Bank of America Stock Has a Fintech Catalyst

Bank of America (NYSE:BAC) stock has held up quite well this year, returning about 14% year-to-date. This is despite some tough headwinds, such as the decelerating U.S. economy as well as falling interest rates that have squeezed margins.

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But then, what’s next for BAC stock? Might the pressures ultimately have an impact?

I think the company will still be able to thrive — and allow for attractive returns for shareholders. In fact, one reason may be somewhat surprising: Bank of America is quickly becoming a leader in fintech innovation.

Bank of America’s Fintech Future

Part of this fintech future has come through leveraging technology for internal purposes. This has involved heavy investments in streamlining processes and customer interactions. But there has also been a focus on implementing systems to gauge risks.

The digital transformation for the company is also notable for customer-facing applications. One is a joint venture with banks like BB&T (NYSE:BBT), Capital One (NYSE:COF), JPMorgan (NYSE:JPM), PNC Bank (NYSE:PNC), U.S. Bancorp (NYSE:USB) and Wells Fargo (NYSE:WFC) for the development of Zelle, which is a person-to-person app. As for BAC, it has been able to build a user base of 8.4 million and the transaction volume has jumped by close to 50% to $18 billion (in the second quarter).

Then there is Erica, a sophisticated mobile assistant that leverages artificial intelligence. Customers can get questions answered, receive alerts and manage Zelle payments. Note that there are over 6 million users who have completed over 35 million requests.

All this technology is a testament to BAC’s ability to innovate and think creatively —  tasks that are not easy for large organizations.

CEO Brian Moynihan said in the latest earnings call that “Our digital capabilities are one of the things that attract millennials to our platform. Today, in our customer base, we estimate that we have 16 million millennial customers. Those are customers between the ages of 25 and 41. These millennials are very important for our growth, and they hold nearly $200 billion in deposit investments with us. It’s a powerful platform to all segments of the U.S. consumer population.”

Bottom Line on the BAC Stock Price

Now low interest rates will certainly be a nagging issue for the bottom line of Bank of America. Yet the broader impact may be overstated. Keep in mind that there are offsetting factors, such as growth segments like mortgages and credit cards. Bank of America also has a diverse platform of fee-based income sources (say from its wealth management division) as well as the benefits of  massive economies of scale (the firm is the second largest bank in the U.S.).

It’s important to note that the company is focused on finding ways to boost shareholder value. To this end, Bank of America announced a few months ago that it will repurchase a whopping $30.9 billion in stock during the next 12 months. Oh, and Warren Buffett has recently boosted his holdings of the shares to more than 10%.

And finally, the valuation of BAC stock remains at attractive levels, with the shares at close to 1 times book value. The forward price-to-earnings ratio is at only 9.4.

True, just because a stock is cheap does not mean it is a buy. But then again, with BAC’s diverse platform, strong cash flows and focus on innovation, it seems reasonable there is more room on the upside.

Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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