Fifth Third Leans on Strategic Automation, Payments Innovations

This quarter’s bank earnings, like the macroenvironment, have been mixed and unpredictable. And the ongoing theme of controlling for what’s controllable held true for Fifth Third Bancorp executives, who told investors during a second-quarter 2024 earnings call on Friday’s (July 19), “Geopolitical tensions remain elevated and deficit spending, green energy investments, and the domestication of […]

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This quarter’s bank earnings, like the macroenvironment, have been mixed and unpredictable.

And the ongoing theme of controlling for what’s controllable held true for Fifth Third Bancorp executives, who told investors during a second-quarter 2024 earnings call on Friday’s (July 19), “Geopolitical tensions remain elevated and deficit spending, green energy investments, and the domestication of supply chains are all inherently inflationary in the medium term.”

“We believe the best way to manage an uncertain time is to stay liquid, stay neutrally positioned, and stay broadly diversified while investing with the long term in mind,” Fifth Third Chairman, CEO and President Tim Spence said. “We are being very efficient with every dollar we’re utilizing.”

One side effect of the higher-for-longer rate environment is the renewed prominence of the treasury and finance departments within organizations.

Fifth Third Executive Vice President and Chief Financial Officer Bryan Preston noted to investors on Friday’s call that the bank’s Treasury Management and Wealth and Asset Management were the strongest contributors to fee income “driven by the strategic investments we have been making … in software enabled managed services, payments offerings, and our embedded payments business.”

The bank’s Treasury Management revenue grew 11% year over year. Commercial and business payments, as well as embedded payments, are also a target area for Fifth Third — and they are going after other bank’s customers, not FinTech audiences.

“The disproportionate share of the clients that we are moving with conventional payments products and managed services are moving from another bank,” Spence said.

“In the case of the embedded payments businesses, we are quite often helping people to build product into their software applications that didn’t necessarily exist previously, or where they had a smaller bank who had agreed to provide simple services, and they’re looking for somebody who’s more robust controls, the ability to support higher volumes, and a simpler process for integration and future product development,” he added.

Read more: Fifth Third and Bottomline Debut Enhanced Payables Tool

Steering Around Challenges and Ahead of Competitors

Along with its peers, Fifth Third stressed to investors that inflation pressures have been evident, and net charge-offs have been rising, although they remain within historical levels.

Per its financial materials, Fifth Third has seen a sequential increase in Net Interest Income (NII), a first since 2022, and for the second consecutive quarter Net Interest Margin (NIM) has improved. Still, the bank noted that it expects NII to decrease 2-4% for the full year, factoring in two rate cuts and no loan growth in the second half of 2024.

The commentary from Fifth Third executives Friday about exercising financial discipline and deploying targeted automation and innovation echoed comments by executives PYMNTS has spoken to throughout the year — underscoring the impact that the ongoing digitization of financial services and banking is having on enterprise roadmaps.

A PYMNTS Intelligence report, “The Treasury Management Playbook: Technology Strategies and Best Practices,” found that, in today’s complex financial and regulatory environment, treasurers are increasingly striving to improve their data and technology strategies.

“We have highlighted the importance of maintaining balance sheet strength and flexibility in an uncertain economic and interest rate environment,” said CFO Preston, noting that Fifth Third had lowered its internal costs by 1% for the quarter through “expense discipline and the ongoing benefits from our process automation efforts.”

Read more: Why There Are No Sacred Cows for Today’s CFOs

“We continue to invest in our Southeast expansion, Commercial Payments, and Wealth and Asset Management businesses, leading to continued strong acquisition of new quality relationships in commercial and consumer households. We remain disciplined in managing expenses, which were well managed from the prior year,” added Spence.

As PYMNTS reported last week (July 11), Fifth Third Bank recently introduced tools to make changing financial institutions easier.

Research from PYMNTS Intelligence has found younger generations were already primed to switch their banking relationships away from the biggest lenders, as well as from community-based financial institutions.

The research also found that 42% of Generation Z consumers who bank with credit unions have changed their banking relationship in the past 12 months, as have 44% of Gen Z members who had accounts with traditional financial institutions.

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