Don’t Under-estimate the Megabank Threat
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By Mike Branton
Clearly, things in the marketplace are very uncertain at the moment.
But one thing is certain to continue when things stabilize: The megabanks’ domination of the banking industry when it comes to consumer deposit market share and growth.
If you think Bank of America Corp., JPMorgan Chase & Co., Citigroup, Wells Fargo & Co. and Goldman Sachs Group are sitting back, basking in a victory that comes at the expense of regional and community financial institutions, think again. The lack of a credible response to stop them means there’s nothing preventing them from continuing to execute their strategies.
Here are examples of the mindset at a couple of megabanks about their view of, and plans for, increasing their consumer marketplace dominance.
Bank of America
Chairman and CEO Brian Moynihan declared in mid-January that he believed the bank could double its consumer market share in the United States. He also believes the bank could double its retail business without opening more branches.
“If we do a good job for the customers and clients and we’re fair in our pricing, I think that’s good because … the scale that we have enables us to do more for customers,” Moynihan said.
He also mentioned that doubling the retail business could happen without opening any more branches. His plans for the next couple of years include opening 500 financial centers and modernizing 2,500 centers with technology upgrades by 2021, creating fully automated branches with ATMs and video conferencing facilities so customers can communicate with off-site bankers, adding 2,700 more ATMs, and increasing the use of AI-powered chatbot Erica to improve digital offerings and cross-sell products like mortgages, auto loans and credit cards.
Doubling the bank’s business may not be the actual end goal at all. Moynihan sees a massive market opportunity. Not only does Bank of America have the scale, but regional and community banks are not responding to consumers’ deposit needs urgently or effectively. Encroaching on their market share doesn’t seem to be a herculean undertaking.
Moynihan doesn’t expect to see a challenge from “traditional large competitors or even regional banks,” but existing and new online bank competitors. “The struggle that BofA will have in increasing market share will not come from traditional large competitors or even regional banks, but more likely from new online banking companies,” he said.
Let’s find out what one of those online banks is working on today.
Marcus by Goldman Sachs
“We aspire to be the leading digital consumer bank,” stated Eric Lane, global co-head of Goldman’s consumer and investment management division. “We’re starting with loans, we added savings and cards, and we’re working to build out the balance of the digital products suite, including wealth and checking. We’re trying to deliver a retail bank branch through your mobile phone.”
From 2016 to 2019, Marcus has grown customers from 200,000 to 5 million, deposit balances from $12 billion to $60 billion, and loan and card balances from $200 million to $7 billion. That has culminated in revenues growing from $2 million to about $860 million, according to the bank’s investor day presentation.
Despite Lane’s desire to deliver a retail branch through phones, Marcus’ growth to-date has been without a mobile app — which was finally released in January. Adding mobile to the digital delivery platform supports the bank’s commitment to the retail consumer and is a crucial foundation for their growth plans. Goldman Sachs plans to more than double consumer deposits, to at least $125 billion over the next five years, and to grow loans and credit card balances fourfold, to over $20 billion during the same period.
Leveraging its perceived advantage over traditional banks, Marcus also just announced plans to offer retail consumer checking accounts in 2021. It will also provide zero-fee wealth management services accessed through the mobile app by the end of 2020 and is reportedly in talks to offer small business loans to Amazon.com’s e-commerce platform business users.
This is just the mindset of two of the megabanks. Bankers should study the plans of others, like Chase and Citi, to learn about their aggressive plans to materially grow consumer market share. They all plan to compete for customers of regional and community banks more than ever while defending their existing relationships and turf.
Regional and community bankers need to pay close attention to the mindset of these megabanks and shift from denying their negative impact on consumers to devising realistic plans to compete against them.