Access for All?

The 2013 FDIC National Survey of Unbanked and Underbanked Households was released yesterday, and the number of unbanked and underbanked households in the U.S. hasn’t budged much in the last two years (the total percentage has declined slightly, to just under 28 percent, since 2011). Just under eight percent are unbanked–almost 1 million households. Of these:

  • Almost half (46 percent) have had a bank account in the past.
  • Seventeen percent currently don’t have a bank account due in part to their credit history.

Not surprisingly, the unbanked are highly reliant on alternative financial products:

  • 27 percent of the unbanked used prepaid cards, compared to 12 percent of households overall. Two-thirds of those that used prepaid cards in the last 30 days are unbanked or underbanked.
  • More than half used money orders in the last 30 days, versus less than 10 percent of all households.
  • Thirty-nine percent used checking cashing services, compared to just three percent of all households.

The FDIC and and the Consumer Financial Protection Bureau have been pretty vocal about the fact that they want to decrease consumer use of alternative financial services. Will these regulators make a move to ensure that more Americans have access to a bank account? Last summer, New York Attorney General Eric Schneiderman convinced Capital One Financial Corp. to amend its use of ChexSystems, a database used by many banks to screen applicants for fraud and credit risk. A 2009 report from the FDIC found that almost 90 percent of banks use a credit-screening database like ChexSystems, and one-quarter reject an account application due to a negative result. Earlier this month, Richard Cordray addressed the CFPB’s areas of concern on the matter, which boil down the three areas:

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Big Auto vs. The Innovator

Yesterday Michigan Governor Rick Snyder passed Michigan House Bill 5606 (a tip of the hat to a longtime friend and fellow “car brat” who brought the story to my attention), which prevents electric car manufacturer Tesla Motors Inc. from selling vehicles in the state. Snyder, in a signing letter to the Michigan House of Representatives, says that this isn’t really news–the bill just clarifies that rather than using its own franchised network of dealerships, car manufacturers can sell through any franchise. Tesla sells directly to consumers, so sales of Tesla were always illegal in Michigan. Tesla had some damning words to say about the bill:

Not content with enshrining their ability to charge consumers dubious fees, on the last day of the legislative session, the dealers managed to make a last-minute change to the bill in an attempt to cement their broader retail monopoly. Using a procedure that prevented legislators and the public at large from knowing what was happening or allowing debate, Senator Joe Hune added new language in an attempt to lock Tesla out of the state,” Tesla said. “The dealers seek to force Tesla, a company that has never had a franchise dealership, into a body of law solely intended to govern the relationship between a manufacturer and its associated dealers. In so doing, they create an effective prohibition against Tesla opening a store in Michigan.

Either way, General Motors Co. has gone on record as a supporter of the bill, which, in the company’s view, levels the playing field by either forcing Tesla to sell through dealers or bow out of Michigan. Tesla seems committed to its direct-to-consumer strategy, so it looks like Tesla won’t be selling in the Great Lakes State any time soon.

I can’t help but draw parallels between this incident and another time that Big Auto has gone toe-to-toe against an innovator:

TuckerMoviePosterTucker: The Man and His Dream, the 1988 biographical movie, is based on the story of Preston Tucker’s attempt to change the auto industry in the 1940s. His “car of tomorrow”, the Tucker 48, featured several safety innovations, such as a shatterproof glass windshield, roll bar and seatbelts (The Tucker 48 was the first production car to include a seatbelt). In Francis Ford Coppola’s version of the story, the Big Three (Ford, GM and Chrysler) feared competition from the upstart Tucker as well as innovations like seatbelts that implied, in Detroit’s mind, that cars aren’t safe. Tucker’s dream was squashed when he and several other Tucker Corp. executives were indicted for mail fraud, conspiracy to defraud and SEC violations. They were eventually found not guilty, but Tucker Corp. fell apart and Tucker’s dream was dead.

Thinking about U.S./Big Auto vs. Tucker/Tesla brought my thoughts to all the nonbank competition out there today–and whether those nonbank competitors will remain immune from financial regulation for much longer. Of course, the picture in the bank space is significantly more complicated than in the auto industry, with big banks, community banks, credit unions, Big Tech like Google and Apple and small fintech startups all jostling for position.

And as they dig themselves further into the banking space, I think Big Tech and and the smaller fintech firms will come closer and closer to being under the thumb of the Consumer Financial Protection Bureau, an agency that enjoys freer reign than other regulators and relishes its role as the consumers’ protector. At least one law professor believes that Apple Pay already crossed the line. The more financial products and services that ‘Big Tech’ offers, the more they’ll come under the eye of Cordray. If that happens, will the CFPB mark the end of fintech innovation in the U.S.?

4Q14-Cover*If you’re interested in reading about the threat that technology companies pose to traditional banks, check out the latest issue of Bank Director magazine, featuring Jack Milligan’s cover story, “Sizing Up the Nonbank Threat”.

A warmer opinion on banking?

ArizonaPalmTreesI recently had the pleasure to speak with a few bank general counsel and experts in the industry about a side of Dodd-Frank we typically don’t focus on: the good side. Yes, Dodd-Frank, has a good side, though whether that good side outweighs the bad is up for debate. One benefit, pointed out by both Simon Fish, executive vice president and general counsel of BMO Financial Group, and Tom Feltner, director of financial services at the Consumer Federation of America, is that the myriad of rules that comprise Dodd-Frank can lead to increased consumer trust.

On the same theme, earlier this week Edelman published its 2012 Edelman Trust Barometer, exploring the ‘state of trust’ around the globe. Trust in financial services remains at the bottom of their list; but if you’re in the U.S., things are looking up. While trust in U.S. banking isn’t close to the 69% seen in 2008, it is UP over the last year – rising to 35% from a record low of 24% in 2011. It’s the best the industry has seen since Dodd-Frank was passed in 2010. Also of note – 50% of Americans “trust banks to do what is right”  – another significant gain for the industry.

So does that mean that Dodd-Frank, in this aspect, is helping the industry? Are consumer opinions of the industry warming?

I’m heading to sunny Arizona tomorrow, for Bank Director’s annual Acquire or Be Acquired conference, where M&A is a big focus. What are the expectations for bank M&A in 2013? Rick Childs of Crowe Horwath LLP highlights findings from our recent research.

What do you think of the FFIEC’s proposed guidance on social media? I’d love to hear your thoughts.