Bank of America ends 2020 with rising digital engagement despite squeezed margins

  • The bank countered lower-than-expected Q4 2020 earnings with rising digital engagement.
  • And its digital sales and Erica engagement in particular should buoy it into the new year.
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The second-largest US bank by assets posted $20.1 billion in revenues in Q4 2020, down 10% year over year (YoY), as interest rate cuts and tempered demand for consumer loans throughout 2020 squeezed margins, according to The Wall Street Journal.

Growth in digital and mobile consumer banking users slowed from previous quarters for Bank of America (BofA). Digital banking users grew just 3% YoY to reach 39.3 million, matching Q3 2020's rate. And mobile users grew 6% to 30.8 million, versus 7% in the previous quarter.

This suggests BofA is nearing a saturation point when it comes to new digital user growth and will need to shift its attention to engagement, which it's been doing successfully thus far: It saw 2.4 billion digital banking logins in Q4, up from 2.3 billion in the previous quarter.

Drilling deeper into BofA's engagement stats, two areas in particular could steer the bank into a stronger 20:

  • Digital sales accounted for 45% of all consumer banking sales. Digital sales across product lines have become critical to banks' growth throughout the pandemic. BofA—and its peers—has been squeezed by the Fed slashing interest rates and by growing deposits that outstrip growth in its loan book. But despite less exposure to customers through branches in the last year, BofA has an enormous addressable market in its active digital users that it's seemingly tapping into: Digital sales are up considerably from 29% in Q4 2019.
  • Fifty-eight percent of total interactions with BofA's two-and-a-half-year-old Erica virtual assistant took place in 2020, proving the pandemic's role in new product discovery. Banks have seen engagement with certain digital tools in the past year as necessity—due to closed branches—and convenience drove spikes in digital banking usage. Erica was one such tool: The virtual assistant reached 17.2 million users in Q4 2020, up 67% annually. Already equipped to assist with budgeting, Erica likely became an especially attractive option as customers sought digital tools to them grapple with the fallout of the pandemic. BofA then took Erica's usefulness a step further, enabling the assistant to recognize 60,000 pandemic-related terms and inquiries, while also upgrading it to provide information on Merrill Lynch portfolio balances and trading activity. The result was record Erica engagement, proving that with the addition of relevant features and effective marketing, virtual assistants could be a significant value-add for bank customers—or at the very least pique their interest.

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