Community bankers fear Google and Amazon over big banks: Survey
Community bankers do battle with big banks day in and day out, but it’s giant technology companies such as Amazon and Google that they view as bigger competitive threats in the long term.
Roughly one in four executives from more than 500 banks surveyed by Promontory Interfinancial Network ranked big tech companies as the No. 1 threat to their business models. That’s more than twice as many as the 11% who rated the largest banks as their stiffest competitors.
Respondents to the survey released Thursday were primarily executives at banks with less than $1 billion of assets, according to Promontory.
Tech giants are making more inroads into banking, as evidenced by Apple’s credit card partnership with Goldman Sachs and Google’s plan to offer checking accounts in partnership with Citigroup.
Still, Paul Weinstein, a senior adviser to Promontory who helped put the survey together, said significant barriers to entry remain.
He noted that Facebook’s plan to create a cryptocurrency has been met with skepticism from policymakers and said that other tech giants would likely face similar blowback if they moved too deeply into financial services.
“Given the regulatory challenges,” winning market share from smaller banks “will not be something easily accomplished right away,” Weinstein said.
Moreover, many consumers wouldn’t necessarily trust tech giants with their money. Separate studies released in October showed that while consumers were open to tapping Amazon or Google for help with some financial needs, they were more skeptical about stashing their money with these companies.
At the moment, the bigger threat to community banks comes from online-only banks, such as Ally Bank and Goldman Sachs’ Marcus, that offer savings rates that are well above the industry average. Yet only 4% of respondents said that they view these banks as their No. 1 threat and only 8% said that are most worried about competition from nonbank fintechs, such as LendingClub and SoFi.
Still, bankers acknowledged that they need to up their game to compete with upstarts. Nearly two-thirds of respondents said that peer-to-peer money transfer services like Venmo would eventually displace cash and ATM services — and the fees that come with them. Slightly more than half of those surveyed said their bank already offers a peer-to-peer money transfer service, and another 39% are considering it, according to the findings. Only 8% said that they have no intention of offering such services.
“They seemed to acknowledge that does seem to be the way it’s going,” Weinstein said.
When the question was broadened to beyond competitive threats, cybersecurity emerged as the No. 1 concern for banking executives.
According to the survey, 26% of respondents the threat of cyberattack as their greatest worry and 32% ranked it as their second-biggest concern. Fourteen percent ranked competition from big tech as the biggest threat while 10% said that they worry most about an economic slowdown.
Executives surveyed by Promontory were split on the timing of a possible recession, with about half believing one would hit some time next year or was already happening and the rest who see a slowdown occurring at some point beyond 2020.
Promontory’s bank confidence index held at a 50-point threshold that was crossed three months prior. But expectations have slipped. Just 42% of respondents said that loan demand has increased in the previous 12 months compared to 48% who said the same three months ago and 55% who said so this time last year. Moreover, only 31% said they expect loan demand to improve over the next 12 months, compared to 41% who said so in Promontory’s August Survey.
Three recent cuts to the federal funds rate have apparently eased deposit competition. While a majority, 57%, said that deposit competition has increased compared to 12 months ago, that’s down from 74% in the August survey and 85% this time last year.