Nice infographic on the state of banking 2019.
I'd recommend reading full report, too! A couple things to highlight...
visualcapitalist.com/bank-late-cycl…
I'd recommend reading full report, too! A couple things to highlight...
visualcapitalist.com/bank-late-cycl…
Global return on tangible equity (ROTE) has remained at an abysmal 10.5%. Emerging market ROTE has suffered the most, falling to 14.1% from 20% five years earlier.
Market-leading banks (code name for big banks) benefit the most from operating leverage and scale. Not only do market leaders have significantly higher ROTE, but they also capture more value.
20% of banks capture nearly 100% of EVA!
20% of banks capture nearly 100% of EVA!
Switching costs as a moat seem to be slowly disappearing. Customer churn has started to increase as users want personalized services and better UI/UX.
On top of that, fintechs continue to enter the marketplace (duh) and record funding continues.
ftpartners.docsend.com/view/v4z8trv
ftpartners.docsend.com/view/v4z8trv
Fintechs also have the luxury of spending significantly more capital on R&D, rather than compliance. Fintech R&D budgets are 2X of traditional banks.
In addition, fintechs can target high ROTE customer segments, which big banks don't have the luxury to do.
In addition, fintechs can target high ROTE customer segments, which big banks don't have the luxury to do.
Digital banks also have a much more favorable cost structure. Operating expenses are 72 basis points ("bips" if you want to sound like a banker) lower than traditional banks.
Sounds all doom and gloom for big banks, but a couple of things to remember:
Fintechs still haven't been able to obtain banking charters to provide typical services and take customer deposits.
paymentsjournal.com/is-this-the-en…
Fintechs still haven't been able to obtain banking charters to provide typical services and take customer deposits.
paymentsjournal.com/is-this-the-en…
...and startups rely on banking partners (usually smaller, regional banks who welcome deposits) as a form of regulatory arbitrage.
latimes.com/business/story…
latimes.com/business/story…
Plus, some of these challengers have witnessed recent hiccups...
businessinsider.com/chime-outage-l…
businessinsider.com/chime-outage-l…
TL;DR...
Running a heavily regulated bank has been tough and operating leverage is a differentiator.
Digital banks & neobanks continue to provide seamless UI/UX across profitable segments, but they also have their own problems.
In short, the banking wars continue!
Running a heavily regulated bank has been tough and operating leverage is a differentiator.
Digital banks & neobanks continue to provide seamless UI/UX across profitable segments, but they also have their own problems.
In short, the banking wars continue!
