This was quite a year for the banking industry. The fundamentals of taking deposits and making loans remained the same, but it seems as if most everything else changed in significant ways.
New regulation, new technology, new competitors, and yes, even a new era of bank robbers combined to make 2015 a year to remember.
The rules of the game continue changing
For several years, new banking regulations have steadily changed the way banks interact with investors and companies alike. In 2015, Basel II and Dodd-Frank regulations continued having huge impacts.
Basel III ratcheted up capital requirements this year, staying on schedule for its full implementation in 2019. Banks in 2015 made big changes to their balance sheets, selling off risky assets and loading up on more conservative assets such as government Treasuries to meet new liquidity requirements. These changes are making returns on equity harder to muster, putting a ceiling on how high bank valuations can rise.
Dodd-Frank continued its steady implementation as well, most notably the implementation of the Volcker Rule, which prohibits banks from trading with their own capital. That was once a major profit center for Wall Street banks, and these institutions today are being forced to de-risk their business models and return to old-fashioned, lower-risk income streams.
For consumers, 2015 marked the arrival of simplified mortgage disclosures and strict new timelines to allow consumers a fair chance to review their mortgage documentation before signing on the bottom line. Seven years after the financial crisis, these reforms were long overdue and a welcome change this year.
The bank branch in your front pocket
The explosion in smartphone usage over the past 10 years has driven banking customers away from the branch and onto online banking websites and mobile apps. That trend continued in 2015.
At Bank of America, 14% of third-quarter deposit transactions took place on a mobile device. B of A reports 18.4 million of its customers use their mobile device to access their banking services, a 14.7% year-over-year increase.
JPMorgan Chase (NYSE:JPM) has even more mobile customers -- 22.2 million as of the third quarter, with that figure growing nearly 21% year over year. Wells Fargo (NYSE:WFC) experienced a slower growth rate than other large banks, although the bank still reports 16 million mobile users.
New competition from non-traditional players is taking market share
On the lending front, peer-to-peer, or P2P as they're often called, and online lending platforms such as Lending Club (NYSE:LC) and OnDeck Capital (NYSE:ONDK) exploded onto the public markets late in 2014 and have been grabbing market share left and right ever since.
P2P lenders like OnDeck and Lending Club function as a marketplace connecting prospective borrowers with third parties willing to fund their loans. The companies have automated credit-risk rankings and pricing models, making the process fast and transparent for both borrower and lender.
Since 2007, loan origination volume at peer-to-peer lenders have grown an average of 84% per quarter. Since their IPO, Lending Club and On Deck have increased their revenue by 71% and 103%, respectively.
In 2015, these non-traditional lenders put the rest of the industry on notice that peer-to-peer lending will have a seat at the table going forward.
Cyber-threats took center stage
For most consumers, the introduction of chip and PIN credit and debit cards was the most visible cyber-security initiative in 2015. This change does go a long way to protect consumers from identity theft and fraud. However, there are much bigger threats lurking in the shadows.
Consider the February announcement of a cyber-attack lasting over two years, affecting more than 100 banks across 30 countries that siphoned off close to $1 billion from banks.
Following a hack of JPMorgan Chase last year, authorities in 2015 uncovered an elaborate network of cyber-crime that U.S. Attorney Preet Bhara described as "breathtaking in their scope and size." Investigators identified 75 shell companies, 30 fake passports, and hundreds of millions of dollars in illegal proceeds in various international accounts.
Wells Fargo is the most recent cyber-victim, succumbing to a denial-of-service attack in September. Hackers flooded the servers at the bank and other financial institutions, bringing their websites to a crawl, if not crashing them altogether.
The stereotype of the lone hacker no longer applies. Today's cyber-criminals are sophisticated, organized, and a step ahead of law enforcement and bank security. Technology hasn't made the bank robber obsolete; bank robbers today are capable of stealing more than ever before.
What will 2016 bring?
It's hard to predict the future, but it's a safe bet that the trends seen in 2015 will continue to expand and evolve in 2016.
New technology will continue to evolve, perhaps even to the point of completely upending the whole banking establishment. Keep a close eye on cutting-edge technologies such as bitcoin and block-chain technology.
Along with positive innovations, cyber-crime will also likely continue to grow in prevalence and sophistication.
Next year will also probably bring even more competition to traditional banking institutions. Barriers to entry are considerably lower for online competition, and in the rapidly innovating consumer technology space, new competition can sprout and grow far faster than traditional banking models. Expect this trend to affect banks more and more every year.
And don't forget that the Federal Reserve is probably going to begin the process of raising interest rates from the generationally low level we've seen since the financial crisis.
Whatever happens in the year ahead, it's sure to be an interesting time as both a bank consumer and investor.