Banking in 2016. Image source: iStock/Thinkstock.
The so-called fintech revolution isn't turning out to be the threat to banks that many people once believed. If anything, in fact, big banks have coopted it to extend their own competitive advantages.
You can get a sense for this by looking at how many customers of traditional banks regularly use the banks' mobile apps. Of the three biggest domestically oriented banks, JPMorgan Chase (JPM +0.53%) leads the way with nearly 25 million active mobile customers as of the second quarter. That was up 18% compared with the same period last year.
Bank of America (BAC 0.75%) comes in second with 20.2 million monthly active app users. And Wells Fargo (WFC +0.07%) rounds out the top three, with 18 million active users. (As an aside, this tracks the relative size of these banks' balance sheets, with JPMorgan Chase being the nation's biggest bank by assets followed by Bank of America and Wells Fargo, respectively.)
Data source: quarterly earnings releases. Chart by author.
It's not just that a lot of bank customers have downloaded these apps; this technology has transformed the way people manage their finances. Bank of America's mobile app is 12 times as popular as its branches. Customers of the North Carolina-based bank accessed its mobile app an average of 72 million times a week in the second quarter, compared with an average of only 6 million weekly visits to its physical branches.
The same thing is true at Wells Fargo. "The mobile offerings are our fastest-growing channel now; 18 million of our 20 some million households now have used that and sometimes -- most times -- as their dominant channel," explained Wells Fargo Chairman and CEO John Stumpf on the bank's second-quarter conference call.
JPMorgan Chase's executives haven't shared as many details about the relative popularity of its distribution channels, but there's no reason to conclude that the New York City-based bank is an exception in this regard. After all, its app is used by more people than any other banks' app.
The importance of this trend can't be overstated, as it suggests that banks aren't about to be displaced by upstart fintech companies anytime soon.
This has never been an enormous concern among people who understand how banking works. Unlike other types of apps, if you want to have a banking app that offers actual banking services, then you have to be a bank. That is, to hold a charter and qualify for FDIC deposit insurance, among a multitude of other things. The only other option is to tap into an existing bank's products, which, of course, means that the banks themselves would still be an indispensable piece of the puzzle.
Yet among the general population, the belief that fintech companies would take market share from the likes of JPMorgan Chase, Bank of America, and Wells Fargo has been a popular theme over the past few years.
But even more important than this is the impact that mobile banking apps could have on banks' bottom lines. It's much cheaper if a bank's customers use its smartphone app to deposit checks as opposed to walking into a branch to do so. According to Bank of America CEO Brian Moynihan, the former costs one-tenth of the latter.
These benefits couldn't come at a better time. It costs more than ever to operate a bank thanks to heightened regulatory burdens since the financial crisis. Meanwhile, low interest rates are weighing heavily on banks' ability to grow their top lines. As a result, anything that will reduce pressure on banks' margins is very much in demand right now.
