On today’s show we are going to look at some of the changes underway in the world of banking. I believe that banks have learned a lot about their business processes over the past two years. The pandemic forced an acceleration of the transition away from performing transactions in the physical branch to performing transactions online. We’re going to look at one major bank Wells Fargo as an example of the changes that are underway.

Earlier this month, Wells Fargo told investors that it expects to cut expenses by an additional $3.2 billion this year after already trimming about $7.5 billion over the past two years.

I view Wells Fargo as one of the best banks positioned to benefit from higher interest rates. In fact, almost all banks will benefit from higher interest rates, provided the default rate remains under control. Defaults can have an outsized impact on bank profitability and can cause more harm than good as we saw in the 2008 financial crisis.

If I think about our own banking relationship with Chase, we have a business banker that we speak with regularly over the phone, but have never physically met in person. We took the time to open a new business account with them, a process that took several weeks. Since then we have opened many accounts with them.

We can initiate most wire transfers from an online portal.

Banks are also closing branches in order to respond to changing customer demographics and trends. Banks recognize that it is more efficient to concentrate a greater number of branches in densely populated urban areas. At the same time, banks have realized that many customers are now more comfortable banking from their homes or on their mobile phones. As such, many banks have responded by shifting resources to digital banking and away from physical locations.

The banking industry continues to consolidate. There were over 10,000 banks in 2006. That reduced to 6,000 by the end of the financial crisis, That reduced to fewer than 4600 in 2023.

We are seeing bank consolidation: Larger regional banks are merging with one another or taking over smaller banks in their regions to create stronger organizations with increased resources and competitive advantages. In cases where there is overlap, a number of branches are closing without losing customers. The overall operation becomes more efficient.


Host: Victor Menasce

email: podcast@victorjm.com