Branch Banking Is Dying
The 2008-09 financial crisis was triggered by reckless banking practices that dominoed into the global economic system.
Though the world has since recovered and moved on from the crash, the banking system that ignited such damage has in some ways never been the same.
Take U.S. branch bank net openings, which is undergoing a notable trend reversal. According to the Federal Deposit Insurance Corporation (FDIC), for 11 years and counting, the number of U.S. bank branch closings has exceeded the number of branch openings.
There are fewer banks in America with every passing year—in 2020 alone, a deficit of 1,537 branches was recorded, almost 2% of the roughly 85,000 branches in the country.
Branching Towards Digital
Unsurprisingly, the fall in branch banking coincides with the adoption of digital activity in the banking space. And this is especially true for younger, tech-savvy generations.
Undoubtedly, convenience is a big factor, as now nearly 50% of traditional branch banking activity can be conducted online. As a result, mobile banking activity occurs most frequently on one’s couch or bed.
The Good Ol’ Days
The decline in the number of branch banks also reflects the overall downturn of the broader banking industry. In that, the industry faces a slew of challenges including:
1. Contracting net interest margins
Net interest margins are the difference between the interest income generated for financial institutions and the amount they pay to lenders.
2. Fintech industry disruption
Fintech is bridging the gap between finance and digitization, sleek modern technologies enable firms to optimize financial services and the customer experience.
3. More stringent reserve ratio regulations
Reserve ratios are a portion of reserves that a financial institution must hold onto rather than invest or lend.
Investors are fleeing to other avenues as is evident in the stock price performance of the big U.S. banks. As a result, underperformance has been a common theme in the last decade.
|Number of U.S. Branches||Stock Price Performance |
(Jan 2011 - Jan 2021)
|Change Relative to S&P 500|
|Bank of America||4,265||116%||-75%|
What Lies Ahead
Yet, despite the progress towards digital banking, the U.S. is still a laggard. For instance, large cohorts of Americans still use cash as a frequent transaction method, while the country’s mobile payment penetration rates are lower than most developed nations.
As a percentage of smartphone users, 29% of Americans have adopted mobile payments. A tepid figure relative to Denmark at 41%, and India at 37%.
America’s fierce economic rival, China, has a whopping 81% of smartphone users that have adopted mobile payments. That’s 801 million people, compared to America’s 69 million. Adjusting for population disparities, China still has 2.7x more mobile payment users.
If the U.S. follows on the path of other more fintech savvy countries, visiting a bank branch and using physical cash may become as increasingly antiquated as writing a check is today.
Seeing Red: Is the Heydey of Pandemic Stocks Over?
Worries over post-COVID demand and rising interest rates have fueled a market selloff, with pandemic stocks hit particularly hard.
Seeing Red: Is the Heydey of Pandemic Stocks Over?
The stock market, and the stocks that flourished during the COVID-19 pandemic in particular, are off to a rough start in 2022. If you’ve been watching your investment accounts, chances are you’ve been seeing a lot of red. Shaken by the uncertainty of a pandemic recovery and future interest rate hikes, investors have been selling off their stocks.
This market selloff—which occurs when investors sell a large volume of securities in a short period of time, leading to a rapid decline in price—has investors concerned. In fact, search interest for the term “selloff” recently reached peak interest of 100.
Which stocks were the hardest hit, and how much are their prices down so far this year?
The Lackluster Returns of Pandemic Stocks
Pandemic stocks and tech-centric companies have suffered the most. Here’s a closer look at the year-to-date price returns for select stocks.
|Company||Year-to-Date Price Return|
Price returns are in U.S. dollars based on data from January 3, 2022 to January 21, 2022.
Netflix fueled the selloff after it reported disappointing subscriber growth. The company added 8.28 million subscribers in the fourth quarter, which is less than the 8.5 million it added in the fourth quarter of 2020. It also projects to have slower year-over-year subscriber growth in the near term, citing competition from other streaming companies.
Meanwhile, Coinbase stock lost nearly a quarter of its value so far this year. As the price of cryptocurrencies such as Bitcoin have plummeted, investors worry Coinbase will see lower trading volume and therefore lower fees.
The contagion also spread to other pandemic stocks, such as Zoom and DocuSign, as investors began to doubt the staying power of stay-at-home stocks.
Following the Herd
While investor exuberance drove many of these stocks up last year, 2022 is beginning to paint a different picture.
Investors are worried that rising rates will negatively impact high-growth stocks, because it means it’s more expensive to borrow money. Not only that, but they also may see Netflix’s growth as harbinger of things to come for other pandemic stocks.
The psychology of the market cycle also plays a role—amid these fears, investors have adopted a herd mentality and begun selling their shares in droves.
How People Around the World Feel About Their Economic Prospects
In many of the world’s largest economies, including the U.S., Germany, and China, optimism around economic prospects sits at an all-time low.
How Countries Feel About Their Economic Prospects
Each year, the Edelman Trust Barometer report helps gauge the level of trust people place in various systems of power.
The report is also a useful tool to gauge the general mood in countries around the world—and when it comes to how people in developed economies feel about the near future, there’s a very clear answer: pessimistic. In fact, optimism about respondents’ economic prospects fell in the majority of countries surveyed.
Here’s a full look how many respondents in 28 countries feel they and their families will be doing better over the next five years. Or, put more simply, what percentage of people are optimistic about their economic circumstances?
|Country||% who are optimistic||All-time low?||Change from 2021 (p.p.)|
|🇰🇷 South Korea||39%||+6|
|🇿🇦 South Africa||66%||-2|
|🇸🇦 Saudi Arabia||73%||0|
Interestingly, nine countries (those with checkmarks above) are polling at all-time lows for economic optimism in survey history.
Whose Glass is Half Empty?
Japanese respondents were the most pessimistic, with only 15% seeing positive economic prospects in the near term. Only 18% of French respondents were economically optimistic.
While most developed economies were slightly more optimistic than Japan and France, all are still well below the global average.
As tensions between China and the U.S. continue to heat up in 2022, there is one thing that can unite citizens in the two countries—a general feeling that economic prospects are souring. As the U.S. heads into midterm elections and China’s 20th National Party Congress takes place, leaders in both countries will surely have the economy on their minds.
Whose Glass is Half Full?
Of course, the mood isn’t all doom and gloom everywhere. The United Arab Emirates saw a 6 percentage point (p.p.) jump in their population’s economic prospects.
Indonesia saw an 11 p.p. increase, and in big developing economies like Brazil and India, the general level of optimism is still quite high.
In some ways, it’s no surprise that people in developing economies are more optimistic about their economic prospects. Living standards are generally rising in many of these countries, and more opportunities open up as the economy grows. Even in the most pessimistic African country surveyed, South Africa, the majority of people still see improving circumstances in their near future. In Kenya and Nigeria, an overwhelming majority are optimistic.
One major prediction that experts agreed on for the year ahead is that economic outcomes will begin to diverge between countries with differing levels of vaccine access.
While this doesn’t seem to have affected attitudes towards economic optimism yet, it remains to be seen how this will play out as the year progresses.
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