The Sweeping Change That Will Mean 50% More Money for the Banks

Massive changes are ahead in the banking industry, and a recent study reveals banks that watch revenues plummet. Yet Bank of America, JPMorgan Chase, Capital One, Huntington Bancshares, and Bank of Internet all appear poised to benefit.

Mar 3, 2014 at 7:30AM

A recent study found a banking revolution is under way, and the winners will see a massive gains over those that do not adapt quickly enough.

In a report by Accenture, titled "The Everyday Bank: How Digital Is Revolutionizing Banking and the Customer Ecosystem," the consulting firm says "banks are at a crossroads," and banks will soon be viewed as either an essential element to the everyday activities of consumers, or simply a provider of transactions.

And those banks falling into the second category could risk losing up to 30% of their revenues, while the others could see pre-tax profits rise to 135% over current levels:

Source: Accenture.

These changes could mean big things not only to banks such as Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) but also names such as Capital One (NYSE:COF) or Huntington Bancshares (NASDAQ:HBAN), and even smaller ones such as Bank of Internet (NASDAQ:BOFI).

Massive change
The study from Accenture stated that as "technology drives dramatic changes in consumer behaviors and expectations, it uproots traditional transactions for all players -- including banks."

In 2012, 20% of customers changed one or more of all their retail banking relationships as a result of heightened expectations from the technology services provided by banks.


Generations of consumers want quicker and easier access to their data and information through technology, and as a result there is a possibility for new entrants to take market share, but also greater opportunity for banks to entrench themselves at the center of their customers' financial lives.

Yet while this may sound intimidating, the banks able to do so could see huge gains in profits.

Powerful examples
Consider the example of Huntington Bancshares, which has seen its consumers with six or more relationships with the bank -- through checking, savings, credit cards, mortgage, brokerage accounts, or others -- grow from just 41.1% of customers at the end of 2011 to 47.7% of customers at the end of 2013. Huntington says this creation of the "optimal customer relationship," is at the core of its actions, but vitally it drives "higher customer profitability."  

There is also the example of Capital One, which, through its acquisition of online-only ING Direct (now Capital One 360) in 2012, has endeavored to supplant itself as the place for online banking. At a recent investor presentation, the company said one of its priorities in its consumer banking operations was simply "digital leadership," which underlines why it made the move in the first place. 

Yet perhaps the best example of this change may be Internet-only Bank of Internet, which has seen its deposits balloon from less than $1 billion to $2.4 billion since 2010:

Source: Company investor relations.

With returns on average assets and equity of 1.54% and 17.1% at Bank of Internet dramatically outpacing its peer average of 0.68% and 3.9% thanks to its wildly efficient and profitable operations, there is perhaps no greater example of the potential awaiting banks than Bank of Internet.

The biggest banks have also been responsive to this change. Bank of America has made massive efforts to expand its customers' use of its mobile app, and has been met with great success. Its active mobile banking accounts has risen by almost 60% over 2011 levels:

Source: Company SEC filings.

The reason Bank of America has had so much success in its efforts is because it has heavily invested in its mobile technology. Bank of America spent close to half a billion dollars over the past three to four years and will continue to invest at that rate into the future.

JPMorgan Chase also recently revealed that it has seen its digital customer log-ins rise by 28% annually relative to 2010, while at the same time its teller transactions and calls logged to those in its call centers have fallen by 4% and 3%, respectively.

Massive potential
The benefits of these transactions are twofold. This type of service will ultimately reduce expenses. Yet as Accenture notes, the banks that deliver the best experiences to their customers through these greater points of contact will also be able to "count on deeper customer relationships," which will lead to greater revenues and "increased profits." There will be gains realized across revenues, expenses, which will lead to massive growth in income.

The one bank that will capitalize
The banking industry has been in the midst of significant change since the financial crisis, and the core business model hasn't changed for decades, but with change on the horizon, the banks that capitalize will ultimately be the ones to consider as investments. And it certainly creates opportunity for savvy investors. And there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Patrick Morris owns shares of Bank of America. The Motley Fool recommends Accenture, Bank of America, and BofI Holding and owns shares of Bank of America, BofI Holding, Capital One Financial., Huntington Bancshares, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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