Bullish on Banking

In this interview with Richard Hunt, the “Cajun Banker,” we talk about everything from the current regulatory environment, to predictions for M&A activity in the next 5 years, to why he views now as the golden window for banking.

If you don’t know Richard Hunt, he’s definitely a member of the “Who’s Who” in retail banking. As President and CEO of the Consumer Bankers Association since 2009, Richard has been representing the industry and frequently sharing his candid thoughts with policymakers, stakeholders, and the media. He has testified before Congress on a number of issues related to retail banking and continues to advocate for and on behalf of the nation’s banks.

richard_hunt

Richard Hunt is President and CEO of the Consumer Bankers Association (CBA) representing the retail banking industry, including the nation’s largest bank holding companies as well as regional and super community banks. Drawing on a unique blend of political and legislative knowledge, industry stakeholders and policymakers count on his candid views to give the keen insight needed in an era of regulatory pressure and uncertainty. Hunt has been called on to testify before Congress, is regularly interviewed by national and trade media, and speaks around the country at various industry conferences.

Prior to joining CBA, Hunt served as senior vice president of federal policy for the Securities Industry and Financial Markets Association (SIFMA) and was also the senior managing director of the Securities Industry Association, which merged with the Bond Market Association in 2006 to form SIFMA. Hunt began his career in the U.S. House of Representatives where he spent seven years serving as chief of staff, two years as district manager, and three years as district representative for Congressman Jim McCrery (R-LA). Originally from Louisiana, Hunt is a 1989 graduate of the University of Louisiana, home of the Ragin’ Cajuns, where he received a Bachelor of Arts degree in business marketing. Hunt currently serves as Director-at-Large of the Exchequer Club of Washington, D.C.

Eric: 00:08 Welcome to the Finance Frontier. I’m your host, Eric Hathaway. Today we have a special episode where we’ll be joined by Richard Hunt, who’s the president and CEO of the Consumer Bankers Association, representing the retail banking industry. Prior to joining CBA in 2009 he worked for the Securities Industry and Financial Markets Association, the Securities Industry Association and served in the US House of Representatives. He is regularly interviewed by national and trade media, speaks around the country at various industry conferences and we are so pleased to have him here with us today.

Eric: 00:42 You’ve been in this industry for quite some time now. You have been able to see it from a very different point of view. You’ve been able to see the banks, the regulators. If you were to look at the last five years, and things have changed dramatically in that period of time, are they doing it right from both the bank side, the regulatory side, and what would you do differently?

Richard: 01:04 So, I do believe we’ve got the best bank management team in probably the last 60 years right now. I think we have an outstanding regulatory team in the federal government, made up of people who actually understand banking inside and out, the good and the bad, understand consumer protection and understand safety and soundness. But we have to right-size regulation in Washington, DC.

Richard: 01:29 Now the one thing we can not afford to have, and I’m just going to give you the example of the Consumer Financial Protection Bureau, the CFPB, you have a director who’s appointed for a five-year term, and that’s great, but what happens is when the Democrats take over the White House and the Senate, they’re going to put in their director and all the policies are going to shift all the way to the left. The Republicans will win the White House and the Senate, as they do now, and they’re going to put their Republican director in it. It’s going to shift all the way to the right. We don’t need that for this country. We don’t need this for the consumer.

Richard: 02:04 We need to make sure we right-size regulation where it’s not too far left or too far right, making sure we have certainty and stability in the marketplace for years, not just every two election years. So I think that’s a situation we have to take care of. We’ve been pushing for a five-person bipartisan commission at the CFPB, but it has to happen throughout. Somewhere down the line, this town has to work, and Congress has to work, and regulation has to work, where we sit down on a bipartisan basis like we used to. Most major significant pieces of financial-services regulation passed 100 to zero, 99 to one. Dodd-Frank passed strictly on party lines. The recent Crapo bill basically passed on party lines.

Richard: 02:52 That’s got to stop. I think the next four years is a golden window for banking. I think this is a great time to be in banking. I’m more bullish about banking, especially retail side, than anytime in my ten-year history at CBA, so I’m very bullish. I’m especially bullish on those banks who made the investment in technology five, six, seven years ago, and seeing it pay off now. Those banks who did not make the investment in technology some time ago, I don’t think they’re going to make it. So, we’re at 4900 banks today. My guess is we’ll be at 3800 in a couple of years, and I think we’ll settle somewhere around 2500 to 3000 banks in this country.

Eric: 03:33 I agree with you. The technology piece is going to play a huge piece of the puzzle, and the larger institutions that have invested and continuing to I think are going to be the ones that succeed. Do you think that we’re going to see another round of M&A activity between the banks, or do you think that just the ones that aren’t basically pulling it off are just going to disappear?

Richard: 03:52 February 7th was a huge day in the industry. That was the largest merger of banks since the financial crisis, when SunTrust and BB&T merged. Now that’s a $400 billion merger. There’s only one or two deals that are out there that could match that, but I do believe you’re going to see a continuation of banks under a billion dollars continue to merge, probably 4 to 5% per year. I think we’d have one or two major mergers to happen or buy-outs, however you want to call it.

Richard: 04:25 Do I see any bank failures? Well, according to Jelena McWilliams at the FDIC, we’ve got less banks on the watch list than in the history of the FDIC, or at least in the last 50 years. So it’s a combination. I don’t think the FDIC wants a bank to fail. I think somebody will just buy them. But yeah, you’re going to see 4 to 6% per year merging.

Speaker 3: 04:56 The Finance Frontier is brought to you by Zoot Enterprises, a global provider of advanced decision-management solutions for the financial-services industry. Learn more at https://zootsolutions.com.

Eric: 05:11 One of the things that we wanted to talk about that I know is close to your heart and in what you believe in is financial inclusion. And more and more banks are getting involved with financial inclusion, but there’s some challenges. There’s some difficulties. And I think when we spoke the other day, I’d mentioned that we had interviewed a bank down in the southeast that was trying to compete with the cash stores, and they couldn’t get people to walk into the bank, so they were having to actually go out and build brick and mortar just to get some of those folks to walk in. You’re dealing with some of the CRA reform. How does that play into it, and where does the group stand and yourself on financial inclusion right now?

Richard: 06:00 Look it’s a great question, and it is a problem we’re having across the country, making sure we have more people in the underbanked and unbanked arena to have them in a heavily regulated banking industry. It is a fact, Eric, that we’d have some people in this country who are just more comfortable going to payday lenders than the banking industry. And I think that’s a job we have to do better in this country is to make sure that everybody feels welcome in a banking industry.

Richard: 06:36 My hometown is Jennings, Louisiana. It’s a population of about 10,000 people. I was there this past weekend once again, celebrating my mother’s 85th birthday, and she and I always take a little road trip around town and we visit, of all things, payday-lending companies, stores. In Jennings there are 13 of them, and every single time we go by there are people coming in and out, and these people are paying upward of 300% or greater to have a loan or to cash a check. And yet you go to the local community bank and the one national bank we have and they’re not as busy. So we have to do a better job making sure people feel comfortable in the banking industry. We have the services they need. We have remote deposit capture. We have great apps on our phones for people to check their balances on a 24-hour basis to make sure they do not overdraft.

Eric: 07:36 Just in the United States alone, there’s like 75 million people that don’t have access to the normal financial services¹. It’s almost 20% of the US. One of the things that we have seen, and I’m sure you’re aware, is some of the major banks are starting to play in that arena, and trying to reduce those rates and trying to increase that inclusive side. What kinds of things are you seeing between the banks and the CRA and regulation? Are they working together, or is it kind of more of a battle right now? Where’s it headed?

Richard: 08:10 Well, there was a time about five years ago, where many of our banks had a product called deposit advance product. As you know, the Federal Reserve out of Richmond came out with a study not too long ago that said too many people, some half of all Americans, do not have $400 in their checking account to cover a financial emergency. So we had a product, the DAP product, where we were able to provide short-term liquidity needs, and we were doing quite well and it was a very popular product. And what did the federal government come around and do through the FDIC and the OCC? They came and said, “No, Mr. and Mrs. Banker, you can not offer that product to the people because it costs too much.” So, although it was only $2 per $20, it was a fee that we charged them because they had not a good credit rating.

Richard: 09:01 So where do those millions of Americans then go? They walked out of our bank and they went to the payday lender, where they then had to pay a whole lot more to the payday lender. So we’ve got to get people educated about savings. We have to make sure they’re ready for retirement. But that one stat that half of all Americans do not have enough money in their checking account to fill a financial emergency, that just hurts to the core of this country.

Richard: 09:28 The other interesting stat I saw out there that even though a person is unbanked, 70% of them still have a cell phone, so if you have a cell phone, you have access to a bank. I can do 99% of my banking strictly through the bank app. I can open a mortgage account, I can open a checking account, I can check my balances. So, we have got to get away from this notion that just because you are not wealthy, you don’t have access to a phone.

Eric: 10:00 Absolutely. I agree with that.

Eric: 10:11 That kind of drives me into one of the other topics I wanted to address with you is fintechs, and as we’re seeing the fintechs come to market now and competing with some of the larger banks, do you think that that will be helpful in the financial-inclusion realm?

Richard: 10:27 Yes, I do. Look, I’m a big fan of the fintechs. I’m a huge fan of Silicon Valley. I think they taught us a different way how to communicate and connect with our customers. I think we were behind the wheel a little bit, behind the curve, if you will, learning consumer expectations. I think Apple, Amazon have had more of a positive influence on banking than any bank in this country has had.

Eric: 10:52 I do too.

Richard: 10:53 Now, let’s take it to the next step. If those fintech companies then become a bank or wish to become a bank or offer bank-like services, there has to be a level playing field, and they have to apply for a charter through the various government agencies, have safety and standards practices, make sure they have correct underwriting. Because anybody can survive in this country in a good economy, but when that economy turns, we have to make sure we have the safeguards in place for the consumers, especially when it comes to underwriting.

Richard: 11:23 So I am not anti-fintech whatsoever. I think competition is good as long as it is fair. There was a time about five years ago, I actually thought the fintechs may take out the banking industry, and I took a trip out to Silicon Valley and learned quite a bit about what the fintechs are doing. And I can say with all certainty, I think 95% of the fintechs will fail, but the 5% that do survive will have a huge impact on how we do banking.

Richard: 11:55 And I would tell you this, I give our banks a great credit for pivoting and becoming fintech companies on their own. Many of our banks have invested tons to the tune of $10 billion per year on all things technology. So now, while we were behind, I think with technology, I think many of our banks, especially the larger banks, are either on par or even better. And now I see this being a partnership with fintechs. You’ve seen a slew of partnerships between banks and the so-called fintech companies. So I think it’s a win-win for everybody, as long as it is a level playing field.

Eric: 12:34 I do too. And I guess it’s an interesting question. Let me ask you, you know, you brought up Amazon and the PayPals, and I agree. I think if they want to get a banking charter, they’re the kind of size that could be very competitive in the industry, but let’s discuss the smaller fintechs. There’s a lot of smaller fintechs that are wanting to become banks and change the way things are done. We look at even Robinhood lately, right? Trading app that wants to become a bank and and create and have checking accounts. However, they don’t have the size, they don’t have the staff, they don’t have the money to try and compete with the security concerns, the regulation, the reporting, the compliance. Do you think that having a level playing field allows a lot of those fintechs to be able to even compete in that arena?

Richard: 13:22 Look, that’s a choice they have to make. If they want to offer banking products and services, they’re going to have to invest money. That’s just the way life is. Now, I know Robinhood, for example, had a false start, is what I call it. They didn’t have the proper oversight and they withdrew their application, but now they’ve just resubmitted it, and they’ve made the determination, even though they’re not global, that they want to get an OCC charter or an FDIC ILC charter, I’m not sure which one, and in fact they’re coming in next week to brief me on their application. Now it’s going to take some time for them to get a charter.

Richard: 13:59 But look, if you want to play the game, you got to understand the rules of the game. And I think that’s what a lot of people were missing. There aren’t that many people who are applying for charters for fintechs, but that’s their choice. If they want to be in the business, you just have to comply. That’s just the way it is.

Eric: 14:19 Well, and it’s an interesting debate that’s gone on globally. We’ve seen a lot of emerging economies not level the playing field to where you know, some of the major banks are struggling to compete with the fintechs, because of that non-even playing field. So, I tend to agree with you and I think it’ll be very interesting to see where this goes.

Eric: 14:43 Let me ask you another question. So, I think as we’ve seen the fintechs come to market, they’re addressing a different type of market. We’ve got new generations that are demanding products. Instead of the banks providing, saying, “This is what we’ll provide to you,” customers are now sort of demanding how they want to be served, which comes to the customer-experience question. And it’s difficult because as we want to protect those consumers, we have regulations around fraud, compliance and that kind of a thing. There can be a little bit of a combatant mentality of consumer protection versus customer experience. So how do you think that’s going to play out as we move forward?

Richard: 15:23 Yeah, so I will tell you this. I have an Amazon package at my house, call it five times a week. And there have been times I’ve ordered on Sunday night, like around 8:00 PM, and that package was on my front doorstep before I left the next morning for work. And I expected that. I no longer think that is a luxury.

Richard: 15:47 So, when I think about the banking industry, do I get upset sometimes when my check is not cleared within an hour, that something has not been deposited quickly. Of course, I do. But Amazon is not regulated today for their services like a bank is for their services. It’s two separate industries. I understand the frustration. So yes, customers’ expectations have changed over the years, and I think the regulators are now getting it more so now than they have in the past. They understand how quickly customers expect services. So I think we’re making tremendous progress to get there. But I would say we have to make sure that our products are safe and sound. It’s a whole lot different ordering something from Amazon versus ordering a mortgage or a certificate of deposit or a check service.

Eric: 16:36 Absolutely.

Richard: 16:37 So, with our delivery has to have safety and security with it.

Eric: 16:41 No, and I completely agree with that. One of the most recent episodes we did, we did a mini-series on artificial intelligence and the integration of voice assistance into banking. Do you see that regulation, and with voice assistance and AI and a lot of these technologies coming in, do you think that we’re going to see that transpire in a short period of time or do you think there’s going to be some more challenges with that because of that exact thing, where we have to protect the consumer?

Richard: 17:10 Yeah, but I think they’re doing a great position that they can protect the consumer without too much government interference. When you’re talking about technology, I don’t think of the United States government. I’m sorry. And if they put too many borders up on AI and other items, that’s going to inhibit what we do. The last thing we need to be doing in this country is checking with the government, whether it’s the CFPB, the OCC or the FDIC every time we want to go to market with a new product. So I think the regulators have to be very careful. I do like some of their, where they call sandboxes, allowing us to play in the sandbox within reason and go to market with some of these products. Otherwise there is no way we can keep up with the fintechs who have none of this regulatory upheaval.

Eric: 17:56 Yeah, I completely agree with that. Well, Richard, let me ask you another sort of interesting topic that is a little forward-thinking. So the UK has implemented open banking, and it has been successes, some fallbacks. There hasn’t been quite the adoption that they expected in the timeframe they wanted. Open banking’s been a topic here for quite some time and I think that it’s going to take longer, but can you give me your viewpoint on open banking, positive, negatives and what you see happening over the next sort of three to five years?

Richard: 18:27 Yeah, all the above. I think we have to be very, very careful on open banking. We understand this is what consumers want. They go to Mint, and all these other third-party aggregators. That’s fine. But we have to make sure before we give out our customer’s data that the person we’re giving it to has good data protection, because if they have a breach then that means the bank has a breach, and let’s just call it like it is, the customer’s going to blame the bank, not the third-party aggregator. So I think eventually we’ll get there where it is 100% open banking, but all those third-party aggregators have to make sure they have the safety and soundness provisions, data security locked up 110% before it really takes off.

Eric: 19:12 So one last question for you, and we’ve hit on it a couple times during the conversation, is education. We have looked at this, as technology increases, as the product ranges increase, as we open up the credit scoring side of things for people to manage, do you think that the banks and or the regulators, I guess I’d love your opinion on both, are doing enough to educate the general population? Or, let me ask you the other side of the coin, are the people paying attention enough to want to be educated on financial products and where we’re going in the industry?

Richard: 19:51 Phenomenal question. Phenomenal question. I think we spend tons of money trying to make sure everybody’s literate. I don’t know how successful we are. I don’t think we’ve cracked the code about how to really communicate with everyday America because everybody is in a different position in their life. So you almost have to segment our messaging, and very few people do that. Now, I have seen some great programs that are out there about life cycles. You’re going to think differently at age 20 than you are at age 30, than 40, than 50, and on. But I really don’t think people listen until they absolutely positively have to. And unfortunately sometimes by the time they have to, it is too late.

Richard: 20:38 So, I don’t think we’ve cracked the magical code just yet, but I know we’re working on it every single day. We certainly have enough programs out there between the Roth 401(k) and IRA and the traditionals as well, and the piggy banks that are out there. And we know there are some technological companies that will actually transfer money out of your checking account that you really don’t need into a savings account that pays a higher interest rate. So I think the apparatus is there. Well, we got to make sure we have the want, the need, as well.

Eric: 21:10 I agree. I agree. Well, Richard, thank you. Is there anything else you’d like to add that maybe we didn’t cover today?

Richard: 21:16 The only thing I want to add is I would just reiterate what I said earlier is that I’m very bullish about banking. I think we’ve got a great team, especially retail bankers out there who want to do the right thing, and are going to fight every single day. Nobody wishes to return to 2004 to say 2007, with horrible underwriting standards. We’re not trying to roll back Dodd-Frank. We’re just trying every single day to make sure we serve our customers on an hourly basis because they have demands and expectations and we’re there to meet with them. We certainly know that if a person doesn’t like a certain bank, they’ve got about 4800 other choices to make. We also know that a person born today can have the same bank from birth to death, and everybody’s fighting right out of the gate to have that customer their entire life.

Eric: 22:11 Well, thank you so much for your time today. It’s been an absolute pleasure.

Richard: 22:15 Eric, as you well know, I like to listen, but I love to talk. Thank you very much for your time.

Eric: 22:19 All right. Thanks again, Richard. Have a great day.

Richard: 22:21 Thank you.

Eric: 22:24 Since we depend on listeners like you to help us spread the word, we’d love it if you take the time and post a review of our podcast on iTunes. Until next time, I’m your host, Eric Hathaway.

[1] Apaam, G., Burhouse, S., Chu, K., Ernst, K., & Et al. (2018). 2017 FDIC National Survey of Unbanked and Underbanked Households (p. 1, Rep.). FDIC.

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