no
NO
Norway
en-NO
no_intm_classes
intm
Intermediary
en
en
World in Motion – Global equities blog

When banks met FinTech…

For decades banks have benefited from a customer inertia that has provided a cheap and stable source of funding and a high margin payments revenue stream. But these are now at risk from FinTech entrants trying to establish themselves as platform providers for payments, deposit accounts and other banking services. A recent McKinsey study, for example, estimates that payments account for around 30% of global banking revenue1, and this is where the digital Payment Service Providers (PSPs) are moving in.

Adoption will take time, but there is growing interest (Figure 1). Digital banks such as Revolut and Monzo offer savings on overseas spending and transfers where the customer enjoys the cheaper interbank exchange rate rather than the exchange rates offered by traditional providers.

Figure 1: Global Google Trends search data for Monzo and Revolut 2014-2019

Chart showing Global Google Trends search data for Monzo and Revolut 2014-2019

Source: Google data. Numbers represent search interest relative to the highest point on the chart. A value of 100 is peak popularity, a value of 50 means the term is half as popular. Zero means there was not enough data for this term.

The real risk, however, is one of the larger tech organisations entering the space, with brand power and a treasure trove of behavioural data.

Where can you bank on dividends?

While banks don’t have stellar reputations, they do have established brands and are trusted as safeguards of customers’ money and data, giving them an opportunity to reposition their business models. In addition, the proliferation of FinTech competitors chasing the same customers has led some to partner with established banks which have the large customer bases that the entrants covet.

Generally, we focus on larger banks as they have sufficient scale to shoulder the increasing regulatory burden and rising IT costs. Those with the best digital offerings will over time take high value customer market share from peers, and smaller banks will waste away. A behavioural shift is also required that puts the customer at the centre of the proposition, rather than relying on inertia.

Countries such as the US and Singapore offer solid asset growth in developed markets without undue pricing pressure. Indonesia and Brazil, meanwhile, have some of the most attractive high dividend yield bank stocks within emerging markets, offering appealing nominal growth and attractive market structures. China, however, faces some difficult challenges as it looks to liberalise the financial system and big tech enters the more profitable areas.

We also steer clear of low growth countries with fragmented markets and unhelpful regulation. Europe stands out here, as on top of the cyclical issues it faces far higher structural challenges due to the 2018 Open Banking regime. That said, we find relatively attractive pockets in northern Europe with consolidated industry structures and sophisticated digital offerings. Japan remains challenged, where the cyclical appears to have become structural.

Big dividends but a need to tread carefully

Bank stocks have struggled over the past decade, and structural challenges could strip away the profitable parts of the industry. Income investing is about avoiding the land mines, so it is imperative to focus on the safer neighbourhoods and players with the best digital offerings in order to find “quality income” bank stocks that offer high, sustainable and growing dividend streams.

Read the full version of this income investing analysis

1 January 2020
Share article
Apple web badge
Spotify web badge
Listen on Stitcher badge
January 2020
Share article

1 McKinsey and Company, Global Payments Report 2019

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at Risk. The mention of any specific shares or bonds should not be taken as a recommendation to deal.
This information is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating an investment with Columbia Threadneedle Investments. The analysis included in this document have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This information includes forward looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any of these forward looking statements will prove to be accurate. (Include if use logos) All intellectual property rights in the brands and logos set out in this slide are reserved by respective owners.
Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com

Related Blog Posts

17 October 2024

Power hungry AI - investment implications in the era of energy transition

Understanding the options for power provision and assessing the investment opportunities resulting from AI’s thirst for energy.
9 October 2024

Neil Robson

Head of Global Equities

Five quality growth stocks with potential in all weathers

From US railroads to e-commerce platforms. We highlight five diverse businesses with one thing in common - strong competitive advantages.
23 August 2024

Neil Robson

Head of Global Equities

US election: the Inflation Reduction Act (IRA) and the risk of repeal - Implications for investors

The macroeconomic backdrop is changing, or at least uncertain. This could shift the pricing of risk assets, but it won’t change what we do, which is look for stronger competitively advantaged businesses that fit our quality growth philosophy.
Watch time - 10 mins

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Capabilities

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Woman listens to music through headphones
Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium