9 big ideas for banking in 2019

9 big ideas for 2019

January 1, 2019 10:00 PM

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From the end of overdraft fees to the rise of banks that watch their customers' every move, there are several new banking trends on the horizon in 2019. Here are nine of the most impactful:

You can't count on overdraft fees forever

JPMorgan Chase collected more than $1.8 billion in revenue from overdraft fees in 2017, according to an analysis of regulatory data by the Center for Responsible Lending. Bank of America and Wells Fargo both raked in more than $1.6 billion. Big banks typically charge around $35 per overdraft. Many other institutions also rely on such fees.

But that revenue may not last forever.

Two trends — competition from challenger banks and the emergence of real-time payments — threaten to eat away at the fees banks collect on overdrafts and bounced checks.

Read more: Banks shouldn't count on overdraft fees forever

Think outside the app

Bankers understand they need slick mobile apps to compete in the digital age, but the battle for new customers will take place elsewhere on a customer’s phone in the years ahead.

In countries where mobile payments have taken off faster than in the United States, big banks have staked out a presence in places outside of traditional banking apps. Customers and prospects spend hours of their time online, chatting with their friends on social media, or perusing online real estate listings. Being an organic part of that online experience requires fresh thinking and in some cases new services that are not strictly banking.

So the most forward banks are already experimenting with strategies to answer questions like these: How can a bank insert itself in a relevant way into an existing ecosystem where people gather for nonbanking activities? And does it make sense for a bank to create its own ecosystem of sorts?

Read more: Banks need to think outside the app

Stress-test for climate change

Bank portfolios are chock full of loans to industries — think agriculture, tourism, real estate and energy — that could be particularly hard hit by warming temperatures.

It’s not hard to imagine, for example, persistent droughts wiping out corn and soybean crops and forcing ski resorts to shorten their seasons. Intensifying hurricanes could cause severe property damage in major coastal cities and knock out offshore oil rigs, while wildfires in the Western U.S. not only threaten timber and wine production, they could worsen air quality, threatening people’s health and productivity. Eventually, rising sea levels could swamp picturesque beach towns, decimating tourism and real estate values.

The risks are real enough that some large global banks — though not enough of them, in the view of some investors — are now doing what’s called “scenario analysis” in an attempt to get a better grip on how warming temperatures might impact their loan and investment portfolios in the short term and long term.

Read more:

Why banks should stress-test for climate change

Get ready for the rise of the 'behavioral bank'

When Discovery Bank opens its doors in March, it plans to take an old idea — letting customer behavior dictate the price for its offering — to a whole new level.

Instead of charging for services based on income and repayment practices, the South African bank wants to look at behavior more broadly, tracking the habits of its 4.4 million customers and offering better deals to those who live healthier lives. For example, those who use the company’s Vitality rewards program can earn points for visiting the gym, getting a flu shot or buying healthy groceries.

Other banks could soon follow suit.

Read more:

The bank that watches your every move

Give customers some control of their financial data

For decades, banks, credit card networks and credit bureaus have been sharing and selling consumers' financial data without their knowledge or consent while data aggregators have screen-scraped that information without the full cooperation of financial services providers.

But there are signs that is beginning to change.

Some fintechs are testing apps that let customers gain greater control over how third parties use their data. Others are setting up ways to let consumers sell their own information.

Read more: In 2019, customers may (finally) get some control of their financial data

Keep an eye on quantum computing

Quantum computing may seem like a distant concern for bankers more focused on lending margins and economic conditions, but in the not-too-distant future it could fundamentally transform bank security.

Whereas a classical computer might take years to guess an encryption key through a brute force attack (that is, just repeatedly guessing wrong answers until it hits on the right one), a quantum computer could guess correctly with great speed, because it could comprehend the entire universe of possibilities at once. Virtually everything that is inaccessible online could be accessible instantly to whomever possesses a quantum computer.

If that is worrisome, the good news is that quantum computers don’t exist — experts suggest that the technology will probably be realized in the next decade, though others say it could be sooner.

But banks — as well as governments, the military and anyone else with a stake in cybersecurity — are increasingly devoting resources to quantum computing.

Read more: The peril — and promise — of quantum computing

Build a safety net for when the consumer debt balloon pops

It's never too soon for bankers to start worrying about rising consumer delinquencies.

While households are generally keeping up with their loan payments, they are also taking on more debt than ever, running the risk of becoming overextended.

So what can banks do to help customers dealing with unsustainable levels of debt avoid bankruptcy? Often, they will refer a customer to a third-party debt consolidator, which will then lend that customer the money to pay off various loans and consolidate the debt into a single payment. The problem with that model is that some borrowers will wind up in even deeper debt. The reason: Debt consolidators do not require their clients to close out credit card accounts they have just paid off, so it's not uncommon for these clients to max out their credit cards again.

But there may be a better way.

Read more: Building a safety net for when the consumer debt balloon pops

Comptroller of the Currency Joseph Otting

Joseph Otting, comptroller of the U.S. currency, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Tuesday, Oct. 2, 2018. The hearing focused on implementation of a new law easing Dodd-Frank Act rules on community and midsize banks. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Beware regulatory competition

Before the financial crisis, federal and state regulators unabashedly pitched their charters to banks as the better choice. Now regulatory competition is back, despite warnings that such jousting might result in lax oversight.

The renewed competition is a marker of how far the proverbial pendulum has swung in the decade since the crisis. The practice, still in its early stages, may be a boon for some — foreign banks and financial technology companies are among those that seem poised to benefit. But skeptics fear that it will ultimately add risk to the financial system and harm consumers.

Read more: Regulatory competition is hot again — and that’s worrisome

It's time for auto financing to keep pace with digital banking

Auto financing has hardly changed at all in what seems like forever, but a shift into the digital age is starting to happen.

Several banks, working with fintechs, have automated the loan application process to allow consumers to secure financing for their next new or used car before they even go to a dealership. They can get approval within minutes from a desktop, laptop or mobile app.

It’s a potentially game-changing development that could put more car shoppers in the driver’s seat when it comes to controlling which bank or credit union finances their purchase.

Read more: Auto financing finally shifts into the 21st century