Technology is Invading Banking: Which of These 2 Banks Will Prosper?

Bank visits are on the decline and mobile banking is growing. Technology has entered banking, and it's here to stay. Which bank is your best buy?

Mar 11, 2014 at 7:00AM

The banking industry is changing -- and in no area has this become more apparent than in how customers interact and communicate with their bank. It'll be the job of banks to predict and adapt to these emerging preferences. And, already we've seen opposing strategies as many are repositioning and scaling back branch networks, while others are expanding.

There's no greater juxtaposition than Wells Fargo (NYSE:WFC), with over 6,000 branches and BofI Holdings (NASDAQ:BOFI) with zero. Today I'll dig into which bank is best positioned to gain from the shifting landscape. 

The most popular channels
According to Gallup, "The BRATMO (branch-ATM-online) trifecta still defines the core of day-to-day banking." Whether customers need to make deposits, withdraw cash, manage accounts, pay bills, one of these three channels can accomplish the task. 

The Gallup Blog Channel Usage

Source: The Gallup Blog. 

Gallup noted, "nearly half (46%) of customers have used all three of these [BRATMO] channels over the past six months." More importantly, the study suggested that these customers -- when compared to those using alternative channels -- "generate an estimated $155 more in profit per year to their primary bank." 

Based on these statistics, there's no question Wells Fargo is in the driver's seat. The bank has an online channel, as well as the largest U.S. branch network, and more than 12,000 ATMs. 

The story for Bank of the Internet is better than it seems. The most popular channel, online, is covered. Call centers get a bad rap, but there's no reason to believe these cost-efficient options can't be just as effective as branches. BofI also reimburses customer's ATM fees, so in reality, it has a larger ATM network than Wells Fargo. 

Will technology change the banking landscape?
I think it already has. Branch visits have been on a steady decline. According to Gallup, from 2012 to 2013, customers consistently using mobile banking, "increased by 11 percentage points." Not surprisingly, the lion-share of mobile banking users are Millennials (born in the early 1980s to early 2000s).  

These are the customers that Bank of the Internet will attempt to snatch up. The question is: will Millennials search for a more traditional banking experience as they age? And in my opinion, that answer is no. I believe they will continue to do what they've always done. 

This is a fact Wells Fargo CEO John Stumpf is familiar with. Stumpf, however, has suggested that while younger customers are less likely to visit branches regularly, most customers, regardless of age, tend to open their accounts in a branch.

This is why Wells Fargo has been testing out "neighborhood stores." These smaller locations more efficiently serve lower amounts of traffic, while still functioning as much like a normal sized branch.

The bottom line 
From every conceivable angle, the future is favoring BofI's model. I thought it was impossible to have strong margins with high cost deposits, or make good loans without boots on the ground. But BofI has accomplished both of those feats.

With that said, I'm still favoring Wells Fargo and here's why: 

A majority of today's banking customers still appreciate having a brick and mortar bank. And those more lucrative customers aren't going anywhere just yet. The banking industry will significantly lag the progress of technology, giving the well-capitalized Wells Fargo plenty of time to adapt. Wells Fargo also has a network for more consistently collecting deposits. 

And, finally, I don't believe people choose a bank because it's cheaper, they choose a bank because it's safe. While both banks are insured by the FDIC, Wells Fargo's size and presence makes it feel safer.

Big Banking's Little $20.8 Trillion Secret
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because 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.


Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends BofI Holding and Wells Fargo. The Motley Fool owns shares of BofI Holding and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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