FinTech was going to make banking obsolete.
That was the consensus not all that long ago.
I remember being at a Bank Director conference several years ago out in Arizona. They hosted a financial technology panel talking about all the technological advancements that were coming to banking over the next several years. The FinTech company reps demonstrated some of the next big things in payments, deposit gathering, loan marketing, automatic tellers, and underwriting.
As I looked around the room, it was like seeing Baltimore Colts fans at the end of Super Bowl III. No one could believe what they had just seen, and they had visions of their demise dancing around in their heads.
In the hall after the session, a coffee pot conversation sprung up on the topic, and several bankers expressed fears that this would be the end of banking as we know it.
I declared BS for a couple of reasons.
Why FinTech Ain't All It's Cracked Up to Be
First, we might be willing to use FinTech for some of our payment needs, but the average American is not going to give up the security of FDIC insurance for the bulk of their savings and deposit accounts.
Also, to gather that money, FinTech companies would have to become banks and come under the same regulatory scrutiny as banks, and they would never be able to do that.
Indeed, the Office of the Comptroller of the Currency (OCC), after much grinding and gnashing of teeth, decided to offer a non-bank charter to FinTech companies. The vast majority took one look at the compliance standards and took a hard pass.
The FDIC has never really considered giving non-bank lenders and payments companies access to the insurance fund, giving banks a considerable advantage.
Though, if they were smart, they could use this investment to collect "Federal Rent Checks" each month without much trouble.
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In the meantime, the big banks decided to evolve and adopted FinTech as their own.
JPMorgan Chase & Co. and Bank of America lead the way spending billions of dollars to update and innovate across their digital platforms. In 2017, the two behemoths got together with six of the other top 15 U.S. banks to form their own payments network, Zelle, and opened it up to small and midsize institutions to compete with Venmo.
While hardcore techies thought for sure their app would win the day against the stodgy bankers, today Zelle processes twice as many payments as Venmo in a clear win for the bankers.
As the technology becomes more widespread, smaller banks have either partnered with FinTech companies or sold out to a larger bank that could spend the money to compete in this fast-changing world.
Digital banks may be the future, but the banks will still be the banks. The FinTech companies that make it big will be those that partner with the banking industry.
How New Banks Will Get Ahead
One bank that has taken the lead in FinTech and the new world of banking is The Bancorp Inc. (NASDAQ: TBBK).
The Bancorp is one of the current leaders in real-time payment solutions.
They are also providing payment and deposit services to non-banks and what are being called "neo-banks" like Chime and Varo.
Rather than fear FinTech, The Bancorp team has embraced it, using it to grow their bank and attract customers with digital offerings. They are partnering with other institutions and offering affinity programs to attract deposits and drive lending.
The Bancorp should continue to see double-digit earnings growth for a long time. Investors that step up and buy shares at the current single-digit price to earning's ratio should see their stocks move dramatically higher over the next several years.
New Tricks from an Old Dog
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.