Should Banks Focus on Potential Acquirers, or Future Partners?

February 22nd, 2018

partnership-2-22-18.pngEvidence of how intertwined banking and technology have become could be seen at Bank Director’s 24th annual Acquire or Be Acquired Conference in Arizona, where nearly 20 percent of all sessions at the M&A event were devoted to technology. And while the results of audience response surveys showed that this shift is well-founded, they also uncovered lingering resistance to explore new capabilities and partnerships from the many bank C-Suite executives in attendance. Given the rapid decline in the number of U.S. banks and the fact that the build-to-sell model is still alive and well, perhaps a community bank’s time is better spent courting potential acquirers than potential fintech partners.

The audience at the Acquire or Be Acquired Conference is a powerful industry sampling, with over 650 bank CEOs, senior executives and directors from both private and publicly held financial institutions across the nation. Much can be gleaned from the inclinations of this crowd with regard to the broader banking industry in the U.S., so Bank Director takes several audience polls throughout the conference to harness that collective insight. Some interesting statistics emerged from this year’s conversations. The bankers polled indicated that:

  • The primary driver of bank M&A activity in 2018 will be limited growth opportunities (45.9 percent). Only 7.2 percent of the audience cited the rise in technology-driven competition as the primary force behind M&A.
  • Yet, when asked about what 2018 holds for online-only lenders, 29.9 percent said that banks will lose business to them and they may become even greater competitive threats.
  • In addition, bankers at the conference believe their officers and directors will spend the most time talking about new technologies in 2018 (33.3 percent). Talent issues are potentially the second biggest topic for discussion (31.8 percent), which makes sense given that banks are working hard to compete against technology companies for talent. (See Bank Director’s 2017 Compensation Survey to learn more.)
  • While fintech is acknowledged as a competitive threat, 57.6 percent of the audience disagreed with the premise that using fintechs to improve profits and attract customers is critical for their bank’s near-term success.
  • What’s more, 65 percent of those polled rate their key vendors (payments, digital, core, lending, risk/fraud, etc.) as merely adequate—but still plan to re-sign with them when the time comes.

Is this the portrait of an industry that’s resistant to change, more risk averse than driven to grow, or does a closer look reveal pragmatic reasons for avoiding the headlong rush to adopt new technology solutions?

On day one of Acquire or Be Acquired, Curtis Carpenter, principal and head of investment banking at Sheshunoff & Co. Investment Banking, shared some stark statistics about the shrinking banking industry. We currently see both a lack of de novo bank openings (just eight new banks since 2010) and rapid consolidation, which Carpenter said is creating larger community banks and a focus on exit planning. Another audience poll confirmed that over half (52.8 percent) of the audience still believe the build-to-sell business model is viable. In addition, a majority of the crowd (42.4 percent) believes that the banks with the best chance to thrive operate an acquisition-driven growth model. If bankers think their best bet is to build their bank into an attractive acquisition target and wait to be bought, it’s no wonder they’re in no rush to bear the time and expense of adopting new technologies focused on organic growth.

From the stage, Carpenter posed a startling if central question: “Is this the end of community banking?” With consolidation on the rise and de novos all but extinct, the answer seems to trend to yes. If that’s true, are fintechs better served by targeting the banks with active acquisition programs as potential partners instead of potential sellers?

As consolidation continues, banks and fintechs need to keep a weather eye on one another. Each side of the equation has valuable information and strategies to offer the other, and the fates of these two industries are inextricably linked. Whatever course the banking industry takes, Bank Director and FinXTech will be there to help explore the strategies and relationships that unfold.

abuker

Amber Buker is a staff writer for FinXTech and Director of Client Relations for Bank Director. She coordinates sales initiatives and manages client relationships at law, accounting and consulting firms across the country.