Last week, in his annual shareholder letter (page 28), Jamie Dimon stated “Banks have enormous competitive threats — from virtually every angle,” he said. “Fintech and Big Tech are here… big time!”
Also in Jamie’s letter
It is completely clear that, increasingly, many banking products, such as payments and certain forms of deposits among others, are moving out of the banking system. In addition, lending in many forms – including mortgage, student, leveraged, consumer and non-credit card consumer – is moving out of the banking system. Neobanks and nonbanks are gaining share in consumer accounts, which effectively hold cash-like deposits.
In the US TBBK is the leading bank partner for Fintech, powering innovators like Chime. As you can see from its March 2021 10K deposits sit around $5.46B growing 8.1% from 2019. Not much competition here as JPMC’s deposits total over $1.9T, and growing at 18% .. Per WSJ “More Cash Means More Problems for Big Banks” US retail banks are struggling to find a way to deploy these low cost funds with Loan to Deposit ratios at 36 year LOW.
Contrary to Jamie’s concern, deposit data clearly shows large banks are not losing deposits or accounts.. Lending? Perhaps at the 1-2% level (in the noise). Furthermore I don’t think Jamie’s complaints regarding unequal regulatory treatment of Fintech holds water. FINTECHS do NOT bypass regulatory hurdles, but rather are enabled by banking partners (like TBBK). As another example, on the lending side, SoFi and others have enabled securitization of consumer lending with unique scale and participation. SoFi’s plans for a deposit business (with FDIC insurance) require them to address CRA requirements. Start ups, and their partners, are playing by the same rules. The regulatory issue for JPMC and Jamie is that big banks are MORE encumbered with additional constraints (Durbin, SIFI, TARP, Volker, …etc).
Need for Financial Supermarkets? Its like the physical Blockbuster store.. the “market” is no longer the physical branch. Banking has become infrastructure, something integrated into the things you use and places you shop. When you buy a movie on Amazon.. do you think about your bank delivering value? Nope..
The nature of retail banking has fundamentally changed (blog). Pure FinTech is less of a “competitor” than fragmentation and integration of new consumer value propositions… with new and improved consumer experiences. Just like Blockbuster, new experiences are enabled by “infinite” no cost distribution with cross channel and multi partner integration. Today what barrier does a consumer face when engaging a new financial partner (ex Sofi, Affirm, Chime, ….)? 2 minutes: app install with instant verification. Who needs a “supermarket” when you have an always on market in your phone?
With respect to fragmentation of banking services, Consumers no longer see risk in dealing with niche players, they gravitate toward great experiences that just work. Fintech is winning by simplifying banking (ex clear products, pricing and speed). Traditional bank hurdles of KYC and branch based distribution have become mill stones. Sandy Weill’s financial supermarket vision is coming to an inglorious end…. The Blockbusters of Banking…
The primary function of a retail bank is to enable commerce. JPMC listed Apple, Amazon and Google as emerging competitors! This is especially odd given that all 3 are customers of Paymentech and are among the top 10 merchants accepting Visa and Mastercard. In what world are these 3 competitors? I agree that their consumer value, and touch frequency, has placed them in a position of trust which enables them to steer consumers to the best products. But they are merchants using V/MA.. not banks.
As I outlined in Transformation of Commercial Networks, value is flowing to the ends of networks. The integrated “bank supermarket” is replaced by a mobile phone with integration of everything. Payment, identity, legal agreement.. All are focused around the consumer’s task. Pay your babysitter? Venmo me.. Refinance your student debt? Sofi. Checkout and get instant loan for 4 payments? Affirm. Cash your Covid check? Snap a picture of it with Paypal.
Is this a threat to banking? Competitive products integrated into consumer needs (when and where they need them)?.. Absolutely – just as the internet was to Blockbuster. The value remained the core product (movies) and consumers were no longer constrained with limited supply or physical distribution.
What Actions Can Banks Take?
- Find a use for those deposits.
- Create 2 radically new consumer value propositions.. My friends at Walmart would love to take Zelle. Or why can’t I do banking on my Alexa?
- Scale down your branch network and refocus (ex Citi GCG – closing in 13 countries). Supermarkets are also open at the convenience of customers.. and don’t require appointments. Make a decision here.. do you reopen branches? Or enable new sales partners and channels (just not on airline flights please).
- Create a partnership team that enables start ups… Visa is doing a great job here.. Banks win when innovation is centered around them..
- Accept the end of the supermarket.. Simplify your products and price them to compete.. Distribute and integrate them in non-traditional channels.
- Measure every service you provide in speed and customer satisfaction. Baseline against your competitors and take action. Today I can open a Square or Stripe merchant account in minutes. JPMC? an email form stating they will get back to me.