Has the banking business, and banks, been disrupted?

[Sweet]

See below tweet:

 

 

I don’t know that I agree with his take that banking has been disrupted.

Payments have potentially been disrupted by new technologies, but I don’t think the banking business has.

 

Who can and can’t lend money commercially is regulated, and when I need a mortgage or car loan I’m only going to one place, and that’s the bank.

 

So what’s he talking about?

 

Can anyone else see what part of banking has been disrupted?

 

 

Edited May 17, 2023 by Sweet

[Parsad]

As Munger said, he doesn't know what he's talking about!

 

P/B for banks stayed where they were because they were increasing and accumulating excess capital...both because of statutory requirements after 2009 and deposits from consumers...while buying back shares.  

 

There has been little disruption to banking so far...even with payment companies, etc.  That will change, but the effect has been somewhat muted so far because banks adapted in the last ten years and increased other lines of business.

 

Cheers!

[dealraker]

10 hours ago, Parsad said:

As Munger said, he doesn't know what he's talking about!

 

P/B for banks stayed where they were because they were increasing and accumulating excess capital...both because of statutory requirements after 2009 and deposits from consumers...while buying back shares.  

 

There has been little disruption to banking so far...even with payment companies, etc.  That will change, but the effect has been somewhat muted so far because banks adapted in the last ten years and increased other lines of business.

 

Cheers!

Parsad nailed it.  Mosey on over to an East West financial statement and check the returns on assets- over 2% is shockingly high- and whatnot.  Tempered down the food chain of course by excess equity.  Kind of like being the child of a high earning surgeon...who has 10 offspring.  Your lifestyle ain't what you'd expect and neither is the inheritance.  But the doc's earnings are superb.  

[Sweet]

It’s not really the price to book etc, it’s that he sees something disrupting the business, and I don’t.

 

Good to see I’m not alone.

[Parsad]

On 5/17/2023 at 4:44 AM, Sweet said:

It’s not really the price to book etc, it’s that he sees something disrupting the business, and I don’t.

 

Good to see I’m not alone.

 

I think banking is one of the few industries that has been pretty adept at changing with the tides so far.  Over the last 125 years, there has been enormous change in banking, especially in the last 20 years.  Yet, they seem to find a way to adapt.  

 

Now, I'm not sure that is going to happen going forward.  I think some large tech companies with their consumer dominance (AAPL, GOOG, META, MSFT, AMZN) have the cash flows and networks to start offering services very much in line with banking...savings, loans, credit cards, mortgages, investments, etc.  We are seeing that happen.

 

So it will be interesting to see how banks adapt to that as these companies delve deeper into that line of business.  Banks may have to expand their other lines of business further like wealth management, investment banking, etc.  I think the U.S. banking system is ripe for consolidation over the next 20 years.  Regional banks will have a tougher time competing with the giants (both banking and tech/banking).  

 

Cheers!

[wabuffo]

I think some large tech companies with their consumer dominance (AAPL, GOOG, META, MSFT, AMZN) have the cash flows and networks to start offering services very much in line with banking...savings, loans, credit cards, mortgages, investments

 

lol - which all have a federally-chartered bank behind the scenes actually holding the deposits, offering the payment cards, & providing access to the payment rails (V/MC & even Fedwire).  

 

Anyone can lend - but they have to borrow first.   When federally-chartered banks lend, they create deposits from thin air (non-banks can't do that).   Also when you need a payment to clear - you need a federally-chartered bank.   Only they have access to settlement balances at the Fed and payment clearing capabilities at Fedwire.

 

Disrupt that!

 

Bill

[crs223]

i can understand that Apple would have a hard time becoming a bank and creating money out of thin air.

 

But would apple have a hard time doing what VISA does?  AFAIK VISA develops POS terminals and facilitates secure authorizations and transactions between banks and merchants.

 

 

 

Edited May 18, 2023 by crs223

[Sweet]

I think Mastercard and Visa are in for a tough time.

 

I almost entirely use my phone to buy things now, so if Apple / Google come out with a credit card I don’t see why I wouldn’t use it.

 

Thats payments though, I do think they will be disrupted not by crypto or anything, but by big tech companies just moving into the market and taking share from Visa and MA.

 

I don’t envisage the likes of Apple or Google becoming banks anytime soon.  Banking is so much more than payments.

 

Edited May 18, 2023 by Sweet

[Parsad]

37 minutes ago, wabuffo said:

I think some large tech companies with their consumer dominance (AAPL, GOOG, META, MSFT, AMZN) have the cash flows and networks to start offering services very much in line with banking...savings, loans, credit cards, mortgages, investments

 

lol - which all have a federally-chartered bank behind the scenes actually holding the deposits, offering the payment cards, & providing access to the payment rails (V/MC & even Fedwire).  

 

Anyone can lend - but they have to borrow first.   When federally-chartered banks lend, they create deposits from thin air (non-banks can't do that).   Also when you need a payment to clear - you need a federally-chartered bank.   Only they have access to settlement balances at the Fed and payment clearing capabilities at Fedwire.

 

Disrupt that!

 

Bill

 

All they have to do is apply for a banking license.  They already have the consumer network.  It would be pretty easy for any tech company to start a bank...just like it is for anyone with $1M or more to start a bank if they wanted.  Cheers!

[Parsad]

14 minutes ago, crs223 said:

i can understand that Apple would have a hard time becoming a bank and creating money out of thin air.

 

But would apple have a hard time doing what VISA does?  AFAIK VISA develops POS terminals and facilitates secure authorizations and transactions between banks and merchants.

 

 

 

 

Apple would neither have a hard time starting a bank, nor doing what VISA does.  Apple Pay will become what VISA is.  Cheers!

[giulio]

39 minutes ago, wabuffo said:

I think some large tech companies with their consumer dominance (AAPL, GOOG, META, MSFT, AMZN) have the cash flows and networks to start offering services very much in line with banking...savings, loans, credit cards, mortgages, investments

 

lol - which all have a federally-chartered bank behind the scenes actually holding the deposits, offering the payment cards, & providing access to the payment rails (V/MC & even Fedwire).  

 

Anyone can lend - but they have to borrow first.   When federally-chartered banks lend, they create deposits from thin air (non-banks can't do that).   Also when you need a payment to clear - you need a federally-chartered bank.   Only they have access to settlement balances at the Fed and payment clearing capabilities at Fedwire.

 

Disrupt that!

 

Bill

+1 not an expert but I see banks being disrupted by... banks! Probably similar with insurance.

 

I don't understand what Revolut posseses that banks don't have or can't have honestly. Trying to learn though!

 

G

[Parsad]

7 minutes ago, Sweet said:

 

I don’t know envisage the likes of Apple or Google becoming banks anytime soon.  Banking is so much more than payments.

 

Apple and Google won't become banks themselves.  All they have to do is setup up a subsidiary called "Apple Bank" or "Google Bank" and apply for a banking license.  They have more than enough cash and cash flow to fund the subsidiary and start taking deposits and lending funds. 

 

The only reason they haven't done so already is that they don't want to be seen as "systemically important" institutions and brought under banking scrutiny and regulations.  It's why they use other financial institutions right now to test the waters.  But there are ways around that and it won't be long until they move into banking. 

 

Cheers! 

[giulio]

If brk tries so hard to avoid being a bank holding company there must be a reason, I think...

[Parsad]

12 minutes ago, giulio said:

If brk tries so hard to avoid being a bank holding company there must be a reason, I think...

 

If they setup a banking subsidiary, there would be even more restrictions on what they could do and how they could invest their float, etc under Dodd Frank...may even require divestment of some of their non-banking interests.

 

Cheers!

[LC]

Weren't we having this same conversation 10 years ago? 

 

At this point, Apple should just buy Citi and rebrand it Applebank if they really want to get into the lending game.