The discussion revolves around the financial market's interest in regional banks and the potential impact of large banks partnering with fintech companies. The KRE Regional Banking ETF is trading near $44 a share, a level it reached around the time Silicon Valley Bank collapsed. The speaker notes that large banks are using technology partnerships to capture the customer base of regional banks, citing JPMorgan Chase's partnership with Gusto, a fintech software provider, as an example.
Gusto CEO Josh Reeves explains that payroll is not just about money movement but also about compliance with various tax rules, which can be over 10,000 different rules due to local, state, and federal regulations. This complexity can be a barrier for small businesses, which often make mistakes and get fined. The partnership with JPMorgan Chase aims to simplify this process.
The speaker believes that this move could lead to a wave of consolidation in the banking sector, forcing regional banks to invest more heavily in technology. However, the exact impact on regional banks and whether their stocks will rebound or fall is uncertain and will depend on the success of this trend. The speaker also mentions that while there are many players in the market, the narrative is evolving from big banks versus fintechs to banks plus fintechs, and it remains to be seen who will be able to choose the right partnerships and integrate most quickly.
1. The text discusses the Kre Regional Banking ETF, which is trading close to $44 a share.
2. The ETF's price is near levels from March when Silicon Valley Bank first collapsed.
3. The ETF was above $60 before the collapse of Silicon Valley Bank.
4. Large banks are using technology partnerships to capture the customer base of the regionals.
5. JPMorgan Chase is teaming up with fintech software provider Gusto to offer payroll to some of its 5 million small business customers.
6. Payroll is not just about money movement but also about tax rules and compliance, which can involve over 10,000 different rules due to local, state, and federal regulations.
7. Small businesses typically do this by themselves, which can lead to mistakes and fines.
8. The larger banks with technology budgets are forcing a wave of consolidation.
9. Josh Reeves, CEO of Gusto, believes the larger banks might spur the regionals to action.
10. The consolidation is expected to be a challenging place for the regionals and the banks need to compete.
11. The larger banks like JPMorgan Chase, Citis, and Wells Fargo have billions for investment, while the regional and community banks have tons for technology investment.
12. The larger banks are creating pressure for the regionals due to their tech budgets.
13. JPMorgan Chase has a $15.3 billion tech budget, half of which is for innovation.
14. JPMorgan is following the lead of Square and PayPal, who have created fully enclosed ecosystems for their merchants.
15. The consolidation is expected to create a new narrative of banks plus fintechs, and the impact of this is being considered.
16. The smaller banks are expected to get pressure from both fintech players who can operate in any state in the country and the big banks.
17. The consolidation is expected to lead to a wave of mergers and acquisitions.
18. The consolidation is not expected to be immediate due to regulatory pressure and opposition from figures like Senator Liz Warren.