M&M: Mobile and Margin Compression to Predominate in 2013

January 4, 2013

shutterstock_68190553Our good friend, Jim Marous, asked Bank Innovation for “one trend you believe will occur in 2013″ for a feature on his blog. We’re good buddies with Jim, so we offered him two.

And rightly so. We are “Bank” “Innovation,” after all, so one trend addresses banking at large and the other the innovation side of financial services.

1. Mobile, Mobile, Mobile

2013 will be the Year of Mobile Financial Services. Wait, so was 2012 — and so will be 2014. Mobile in 2013 will continue to evolve into the predominant banking channel, just as online banking assumed that role starting in the late 1990s. According to Javelin Strategy & Research data published last month, 10 million US adults started using mobile banking in the previous 12 months. That’s just the start of the “hockey sticking” growth, however. Javelin prefers to think of mobile banking as a “triple play” of¬†mobile web, app, and text banking, and that’s a good way to think of it. When considering the triple play, 28% of bank consumers are using these services — even though 80% of “the largest regional banks” offer all these mobile channels.

JavelinStrategy.MobileBankingAdoption.2012Market penetration of mobile services has a way to go yet. There are countless elements of financial services and its product set that have yet to go mobile. Just one example: PFM-like mobile apps have yet to appear for small business commercial banking customers.

2. Welcome to Margin Compression

It’s been a nice run since the credit crisis for bank margins. With all the capacity taken out of the market after the crisis, as a result of bank failures, greater capital requirements and more prudent (wimpy?) credit loss reserve policies, margins since the darkest days of the financial credit have been nothing short of plummy. But margins started to weaken in 2012. By the third quarter of 2012, net interest margins for all banks in the US had fallen to 3.39% from 3.53% the year previous, shedding 14 basis points. In 2010, NIMs topped 3.8%, not to mention during those golden years during the early 2000s, when NIMs were better than 4%.

fredgraph NIMs through 3q12


We think margins will continue to weaken through 2013 as investors looking for yield pump more capital into banking products and banks continue to both acclimate to their capital requirements and feel the urge to generate yield, too. The farther we get from the credit crisis years, the laxer will be credit underwriting standards. (Call that the Bank Innovation Maxim, folks.)

Taken in sum, these two trends have the potential to counteract each other, as long as bankers play them right. Mobile’s greatest worth is in its efficiency, both for the bank and for the consumer. Those efficiencies should make up for some of the losses in margin that banking should suffer in 2013.¬†”Should” is the key word here. As you may know, “should” in banking has turned into “didn’t” on occasion. Let’s hope for the best in 2013.

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