How Technology is Changing Banking
Sharmistha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The marriage of banking and technology has made our lives easier. The banking environment has become highly competitive today. To be able to survive and grow in the changing market environment banks are going for the latest technologies, which is being perceived as an ‘enabling resource’ that can help in developing learner and more flexible structure that can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an instrument of cost reduction and effective communication with people and institutions. The banking industry has demonstrated a fair amount of competence in the application of IT. New opportunities and markets created by technological developments is increasingly moving the IT function from a back office assistant to a prime supporter in increasing the value of a bank over time.
Bank of America (NYSE: BAC), the world's largest financial institution, has deployed the largest existing network of Cisco Systems Inc.'s "TelePresence" videoconferencing equipment, which provides the illusion of face-to-face meetings. The technology will provide flexible meeting options to employees and in some cases will reduce the need to travel. The successful deployment of grid technology software from Data Synapse is another success story in their technology integrated business. The increased output in efficiency has boosted the business of this enterprise. The Bank of America Corp is trading at significant discounts to tangible book value and has a profitable business portfolio. Some analysts view the stock as a “strong-buy” and few rate it as neutral. BAC's EPS for the past 2 quarters, (from earliest to most recent quarter) have been increasing. BAC's estimated EPS growth for the current year is stable and reinstates faith in the investor behavior. With a market cap of 94.62B and a PE of 9.60, the company is expected to experience positive earnings growth and has positive free cash per share. The company should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. BAC's free cash per share of 6.12 passes this criterion.
Citigroup Inc. (NYSE: C) became the latest bank to offer digitized ATM receipts when it announced this week a new paperless solution to send receipts instead to designated customer email addresses. It has entered into an agreement with IBM to explore possible uses for IBM Watson. Citi is working to be the leading digital bank, providing customers with the latest technology to enhance and facilitate services. "At Citi, we are constantly developing new, innovative ways to better serve our customers' financial needs," said Don Callahan, Citi's Chief Administrative Officer and Chief Operations & Technology Officer. Analysts at RBC Capital reiterated an “outperform” rating on shares of Citigroup in a research note to investors. Citigroup currently trades at 8.8 times and projected earnings of $3.80 per share. When you factor in the fact that analysts expect the company to grow their EPS at a 12% rate for the next 3 years, this sounds like an absolute bargain. Analysts expect Citi to earn $4.53 in 2013 and $5.06 per share in 2014. We believe that Citigroup is taking its medicine and narrowing its focus on areas in which it offers a strong competitive advantage due to its globally recognized brand name and its operational scale. Citigroup is the best positioned bank to gain from the growth in emerging markets, which will continue to be a major contributor to earnings. The bank has an unparalleled global presence, combined with a strong capital position. The bank is also focusing on a cost reduction program to self-fund upcoming investments.
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.3 trillion in assets.
Wells Fargo (San Francisco) announced this week that two years after introducing an e-receipt option at its ATMs, the service has been used more than 100 million times.
The e-receipt option allows Wells Fargo online banking customers the choice to either have an ATM receipt sent to an online banking inbox or to a designated personal e-mail account. Twelve percent of all receipt eligible transactions result in an e-receipt today said the bank.
Another introduction of the Wells Fargo & Company is piloting the Visa Smart Card. By combining traditional magnetic stripe along with the EMV chip technology, we hope our customers will have the convenience to use their credit card no matter where they are in the world. This initiative will enable Wells Fargo customers to have their Visa card payments accepted anywhere in the world. The company's diverse geographic and business mix along with cross-selling opportunities enables it to sustain consistent earnings growth. Wells Fargo looks like a growth and income stock owing to its decent earnings growth projections, its dividend yield and reasonable valuation. Wells Fargo has continuously paid dividends despite the lackluster economic environment. Earnings estimates for Wells Fargo & Co. have been advancing since this banking giant posted robust second quarter results.
Benefits of technology
It is fascinating to note how these large financial institutions are using technology to improve customer service over a wide range of transactions. Information technology opens further opportunities to transform bank’s strategic role as a key performer of financial industry. I am confident that these large banks having doubled their capital and deposits are one of the top performing industries and this has been proved in the preceding twelve months. The average generated returns have been hovering around 15% for both Citigroup and Wells Fargo and should give investors confidence that the banks can survive very difficult environments in the future. I have a clear picture of their strong role in the current and future economy.
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SharmisthaB has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America, Citigroup Inc , and Wells Fargo & Company and has the following options: short OCT 2012 $33.00 puts on Wells Fargo & Company and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.