econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 21 October 2016

FinTech Is Taking A Bite Out Of Banks

by Ben Shepherd, Investing Daily

Investing Daily Article of the Week

Bankers have been in the hot seat thanks to a wave of scandals, ushering in the departure of Wells Fargo’s (NYSE: WFC) CEO and driving Deutsche Bank’s (NYSE: DB) share price below even financial crisis levels.

On top of that, while revenue and earnings at most of the major banks have been topping analyst expectations, they’ve also generally been down compared to last year. The Fed dragging its feet on interest rates has depressed bank profits, and what growth there has been has mostly come from trading and fees, as evidenced by the recent earnings reports.

A big problem, though, is that banks have also been dealing with some unfamiliar competition over the past few years. Financial Technology (FinTech) companies, which aren’t traditional banks despite being subject to many of the same regulations, are disrupting payment systems, money management and even lending. On the loan front alone, FinTech outfits like LendingClub (NYSE: LC) are gobbling up market share. While they only financed a few billion dollars’ worth of loans in 2013, it’s estimated they made between $20 billion and $40 billion last year. Many analysts believe that the FinTech share of the lending market will continue to grow and could hit $90 billion by the end of the decade.

As FinTech takes a bigger and bigger bite out of the $3.5 trillion consumer lending market, banks are starting to feel the pressure. That especially true since FinTech lenders also make a lot of loans to lower-credit borrowers which, while carrying more risk, also tend to be much more profitable.

FinTech outfits are also cutting into what were once reliable revenue streams for by banks by launching new payment services serving merchants, who are often frustrated by all the paperwork involved in setting up new systems. On top of that, banks also charge fees for their services which quickly add up and it can often take days for merchants to collect monies charged to credit cards. There are several FinTech firms out there streamlining those systems and, since they don’t have a big infrastructure of other services to support, can do it more cheaply.

Wealth management is another area where FinTech is taking a big bite of what was almost solely the purview of banks. Instead of going into a bank and talking to someone in a business suit who may be biased towards steering you into one of the bank’s proprietary funds, you can download an algorithmically developed “robo-advisor" app on your phone and invest without ever talking to a human being. A bevy of robo-advisors have shot up, ranging from Betterment and Folio to Wealthfront, most of which are cheaper and less hassle then dealing with your bank.

They also have a lot of appeal to millennials who, after the financial crisis, have developed a distrust of traditional wealth advisors and buy into the idea of index investing. My generation is also notorious for always having their phone in their hand, so offering investment management through an app makes it almost irresistible.

Although there isn’t firm data on just how much money these systems are managing - most are private and don’t have to report that kind of information - considering how many major banks and other financial players are buying them up is a clear indication that they’re the wave of the future. Over the past couple of years Northwest Mutual has acquired Learnvest, BlackRock bought Future Adviser and Vanguard, and Fidelity Investments and Charles Schwab have each launched robo-advisor services of their own.

So, banks aren’t just fighting a battle against bad PR or struggling against stagnant interest rates. They’re also fighting against the disruptive effect of technology, which is only going to get worse as FinTech grows and matures and will continue eating into bank’s traditional profit centers. None of this is to say that banks are an inherently bad investment - I own a few banks stocks myself - but growth is going to be much harder to come by in the future.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Consumer Spending Increase Saves 4Q 2016 GDP Estimate from a Decline
Wasteful Health Care Spending
News Blog
Over Four Hundred Fifity Tons Of Essentials: Saudi King Sets Off For Month-long Asian Trip
January 2017 Construction Spending Growth Declined
February 2017 ISM Manufacturing Survey Improved
January 2017 Personal Income Year-over-Year Growth Again Weakens
Infographic Of The Day: How To Learn Things Faster
Early Headlines: Asia Stocks Mixed, Dollar And Oil Up, Gold Down, Trump's Speech And Responses, Iraq Removed From Immigration Ban, Iraqi Army Cuts Off IS Escape Route, Oz Completes 25 Years Without Recession And More
The U.S. vs. China
Documentary Of The Week: Interview Of Aldous Huxley In 1958
Public Support For May's Negotiations
Do You Know What's In The Herbal Medicine You're Taking?
Apple's Global Retail Empire
The Original Kamikaze: Kublai Khan's Invasion Shipwreck Found?
Amazon Leads The Race To The Cloud
Investing Blog
The Real 401k Plan Manager 27 February 2017
Investing.com Technical Summary 28 February 2017
Opinion Blog
The Cancer Of Bankers
Brave New World: The Pill-popping, Social Media Obsessed Dystopia We Live In
Precious Metals Blog
Deflation And Gold: A Contrarian View
Live Markets
01Mar2017 Pre-Market Commentary: Wall Street Expecting To Gap Up To New Historic Highs At The Opening Bell, Some Analysts Are Worried That Trump's Speech Lacked Quantitative Details, Crude Prices And The US Dollar Rise
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved