Big Banks Finally Face Reality
A piece penned by Michael Corkery and Jessica Silver-Greenberg and posted on The New York Times’ website on Wednesday morning painted a flattering picture of the nation’s big banks, pointing out how many of them were finally coming around to the idea that the nation’s underbanked and unbanked should at least have viable (and affordable) banking options. Bank of America (BAC), for instance, is piloting an account that simply doesn’t allow a customer to overdraft their account, although it charges $4.95 per month to maintain the account regardless of its balance.
Similarly, American Express (AXP) is the financial entity behind Bluebird — the alternative to traditional checking and debit cards that Wal-Mart has made the centerpiece of its growing banking-like, cash-handling money services. It’s a target market (the so-called “unbankable”) American Express wouldn’t have dreamed of targeting several years ago, but with growth opportunities on other fronts drying up, the credit services provider adapted to the opportunity it saw.
One can expect other big banks that haven’t followed suit to also realize the traditional, FDIC-insured banking industry as we know it is largely dead, thanks in no small part to technology and trust … trust that used to keep big banks in business, but has been redirected to many online options.
… But It’s Still Not a Reason to Buy Bank Stocks
As the Corkery/Silver-Greenberg write-up pointed out, many of top managers at big banks were lauded by regulators at a hearing in April, simply because they were developing products to cater to those who may not otherwise qualify to become a customer of a traditional bank. Yet, it’s tough to imagine banks doing anything knowing there’s not a significant near-term or even long-term profit in it. More realistically, big banks are wading into what most would describe as non-traditional or even non-banking arenas because that’s where future profits lie.
The aforementioned Amazon Wallet is just one of many examples of how big banks are being circumvented altogether. It’s not just the unbanked or underbanked using such services any longer. In a 2012 study performed by ThinkFinance, it was uncovered that the use of prepaid debit cards was equitably distributed among people making as much as $75,000 per year. Preferences for bank-like servers were determined to be a question of age more so than income — younger customers just don’t care to deal with banks when the equivalent combination of services is available in much more convenient ways.
Again, this isn’t an argument that Amazon’s recent unveiling is a reason to shed bank stocks; some banks are clearly getting into the game. But direct deposits are now being made to prepaid cards, online lenders are able to grant a loan in a matter of minutes without even as much as a phone call, and many major vendors now accept a variety of non-check payments. So, no, Big banks aren’t offering low-cost, low-requirement services just to be nice and keep regulators off their back.
The nation’s biggest banking names are looking to remain relevant in the new era of digital consumerism. Unfortunately, the competition — Google, Apple, Bluebird, GreenDot, Amazon, PayPal, and even Isis — is miles ahead of them. It could be years before the traditional banking industry becomes the preferred choice for consumers in need of banking services.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.