsburgh, Penn.; Cincinnati, Cleveland and Columbus, Ohio; Lexington, Ky.; Colorado Springs and Fort Collins, Colo.; and Salt Lake City in Utah. Nine additional markets targeted between now and 2026 include Omaha, Neb.; Boise, Idaho; Louisville, Ky.; Madison and Milwaukee, Wis.; Birmingham and Huntsville, Ala.; Dayton, Ohio; and New Orleans, La.
Athanasia explained that new branches are expected to begin producing market share gains from day 1, in part as a result of connections with customers of business lines that are already represented in the market. These lines include Merrill and BofA’s private bank, as well as business banking and commercial banking functions. Referrals from one line to another are key. Athanasia said the bank had over 8.4 million referrals internally in 2023.
Actual profitability for a new branch takes from three to four years, according to Athanasia.
Read more about branching strategy:
Growing Erica Adds Business Service and New Functions
BofA’s Erica AI-powered virtual assistant, launched in mid-2018, now has over 19 million users nationwide, according to Athanasia. BofA indicated in its first quarter earnings presentation that since the launch Erica has had over 2 billion interactions with users.
For the first quarter interactions with Erica hit 170.6 million, versus 105.6 million in the first quarter 2021 — an increase of 61.5% in the quarterly rate. The first quarter total represents a 2.3% increase over the first quarter of 2023, indicating a leveling off in the near term.
Graseck asked the banker if Erica, six years in, was being fully utilized or if there was more for it to do.
"No, we operate on continuous growth there," said Athanasia. "We find new things for Erica to do." He said BofA’s digital team studies queries that Erica can’t handle.
Banking at Erica Speed:
Bank of America claims that for 98% of users Erica provides answers in an average of 44 seconds.
"We’re looking at different ways that you might have asked that question than she never had seen before. So Erica keeps learning and doing better," said Athanasia. He added that new features are added to Erica or the bank’s digital apps every month. BofA has reported that 50,000 updates have been made to Erica since inception, including adjustments, expansions and fine-tuning.
One example is the expansion of Erica to business-side users. Athanasia said that the bank has 7,000 Erica users from among its corporate and business banking customer bases. This includes the bank’s CashPro platform, used by corporate and commercial clients to manage treasury, trade and credit operations, which commenced last August. Athanasia said this expansion for Erica was beginning to drive down the manual interactions that BofA business bankers had engaged in, which either removes or avoids staff costs.
Read more: How Virtual Assistants Take Mobile Banking Apps to the Next Level
Employee Banking Volume Keeps Growing
A joint effort between Athanasia’s consumer banking team and his business banking team is the Employee Banking and Investments program. The program provides employees of large and medium-sized companies served by BofA with access to the bank’s consumer banking and retail investment services — with special advantages.
This includes automatic access to the gold tier of BofA’s Preferred Rewards program. This entails fee waivers or discounts on selected banking and investment services, higher rewards on purchases and card program, discounts on certain loan rates and fees, and higher savings rates. Normally the gold tier, the first of four levels offered, requires at least a $20,000 combined average balance over a three-month period to qualify.
Earlier this year, Bank of America announced that company enrollment levels had doubled from two years ago. Athanasia said that the program, which launched in 2020, now has over 400 companies enrolled, representing six million employee signups. He gave this as an example of synergies available across banking functions, something that is accentuated when BofA enters a new market in its branch expansion effort. Athanasia noted that the bank has 10,000 commercial clients that have yet to bring employees into the fold.
Read more: How to Retool Bank-at-Work for Today’s Employees and Employers
BofA’s Assessment of Loan Demand by Sector
Graseck asked Athanasia about the outlook in several key business lines. Here’s his take area by area:
• Consumer credit: "The consumer is still very healthy, as I see it, " said Athanasia. "They’ve got 23% more funds in their checking accounts as a unit than they had pre-pandemic and then more savings on top of that." (For another perspective on why this may not be a good thing, see this analysis by the St. Louis Federal Reserve Bank.) LINK: https://fredblog.stlouisfed.org/2024/03/recent-developments-in-bank-deposits/
As a result, he said, they are spending very consistently, though not at as high a rate as in 2023. Use of credit cards is normalizing and revolving of balances is rising and spending on debit cards is rising relative to credit cards. More spending is going downmarket, in discount stores and the like.
Graseck specifically asked about home equity lines of credit, because of the rate advantage they present over unsecured consumer credit lines. Athanasia said that most such loans are used for home improvement. "That activity has not picked up as high as it was. I see a low level and OK demand," he said. "It will grow a little bit, but I don’t see outsized demand there at all."
• Business credit: Athanasia said he’s seen more demand for business lending from smaller companies than among the largest. Small business loans are trending as much as 9% over 2023 levels. Middle market borrowers have been reemerging, result in growth between 4%-5% year over year. Among the largest corporations served, the growth rate has fallen, reflecting their ability to tap capital markets directly.
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