Bank of America Corp (BAC)’s Simple and Ingenious Business Model

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Bold statement alert! Bank of America Corp (NYSE:BAC) may have the best business model in the world right now.

Unfortunately for Bank of America Corp (NYSE:BAC) shareholders, just having the best business model in theory doesn’t guarantee operational or financial success. B of A’s master plan isn’t relatively new, but leadership blunders and lack of communication across the company have prevented the bank from fulfilling its true potential.

Bank of America Corp (NYSE:BAC)So, what is this mind-blowing, revolutionary strategy? In the words of CEO Brian Moynihan at a recent Goldman Sachs Group Inc (NYSE:GS) conference, “We’re pursuing the customer relationship model.”

In a perfect world
The collection of businesses and services under the Bank of America Corp (NYSE:BAC) umbrella is virtually unmatched. Let’s highlight the power of the bank’s franchise with the life story of “Tommy” and how he could become every Bank of America shareholder’s dream customer.

Ten years ago, Tommy was born.

Today, young Tommy’s parents take him to the local Bank of America Corp (NYSE:BAC) branch and put $100 into a deposit account and $200 into a savings account for Tommy. At this point, out 10-year-old is an extremely unprofitable customer for the bank and will be for the next several years — but the seed has been planted.

At age 15, Tommy has a part-time job and begins to use his B of A debit card. Each time Tommy swipes that card, Bank of America receives revenue in the form of interchange fees. Despite now having $2,000 in his combined accounts, Tommy is still unprofitable to the bank.

At age 18, before he leaves for college and to start building his credit, Tommy acquires a Bank of America credit card. The bank now earns swipe fees on all of these transactions. Tommy manages all of these basic banking relationships on his iPhone 13.

At this point, Bank of America Corp (NYSE:BAC) shareholders aren’t thrilled to have Tommy at the bank. Given his relatively low account balance, the bank doesn’t see the benefit of his balance on the lending side of the business, and it costs money to service his products. However, the seed has begun to poke its head out of the ground.

After college, Tommy goes to work on Wall Street at JPMorgan Chase & Co. (NYSE:JPM). He begins to earn more, and his savings account grows to $65,000. Tommy is savvy with his money and opens an investment account via Merrill Edge, B of A’s retail-focused brokerage.

After a few years of working, investing, and saving, Tommy is now married and wants to settle down in the New York suburbs and buy a house. He needs a mortgage, and he meets with his local B of A mortgage lender to commence the dealing. After issuing Tommy’s mortgage, Bank of America Corp (NYSE:BAC) sells that loan to one of the GSEs (assuming they’re still around in 2030.) for a gain and retains the value of the servicing rights.

Taking it to the next level
Feeling burned out by Wall Street, Tommy decides to explore his entrepreneurial side and start a small business. Happy with this other B of A services, Tommy takes out a loan from the bank and manages his payroll and cash flow via B of A’s online tools and technology.

Tommy is now becoming a very profitable customer for the bank because of his various revenue streams to the bank and minimal expense base.

Tommy’s business continues to grow, and his needs become more complex. He now uses foreign suppliers and needs help managing his FX payments and supply-chain management — Bank of America continues to meet his needs, a service for which he gladly forks over a fee.

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