It seems like everyone has an opinion about what the future holds for banking… but what does banking actually look like today?
For the past few years, Bank Director magazine’s Editor-in-Chief, Jack Milligan, has spearheaded our Bank Performance Scorecard, a ranking of the largest U.S. publicly traded banks and thrifts. The most recent version, which appears in our third quarter issue, ranked all banks and thrifts listed on the New York Stock Exchange and Nasdaq OMX. Jack and his team sorted them into three separate asset categories: $1 billion to $5 billion, $50 billion to $50 billion and $50 billion and above — and we ranked them using a set of metrics that measured profitability, capitalization and asset quality based on 2014 calendar year data.
While this data shines a light on some of banking’s standout performers, my last few months of travel across the U.S. has revealed less familiarity with the banking industry then I expected. So today, instead of focusing on economic, political, demographic or technological forces reshaping the banking landscape, allow me to share some statistics I think are important to know:
- Banks with less than $10 billion in assets have lost over half of their market share in the past 20 years.
- The corollary? The five largest banks now hold almost 44% of all banking assets in the country.
- Despite totaling 89% of all banks, institutions under $1B in assets hold only 8.3% of the industry’s assets.
With competition coming from both the top of the market and from non-traditional players, I have talked with numerous bank CEOs and various members of their executive teams who tell me how imperative it is for them to really focus on improving efficiencies and enhancing organic growth prospects. In addition, as big banks invest in customer acquisition, and non-traditional players continue to eat away at earnings potential, it strikes me that of all of the risks facing a bank’s key leadership team today (for instance, regulatory, market and cyber) knowing when to buy, sell or grow independently has to be high on the list. After all, the most profitable financial companies are often those whose strategies are intentional, focused and differentiated… and are showing current revenue growth with strong visibility towards future performance.
Of course, any discussion about the world in which banks live today has to acknowledge two significant business threats. Since most banking products tend to be commodities that are available at any number of bank and non-bank providers, the first concerns customer acquisition costs. Personally, I believe such costs will increase as existing customers become less likely to refer their bank to others. This leads to the second threat; namely, banks will lose revenue as customers leave for competitors and existing customers buy fewer products.
So a high-level look at where things are today. I realize this takes a very broad brush to a mature industry. Still, to understand where banks might be heading, I find it helpful to be grounded in where they are today.