Page 26 - BusinessWest April 18, 2022

Big Is Getting
Even Bigger
Pace of Evolution Accelerates in
Financial-services Industry
By Jeff Liguori
Financial advice generally addresses the question ‘where should I put my money?’ It is a simple way of asking ‘what is the optimal investment for my hard-earned dollars?’ The
more important meaning may be more literal: with today’s shifting landscape, where do I actually put my money?
The financial-services industry, which employs approximately 6.5 million people and is responsible for more than $123 trillion in assets in the U.S., has been rapidly changing over the past two decades. And the rate of that change is quickening. As with all industries, change may be the only certainty, but when it directly impacts our pocket- books, it can create anxiety.
At the end of 2020, there were 4,377 FDIC-insured commercial
“Finance has become a complex structure and confusing network of companies, from purely digital firms with a limited product offering, like PayPal, to massive financial super-
markets like Bank of America.”
banks in the U.S. That number is down from 6,519 in 2010 and more than 8,000 in 2000. During the same 20-year period, the dollar volume of loans generated by those banks has increased 127%, growing from $1.05 trillion to $2.38 trillion. Consumers seem to have fewer choices in terms of traditional banking.
Despite the number of banks being cut in half since 2000, there are more financial outlets than ever for depositors, borrowers, and inves- tors. Finance has become a complex structure and confusing network of companies, from purely digital firms with a limited product offering, like PayPal, to massive financial supermarkets like Bank of America. Incidentally, in the past five years, the number of total active user accounts with PayPal has risen sharply from 165 million to 380 million, up 130%, with total annual transaction volume approaching $1 trillion.
The adoption of technology in banking is largely a function of age. At the end of 2020, nearly 50% of consumers ages 24 to 39 were mak- ing payments with digital or mobile wallets. That percentage decreases slightly up to age 54. But only one-fifth of consumers ages 55 to 73 transact digitally, and only one in 12 consumers age 74 or older are comfortable making digital payments. Focusing on younger demo- graphics, ‘killer app’ technology has become a critical component of growth for companies in financial services. The number of financial- technology startups, or fintech, in North America has grown 90% since 2018.
Beyond technology, financial firms continue to expand their suite of products. For example, the five largest life-insurance companies mea- sured by annual premium revenue are Northwestern Mutual, MetLife, New York Life, Prudential, and MassMutual, in that order. Those firms also have a significant presence in investment management, by way of mutual funds or wealth advisory or both. The same is true for the larg- est commercial banks, investment banks, and broker-dealers. Finan- cial solutions are ubiquitous across the industry regardless of the type of firm.
Big is getting even bigger. It is an evolution in financial services, and not without precedent. Historically, con-
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Money
26 APRIL 18, 2022
BANKING & FINANCIAL SERVICES BusinessWest
sumers deposited their paycheck and took
out their mortgage from the local bank. Continued on page 27