I recently read an article in the American Banker about traditional community banks and their need for FinTech firms. The headline, “Traditional Banks Continue to Flirt with Obsolescence,” got my attention and, after reading what I thought was a sales pitch, I began to think about what he said or was trying to say.
Robertson is the founder and CEO of Polyient Labs, which is a blockchain incubator in the technology field. Robertson is a lawyer by training and has been an entrepreneur in the technology arena for 25 years, operating in various capacities.
When I read th e article a second time, one of his statements really hit me between the eyes. I admit I missed it on my first pass, probably because I’m too close to the industry to see what’s sometimes right there in front of me. I hadn’t properly focused on its “relevance” to your bank’s future. Here’s what he wrote:
“[B]anking services are needed,” Brad Robertson, the article’s author. “But the long-term sustainability of banks (and other depository institutions) is another matter.” (my emphasis)
Hmm. “Is that true,” I wondered? “Is the fear that it’s true what’s been driving me nuts some days over the past couple of years?”
When I first came to Oklahoma 30-plus years ago, there were more than 500 bank charters in the state. Granted, that was long before de novo branching became a reality (beginning in 1999), but my initial concern was the loss of leadership from the industry. Each of those charters were governed by a separate board of directors and a handful of senior officers, many of whom had been extremely active in the Association.
Today we’re looking at just under 200 separate charters based in Oklahoma, as well as some 20 other banks chartered in another state but with a location here – a loss of over 300 bank leaders. In just the past 10 years – since Dodd-Frank became law, coincidentally – we’ve lost about 40 percent of the total number of banks in our state. My guess is we’re not even close to being finished with the industry’s consolidation.
Right on cue, Robertson wrote that “[s]ince 2009, more than 11,000 branch locations have been eliminated. The trend was so rapid that when (it was discovered that) four out of five banks and credit unions had no plans to close any branches in 2018, it was news.”
He then goes on to blame “technology” for reducing (if not eliminating entirely) the reality of the basic way banking works: buying money at “wholesale” and selling it at “retail.” His conclusion is that, as a result, “the industry is flirting with obsolescence.”
“Banks will no longer make money off of money,” he says. Why? “Doing so is no longer profitable. High interest rates are gone and never coming back.”
Well, who knows? I certainly don’t. But, of course, what constitutes a “high interest rate” is a subjective determination. It’s something that lies in the eyes of the beholder.
I’m more interested in his claim that the FinTech sector is more efficient in delivering bank-like services. This is a point that bears further analysis.
All I hear about on the business news channels anymore seems to focus on the FinTech firms that are expanding their collective vision about what consumers want and need. It’s not FinTech start-ups that are doing this; it’s Amazon, Apple, Square, Google, PayPal and others. That’s the threat faced by smaller, traditional banks as I see it.
That’s why most of these kinds of cautionary comments and warnings have gone unheeded in the past. But you’re not faced with start-ups any longer; you go to war with the Amazons, Apples, Googles, PayPals and Squares every day. And, (like those no-good-communist-sum******* that call themselves credit unions) they can do what you can do, and then some, without the hassle of regulatory compliance (or, in the case of the communists, paying taxes).
Need a loan or a checking account? How about a credit or debit card? Need some financial planning advice? How about a will or setting up a trust for your grandchildren? What about investments? Most of these larger non-bank firms can do it faster, cheaper and, in many cases, better (at least from the consumer’s point of view.)
Safety? You don’t need a bank any more to move your money. Insurance? Who among the growing millennial population gives a rip? They want it now, they want it free and they won’t settle for much less than that.
Blockchain technology? Too expensive. Your bank is different? Like I said, who among the new customer base gives a rip? In fact, who among the members of that group has ever even been in a bank. How would they know? They have all of the financial world they need at their fingertips.
So. Am I saying “Abandon ship! All is lost! Sell that sucker now!” Not at all. But this guy has some good points that have dominated my thinking over the past few years. The question is, what value do you bring to your customer’s experience? Is it too expensive? Is it too cumbersome? Is he/she treated with exceptional service?
Do you have a plan to integrate technology and FinTech into your bank’s future? Do you need or want one? Is it important to connect what you do to the “new world” of financial transactions and business generally? I don’t know, but it seems to me it’s worth talking about with your board and your senior officers.
This train has already left the station in many respects. As Sean Connery’s character in the movie, “The Untouchables,” asked: “What are you prepared to do?”