Alloy Labs is joining the modern content fray. That’s right, we’re starting a newsletter. And we’re doing it for one totally selfish reason: to get closer to our members by sparking dialogue.
Tomorrow, we’re launching Lab Notes, a members-only newsletter for curious bankers interested in topics that aren’t what they seem. If you’ve ever looked for order among chaos, thought the little things might be the most important ones, or considered why something that seemed stable actually wasn’t, this newsletter is for you.
This newsletter is also for anyone who wants to stay up to speed on activities in the Alloy Labs Alliance. Below the editorial, we’ll share upcoming events, deadlines of note, and new resources twice a month.
For the inaugural issue, we interviewed Jeff Marsico, newly dubbed President of The Kafafian Group, about his list of Top 5 Banks for Shareholder Returns in 2020. Three of the top 5 banks are well-known for their innovation prowess. But complex technology wasn’t their ticket to returns; instead, it was dedication to a simple strategy.
We're sharing the first edition of Lab Notes for bankers who aren't members yet below. If you're interested in getting more content like this — and joining a network of some of the most innovative community and mid-sized banks — email jason@alloylabs.com.
It's the strategy, not the tech.
In an industry as competitive and commoditized as banking, there are only two ways to find a competitive advantage.
“Only a very low-cost operator or someone operating in a protected, and usually small, niche can sustain high profitability levels,” Warren Buffett wrote in 1987.
I bring this up because there are also only two ways to make it onto Jeff Marsico’s perennial list of the top banks ranked by five-year total shareholder return. The first is more complicated than it may seem; the second is simpler.
The first way is to run a disciplined operation, grow incrementally, and keep costs low. It’s vanilla banking that seems straightforward, but is increasingly difficult to execute well.
The second way is to find a niche and use technology to serve it. Banks that took this path last year dominated in shareholder returns. They’re also among the biggest names in the industry when it comes to innovation.
Silicon Valley Financial Group ranked fourth by serving startup companies with its robust API program.
Live Oak Bancshares ranked second by serving discrete business verticals and reaping the rewards from its investments in technology vis-a-vis nCino and Canapi Ventures.
Taking the top spot was Silvergate Capital Corporation, an early mover on banking cryptocurrency-related business. This earned Silvergate $2 billion in crypto deposits, as well as a lot of payments volume on its in-house exchange network.
These banks generated total shareholder returns of 228%, 250% and 452%, respectively, over the last five years. But the tech-forward clients these banks serve can obscure the simple source of their success: finding a niche and using technology to serve it.
Substitute startups and crypto for more traditional business lines like consumer lending and equipment finance and that simple formula still works, so long as a bank has the power to scale.
*Amber Buker, Director of Insights