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.
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 bank is a leader in payments technology and partners with companies like Mastercard Inc. (NYSE: MA), Visa Inc. (NYSE: V), and others to help provide quicker, more efficient digital payments.
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
One of the best FinTech companies right now is way off everyone’s radar screen.
Wall Street still sees Unisys Corp. (NYSE: UIS) as a dodgy old tech company, but that’s far from the truth.
Under CEO Peter Altabef, the company is an innovative leader in providing FinTech services to the banking industry.
Their new Unisys Elevate digital banking platform allows banks to move into the digital age, enabling their customers to conduct business anywhere, at any time. They incorporate their Stealth Solution cybersecurity program into the system, so the bank is hardened against cyberattacks, making the process not only convenient for the customer but safe for everyone involved.
Banking is just part of what Unisys offers, and they have a vast business relationship with the Federal Government and major corporations as well.
The stock has been ignored by Wall Street and trades at ridiculous valuations right now.
The enterprise value to earnings before interest and taxes ratio is one of the lowest of all U.S. companies at the moment at just 5.
Helped by the FinTech part of the company and the continued shift towards digital banking, Unisys should be able to grow by double digits for the next five years and longer. That’s going to drive the stock price a lot higher.
FinTech did not make bankers obsolete, after all.
Bankers have figured out how to use FinTech to make banking better, and those who understand the digital trends can make a lot of money as FinTech and banks continue to grow together.
— Tim Melvin
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Source: Money Morning