7,000 bank branches shut down and 425,000 jobs lost -- melting Banking into a glass half full; plus 12 key Fintech developments

Dec 30, 2019

Hi Fintech futurists --

In the long take this week, let's make a collective decision to see the glass as half-full. While physical banking (7,000 US branches gone during 2012-2017) and employment in the sector (425,000 jobs lost since 2013) has been contracting, digital commerce, banking, and investment management have been growing. Even DFA is finally giving in and lowering fees on their $600 billion institutional mutual fund family. Of course, Fintech has been a slow and gradual transformation, not a rapid disruption. We can make a choice to bemoan the loss of the past, or a choice to express an excitement for the future and participate in its making. Which side are you on?

The latest key updates on Fintech bundles, Crypto and Blockchain, Artificial Intelligence, and Augmented and Virtual Reality are below. Thanks for reading and let me know your thoughts by email or in the comments! Last but not least, these opinions are personal (or maybe made by a robot) and do not reflect any views of ConsenSys or other parties.

Long Take

It's December 30th! Happy holidays and upcoming New Year! Do you really need a long take about Fintech today? If yes, here are the most popular articles from 2019:

It's interesting to see what bubbles up in our collective, narrative Id. Anxieties about big brands (Google, Amazon, Facebook, Goldman, Deutsche), destruction and rebirth in the shape of layoffs and venture fundraising, and intergenerational tug-of-war along the axes of money, power, and social media. Not much has changed in our psyche, whether looking at the journey of Odysseus or Luke Skywalker (I am standing by the classics, thank you!). The eyeballs deserving our pointy sticks have just gotten bigger.

We want to see underdogs beat giants. We want our version of the good triumph over our version of evil. But perhaps now we realize that which side you are on is often random chance, an accident of where you were born and how you grew up. And this is a very powerful realization. It implies that we can choose a point of view, rather than be tribally married to one by emotion.

I was lucky to go quickly from Lehman Brothers into the 2008 financial crisis, and then directly into Fintech. This meant that the narrative transition from the prestige of financial services to the inevitability of consumer technology came cheaply to me. Not much to lose, and everything to gain! For many other people, similarly situated or more senior in their careers back then, it was costly to look at software and say -- this will take my craft from me. This will take the thing I like doing, the thing I am good at, the thing that is my personal identity.

Even today, when the data is louder and clearer every day, you will hear push back, hesitation, and skepticism. The neobanks are unprofitable! Roboadvice isn't as big as analysts said it would be! All the cows are sacred! I empathize with this story. I want the good guys to win, not some Skynet abomination. And yet, why not just flip the narrative? Why not realize that it is more fun being the growth industry than the melting ice cube? Your role in the game is not fixed -- it is a choice still.

I could tell this story any week, because the symptoms are a recurring stanza of data. Let's lay out a few symptoms at the end of 2019. According to the Mastercard spending pulse survey, this holiday season (November 1st to December 24th) overall spending in US retail grew 3.4%, with eCommerce growing 19% this year after an 18% increase last year. While still in the minority, it is clear that eCommerce is the growth area, while brick and mortar growth is losing share. Which business model would you invest in today? Which payments company supports the more valuable activity?

You can aggregate the eCommerce numbers across the key end-of-year American holidays, getting around $15-25 billion of sales. Just one Single's Day in China stacks up to $40 billion across eCommerce platforms. The direction of travel is not a mystery, it is just not evenly distributed.

Here is another symptom. America's bank branches are closing down across the country, hitting rural towns especially hard. In a country where separation between the States and the Federal government has long kept local banks on life support, the mobile web is driving a nail in the coffin of physical banking. Across all types of geography, nearly 7,000 branches have shut down -- a decrease of 7% between 2012 and 2017. Some parts of the country have seen the branch-to-population ratio fall by 50% from 5.5 to 2.3 (see report). But for most of us, the bank branch is already in hand.

Just look at this chart above. One of the core arguments against digital banking and money is that it is regressive. People on the lower rungs of society's income ladder are underbanked, subject to high fees and mistreatment from our financial institutions. Physical cash is their anonymous and universally accepted saviour, goes the argument. And yet, nearly every human owns a smartphone and over 40% of those in the US use mobile phones for banking (back in 2017 no less!). Digital currencies like Bitcoin thrive in places that lack a stable financial and legal infrastructure, and Telecom enabled monies like M-Pesa are prevalent in Africa -- where there is more access to phones than electricity.

So it is not a great suprise, as artificial intelligence pushes on the value of knowledge workers and technology companies centralize attention into honey pots, that global banks have cut 80,000 job this year (reports American Banker). The last six years add up to a bit over 400,000 eliminated positions, with banks like Morgan Stanley bleeding about 2% of talent per year. Some, like Deutsche Bank, make more loud cuts. In order for Fintech to absorb these positions, it needs roughly $80 billion of funding -- assuming $200,000 of cost per fully loaded position. Given that Fintech today raises about $50 billion per year, that number is not outlandish. The melting ice cube could be filling up the Fintech glass.

It's not just people -- it's pricing and business models. The $600 billion AuM money manager Dimensional Fund Advisors ("DFA") pioneered indexing and smart-beta many decades ago. DFA founder David Booth amassed enough fortune to put his name on the University of Chicago School of Business. After ignoring ETFs and roboadvisors for as long as they could, the firm is finally cratering to pressure -- Dimensional Fund Advisors makes unprecedented slash of fees across all its mutual funds and declines to rule out DFA ETFs muscling into the crowded market. While the first version of mobile-first money management may not have eaten DFA from without, it has now eaten it from within (you can find DFA funds within the Betterment offering for advisors). Same for Schwab, Merrill, Goldman Sachs, and any other incumbent proclaiming themselves to be a technology firm.

I started out with the premise that you can choose your side. It may seem like an avalanche of price cuts, firings, automation, and closure. That is, if you sit on the side of the high fees, manual paper-based process, and an unnecessary retail footprint. Or, it may seem like an emerging financial economy that caters closely to the needs of the human being with a tiny super computer in hand.

Here's to a 2020 where the glass is half full!

Key Fintech Developments

Featured Interviews, Podcasts, and Conferences

We Made No Progress, Other Than All the Progress We Made. An op-ed for CoinDesk about the 2019 year in review.
Xtiva WEALTHTECH TRENDS 2020. Check out this deep report across wealth tech about what the next year can look like -- my contribution was to discuss how digital assets will start making their way into more traditional portfolois.
Fintech used to be a back-office support function, now it's defining an industry. Check out my Op-Ed in Investopedia about the history and future of financial technology.

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