Authors : Gautam Gole and Makarand Kelkar
The banking industry in the United States has experienced rapid consolidation since the financial crisis of 2008. Despite consolidation of over 35% over the last decade, there still are about 5000 commercial banks operational in the US. Top 100 banks own over 80% market share and make nearly 80% of the industry profits.
The following charts show the macro state of the FDIC registered banks circa 2020.
As the COVID-19 imposed crisis recedes, banks in the US need to prepare for another wave of consolidation to a ‘New Normal’
Covid-19 and digitalization
The past 18 months have highlighted the importance of digital banking. Banks have had to adjust to the circumstances and ensure availability of services via online and mobile channels and have done so quite successfully. In a strange way, that success had led to increased customer expectations in terms of even more banking services being accessible via digital channels.
US Federal Reserve (Fed) policy
The Fed has provided unprecedented liquidity into the market for last 18 months. This economic (inflation and employment target) and monetary policy (liquidity, expanded balance sheet) has created market imbalances and the US economy is faced with an Inflationary narrative that can lead to reshaping of the economy. Banks need to plan and prepare for a low growth, high inflationary macro economy.
Technology first Neo Banks disrupting the Banking Sector
Technology coupled with innovative venture financing models have enabled creation of technology companies that provide banking services. Here is a small sample
services. Technology companies not only have scaled rapidly, but also gained a greater mindshare of the customers along with greater market valuation than traditional banks.
Crypto currencies have gone mainstream with companies starting to accept Crypto as form of currency and as an asset class and launch of Crypto ETF funds by top financial institutions. Crypto and blockchain based technologies have created an alternative banking system that is de-centralized and threatens to operate at a greater speed and efficiency. Ethereum/Blockchain based protocols and related ecosystem are expected to mature for commercial scaling in the next 2–3 years.
Digital wallets, smart contracts, digital currencies will start to make traditional deposit, loan processing, payment methods obsolete in the next 3–5 years.
What kind of a banking future should we expect by 2030
30 dominant banks by 2030
There will be approximately 30 national/super regional banks in US by 2030, with a minimum of $450B in assets as against $110B in 2020. The Top 100 banks will also gobble up more than 95% of the industry profits.
Number of physical branches will reduce drastically, with the bigger banks reducing their footprint the most.
Most Metropolitan statistical areas (MSA’s) will be served by 1–2 banks with larger MSA’s served by 3–5 banks. Top 1–2 banks within each MSA will possess at least 60–70% market share as against current avg. of approx. 30–40%.
Majority of the branches that remain will be Smart, Thin branches, manned/unmanned and will become the ‘bank’ in rural MSA’s. Smaller banks with a handful of branches each will struggle to survive.
Competitive bank of the future
Fintech enabled banking will require and result in entirely different technology architecture and application stack. Blockchain/DeFi based solutions will be deployed on cloud platforms with ability to scale as and when needed. Automated back-office operations processes –Sales, Marketing, Operations processes will be executed by software bots that are enabled by AI & Machine Learning (ML). Human interaction will be focused on value addition and value creation.
‘Banking as a Platform’ (BaaP) will become the norm. These platforms will be based on ‘Open Banking’ principles, industry driven rather than regulatory.
360-degree view of customer
Banks will need to generate single consolidated view of each customer, based on data across all silos within the bank as well as data from non-banking partners, 3rd party banking partners and service providers and behavioral information gathered through analysis of the data.
Such a view will enable heavily individualized offerings, including some that are predictive/anticipatory, and personalized customer experience.
Speed of customer outcomes, Non-linear Scale of operations, Agility in execution, Innovation and People first agenda and Discipline in Operational Excellence will be the key principles and values that will enable success and survival for banks in the next decade.
This article, while putting out our vision of the future of US banking, is also a call for conversation and collaboration in envisioning and enabling a shared future. The next article in this series will focus on Strategies that we expect banks will need to pursue for 30 by 2030.
We intend to follow up on the above articles with a few that are narrow in focus but much more detailed. We will be happy to hear more view and collaborate on some of the upcoming topics.
- Key Strategies for banks to pursue for 30 by 2030
- Practical approach to Digital Transformation
- A comparison of Valuation traditional banks v/s Neo banks
- US Banking: AI, Machine Learning, Data Analytics, Behavior
About the authors
Feel free to contact us to share views and discuss opportunities where we can help.
Gautam is a seasoned Strategy and Operations leader, Entrepreneur and Angel Investor.
Gautam’s strength is partnering with people to envision the future and in executing both the Private Equity and Venture Capital playbooks per the situational need.
In the last three leadership roles Gautam has led a mid-size financial institution, a software portfolio and an Industrial organization through digital and operational model transformation.
Gautam believes passionately in inspiring People and Organizations to achieve their greatest potential.
Email — email@example.com
Makarand is a seasoned professional with extensive experience in Global Banking IT.
Makarand excels at strategy formulation & implementation having led multiple digital transformation initiatives. Makarand inspires and drives teams to greatness through his passion, commitment, and focus on innovation.
Over the last few years, Makarand has helped several startups in their journey from visioning and ideation to product design & development and operations management.
Email — firstname.lastname@example.org