Introduction to the Banking, Mortgages & Credit Industry

In recent years (largely as a result of a massive banking crisis during the 2007-2009 recession), global financial regulators have steadfastly made an effort to improve banking reserves and increase financial oversight to the point that future bank system meltdowns might be avoided. Banks in much of Asia, Europe and North America have been put through stress tests by regulators and have been forced to dramatically increase their levels of capital. Banks are holding very high levels of capital that give them a significant cushion of reserves against potential losses.

Meanwhile, methods and technologies that enable both businesses and consumers to make touchless payments and online payments boomed at incredible rates during the Coronavirus pandemic—boosting payment platforms like PayPal, Venmo and Zelle. Consumers quickly replaced much of their physical, in-store shopping with online shopping. Many shopping platforms with integrated payment tools, such as Shopify, saw terrific growth rates.

The Globalization of Banking: Banking has become a highly globalized industry. This was fueled by four factors: 1) the availability of global electronic networks for distribution of funds and real-time management of information; 2) the easing of local restrictions on ownership of banks by foreign entities; 3) the opportunity to serve the needs of multinational corporations; and 4) the increasing attractiveness, from a banker’s point of view, of rising household wealth in emerging economies. New opportunities were sought out globally by major banks. However, regulations in many emerging economies restrict the level to which foreign firms can own local banks.

The “Shadow Banking” System: Non-bank companies that offer financial services are a significant competitive threat to traditional banks. Retailers, automobile manufacturers, stockbrokers, insurance companies and other business sectors are offering a growing array of bank-like services, from loans and mortgages to credit cards, to money market accounts with checking account-like features. In fact, Walmart, the world’s largest retailer, has become a retail financial services giant by opening banks within its stores in Mexico, along with “Money Centers” within hundreds of its U.S. stores. Walmart is expanding into financial services in a comprehensive way in the U.S. by backing a fintech competitor named “One” in partnership with Palo Alto, California-based Ribbit Capital.

Hedge funds and other alternative investment companies are making corporate loans, taking market share away from commercial banks. More recently, trends in financial technology have enabled non-bank lending firms to proliferate, reaching borrowers via the Internet.

Financial Technology (FinTech) Has Become a Vital Hotbed of Innovation: A revolutionary wave of apps for smartphones that act like debit cards, transfer funds and manage financial accounts is sweeping across the globe. Firms on all sides of this market are trying to gain market share, including tech companies like Google and Apple; smartphone manufacturers like Samsung; and credit card companies like Visa and Mastercard.

Financial services technologies receiving the most investment and effort include those for:

= Advanced platforms that enable mobile payments via smartphones, such as Apple Pay and Alipay (as an alternative to physical credit/debit cards and cash).

= Artificial intelligence-driven, online management of investment accounts (“robo-investing”), with the effect of reducing management fees while increasing convenience for consumers.

= Online lending, by firms such as OnDeck, taking some of the friction and frustration out of the borrowing process, particularly for small businesses, but also for consumers.

= Online payments, enabled by firms such as PayPal, Zelle, Stripe and Square.

= Online transfer of international payments.

= Cybersecurity tools that attempt to combat online banking and payments fraud, including better online ID verification, safer login and easier use of online forms for completion of new financial account applications.

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