BankThink

Fintechs are banking's Transformers. And banks aren’t ready.

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LendingClub is acquiring Radius Bank. Varo Money is acquiring a charter to become a bank. The Transformers are coming.

Meanwhile, banks are stuck. Stuck with branch networks. Stuck with batch systems. Stuck with paper processes. In a world that’s rapidly moving from the physical to the virtual, banks are stuck in the past.

But, after years of inertia, customers are becoming unstuck.

Of consumers between the ages of 25 and 44, an average 28% of those surveyed said they would be “very” or “extremely” interested in switching their primary bank account. This would not have been the case just a few years ago.

The two industries most foundationally transformed by ubiquitous connectivity are media and banking. With all the talk of retail being hollowed out by ecommerce, that’s just a halfway revolution.

Anyone can buy a pair of sneakers electronically on Amazon, but they still need little brown trucks to ship it to their door. With media and banking, the entire interaction — both directions — can be electronic.

In media (where I used to work), the tsunami has hit. Old media is gasping for air. New media — from Facebook to Yahoo to Netflix — is ascendant. In banking (where I now work), the storm is just over the horizon.

Since 1970, we’ve seen the rise of ATM banking, telephone banking, internet banking and mobile banking — all substitutes for the branch.

Still, one would think the number of branches would have declined. But that would be wrong. There are four times as many bank branches today as there were in 1970.

Until very recently, banks grew by building new branches and marketing to people in the immediate vicinity. In New York, that’s given rise to “four-corner banking,” a branch on each corner of an intersection. The big banks will spend the next decade deconstructing what it took many decades to construct.

Visits to retail bank branches are set to drop 36% between 2017 and 2022, while mobile transactions will rise by 121%, says CACI. It also predicts that 88% of all interactions will be mobile by 2022.

Everyone with a mobile phone, not just millennials, demand instant information and immediate transactions. Too many banks are hobbled by decades-old batch systems. Meanwhile, Silicon Valley has forgotten how to spell the word “batch.”

Citibank’s 2018 mobile banking study found that 91% of mobile banking users said they prefer using their app than visiting a branch, and 68% “of millennials who mobile bank see their smartphones replacing their physical wallets.”

Furthermore, a 2017 Accenture survey reported that 15% of bank customers switched their primary account to an online bank or payments provider in the past 12 months, and most of that came from large regional and national banks.

The future is owned by companies agile enough to combine real-time apps and a bank charter. That will include fintechs that acquire a charter and banks that acquire mobile technology. Either way, the race will go to the swift.

Yet, it’s somehow fitting that JPMorgan Chase advised LendingClub on the acquisition of Radius.

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Fintech Digital banking Community banks M&A Varo Money JPMorgan Chase
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