An interesting story on NPR this morning dealing with banking among the working poor. No surprise that this is a group that is underbanked in so far as there isn't much access to branches. There is access through through smartphones. I don't know how many in the working poor in the US have smartphones, but my guess is the number isn't overly small. In Africa, a continent which is underbanked, apps for smartphones have been flowing more strongly than water over Minnehaha Falls in Minneapolis during the summer (I know we have some readers in the Twin Cities who can attest to the amount of water involved). Within 5 years, maybe 10 at the outside, banking in Africa will be a mobile phenomenon. There may still be some bricks and mortar offices—neanderthals like me like to see such things. But for the kids—soon to be adults—and the young adults, mobile will be it.

Banking execs are going to have to change to deal with this paradigmatic shift. The current leaders arose in a different era, and their understanding of mobile banking will necessarily always be in the context of bricks and mortar branches. (This has already begun happening in Africa.) As I said, the branches aren't going to disappear, just fade/be relegated downwards in importance as a means of interacting with customers and generating business. This got me thinking about the US banking system. There's been lots of talk about the coming wave of layoffs on Wall Street because of the decline in volatility ("The End of Equities" the cover declared in 1979—I'm waiting for a similar one on volatility this year). Banking in the US has changed during the past 6 years since the crash. Fees are returning as the basis for banking profitability. Boring. (Though Mr. Melvin has made some nice change, and not exactly chump change either, off of boring.) Mobile banking will come at some point to US. But I have to wonder if the growth of mobile banking and the paradigmatic shift to fees rather than trading profits hasn't revealed a major weakness in US banking—or at least the larger US banks: leadership.

While bank managements attempt to deal with a new era in which trading doesn't produce much in the way of profits, I have to wonder if the problem isn't with the managements themselves, rather than with the rules under which the banks operate. Much as mobile banking requires a different mindset than bricks and mortar banking, maybe the new era in US banking requires new managements—wholesale. Perhaps that's the key component, thus far missing, in dealing with TBTF. There should be lots of opportunities in mobile banking, but one needs to have come from a mobilized background rather than a brick and mortar one. Planck's Law applied to finance. One might have expected shareholders to demand new managements to effect this change and maximize shareholder value, but replacing managements by shareholders is about as hard as defeating an incumbent Representative. It's possible, it's just hard to do, expensive to do, and happens pretty rarely. When it happens, it's in the context of a wholesale shift.

Perhaps the banking system in the US isn't functioning to the top of its capabilities because of managements who long ago should have retired. At least part of the problem, that is. How big? I'm not prepared to suggest a number.

My impression is that banks, at least the larger ones, are still trying to work through the changes. For all the hoopla about the recent earnings report from JPMorganChase, the reality remains that profits were down and no one knows if the increase in small business loans, for instance, is a blip or trend in the making. With retail looking a bit peaked, I'm pretty sure those loans aren't going to small retailers. With Europe continuing to behave like a diabetic uninterested in controlling his disease, and whittling up both legs as gangrene sets in, I'm wondering how much of the other parts of the US economy are going to be throttled back in the second half of 2014 and looking into 2015. Getting the banking/financial services sector to function optimally is important for US economic growth. I'm not sure the current managements are up to the task. Wholesale change may be necessary, but I have nary a clue as to what might bring it on.

anonymous writes: 

I have listened to de novo (new) bank presentations for 30 years, and this underbanked crap is mentioned in every single one. It's as bad a global warming. There are NO underbanked communities in the US. There are only lazy people.

Additionally, many new bank equity presentations are frequently overweight products that the so-called under-banked wouldn't even use.

The under-banked, when there was such a thing, learned to go to credit unions.





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