The COVID-19 pandemic has forever changed the banking industry. According to the Federal Depository Insurance Corporation, the three largest banks in the U.S. are Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), and JPMorgan Chase & Co. (JPM), with total assets of more than $6.5 trillion. These three banks, along with other U.S. banks, are streamlining their businesses to better serve consumers and businesses, and also ensure profitability.
Banks Refocus and Restructure
Wells Fargo, for example, has sold their asset management unit to a private equity firm for $2.1 billion. The sale is one of the biggest shake-ups at Wells Fargo in light of the pandemic. CEO Charlie Scharf’s strategy has been to refocus and reshape the bank in light of recent scandals and the COVID-19 pandemic. In 2020, the bank sold its private student loan portfolio.
Wells Fargo had its worst second quarter since the 2008 financial crisis, laid off thousands of employees, and closed numerous retail bank branches across the U.S. The elimination of additional company divisions is planned in the coming fiscal quarters to maximize shareholder wealth. Due to the pandemic and fiscal shortfalls in 2020, Scharf received a pay cut in salary and bonuses, which has become a common occurrence among bank CEOs.
The Calculated Shift Toward Digital Banking
Several of the larger U.S. banks will continue to streamline their operations to meet the needs of consumers and businesses. Banks have shifted toward digital banking to meet the need of consumers and businesses. Digital banking allows consumers and businesses to manage their finances through mobile and online banking (i.e., cell phones, computers, and iPads). Digital banking increases customer convenience through online options, and the inclusion of advanced information technologies optimizes operating speed and efficiency, adding to overall customer satisfaction in a bank’s financial services.
Some banks were more prepared than others to meet consumer and business needs when the pandemic hit. Bank of America’s consumer banking makes up the most considerable portion of their business, and the bank subscribes to the bricks-and-clicks (click-and-mortar) business model through its online operations combined with non-online procedures. Bank of America’s website and mobile banking apps allow consumers and businesses to access financial services online.
The Bank of American business model has afforded the company a competitive advantage through digital banking operations. Financial market gurus, such as Mad Money’s Jim Cramer, say that Bank of America has been in the forefront of digital banking for years. For example, the bank launched their app, called Erica, in 2018. Erica is a virtual assistant that can answer a wide range of financial questions and allows consumers and businesses to book an appointment with bankers.
Many banks provided digital banking services to consumers and businesses prior to the COVID-19 pandemic; however, the need for the services was brought to light once the pandemic shut down the economy and the banking industry as a whole. Now, more and more banks are offering services to educate customers on digital banking options. For example, banks are informing consumers and businesses about mobile and online banking features such as:
- ATM cash and check deposits
- Mobile app deposits
- Mobile and online security account alerts
- Direct and bill pay services
- Contactless pay and digital wallets (i.e., Apple Pay; PayPal; Samsung Pay; Google Pay; Venmo)
- Zelle® (request, receive, and send money to friends and family)
- Biometric security features (i.e., digital fingerprint; facial recognition)
JPMorgan Chase & Co., the largest bank in the U.S., has continued to provide innovative strategies to meet consumers’ and small businesses’ needs. In the fall of 2020, Chase launched Chase First Banking in conjunction with start-up fintech company Greenlight to provide families with a mobile app to meet the needs of young consumers. The company also introduced Chase Business Complete Banking with QuickAccept to meet the mobile banking needs of small businesses.
It may be safe to say that all banks have been forced to assess their business models during the COVID-19 pandemic. Many have adapted and implemented strategies and policies to meet consumer and business digital banking needs. Those banks who do not could potentially be acquired by other banks or might be forced to close their brick-and-mortar facilities for good.
Dr. Oscar Solis
Associate Professor of Finance & Edwards Professor of Financial Planning