Banking Industry Overview
Banking on a whole is experiencing tremendous growth, especially with the rise of technology and the loosening of regulations. Banking platforms and aggregators were first introduced to the scene in the 90s with products such as Microsoft Money and Intuit Quicken. Since then, increases in technology, such as the introduction of the iPhone, has spawned a golden age of online banking technology.
The Banking Industry
- Currently, there are 4,708 FDIC-insured commercial banks in the United States.
- The four largest banks in the United States are Bank of America, JPMorgan Chase, Wells Fargo, and Citigroup.
- By market capitalization, JPMorgan Chase is the largest bank in the US, followed by Bank of America.
- After the 2008 financial crisis, major regulations such as Dodd-Frank were put in place to offer transparency and offer some accountability for their actions. Even though it wasn't completely repealed, many other regulations were eased or scaled back which resulted in a more robust banking sector compared to before the 2008 financial crisis.
- Just as the lack of new regulations is speeding up growth in the banking industry, technology is turning into a large driving force. Many banks are undergoing digital transformation facets such as cloud adoption, data management, AI-powered analytics, and system modernization.
- Technology is a major disruptor and driving force in the banking sector today. Many disruptors in years past have already been made commonplace in the banking industry, including blockchain.
- In 2018, the Office of the Comptroller of the Currency said that it would begin accepting bank charter applications from fintech companies.
- Commercial banking is set to bring in a revenue of $734 billion in 2020 and achieve annual growth of 5.7%. Investment banking, on the other hand, brought in a revenue of $40 billion from 3,400 establishments in 2018.
- As digital transformation gains ground at banks, the risk that banks face is also rising. Risk management has become a much more important part of banking these days.
- A major trend seen in the banking industry is the rise of fintech and challenger banks.
- Challenger banks, which give consumers online access to many features not offered by traditional banks, are raising record amounts of money. Upstarts like Chime and Varo Money raised a lot of money in the last two years.
Platforms and Aggregators
- Bank aggregation services enable consolidation of banking information from many accounts into one place. One example of this is Quicken.
- Banking platforms, on the other hand, enable banks to offer new and traditional services through innovative digital products to new and current customers. These platforms usually has the product in which the customer interacts with which relays information to a layer that handles requests and information.
- The history of bank aggregators started in the 1990s when apps such as Microsoft Money and Intuit Quicken were popular personal finance apps.
- One of the largest banking platforms today, PayPal, launched as Confinity in 1998.
- In 2006, at the start of web 2.0, Mint was born, which leveraged platforms such as Yodlee to offer aggregation a graphically-rich representation of a person's financial accounts.
- Throughout this time, there was plenty of consolidation throughout the industry, with one of the biggest cases being Yodlee, which was sold to Envestnet for $590 million in 2015.
- The innovation that has been seen over the years with banking platforms and aggregators have largely been driven by the introduction of the iPhone. Since then, online banking has become more interactive and expansive and has transitioned from a simple front-end experience to something a lot more immersive.
- Currently, there are many platforms that leverage APIs to give banks the ability to offer many banking services and products not only to consumers but to business customers as well.
- Today, with the growth of newer technology such as mobile, more upstarts provided better platform and aggregation services to consumers. Two of these companies include Quovo and Plaid, two banking platforms that also offer aggregation features. Plaid was recently bought out by Visa at a valuation of $5.3 billion.
- As platforms, aggregators, and other fintech types in the banking industry grow, so will the federal probes into them. In 2018, there was a major scandal involving Robinhood and its choice of organizations to back their savings accounts.
- One of the problems that aggregators will have to overcome is the notion that they are more susceptible to fraud.