How Regulation Is Killing Big Banking
Every so often, events take place that have a ripple effect on human society. Some are very obvious while others pass by with less notice. We have seen two examples of obvious cataclysms in the very recent past—Brexit and the Trump presidency—but a third is likely to slip by without much fanfare.
Regulation. It is a concept most people tend not to think about, yet holds incredible importance to our social and business structures, as it keeps people and businesses operating in a way that benefits society as a whole. Whether we know it or not, regulation plays a big part in keeping our banking system and will become a more pressing issue as the big banks continue to struggle in the market and FinTech continues to change the banking industry.
As it stands right now, big banks are not well liked by society as a whole and none of the major banks hold a rating that is better than ‘fair’ on the Harris Poll. Current consumers are tolerating them but have no real sense of loyalty and could easily choose to walk out the door with the right incentive.
Well, thanks to recent actions of the big banks, they might just have that incentive. In August, HSBC admitted they have ignored a U.S. regulator’s orders to increase the bank’s defenses against financial crime; then, in September, Wells Fargo admitted to fraudulently opening millions of accounts in clients’ names. These revelations are causing serious damage to the companies’ credibility and the results could be devastating. In Wells Fargo’s case, 44% of their customers are now contemplating taking their business elsewhere.
If the situation continues down this path—with the big banks incurring fines for breaking regulations and customers moving their accounts in response—the loss of profit could be the final nail in big banking’s coffin. According to NTT Data Inc., 46% of U.S. consumers currently have an account with a FinTech provider and this number is going to grow once millennials become the guiding force in the economy. After all, this is the generation that overwhelmingly (71%) say they prefer the experience of going to the dentist to dealing with the big banks and 50% are expecting that FinTech startups are going to bring in the new financial system.
Although it is impossible to know for sure what the future holds, the prognosis for big banks is not good.
The future belongs to FinTech, as it is the more stable and innovative solution.