In his recent article titled – Why I never invest in bank shares, Terry Smith explains why he never invests in bank stocks. Here’s an excerpt from the article:
Smith: That encompasses my long-standing reasons for avoiding bank shares but another has emerged in recent years – Fintech. What are the essential functions of a bank? To take deposits, make loans and effect payments. All of these essential roles are now being supplanted by so-called fintechs.
Bank loans are being replaced by peer-to-peer lending platforms and credit funds. You don’t need a bank for payments or deposits. You can get your salary paid straight into your Mastercard or Visa account and they are far better at payment processing for which you can also use your Apple or Android phone.
Technology is supplanting traditional banking. Have you noticed that your local bank branch has become a Pizza Express, in which role, by the way, it makes more money. Not only that but the banks are often handicapped by legacy systems which do not trouble new entrants and at least until recently fintech start-ups enjoyed a seemingly endless supply of funding with little or no requirement to show a profit.
As Paul Volcker, the infamous former Chairman of the Federal Reserve Bank, said the only innovation of any consequence by the banking sector in the 20 years running up to the Global Financial Crisis was the ATM, and we don’t even need those any more.
You can read the entire article here:
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