Wells Fargo Turns to Digital, AI as Inflation Batters Deposits

Banks today are caught between an ongoing digital shift and a challenging macro environment.

With the release of Wells Fargo’s second quarter 2024 earnings on Friday (July 12), deftly navigating the two, as well as staying on top of compliance and risk management, was revealed to be top of mind for financial institutions and their leadership.

“Our efforts to transform Wells Fargo were reflected in our second quarter financial performance,” said the banks’ Chief Executive Officer Charlie Scharf on Friday’s earnings call. “However, the economy is slowing and there are continued headwinds from still elevated inflation.”

While the company’s earnings and revenue for the second quarter came in above analyst expectations, Wells Fargo’s net interest income disappointed at just $11.92 billion, a decline of 9% year-over-year.

The ongoing higher-for-longer rate environment has required banks to pay more interest to attract and retain customer deposits.

Wells Fargo’s stock is up more than 22% this year, but the bank’s shares slipped Friday on news of the quarterly report and a slightly lowered fiscal year outlook.

Financial Institutions Tap Digital Experiences to Drive Growth

The banking industry is undergoing a profound transformation, with financial institutions racing to invest in digital solutions and provide robust omnichannel experiences to meet the evolving needs and expectations of their customers, as well as fend of competition from upstart competitors.

“As part of our efforts to enhance the branch experience, we are also increasing our investment … improving technology including a new digital account opening experience, which has been positive for both our bankers and customers. We continue to have strong growth in mobile users, with active mobile customers up 6% from a year ago,” Wells Fargo told investors on Friday’s call.

“A year after launching Fargo, our AI (artificial intelligence)-powered virtual assistants, we have had nearly 15,000,000 users and over 117,000,000 interactions. We expect this momentum to continue as we make further enhancements to offer our customers additional self-service features and value-added insights,” company leaders added.

By leveraging advanced technologies, enhancing security and prioritizing customer experience, banks are positioning themselves to meet the demands of the modern consumer while maintaining the trust and reliability that are the hallmarks of traditional banking.

“When we think about AI, we do break it into different categories. There is traditional AI and there is GenAI. We have a huge number of use cases already embedded across the company with just traditional AI. And that is in marketing, it’s in credit decisioning, it’s in information that we provide bankers on both the wholesale on the consumer side, about what customers could be willing, or might be willing to entertain a discussion about, and so that’s business as usual for us,” Scharf said.

Read more: Payments Execs Debate Banking’s Transformative Future

Given the rate environment, treasury management is also emerging as a key focus area for both financial institutions and their customers.

“In the commercial bank, we are focused growing our Treasury Management business, adding bankers to cover segments where we are under penetrated and delivering our investment banking and markets capabilities to clients and believe we have significant opportunities in the years ahead. We continue to see significant opportunities for small business banking franchise to be a more important source of growth,” Wells Fargo said.

The company’s commitment to embracing digital investment and innovation may help with attracting more small businesses. That’s according to the latest PYMNTS Intelligence in “Main Street SMBs’ Expanding Technology Preferences: An Engine for Growth,” a collaboration with i2c, which finds that small- to medium-sized businesses (SMBs) prefer financial institutions that offer complex payment solutions with sophisticated features.

“Banks are starting to realize the speed at which technology has changed the world,” James Butland, vice president of payments and U.K. managing director at Mangopay, told PYMNTS in his own comments on the shifting trends.

“The challenge that a traditional bank has is that they sit on 150, 200 years of legacy infrastructure and probably 60 years of legacy technology,” Butland added. “So, banks have found it difficult to innovate quickly.”

Still, Scharf told investors in May that the bank could be doing more corporate lending and trading if regulators lifted the asset cap that they imposed on it.

“Our commitment and the progress we are making to build an appropriate operational and compliance risk management framework is foundational,” Scharf said on Friday.

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