The last challenge for banks is technology.
Bankers have always had to adapt to new technology—whether it was drive-through tellers or debit cards or ATM machines. But the mobile revolution creates especially significant demands. Now, almost half of all depositors prefer to manage their accounts via PC or cell phone. By contrast, five years ago only a quarter of their customers did their banking this way.
And new payment methods provide new challenges. Apple Pay could accelerate the trend toward phone-based banking. Add in peer-to-peer lending, security challenges, microfinance, and demands for data-driven “predictive banking” and you have a perfect storm of technological demands that will stretch every bank’s IT budget. It’s no wonder many smaller banks are finding the cost of keeping up daunting.
Bankers have no choice but to run as fast as they can just to keep up, like the Red Queen in Alice in Wonderland. The changes in the way we save, borrow, and spend in the 21st century are every bit as revolutionary now as they were 100 years ago when we went on and off the gold standard, the Fed was created, and national banking networks began to spread.
New tech trends, new customer demographics, and new regulatory burdens will all pinch returns. Investors need to understand that all this newness will create winners and losers among the banks. That’s why innovation is also called creative destruction.
Douglas R. Tengdin, CFA
Chief Investment Officer
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