Bankers see payments firms as fintech enemy No. 1
Bankers are on high alert about fintech competition, according to survey results issued Monday by Promontory Interfinancial Network.
Seventy-six percent of the 543 bank executives surveyed said they fear new payments and money transfer platforms like Apple Pay, PayPal, Stripe and Venmo more than any other type of fintech competitor.
“This is probably one of the areas where the financial technology sector has made some of the biggest inroads,” said Paul Weinstein, a senior policy adviser at Promontory.
The impact is evident, he said.
“These transactions increasingly replace ATMs, particularly for millennials and Gen Z,” Weinstein said.
Eighty million Americans are using person-to-person transactions, and that number is growing, he said.
“There’s a lot of nervousness, fear and skittishness” among traditional financial institutions, Weinstein said.
Compared with the asset breakdown of the overall banking industry, the sample of respondents skewed slightly toward banks with assets of less than $1 billion, Promontory said of its latest quarterly survey.
Payments fintechs are not the only threats that concern bankers, though.
“Along with PayPal and Venmo, when bankers hear words like Amazon, Apple and Google, they get very nervous,” Weinstein said. In a similar survey Promontory conducted in the first quarter of 2018, 62% of bankers categorized Amazon as a top disruptor.
It has been reported that Goldman Sachs is building technology that will let it offer loans to small and midsize businesses through Amazon's lending platform. The service could be up and running in March.
Apple launched its Apple card last fall through Goldman Sachs; one estimate is there are 32 million Apple cardholders. And Google plans to roll out a checking account with Citigroup and Stanford Federal Credit Union this year.
Bankers seemed less worried about specialty lenders like SoFi, Earnest, Quicken Loans and Kabbage. Forty-seven percent had medium or high levels of fear about this group; an equal number had a low level of fear.
Similarly, half of the respondents said they had a low level of fear about investment advisory platforms like Betterment, Personal Capital and Wealthfront.
Bankers seemed to be relaxing about competition for deposits. Fifty-five percent of banks reported moderate or significant increases in deposit competition — a 31-point drop from banker experiences in the fourth quarter of 2018, when 86% reported this. Looking forward, 41% of bankers predicted no change to deposit competition over the next 12 months.
This seems surprising, as fintech challengers like Chime, Varo Money, Qapital, MoneyLion, Dave and others have been increasing their share of deposits.
“It’s not that those other entities aren’t in place, but I think the fact is banks tend to get more nervous about deposit competition when rates are going up,” Weinstein said. “If you look back a year ago, they were much more concerned about deposit competition and where it was going to go because of their belief that interest rates were going up and there was much more discussion about a possible recession. Now they’re much more positive in their outlook.”
The survey was conducted in January, before the coronavirus outbreak began to spread globally and economic concerns about its impact intensified.
“Banks were feeling, as of late January, that the future for the banking industry was positive, and they’re not seeing interest rates in the near future going up,” Weinstein said. “They have deposits on hand, and they’re able to access them. So I think that’s what’s potentially driving the reduced concern.”
Banks are very rate sensitive and sensitive to what the Federal Reserve does, Weinstein said.
“Right now there doesn’t seem to be much fear that at least in the short term the Fed will raise rates,” he said. “They’re looking at their bottom lines. We started to see upward improvement in confidence after the [regulatory relief] legislation was signed into law” in 2018.
The study also asked bankers what they are doing to attract millennials and Generation Z. Half said mobile banking was their main effort. Twenty-six percent said social media and digital advertising are most important.