The competition between brick-and-mortar banks and their fintech nonbank rivals was in the virtual spotlight with the Oct. 22 event “The Future of Money,” co-hosted on Zoom by the Fairfield County firms Reby Advisors and Neumann Real Estate.
Bob Reby, founder and CEO of Reby Advisors, recalled a Bill Gates quote from two decades ago when the Microsoft mogul opined, “We need banking, but we don’t need banks anymore.” Reby pointed out that today”™s traditional banks are operating at a financial disadvantage compared to its upstart nonbank fintech rivals.
“The brick-and-mortar traditional banks with branches tend to have about $2 to $3 of every dollar that they have on deposit spent on planning equipment,” he said. “If you’re a mobile bank and you don’t have branches, you have $2 or $3, approximately, of every dollar on deposit that you can do something with ”“ that could be giving the consumers more interest, I hope, and it could increase profit margins. It’s a significant amount of money when you talk about two or $3 per $1 deposit.”
Evan Jaysane-Darr, partner at Invesco Private Capital, joined Reby and detailed how the fintechs are elbowing the brick-and-mortar aside in pursuit of customers, with serious long-term consequences for banks that are not aggressive in consumer retention.
“They can charge more competitive rates and they can offer other ancillary services for lower costs and make it make it worthwhile,” he explained, noting his experiences as an example of the brick-and-mortar banks getting it wrong. “Being a very loyal Bank of America customer ”“ and a preferred customer ”“ I went to buy a property but I didn’t benefit from being a longtime Bank of America customer for 20 years. I still was offered the same interest rate on my mortgage as anybody else with a comparable credit profile would be. And that’s really an inefficiency with the current system.”
Jaysane-Darr also observed that some brick-and-mortar banks are surprisingly far behind the curve in regards to the high-tech world.
“The large legacy banks are trying to move toward being more tech-enabled in various forms, but they have a long way to go,” he continued. “Many of them still run on COBOL ”“ antiquated programming languages from, in many cases, the 50s and 60s. These are pretty slow-moving archaic institutions at this point, even though they aspire not to be. As a result, they are not set up to take advantage of the data that they have access to and, frankly, to monetize it.”
Reby speculated whether brick-and-mortar banks will find themselves stuck in the rear-view mirrors of their fintech competition.
“What about the general concept of banks losing market share to new digital challenger banks?” he asked. “Is there room for everybody? Or is it something where they better pivot?”
Jaysanne-Darr theorized that market share will ultimately be decided by how consumers react to their banking experiences, adding much of that experience is shifting to mobile or digital banking. Reby countered that the pandemic may have given brick-and-mortar banks a temporary advantage among business customers eager to obtain PPP loans from the federal government.
“There are folks that work with me that pride themselves on never having been in a bank branch,” Reby said. “But when the government came out in the middle of crisis and channeled money through the local banks, people really relied on the personal relationships with banks to get it done. I saw the whole concept of personal relationships in great service come to the forefront and fruition.
“As it relates to the digital lending environment,” Reby added, “it’s not really relationship-built, meaning I talk with a different person each day. Is that what the new generation really wants, to just borrow money when they want at a low cost? Or do they want good service?”
