There is a great movie about banking out there that gets a lot of play this time of year. It's old, in black and white, stars Jimmy Stewart and takes place during Christmas time. And while many people watch "It's A Wonderful Life" to celebrate the holidays, I watch it as a reminder of how big banking has failed America, and the opportunity this failure creates to restore real value in financial services.
Bailey Savings and Loan was how banking was intended to be. The community came together, pooled their capital and helped one another. The bank offered products people wanted, and support people needed. When you needed help, George Bailey would go the extra mile to assist. Lose your job? There were no threatening phone calls, just assistance getting back on your feet. Want to buy your first home? George underwrote on merit, responsibility and promise, not FICO scores. Banking was a profitable business, but it combined profit with community interest and social good.
It might seem ironic that while the press is fixated on Millennials, I'm citing a movie that was made in 1946 as an aspirational example of what banking could be. But Bailey Savings and Loan embodies the virtues of how financial services should work: focus on product, access, service and community. Unfortunately, these virtues have been cast aside with the advent of the mega banks - institutions that would make "It's a Wonderful Life's" big-bank villain, old man Potter, very proud. What used to be pillars for the community now have become commoditized utilities of questionable value and little trust. According to Viacom, over half of Millennials don't believe their bank is different from any other bank. Edelman's survey shows that people trust energy more than they trust banking; seriously - fracking and flammable water over their bank.
So why has banking become so bad? The mega banks have focused on rich baby boomers with lots of assets and little need to borrow. In doing so, they've forgotten about product fit. Most people don't need private client services - they want student loan relief and help buying their first home. Mega banks have taken clumsy websites, shrunk them to fit on a mobile screen, and still require you to visit the branch to get a loan. People want the ubiquitous - 24x7 - access to information, and the ability to talk to someone when they want to. And they want outstanding service. According to NPS Benchmark, the net promoter scores (where 100 is perfection) for the big four US banks were all below zero in 2015. Airlines averaged a healthy 25. Amazon is at 64.
Jamie Dimon, just a few months ago, famously declared: "Silicon Valley is coming," and he's right. Big banks won't fix banking, but the Valley will. A loose confederation of new companies, operating under the poorly-named descriptor "fintech," have already begun to take market share from the mega banks in areas such as personal loans, student loans, mortgages and wealth management. They are delivering product the market wants, often exclusively via mobile, with outstanding service. But the real change - the real disruption - is only starting to emerge.
Wells Fargo, BofA, Citi and JPM represent nearly $1 trillion in market capitalization among them. Fintech isn't going to capture that value simply by being a "better bank through technology." Instead, the value is rethinking what banking should be. Making it local and transparent, where depositors can direct where capital goes and see the impact it makes. Making it about your career, where your lender has a vested interest in your success, providing support in good times and bad to help you succeed. Making it about the network and connections, where the community has incentive to band together and support each other. Most importantly, it's about turning the banking paradigm upside down and redefining the category: money, career and relationships; not inconvenient branches and ill-fitting loans.
Back in 2012, Dick Bove, the famous banking analyst, wrote about a series of poor experiences with his Wells Fargo account, including mystery fees, bungling his mortgage application and ignoring him in the branch. He concluded that, "a successful bank is one that keeps seeking new customers and selling them more products and not getting bogged down by offering service." In 2012 Bove may have been right, as there was no legitimate challenge to the mega bank hegemony. But times are changing - and fast. Look for big, transformative ideas to take hold and beat Mr. Potter once and for all.