For Banks, the Sky IS Falling

The first in a five part series on emerging threats to banks from non-financial companies.

For bank executives and board members, competition takes many forms.  Not only are banks burdened with regulation, capital requirements and stress testing, they now have the added pressure of competition from non-financial institutions.  In case you haven’t been paying attention, companies such as Paypal, as well as traditional consumer brands such as Walmart, are aggressively chipping away at banks’ customer base and threatening many financial institutions’ core businesses.  So today’s piece tees up my next four columns by acknowledging the changes taking place within — and immediately outside — our $14 trillion industry.

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The race is on…

A few months ago, at Bank Director’s annual Growth Conference in New Orleans, I polled an audience of CEOs, Chairmen and board members and found the vast majority (a whopping 91%) have real concerns about non-banks entering financial services.  These bankers aren’t alone in their concerns about competition from unregulated entities.  Just days after polling this audience, Jamie Dimon, the CEO of JPMorgan Chase, warned an audience of investors that he sees Google and Facebook specifically as potential competition for the banking giant.  As he notes, both offer services, such as P2P, that could chip away at income sources for banks.

…and its not pride coming up the backstretch

As Emily McCormick wrote, Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products. Likewise, the retail behemoth Wal-Mart launched Bluebird in partnership with American Express late in 2012 so users can direct deposit their paychecks, make bill payments, withdraw cash from ATMs and write checks.  This makes the results of a recent TD Bank survey about millennials banking online and on their mobile devices more frequently than in a branch so relevant.  Specifically, 90% of survey respondents said they use online or mobile tools for their everyday banking activities, such as checking balances or paying bills, and 57% said they are using mobile banking more frequently than they were last year.

Along the lines of “what is the industry losing”: eventually you’re going to have a generation that has learned how to live without a bank.  That’s a very sky-is-falling, long-term consequence of not adapting.  But there’s also an opportunity for retail banks to do more than simply allow the same types of services digitally that were once only available in-person.  Banks could actually expand what banking means to consumers by offering online services that go beyond their legacy business model.

What I am hearing

Of course, non-banks can, conceptually, expand what banking means to consumers by offering online services that go beyond legacy business models too.  However, the sheer complexity of entering this market is one reason why we have yet to see a startup that truly rebuilds the banking industry brick by brick.  At least, that is the perspective shared by Max Levchin, founder and CEO of online payments startup Affirm, a company with the goal of bringing simplicity, transparency, and fair pricing to consumer credit.  As the co-founder and former CTO of PayPal, Levchin is one of the pioneers within the payments industry.   In a recent piece in Wired magazine (The Next Big Thing You Missed: Startup’s Plan to Remake Banks and Replace Credit Cards Just Might Work), he notes

I don’t know if I want to own a bank. But I do want to lend money in a transparent way, and I want to create an institution people love… I want to be the community bank equivalent for the 21st century, where people say: ‘I trust my banker. He’s a good guy who’s looking out for me.’

Coopetition anyone?

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To comment on this piece, click on the grey circle with the white plus sign on the bottom right.  Next up, a look at PayPal, a the e-commerce business that is “eating the banking industry’s lunch.”

Who Says There Is No Growth In Banking

Two big takeaways from the second day of Bank Director’s 2nd annual Growth conference (#BDGrow14): institutions of all sizes are challenged when it comes to standing out from the crowd & enhancing your mobile banking presence should be a top priority for all boards of directors.

A 2 Minute Recap on the Past 4 Months

 

Take No Risk, Make No Money
While some may not think about enterprise risk management in the context of growing one’s bank, Crowe’s Jennifer Burke made clear that proactively identifying, mitigating, and in some cases, capitalizing on risks provides a distinct advantage to a bank.  Keep in mind that even smaller institutions — with less complex business structures — face myriad risks that might significantly affect their ability to meet their growth plans.  As Jennifer shared, those that proactively identify and respond to risks and opportunities gain a competitive advantage over their peers, especially in responding to our ever-changing business environment.

Millennial and the End of Banking?

The Times-Picayune ran a nice story in today’s edition based on The Growth Conference.  The newspaper noted that “younger generations report more comfort with online and mobile banking tools, posing a hurdle for banks used to ginning up business through face-to-face interactions.”  So it is fair to ask if banks should be scared of the millennial generation.  According to Daryl Byrd, president and CEO of IberiaBank, the answer is no.  As mentioned in this piece (Will Millennials be the end of banking as we know it? Bank execs weigh in at Growth Conference in New Orleans), Byrd was among a panel of industry leaders gathered at the Bank Director Growth Conference to discuss business trends, including the challenges in reaching younger customers.  Byrd, “who noted he is the father of three Millennials, said his children, like many in their generation, aren’t building wealth as much as they are taking on debt. That means their demand for banking services will be limited in the near term,” he said.

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The issues I took note of this morning were, in no particular order:

  • Just like “synergy” became a cliché, so too might “omni” when it comes to delivering a consistent customer experience (e.g. omni-screen, omni-channel, etc);
  • Not all customers are created equally;
  • A bank’s board has the chance to re-set strategies to target, acquire, engage, grow and retain customers… but need to look ahead to what’s possible as opposed to the past to see what has historically delivered results.

To comment on this piece, click on the green circle with the white plus sign on the bottom right. Safe travels home to all who joined us in New Orleans this week (and yes, Aloha Friday!)