The charts look dire indeed. Economic growth as measured by gross domestic product has been anemic. Net interest margins, a main profitability figure for banks, have been under increasing pressure, with only a slight uptick in the fourth quarter of 2015 from a median of 3.08 percent to 3.13 percent. Loan yields also are down. Compliance and regulatory expenses are going up, according to Steven Hovde, chairman and chief executive officer at investment bank Hovde Group, and a presenter at Bank Director’s Growing the Bank conference in Dallas yesterday.
“Fintech and banks are going to end up marrying up,” he warned the crowd. “It’s the only way you are both going to survive. If you think you can do it on your own, you are sadly, sadly mistaken.”
Not long after that, the doors to the ballroom opened and about 140 bank executives and board members were invited to snack on breakfast burritos, as well as mingle with each other and nearly 100 executives from technology companies along with various leaders from professional service firms.
The tech companies have something many banks lack: innovative products and simple, customer-friendly digital solutions for a changing world. Meanwhile, the banks have some things many of the tech companies lack: actual customers and a more stable funding base.
In a sign of increasing acceptance of the transformative power of technology for the banking industry, the conference drew a crowd hoping to learn ways to grow their banks. The vendors were selling everything from data analytics to simplified mortgage platforms and a core system that gives a star rating to customers based on their profitability to the bank.
An executive who spoke at the conference—Eric Jones at core processor Fiserv—said his company has a two-way alert system where customers can take action digitally to respond to alerts by moving money between a savings and a checking account when they get a low-balance notice. Another vendor, Blend, automates the mortgage lending process complete with an application you can fill out on a mobile phone.
Even a representative from Lending Club, the marketplace lender, showed up hoping to lure in some business, although he declined to talk about the company’s recent woes, including internal controls troubles and the abrupt departure of founder and Chief Executive Officer Renaud Laplanche. (Lending Club partners with banks by selling loans to them generated through its online platform, or marketing consumer loans to the bank’s own customers, particularly if the bank doesn’t want to bother with consumer lending.)
Tom Ashenbrener, a director at First Federal Savings Bank of Twin Falls, Idaho, a $575 million asset bank, said his bank was a fairly conservative lender, but looking to grow nonetheless. He wouldn’t rule out the idea of his bank working with online lenders to grow loans. “There are partnerships that could allow us to stretch,’’ he said. “One of the ways we’re going to be prepared is by transforming ourselves.”
Joe Bartolotta, an executive vice president at Eastern Bank, spoke at the conference and had a more urgent tone. He mentioned the destructive impact the start-ups Uber and Lyft have had on the taxi business. “If the taxi business was ripe for disruption, where is banking?’’ he asked.