Big Banks Will Show Fintech Who’s the Big Boss

Analysis by Paul J. Davies | Bloomberg
December 30, 2022

What to Expect in 2023:The health of borrowers is the key concern for all of finance in the coming year. An optimistic view would be that inflation is quickly brought under control without interest rates rising too much higher; and any recessions will be short and shallow. In that world, only the riskiest borrowers will likely get into trouble. That, however, still spells losses and it’s the optimistic view!

The biggest banks with the strongest balance sheets — such as JPMorgan Chase & Co., Bank of America Corp., or BNP Paribas SA — should be able to take this scenario in stride. But even in this scenario, many of the younger fintechs that have expanded rapidly into consumer lending are likely to be in for a rough ride due to their greater concentration in riskier, now overextended borrowers.

It’s not only companies specializing in Buy-Now-Pay-Later lending, like Klarna AB, that look to have grown their businesses and staff too ambitiously over the past few years. Job cuts and collapsing valuations have spread throughout the fintech sector, including larger payments companies like Stripe Inc. A proper shakeout in fintech is coming and big banks that are still making billions of dollars of investments in technology will be in a strong position to reassert their power over their upstart competitors — that could be through takeovers, or just by winning back customers who have strayed.

From the Year Behind Us:No, Credit Suisse Isn’t on the Brink: The Swiss bank had a shocking 2022, to follow its terrible 2021. It lost its still-new chairman, Antonio Horta-Osorio in January, sacked its chief executive Thomas Gottstein in the summer and finally launched a radical restructuring that is worringly high-risk and low-return. It also shed plenty of senior bankers, assets and clients along the way. But despite its billions in financial losses, its state of perma-scandal and total share price collapse, a social media driven panic that Credit Suisse would fail in days was wide of the mark.

Jamie Dimon’s UK Startup Is Really a Global Story: It was hard to understand why JPMorgan would bother launching a small digital bank in Britain’s competitive market until you realized that it was a proving ground for technology to be used around the globe. It is also part of Chief Executive Officer Dimon’s aggressive tech-driven ambitions for the US bank. Its huge investment budget is more than most American banks’ revenue.

Why Wall Street Can’t Escape the Culture Wars: Social conservatives love to attack anyone they deem as “woke” and US banks were pilloried over guns, fossil fuels, Covid vaccines and abortion. Some like Citigroup sought the publicity that made them a target and this column looked at a commercial explanation for the strategy. Big names like Goldman Sachs are still moving people and operations to red states and that could dilute the culture wars in the future.

The $24 trillion Treasury Market Needs More Than Just Clearing: It’s the most important market in the world helping to set the price for almost everything else in finance — but it’s too big to trade and liquidity is getting worse. Since this column came out, US authorities have signaled support for the idea that allowing many more banks, investors and market makers to trade Treasuries directly could help make it more resilient.

I Can’t Be The Only One Who Doesn’t Want to WFH: I like the office, what can I say?! The restrictions of the Covid pandemic showed us how technology allows information workers — like myself — to do our jobs from anywhere, technically anyway. It could mean that financial centers like London and New York are becoming obsolete. But people are social and there’s still a lot to be said for doing work in the flesh.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

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