The discussion revolves around the impact of technology on regional banks and the potential for consolidation in the banking sector. The speaker mentions that large banks like JPMorgan Chase are increasingly using technology and forming partnerships to capture the customer base of regional banks. This is particularly evident in the partnership between JPMorgan Chase and fintech software provider Gusto, which offers payroll services to small businesses.
The speaker also highlights the challenges faced by regional banks in terms of technology investment, with large banks like JPMorgan Chase having billions to tens of billions per year in investment. However, Gusto CEO Josh Reeves suggests that these larger banks might spur regional banks to action, potentially leading to a wave of consolidation.
The speaker also discusses the potential impact of this trend on regional bank stocks, suggesting that investors need to assess the size of this trend and its potential to affect the performance of these stocks.
The conversation also touches on the regulatory environment for regional banks, with the speaker mentioning that these banks are expected to face greater regulation and profit crunch due to increased funding costs.
Finally, the speaker suggests that the narrative of banks versus fintechs is evolving, with a new narrative of banks and fintechs working together emerging. This trend is expected to lead to consolidation in the banking sector, with the pressure coming from both fintech players and large banks.
1. The KR Regional banking ETF is trading close to 44 bucks a share, near the levels from March when Silicon Valley Bank First collapsed.
2. The price was above 60 before the collapse if there's no contagion issue and the commercial real estate troubles are contained well.
3. Large banks are increasingly using technology partnerships to capture the customer base of the Regionals.
4. JPMorgan Chase is teaming up with fintech software provider Gusto to offer payroll to some of its 5 million small business customers.
5. Payroll involves not just about money movement but also about all the different tax rules and tax compliance.
6. There are over 10,000 different rules out there, which could be at the county, state, city level, and not just the IRS.
7. Small businesses typically do this by hand, making mistakes, getting fined, and it's much better done in software with modern technology.
8. The larger Banks which have big Tech budget might steamroll the Regional Banks and force a wave of consolidation.
9. The budget that Regional Banks can put in technology investment is significantly less than that of larger Banks like JPMorgan Chase and Wells Fargo, which are investing billions to tens of billions per year.
10. If Regional banks are not able to compete, the larger Banks might spur the Regionals to action.
11. The larger Banks might spur the Regionals to action, creating a great Catalyst and forcing function.
12. The experiences being made better and more modern for customers are crucial.
13. The Regional banking partners are not going to build a lot of that Tech in-house, so working with Partners whether it be Gusto or other parts of the stack is very much the future.
14. Companies like Gusto and others are very much focused on wanting to work with banking partners of all sizes.
15. The Regional Banks face greater regulation, profit crunch due to higher funding costs, and now they're facing JP Morgan in payroll processing.
16. JP Morgan has a 15.3 billion dollar Tech budget, with half of that being innovation.
17. The likes of Square and PayPal have led the way with Innovation, creating fully enclosed ecosystems for their merchants, and JP Morgan is following suit.
18. The narrative is changing from big Banks versus fintechs to banks plus fintechs, and who's going to be able to choose the right Partnerships and integrate most quickly.
19. The smaller Banks are getting pressure from both fintech players who can operate in any state in the country and the big Banks.
20. There will be consolidation at some point due to the pressure on them, but it will not be immediate because they need the green light from regulators.
21. On the fintech side, ADP is a legacy player, and there are huge players dealing with corporates, and small smaller folks like Gusto.
22. The winners in the fintech space are likely to be the ones gaining share really fast.