Consumer banking remains the single biggest operating segment for big American banks like Bank of America, Wells Fargo and Citigroup in terms of both revenue and net income. Generally speaking, other operating segments like investment services, brokerages, wealth management or real estate services come no where close. Yet in myriad ways, these mainstays of consumer banking are being eroded – both by financial services-focused disruptors and by those from outside the industry.
As I discussed in my newsletter last week, the rise of “FinTech” firms is already having a significant impact on the wealth management market. Wealthfront, just as one example, recently announced that it now has $2 billion in assets under management – all in just a little over three years in business. The actively managed mutual fund market is now grappling with how to answer automated services like theirs in a way that preserves their operating margins – and finding that that answer isn’t yet clear.
I think that Wealthfront’s challenge to the mutual fund market is a great example of what’s about to happen in consumer banking. The changes coming to how people will keep and manage their money will have major consequences for the banking industry, obviously, but also for the merchants that consumers do business with. Fortunately, merchants and consumers could be the big winners in the democratization of banking.