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WHITE PAPER
Eight Factors Shaping the Post-Crisis Market
For most in the financial services industry, revisiting the global financial crisis of 2007–2008
spurs troubling memories considered by many to be the most punishing global economic
event since the Great Depression of the 1930s. Ten years in, this inauspicious anniversary
recalls an era defined in part by economic dread and uncertainty.
Spurred by a crisis in the domestic subprime mortgage market, the crisis expanded into
a full-scale international banking calamity. As the dust settled, specific, identifiable trends
played major roles in how financial institutions (FIs) have managed their overall business
and balanced defensive and strategic investments. More broadly, the crisis shaped the
way consumer expectations look today, contributing to a financial environment where
fintech companies are growing at an extremely accelerated pace.
The specter of major businesses, banks, and investment houses facing uncertain futures,
coupled with wild market swings, created a disquieting sense of doubt both domestically
and globally. Yet, amid blows to investor confidence, new ideas and innovation emerged.
Eight Factors Shaping the Post-Crisis Market
2© 2018, Q2 Software, Inc. All rights reserved.
A perfect storm with less-than-perfect results
In order to understand the state of the financial
services industry today, it’s important to wind
the clock back and take stock of how this singular
incident—and its impact—has done more to
set the stage for today’s financial conditions
than practically any other event.
Consumer faith in the markets, as well as in the
economic system as a whole, was one of the first
casualties of the fallout from the crash. By 2009,
consumer confidence had reached its lowest point
in decades, dropping to an alarming 27 percent.1
With government considering whether the biggest
players in banking and investment were too big to
fail, account-holder trust in the banking system began
to waver as well. In a huge blow to the industry,
consumer trust in banks fell to as low as 22 percent.2
And while it was the biggest banks and investment
houses that started the fire, a halo effect led
consumers to distrust the entire system, leaving
regional and community banks scrambling to
respond. While the crisis had been caused by a
handful of the biggest banks, the fallout was shared
by all financial institutions and financial services
providers, regardless of their role in the crisis.
No part of the financial services ecosystem
was unaffected.
Community and regional financial institutions’ suffering
increased when the US government and regulatory
entities responded forcefully, in what felt to many like
an overcorrection. Compounding the challenges,
compliance requirements doubled or even tripled
overnight: FDIC insurance requirements increased by
more than 200 percent, and financial institutions had
to double their spend on compliance staff.3
In essence, smaller institutions found themselves
shouldering new costs and requirements, just to
remain compliant. And although smaller FIs hadn’t
created, nor could they control, the circumstances
leading up to these expanded regulations, they
found themselves in a defensive position, which
would hamstring their ability to invest in forward-
looking initiatives for a decade.
Then, the Federal Reserve Bank, in an effort to
spur lending, dropped the federal interest rate to
an all-time low of 0.25 percent, affecting the ability
of community and regional FIs to create revenue.4
To illustrate just how impactful these collective
factors were in adjusting the market, consider the
fact that 2,000 bank charters were created between
the years of 1990 and 2008. In contrast, only seven
banks were chartered from 2009–2013.5,6 It was
virtually impossible to start a bank in this unfamiliar,
stricter environment, and frankly, few people even
seemed to have the appetite. In fact, after comparing
their earnings to their lending resources, many
institutions found themselves with a Return on
Assets (ROA) of -.1 percent.7,8 They were
effectively losing money.
In a huge blow to the industry, consumer trust in banks fell to as low as 22%
Eight Factors Shaping the Post-Crisis Market
3© 2018, Q2 Software, Inc. All rights reserved. 3© 2018, Q2 Software, Inc. All rights reserved.
The Flourishing App Economy
FIs knew they needed to re-establish confidence with American consumers. At the
same time, FIs were consumed with adjusting to the financial crisis and working to
slash their tech spend, a reaction to the parade of increasing pressures. The timing
couldn’t be worse: unbeknownst to the world, Steve Jobs and his newest gadget
were about to forever change the way human beings consumed content and
service. While FIs struggled, developer communities were building a touch-
enabled, convenient app economy to meet the ubiquitous, near-instantaneous
consumer demand for mobile experiences.
As the financial markets jerked and stalled, Apple introduced a device that, for
many, symbolized the mobile explosion. Having launched in 2007 with sales of
1.4 million, by 2015 the iPhone was selling in excess of 230 million units annually.9
Similarly, Apple’s market cap increased from $65 billion to $611 billion during
the same time frame.10
The iPhone, and similar products that followed, revolutionized the way people
interacted with their phones, putting digital apps front and center for consumers.
In the six years between 2010 and 2016 alone, the number of mobile app
developers exploded from 54,600 to 8.7 million.11,12 Similarly, mobile data traffic
for the average digital consumer increased to 7.2 billion gigabytes per month as
of 2016.13 What’s more, the number of apps in the Apple App Store mushroomed
from 15,000 in 2008 to 2.3 million by 2017.14 This explosion created a new
battlefield on which every service provider—including FIs—was compelled to
compete. Every industry was finding a way to go mobile. Nobody was exempt.
Mobile data traffic for the average digital consumer increased to
7.2 billion gigabytes per month as of 2016.14
Eight Factors Shaping the Post-Crisis Market
4© 2018, Q2 Software, Inc. All rights reserved.
Fintech and FIs: An Unlikely Marriage
While FIs were spending money to remain compliant and simply stay in
business, to say nothing of growing the business, fintech companies were
beginning to skyrocket.
While the traditional financial services market was at its lowest low, capitalistic
investment communities sensed the opportunity to buy in, creating a tidal
wave of innovation. Fintech funding exploded overnight as private equity and
venture capital sought to recreate America’s financial services industry—with
cash. Funds began pouring into fintech organizations, sparking a direct-to-
consumer innovation contest. This fintech arms race was a direct result of the
global financial crisis, and the iPhone provided a key opportunity. Fintech
investment rose from $1 billion in 2008 to $16.6 billion by 2017.15,16
As confidence in traditional FIs fell, consumer expectations around what
mobile could provide grew. For account holders, banking was no longer
centered around a location, it was simply something that they did whenever
and wherever they needed to. Suddenly, people didn’t need the massive safes
or marble countertops a brick-and-mortar branch required to offer financial
services. The required real estate and airtight physical security, some of
banking’s oldest barriers to entry, had evaporated.
Illustrating that shift, the number of fintechs launched increased to 1,128 in
2017—up from just 178 in 2008.17 And consumers were biting: Adoption rates
among digitally active consumers almost doubled from 17 percent in 2015
to 33 percent in 2017.18
Nobody could have predicted the success of the iPhone. Similarly, PayPal
provides another example of a digital financial service that found its service
shattering records as consumers demanded the ability to conduct their financial
transactions from the convenience of their devices. In its early days, no one was
sure what to make of PayPal. Would consumers really trust an internet company
with their finances, or were they too accustomed to moving their money in a
traditional way? The company’s growth showed that consumers were receptive
for change, as the total volume of money moved using PayPal rose from $3.5
billion in 2002 to $451 billion in 2017.19 PayPal’s growth shows that consumers
were willing to trust whomever would provide them the utmost in digital
Fintech investment rose from
$1B in 2008 to
$16.6B by 201716,17
Eight Factors Shaping the Post-Crisis Market
5© 2018, Q2 Software, Inc. All rights reserved.
Eight Factors Shaping the Financial Services Landscapes in the Next Three to Five Years1. Fintechs to act as incubators for innovation
Fintech companies will continue to build and
innovate new solutions for consumers. Without
the regulatory oversight of traditional FIs, fintechs
will continue to push what is possible in the digital
realm for financial services.
2. Tech giants to move towards banking
Major players like Amazon, Alphabet, and more
will continue to disrupt the financial services
provider market with new products
and partnerships.
3. Traditional FIs to benefit from their advantages
While fintech has funding, FIs offer regulatory
knowledge, infrastructure, and a 360-degree
consumer advantage that most fintechs do not.
These advantages put banks in a vital position,
if only they can learn to leverage them during
this time of change.
4. Economic relief to profit FIs
Assuming the trends hold, the banking climate
will return to a more friendly state, presumably
with fewer regulatory pressures and better tax
rebates and interest rates benefitting FIs.
convenience—including non-bank entities. Consumer
tolerance of and demand for fintech—a better,
more modern way to move and store their money—
was undeniable.
Also notable, FIs began to warm up to their
competition. In 2008, banks generally had a negative
view or did not know what to think of their fintech
competitors, but by 2017, 91 percent of banks
expressed a desire to collaborate with them.20
This shift in thinking has led to opportunities
for FIs and fintech companies to work together
and provide holistic, 360-degree solutions for
consumers, and this will only increase as new,
unforeseen products and solutions emerge
for account holders and others.
With ten years of data in the rearview mirror, we
can now see how this perfect storm in the market
rocked the financial services market, provided new
opportunities for fintech companies, and set up
an unlikely romance between fintech and FI
competitors. And as a result of these factors, the
global financial services market looks considerably
different today than it has in the past 200 years—
with promises of even more innovation on the
horizon. So, what lies ahead for FIs? Over the
next three to five years, they should keep their
eyes on the following eight factors likely to affect
expectations and play consequential roles in
shaping the financial services landscape:
Eight Factors Shaping the Post-Crisis Market
6© 2018, Q2 Software, Inc. All rights reserved.
8. Fintech market to consolidate through
“re-bundling” with banks
Fintechs have succeeded by offering “unbundled”
FI products and services, but account holders
want a comprehensive experience. Fintechs,
especially those who have hit scale, will look to
add to their product portfolio in order to retain
and monetize. Adding more traditional banking
products, or adding their product to a more
holistic bundle, will help them do just that.
This trend favors FIs, who continue to offer the
broadest set of financial products and services
but are looking to deliver more like a fintech
company—digitally.
There is no doubt that the last ten years have brought
tumultuous times. Taking this into account, overall
trends are looking positive for FIs, fintechs, and
account holders alike. Now is an exciting time to be in
the financial services provider space. The industry is in
the thick of unprecedented innovation, presenting an
opportunity for organizations to work collaboratively
and reinvent the financial services market together.
5. Budgets to shift towards the digital channel
It stands to reason that with fewer costs tied to
regulatory and compliance needs, FIs will be able
to free up dollars to invest in digital innovation.
6. Fintechs and tech giants to seek traditional
FI partnerships
Because of their aforementioned infrastructure,
regulatory, and industry knowledge, Fintechs and
major tech companies will look to team up with
FIs. In turn, FIs must begin to shift their mindsets
and business models in order to participate in
and benefit from these partnerships.
7. Unprecedented innovation and unlikely
partnerships will flourish
Revolutionary endeavors will occur as FIs become
primed to consider new models and unexpected
ways to generate deposits and acquire customers.
The age of direct-to-account holder relationships
defining the majority of a bank’s business is likely
coming to a close.
Eight Factors Shaping the Post-Crisis Market
39-31-0818 © 2018, Q2 Software, Inc. All rights reserved.
Sources
1. money.cnn.com/2018/02/27/news/economy/consumer-confidence-17-year-high/index.html
2. news.gallup.com/poll/192719/americans-confidence-banks-languishing-below.aspx
3. www.stlouisfed.org/~/media/Files/PDFs/Banking/CBRC-2014/SESSION3_Peirce_Robinson_Stratmann.pdf
4. www.thebalance.com/fed-funds-rate-history-highs-lows-3306135
5. www.thebalance.com/fed-funds-rate-history-highs-lows-3306135
6. www.brookings.edu/wp-content/uploads/2016/07/Community_Banks_Baily_Part_III-2.pdf
7. www.thebalance.com/fed-funds-rate-history-highs-lows-3306135
8. www.brookings.edu/wp-content/uploads/2016/07/Community_Banks_Baily_Part_III-2.pdf
9. www.statista.com/statistics/276306/global-apple-iphone-sales-since-fiscal-year-2007/
10. www.macrotrends.net/stocks/charts/AAPL/market-cap/apple-inc-market-cap-history
11. mashable.com/2010/07/02/ios-android-developer-stats/#k0Jrex7Vk5qZ
12. www.businessofapps.com/mobile-app-developer-statistics-roundup//
13. www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/mobile-white-
paper-c11-520862.html
14. www.statista.com/statistics/268251/number-of-apps-in-the-itunes-app-store-since-2008/
15. cdn2.hubspot.net/hub/310641/file-1445626583-pdf/Rise_of_Fintech_in_Finance/Fintech_DEF.pdf
16. www.cbinsights.com/reports/CB-Insights_Fintech-Trends-2018-Briefing.pdf
17. www.statista.com/statistics/268251/number-of-apps-in-the-itunes-app-store-since-2008/
18. www.ey.com/Publication/vwLUAssets/ey-fintech-adoption-index-2017/$FILE/ey-fintech-adoption-
index-2017.pdf
19. www.ey.com/Publication/vwLUAssets/ey-fintech-adoption-index-2017/$FILE/ey-fintech-adoption-
index-2017.pdf
20. www.statista.com/statistics/549945/strategies-of-banks-to-compete-with-fintech/