Point of View

One of the stories in this issue details the evolving digital strategies of some of the largest U.S. banks, which have developed mobile apps or websites that are branded separately from their generic digital banking platforms. JPMorgan Chase & Co. released its new app, Finn, in June, while Wells Fargo & Co. also has a new mobile banking app in beta-called Greenhouse-which has an anticipated release date of later this year. Both are targeted at digitally-savvy consumers, including Gen Y-otherwise known as millennials-who make up about one-quarter of the U.S. population.

This might be a contrarian point of view, but these two banks are rapidly evolving into formidable fintech companies in their own right, and they are clearly reacting to both demographic changes that are occurring in the U.S. population, as well as changing preferences for how consumers shop for goods and services, including financial services. Right behind Gen Y is Gen Z, who were born between 1997 and 2015. (There isn’t widespread agreement on the date ranges that separate baby boomers, Gen X, Gen Y and Gen Z, so these dates are approximate.) The oldest members of Gen Z are in their early 20s and entering the workforce. Together, Gen Y and Gen Z make up about half of the U.S. population. And both cohorts can be described as digital natives, which is to say they grew up in an era when digital technology, including computers, the internet and more lately, mobile phones, were as familiar to them as Woodstock, bell-bottom pants and streaking were to most baby boomers. In a few years-10 at the most and perhaps even sooner-these digital-native consumers will be the driving force behind the U.S. economy. And while they certainly shop in stores (and occasionally go to bank branches), they are very comfortable in the evolving world of digital commerce.

I think a handful of large U.S. banks, including JPMorgan and Wells Fargo, are playing a long game as they begin to position themselves with people under the age of 35, who are the customers of tomorrow, while it seems that most other banks are playing a short game as they focus on the customers of today. If you think about the future of banking in that context, demographics is destiny.

Kevin Travis, an executive vice president at the bank consulting firm Novantas, says his firm’s researchers discovered around 2010 that an “inflection point” had been reached where a majority of consumers had switched from being “branch centric” to “digitally oriented.” The shift had actually occurred a few years before, beginning around 2008. “This transition took place during the period of the financial crisis,” Travis says. The timing was coincidental, and as this was occurring most bankers were too focused on surviving the crisis to care. “If you were a banker in 2007 to 2010, whether or not your customers were becoming more [digitally] oriented was not the No. 1 concern.”

A second change that occurred during this same time frame was a rise in the number of retail bank customers who no longer use branches as much as they once did, and that trend continues today. “They still feel that branches are important, they like the idea that there are branches [available], but they don’t use them very much,” Travis says. “That segment has gone from being around 25 percent of the customer base in 2010 to over 50 percent today.”

Travis believes that we’ve reached a second inflection point where digitally-oriented customers are now more attracted to direct banks like Ally Bank and Synchrony that are offering very competitive rates on their savings products. “They are attracted by the pricing and soon realize they can do all their banking there,” he says. Direct banks like Ally and Synchrony aren’t the only national players that are benefiting from the combination of a rising rate environment and the growing number of digitally-oriented consumers. The large national banks like JPMorgan, Wells Fargo and Bank of America Corp. are also benefiting from these changes, even if they don’t compete as aggressively on deposit rates as the direct banks do. Since 2015, the national banks, and to a lesser extent the superregionals, have been stealing retail customers from community banks and credit unions. There are various reasons for their success, including a more extensive product line, but certainly their superior digital banking platforms are a significant factor here. The big difference between 2008 and 2018 is that there are so many more retail customers who prefer to bank digitally, and with the ongoing infusion of Gen Y and Gen Z consumers into the economy, the arch of change will continue bending in this direction.

Travis believes that in this new environment, the national banks pose a significant threat to mid-tier regional banks and, to a lesser extent, community banks. For the latter, being local is still a viable survival strategy, at least for now. “Even in a digital world their locality, their authenticity, their closeness to the customer … is still an advantage,” he says. The mid-tier regionals face a much bigger challenge from the national banks and the direct banks, which are constantly attacking their deposit markets with superior technology and strong national brands. Pick almost any line of business in banking, and you’ll find a fintech company competing for customers and market share. But don’t sleep on the big national banks. They might be the toughest fintech competitors of all.


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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