Financial Technology Reaches a Tipping Point

This issue of Bank Director magazine has an interesting intersection, some might even say a collision, of two generations of financial services companies. As we have done in the 3rd quarter for the last several years, we rank the largest publicly traded banks in our annual Bank Performance Scorecard. These are all, in the main, traditional banks that have branches and continue to do business as they have for years. One notable exception is BofI Holding Inc., the parent company of BofI Federal Bank, a top-five finisher that has only one branch and relies on its Internet and mobile banking platforms as its two primary distribution channels. We ranked 300 banks in total this year, and the best among them—the really strong performers—have honed their business models and strategies to, say, a Grand Life Master level. Theirs is a mature game and they have become highly proficient at playing it.

This issue also contains an expansive special section on the emerging financial technology companies (or fintech for short) —most of which are small, privately held and funded by a combination of private equity firms, other institutional investors and individual investors. They  are playing the same game but playing it very differently. They have built their business models and strategies around technology. Traditional banks are loaded with technology, of course, but for most of them it is the servant, not the master. For fintech companies, technology is both servant and master.

I have covered the banking industry since 1986, when I wrote my first banking story (I believe it was a piece about post-merger integration). Over the years I have covered two major recessions (including one bonafide financial crisis) that had a profound impact on the industry. I have also written countless stories about the industry’s decades-long consolidation and can remember when Citicorp became the first U.S. bank to reach the $1 billion asset level. (It seemed like an impressive accomplishment at the time.) Much has changed over the last 29 years, and yet I believe we are witnessing an epochal shift in financial services. Many of these new fintech companies are developing strategies, practices and new technologies that that will dramatically influence how banking gets done in the future. At the risk of overgeneralization, they have designed their business models around simplicity, transparency and a user interface that relies on technology rather than face-to-face contact.

Millennials—who are called the first digital natives because they were raised with technology virtually from the cradle—are often cited as a driving force behind all of this fintech innovation. And millennials are a force to be reckoned with, to be sure, since they are now our country’s largest generation. A 2014 study by the Independent Community Bankers of America found that millennials are two and a half times more likely to be an early adopter of technology than any other generation, and a lot of what the fintech companies are pioneering is being built with them in mind.

But I think there is something even bigger going on here. Mobile banking adoption has been growing steadily in recent years, but it isn’t just the millennials who are driving that trend. A March 2015 Federal Reserve study found that in the 18 to 29 age group, mobile banking adoption grew from 45 percent in 2011 to 60 percent in 2014. But mobile banking adoption for the 30 to 44 group—made up largely of Gen X’ers—grew from 29 percent to 54 percent over that same three-year period. And the 45 to 59 cohort—which includes some Boomers who are, incidentally, the parents of the aforementioned millennials—grew from 12 percent to 32 percent.  This research on mobile banking adoption is one of many signs that Americans have reached a tipping point with the integration of technology into their daily lives. We all use it, and we’re all growing increasing comfortable with it. For many of us, me included, technology has begun to redefine what a satisfying customer experience is.  Today, good customer service is just as likely to be determined by an efficient and easy-to-use application as by someone’s smiling face. And this adoption phenomenon is one of the driving forces behind the emergence of fintech companies.

Fintech’s growth tends to make bankers nervous, including, presumably, some of those at many of the institutions on our Bank Performance Scorecard ranking. Fintech is too often seen as a competitive threat, and certainly those companies do compete with traditional banks for customers in many instances. But there is also an opportunity to partner with many of these companies, as our story on page 36 points out, and to learn from them. The distribution of financial services products is increasingly going digital, and banks—if they want to remain relevant—must go there too. For all banks today, including the top performers on our Scorecard, being highly proficient in the use of technology is becoming just as important as knowing how to underwrite credit or make an acquisition. In the new Technology Nation that is emerging, some of us are natives and the rest of us are immigrants.


Jack Milligan


Jack Milligan is editor-at-large of Bank Director magazine, a position to which he brings over 40 years of experience in financial journalism organizations. Mr. Milligan directs Bank Director’s editorial coverage and leads its director training efforts. He has a master’s degree in Journalism from The Ohio State University.

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