Banks today are caught between the ongoing digital shift and a challenging macro environment.
Wells Fargo's second-quarter 2024 financial results, released on Friday (July 12), made it clear that navigating the two and keeping compliance and risk management top of mind is a top priority for the financial institution and its management.
“Wells Fargo's transformation efforts are reflected in our second-quarter results,” Charlie Scharf, chief executive officer of both banks, said in an earnings call on Friday, “but the economy is slowing and we continue to face headwinds from high inflation.”
While the company's second-quarter profit and revenue beat analysts' expectations, Wells Fargo's net interest income disappointingly came in at just $11.92 billion, down 9% from the same period a year ago.
The prolonged high interest rate environment has meant banks have had to pay more in interest to attract and retain customer deposits.
Wells Fargo shares have risen more than 22% this year, but the bank's shares fell on Friday after the bank reported a quarterly report and a slightly lowered fiscal year outlook.
Financial Institutions Leverage Digital Experiences to Drive Growth
The banking industry is undergoing major transformation, with financial institutions racing to invest in digital solutions to deliver robust omnichannel experiences to meet customers' evolving needs and expectations and beat out competition from upstarts.
“As part of our commitment to elevate the branch experience, we are also increasing investments. Technology improvements, including a new digital account opening experience, are benefiting both our bankers and customers. We continue to see strong growth in mobile users, with active mobile customers up 6% year over year,” Wells Fargo told investors during a conference call on Friday.
“A year after the launch of Fargo, our AI-powered virtual assistant, the company has approximately 15 million users and over 117 million interactions. We expect this momentum to continue with further enhancements to provide our customers with additional self-service capabilities and value-added insights,” the company executive added.
By leveraging advanced technology, strengthening security, and prioritizing customer experience, banks are poised to meet the demands of modern consumers while maintaining the trust and reliability that are hallmarks of traditional banking.
“When we think about AI, we break it down into different categories. There's traditional AI and GenAI. Just traditional AI alone has a huge number of use cases already built into it across the company. It's marketing, it's credit decisions, it's information that we provide to our bankers, both wholesale and consumer — what customers might want to discuss or be willing to accept. It's business as usual for us,” Scharf said.
read more: Payments Executives Discuss the Future of Banking Transformation
Given the interest rate environment, treasury management has also emerged as a key area of focus for both financial institutions and their clients.
“In the commercial bank, we are focused on growing our treasury management business, adding bankers to cover areas where we are underpenetrated, and providing investment banking and markets capabilities to clients, and we see significant opportunities over the next several years. We continue to see significant opportunities for small business banking to become a more significant source of growth,” Wells Fargo said.
The company's digital investments and innovation efforts may help it attract more small businesses, according to the latest PYMNTS Intelligence study, “Main Street Small Businesses' Expanding Technology Preferences: Drivers of Growth,” in collaboration with i2c, which found that small and medium-sized businesses (SMBs) prefer financial institutions that offer complex payment solutions with sophisticated features.
“Banks are starting to wake up to the speed at which technology has changed the world,” James Butland, vice president of payments and UK managing director at MangoPay, told PYMNTS in his own comments on the changing trends.
“The challenge that traditional banks have is they're tied to 150, 200 years of legacy infrastructure and maybe 60 years of legacy technology,” Butland added. “That makes it hard for them to innovate quickly.”
Still, Mr. Scharf told investors in May that the bank could expand corporate lending and deals if it were to remove the asset caps imposed by regulators.
“Our efforts and progress to establish an appropriate operational and compliance risk management framework are foundational,” Scharf said Friday.
