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The Age of Banking Enlightenment

Updated: Sep 12, 2023

A long time ago in a galaxy far, far away I attended the Acquire or Be Acquired conference by Bank Director, affectionately known as AOBA, along with 1,700 other attendees that were a mix of senior level executives and board directors, predominantly from community banks.

Wait— that was just a few weeks ago. It feels like a long time ago because the dramatic actions taken by Silvergate Bank and Silicon Valley Bank this week have become much louder canaries in the coal mine than the few cheeps and warbles I heard at AOBA.

I characterized the mood there this year to our members as bifurcated. One camp, the majority, was bullish with loan rates rising faster than the cost of funds and the threat of a severe recession at least muted; even with M&A at record lows, this group was upbeat the market would return. The minority was less optimistic and jaded by presentations on “innovation” and things like digital account opening, and voiced a vehement rejection of the idea that bank employees could work remotely. Neither camp was overly concerned about liquidity, duration, and maintaining deposit balances... then.

We'll have a lot more to say on those subjects, but for now, I'll just share how I described to our members that one of these camps is entering an era of extinction and the other the age of enlightenment. These things are still true.

Extinction vs. Enlightenment

I have a strong perspective on why the M&A market fundamentally changed; you can read about it in The End of the M&A Superhighway. I see 4 potential strategies with the M&A superhighway closed:

  1. Reimagine. The banking business model has changed little since the time of Medici. Take in deposits at one rate and lend at a higher rate. That model has been unbundled and downright broken apart. The winners are reimagining what it means to be a bank. Banks have customers and their trust that can be leveraged in a myriad of ways beyond the current products and services offered by financial institutions.

  2. BaaS. A charter and compliance acumen are two of the most valuable assets owned by a bank. Not every bank can or should be a BaaS (Banking as a Service) bank. It requires significant investment in people, processes, and technology to do well in a way that supports the neobanks and alternative lenders.

  3. Embed. An alternative to entering the BaaS space is to leverage the charter, compliance and servicing infrastructure of the bank in the experience of a brand or commerce player. In effect, the bank becomes invisible to the user but represents a massive opportunity in upending the user experience.

  4. Glide. Not choosing one of the first three strategies is a choice; the result is extinction. That may be an acquisition at a previously unthinkable price or even selling a book of customers and closing the bank

The Age of Enlightenment

We are on the verge of the most dramatic changes in financial services in hundreds of years. The slowdown in funding of financial service startups is actually an accelerant as innovators shift from “growth at all costs” to more fundamental innovations that redraw the boundaries of traditional finance. The potential for a liquidity crunch for some financial institutions only makes things worse for complacent incumbents.

Enlightened banks that are exploring the first three strategies will remake the landscape.


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