Two generations ago, retail banks and credit unions served as a financial anchor for the average consumer. They had everything under one roof — payments, savings and credit — and the personnel to help consumers knit those products and services together in different combinations as their needs changed.
Over the past 20 years, a range of companies have been steadily making a grab for businesses that had once been the purview of banks.
First to go was credit. Thanks in part to the ascendance of national credit bureaus, consumers can select from a smorgasbord of credit products offered by national "monoline" providers, and marketed and distributed in myriad new ways. The odds are pretty slim that a consumer's primary credit card is issued by the same bank where she keeps her checking account.
Savings products are also available elsewhere now. Many middle-class consumers look to employer-provided 401(k)s as preferred places for building nest eggs. The savviest ones are finding higher CD rates online than at their local bank branch.
Banks are still the primary payments providers, but their role is diminishing. Prepaid cards and PayPal are but two examples of products that enable consumers to bypass traditional bank accounts, and many college-age users are showing that checks are largely dispensable.
Banks' core business lines have been picked off by others, but what about the business of relationships?
The vast majority of households still claim to have a primary financial institution relationship, but a growing number of households do not, according to Nielsen's Market Audit, a national survey of financial behavior. Once a relatively stable number, the percentage of households claiming no primary institutional relationship has nearly doubled since 2004, to 11%.
A growing number of underbanked consumers view their favorite retailer as their bank of choice.
Retailers have long offered credit products as a way to generate more store sales. Now, mass merchandisers, grocers and other national chains are expanding their suite of payments products. They are offering bill-payment services, money transfers, prepaid debit cards and prepaid reloads, leveraging their more convenient physical presence and hours of operation.
As more prepaid card providers add FDIC-insured savings accounts to their products, retailers will be able to offer savings, too.
Meanwhile, the financially savvy set is turning to new online players to better understand and manage their money. Banks are fighting back, either by private-labeling third-party account aggregation platforms or by building their own. In a few cases, such as Bank of America's My Portfolio service, banks are even enabling customers to pull in data from accounts they hold at other financial institutions. But most banks are well behind their nonbank competitors.
The trend may be beneficial for sophisticated consumers who can choose well among a wide array of products and services and link them together effectively. But for the average consumer, the complexity of the current landscape can be daunting without an institutional guide.
The growing consumer mistrust of banks could further erode the role banks have historically played as the hub of consumers' financial lives.
Whoever can reconstitute this role — online, via cell phone or at the brick-and-mortar strip mall — will become a magnet for consumers. And they will exert, through the institutional context they provide, critical influence over the financial choices consumers make.