Ron Shevlin, chief research officer at Cornerstone Advisors is my very good friend, and who has a deep feel of the ground of the goings-on in the US banking industry. We often chat, sometimes over lunch when I am passing through Boston, on his take of recent events. So I decided to record one of our chats. This time he discussed the gloomy outlook for the US banking industry, highlighting the impact of regulatory pressures on banking operations. We explored factors such as declining loan demand and decreasing non-interest income.
He identified significant threats to the banking industry, including regulatory pressures from proposed legislation. Four out of 10 bank CEOs surveyed pointed to the US government as a significant threat. The looming Credit Card Competition Act poses risks to banks, potentially reducing interchange rates and income streams.
Shevlin also talked about Goldman Sachs’ withdrawal from Apple’s partnership due to mismatches between expectations and customer demographics, and Capital One’s balancing act in pursuing mergers, particularly for Discover’s network acquisition.
We also discussed innovation and technology, including bank-fintech partnerships and potential growth opportunities in the fintech sector.
Key points from our conversation include:
- The slow progress of FedNow initiatives in the US, indicating challenges in adoption and underscoring the urgency for banks to embrace technological advancements, particularly in artificial intelligence to stay competitive.
- PayPal faces tough competition from Square and others, affecting its merchant base and growth prospects. Despite its widespread use among US consumers, increasing payment options challenge its dominance, highlighting the need for innovation amidst evolving market dynamics.
- Innovations in AI-driven enhancements of customer experiences and operational efficiency, exemplified by credit unions like SouthState Bank and Michigan State University Federal Credit Union.
- Observing a shift away from traditional bank-fintech partnerships towards strategic investments in fintechs, alongside regulatory challenges surrounding banking-as-a-service capabilities.
- Expectations of a deceleration in innovation, with banks experiencing speed bumps, emphasise the importance of prioritising cost reduction over innovation spending, potentially impeding technological progress.
