Transcript
Hey everybody. Welcome back to another episode of What’s Going On in Banking. I’m Ron Shevlin, chief research officer at Cornerstone Advisors and author of the FinTech Snark Tank on Forbes. And with me, of course, is my colleague extraordinaire, Stacey Bryant.
Stacey, how are you doing?
I am fan-flipping-tastic, Ron. How are you doing? What’s going on with you?
Great news: I am off the road. Six weeks, six board meetings, four conferences, and two breakfast presentations later, I’m finally home. I’m not sure how we’re going to get through this podcast because I’m pretty much brain-dead at the moment.
How about you? You’ve been traveling too.
Yeah. I was at a conference recently and I’m getting ready for a few more. It’s funny, I sent you an email about a week or two ago and your out-of-office message basically said, “Another day, another conference.” I laughed because I could hear you saying it.
A couple of weeks ago I was at the CrossState Connect Annual Convention in Bethlehem, Pennsylvania, which brings together credit unions from New Jersey and Pennsylvania.
A few trends stood out.
First, small credit unions are merging with other small credit unions to become midsize institutions. Midsize credit unions are merging, or at least talking about merging, with other midsize or smaller credit unions to become larger organizations. Consolidation was clearly a theme.
Second, a lot of credit unions are asking what else they can do with AI. They don’t necessarily want to be the first mover. They want to see how other institutions are using it successfully before they jump in.
I had a conversation with the CEO of a roughly $600 million institution who said, “Outside of chatbots, what else can we do?” He was thinking about how the credit union could use its data to understand where members are shopping and where they’re borrowing from other providers.
So my three biggest takeaways were consolidation, a lot of interest in AI, and a desire to move beyond chatbots without necessarily being the first institution to take the risk.
How about you? What have been your takeaways from the last few weeks?
Despite the crazy travel schedule, there has been one saving grace. Five of the six board meetings I presented at wanted me to talk about the same thing: growth.
The sixth initially asked me to talk about AI, then came back right before the session and said, “Can you also talk about growth?” So we mashed the two together.
For easily the last 18 to 24 months, deposit gathering has been near the top of the agenda.
I posted something on LinkedIn last week using the old image of blindfolded people touching different parts of an elephant. That’s what the vendor landscape around deposits feels like to me.
Our midsize bank and credit union clients are getting bombarded by technology vendors and service providers saying, “We can help you gather deposits.” But when you look more closely, most of those vendors address only one small part of the overall problem.
That puts financial institutions in a position where they have to understand the ecosystem and get much better at prioritizing what kind of deposits they actually want.
Are they looking for a quick hit they can execute in three months? Or are they trying to build a long-term capability?
I’ve always been a little frustrated when a client comes to me and says, “Ron, any good ideas for gathering deposits?” My immediate thought is, “Yeah. Raise your rates.”
And they say, “No, no, no. We don’t want to do that.”
Okay, then what do you want to do? Spend a couple hundred thousand dollars, maybe a few million, to build a new capability that takes 12 to 18 months to deploy? Or do you need something that moves the needle right now?
There’s clearly an urgent need for deposits and no shortage of vendors offering solutions. But it’s a messy landscape, and financial institutions have to make sense of it.
I think everyone, whether they’re a fintech vendor or a bank CEO, is trying to figure out how to create tangible growth.
That’s why they look to you and ask, “What can we do right now?” They want something concrete.
To me, it comes down to setting a precise plan of attack and then hitting milestones so the organization can actually see progress. Think about the idea of marginal gains from Atomic Habits. Small improvements can compound.
The problem is that people get distracted by too many innovations, too many use cases, and too many different technologies. Sometimes they want you, Ron, to tell them exactly what they need to do.
So consider that a compliment.
I will. Absolutely.
Let’s talk about a couple of news items.
Big news in banking is that the Federal Reserve lifted the asset cap on Wells Fargo. It must feel amazing for them after seven years under that restriction. I think the cap went into place in 2018.
The Wall Street Journal argued that the biggest negative impact would be on regional banks. I’m not sure I agree. I think this could create pressure across a much broader portion of the banking ecosystem.
What are your thoughts?
I agree. This feels like the Wells Fargo comeback tour, from regulatory timeout back to the main stage.
For context, the Fed imposed the roughly $1.95 trillion asset cap in 2018 after the unauthorized-account scandal, when employees had opened accounts or enrolled customers in products without proper authorization because of aggressive sales goals.
The cap prevented Wells Fargo from meaningfully expanding its balance sheet. That limited its ability to take on more deposits, make more loans, and grow through acquisitions.
And 2025 has already felt like a major year for mergers and acquisitions.
We’ve talked about Chime’s S-1, Capital One and Discover, and other companies making very intentional moves to dominate or expand their markets.
So I don’t think only regional banks are in play here. Community banks and credit unions are going to feel pressure too.
I think regional institutions are increasingly betting on technology to avoid becoming collateral damage. Now more than ever, they have to look at their tech stacks, the data they have available, and how they can attract younger consumers and small businesses.
Wells Fargo, similar to Chase, can take a page from community banks and push much more aggressively into small business and local-market banking.
I think you just touched on the key point.
One thing that has surprised me is what we’ve seen in consumer research over the last seven, eight, or nine years. We continue to track who consumers open accounts with and who they consider their primary checking-account or payment provider.
And despite all the scandals, consumers have continued opening accounts with Wells Fargo and still consider it a primary checking-account provider.
If you look at Wells Fargo’s deposits over the years it was under the asset cap, they didn’t collapse. The bank actually did a good job retaining consumer deposits while allowing some higher-cost corporate deposits to roll off.
That helped them manage profitability even though overall growth was constrained.
Now that the cap is gone, I think Wells Fargo is going to get much more aggressive, especially in small and midsize business banking. And small business is the bread and butter for many community banks.
So I do think this creates a tougher road for midsize financial institutions, not just regional banks, as Wells Fargo starts pushing harder for deposits on both the retail and commercial sides.
Can you unpack what Wells Fargo actually had to do to get the cap lifted?
The Fed essentially wanted the bank to overhaul board governance and risk-management frameworks, improve compliance and operational-risk programs, undergo independent third-party review, and pass direct evaluations by the Federal Reserve.
Charlie Scharf, who became CEO in 2019, gets a lot of credit for leading that turnaround.
But in layman’s terms, what does that mean? What did they actually have to change?
I think a lot of it comes down to greater transparency, stronger regulatory compliance, and better organizational alignment.
Behind the scenes, Scharf has done an impressive job getting the management team in order. I wouldn’t be surprised if there were a number of quiet departures among legacy senior executives as the company reset leadership and accountability.
I’ve worked with Wells Fargo people for a long time, and most of the bankers I’ve interacted with have been extremely high-quality professionals who had nothing to do with the scandalous behavior.
I think Scharf probably did a strong job cleaning house where necessary, putting controls in place, and aligning the organization.
Seven years is a long time. The environment inside Wells Fargo is likely very different today.
I always thought a relatively small number of bad actors created an outsized portion of the original problem. So at this point, I don’t think it’s surprising that the asset cap was finally lifted.
There will always be people who say Wells Fargo is still an evil institution and that I’m wrong to give them any credit. But I think the company has done a much better job getting itself aligned, and now I expect a fairly aggressive push for growth.
That is going to affect regional and community institutions.
One last point before we switch gears. You mentioned the traditional bankers at Wells Fargo who understood the fundamentals.
When we think about financial literacy and younger generations, a company with that much capital and that much institutional banking experience could become a major competitor in a number of segments.
I’m curious what that looks like a couple of years from now.
I might push back on the Chime comparison.
Chime’s core market is clearly lower- to middle-income consumers. I think large banks are generally comfortable letting somebody else own a lot of that segment because they don’t see it as particularly profitable.
Chime has done a good job generating payment activity, but I don’t think that’s where Wells Fargo sees its primary growth opportunity.
Speaking of credit and subprime consumers, let’s talk about buy now, pay later.
I came across a CFPB research study using de-identified credit and debit data from six major buy now, pay later providers.
My headline for the study is: bad news for the BNPL bashers.
There are a lot of people, especially inside traditional financial services, who love to argue that buy now, pay later is simply contributing to consumer debt problems.
What surprised me is that the CFPB, which is hardly known for being friendly to financial-service providers, found something more nuanced.
The study found that borrowers increased their BNPL balances after first using the product, but the increase dissipated over time. Researchers did not find similar increases in other debt balances and found some evidence that consumers were substituting BNPL for other loan products.
The results did not support a conclusion that first-time BNPL use harmed borrowers’ ability to repay other loan obligations or materially increased several measures of financial distress.
A couple of things stood out to me.
First, for everyone who says BNPL automatically worsens consumer debt, the CFPB is basically saying, “Not necessarily.”
Second, the substitution effect is important for financial institutions.
Some consumers may be replacing payday loans with BNPL, which could be positive. But some could also be substituting away from credit-card transactions or personal loans that banks and credit unions traditionally provide.
I’ve been telling financial institutions for nearly two years that they need to get into the BNPL game.
It won’t be easy because providers such as Klarna and Affirm get involved before the purchase decision, while many banks try to offer installment options after the transaction has already happened.
But there are vendors helping financial institutions build BNPL capabilities, and I think institutions should look closely at this research and what it means for their product strategy.
That makes sense. Buy now, pay later is almost like the new guy at the poker table. Everyone is watching him, but he may not actually be the one running up the tab.
When credit unions and community banks first started talking about integrating BNPL, I worried about financial literacy, especially for subprime consumers and younger borrowers.
But many of these purchases are relatively small, often in the $135 to $140 range, for things like apparel or beauty products. Travel purchases can obviously be larger.
One thing BNPL often requires is autopay, which can create structure around repayment.
If a financial institution can offer BNPL as a safer alternative to payday lending or expensive check-cashing products, there may be an opportunity to help some subprime consumers bridge short-term gaps and build better financial habits.
The product itself is only a tool. How the institution positions it matters.
When I turned 18, my parents told me, “You’re about to get a bunch of credit-card offers. That is not your money. Make sure you already have the money, or know where it’s coming from, before you make the purchase.”
That kind of education should be part of the mission when banks or credit unions offer BNPL.
There has also been concern about so-called phantom debt because some BNPL obligations historically did not appear on credit reports.
But I think default rates are dramatically lower than credit-card defaults, right?
Yes, and the phantom-debt argument has been increasingly challenged as more BNPL providers begin reporting to credit bureaus.
There was also a good article, I think from an executive at Affirm, pushing back on the phantom-debt narrative, which had gotten a lot of attention after a Wells Fargo analysis.
I wanted to bring up something you shared with me the other day. You got a message from someone responding to one of our previous episodes, and I told you we had to discuss it here.
Just don’t mention any names.
Absolutely. Anonymous it is.
To set the stage, in a previous episode we talked about a community financial institution that was trying to build a data strategy and data-governance framework. But the board was extremely cloud-averse.
That matters because so much modern banking technology, including parts of core platforms, is increasingly cloud-based.
The person who reached out was responding positively to our episode. They said their senior leadership team had talked about an AI strategy and roadmap, and they understood that AI enablement ultimately depends on data strategy, governance, and warehousing.
But their organization does not want anything to do with AI right now. The message was essentially, “Don’t even bring it up. We need to focus on performance, excellence, and measurable success.”
My reaction is that if you’re talking about performance and operating metrics in financial services today, you can’t completely separate that from data and AI strategy. Those topics have to be part of strategic planning or the institution risks falling behind.
What do you think?
The part that really jumps out to me is the response your friend got from leadership: essentially, “You may not speak of that.”
I have a hard time understanding the thinking behind that.
It reminds me of something I saw on LinkedIn today from JP Nicols, someone I’ve known for a long time and who helped build Alloy Labs.
He quoted a senior bank executive saying, “We’re not focused on any revenue-generating activities at this time.”
That was odd enough. But the reason was even better: “Because we’re building 12 new branches.”
In other words, “We don’t have time or resources to focus on growth because we’re too busy spending money.”
Maybe the executive was just brushing off a sales pitch. But I’ve just come off five out of six board meetings where the central question was, “Ron, what do we need to do about growth?”
So when I hear a bank executive say, “We’re not focused on revenue-generating activities,” my immediate question is: what the hell are you focused on?
So what do you do if you’re an innovator inside one of these organizations?
You see how instrumental data strategy and AI strategy are becoming. You understand that part of your job is to move the needle. But the senior leadership team or board doesn’t want to hear it.
How does a middle manager communicate that message upward?
I have an answer, but I need to qualify it.
I don’t think middle managers can solve this by themselves. They’re often stuck between a rock and a hard place.
But as an outside advisor, my approach is usually to add a time horizon to the conversation.
I’ve been doing this a long time. About 20 years ago, before the iPhone, I wrote that mobile banking was going to be huge. But I also said financial institutions did not need to pour money into it immediately because many still had major online-banking problems to fix first.
There are optimists, pessimists, and realists. The problem is that optimists and pessimists usually think they’re the realists.
The realistic approach is to say, “Yes, this technology is going to matter. No, you do not have to transform the entire organization this year.”
Maybe you need to be ready two years from now. Maybe you should start experimenting next year. Maybe you begin with a small pilot today.
What often scares management teams and boards is hearing pundits say, “This will transform everything, and you need to change everything immediately.” That’s not how transformation actually works.
A more measured, time-based approach can reduce resistance.
If a board is cloud-averse, you probably aren’t going to convince them overnight that everything should move to the cloud. If they’re skeptical of AI, telling them they’re completely wrong usually won’t help either.
You have to chip away at the resistance, build evidence, and create small wins.
The assumption behind a lot of the resistance is understandable: “We’re already struggling for deposits and growth. We don’t want to spend a lot of money on something that may not produce a return.”
So institutions need transparency about how peers are using these tools and what they are actually getting from them.
Even personally, sometimes curiosity starts with a simple example. A friend of mine created a workout and nutrition plan using ChatGPT based on protein goals and dietary restrictions. I looked at that and thought, “Okay, this opens up a whole new world of possibilities.”
Small examples can create curiosity.
At a financial institution, maybe that means a pilot with a limited group of employees or customers. Start small, learn, and build from there.
That makes sense.
As for me, I’m getting ready to go back on the road. I’ll be at the Maryland & DC Credit Union Association annual conference in Washington, D.C. Then I’ll be in Naples, Florida, for the Maryland Bankers Association and Virginia Bankers Association annual conference.
I’m curious to hear what these institutions say their biggest priorities are, especially around AI and how they’re using it today.
Are you going anywhere soon, or are you finally staying home for a while?
Home for two months.
Yay.
I’m looking forward to catching up again in a couple of weeks for the next episode. Let’s leave it here for now.
Thanks everybody for listening. We’ll see you in a couple of weeks on What’s Going On in Banking.
Nice. Thanks, Stacey. Good seeing you.
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