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THREDGOLD: I was in Amsterdam last July trying to buy a train ticket, and the technology there is about five years ahead of where we are. I watched people use either certain credit cards or their phones to buy a ticket. I used three different credit cards, and because they didn’t have an embedded chip, my regular credit cards—Visa, Mastercard, American Express—none of them would work.
But the costs that the financial industry and the retailers have incurred in the system we use now are costs they don’t want to walk away from, so it may be six, seven, eight years before we get to the kind of advancements in technology that are fairly standard around the world.
I’ve got some Korean students who are absolutely astounded how far behind the United States is. Is this a cost issue? Is it too expensive, or is it cultural? Are consumers just nervous about the new technology?
HOWELL: The consumer is obviously moving more technologically. So banks have to stay up with the consumer. But you do the technology through R&D, and that takes capital.
The other problem we have right now is the value of the consumer deposit is not high. Interest rates are so low, and we’re all awash in deposits, so that doesn’t bring much value. Now as rates move up, which they will do someday, the value of those deposits will become greater. But right now what’s it worth?
GOLDEN: There are three things that really continue to retard acceptance of technology. Jeff mentioned the first, and that’s the existing infrastructure. The second is government regulation around the revenue stream associated with these products. But the third is what we’ve all done to ourselves over time in the consumer pricing model. The consumer today views the bank like the public library—everything is supposed to be free. It’s been free because the value of your deposit is what makes the money, and so we can give the other services away. As has been mentioned several times, with that dynamic now changing as dramatically as it has, the pricing structure is not working.
It will be harder to push new product that’s going to cost the consumer more until the consumer understands that there’s value created by being able to use this card anywhere they choose to use it, to get cash, to buy something. That’s a service that’s of value. But it’s a mind-set change that’s got to happen and probably isn’t an easy one to create for any of us.
Are you seeing any change in the needs on the part of your business customers? Are you introducing new products? Are there new restrictions you’re putting in place?
PITCHER: I don’t think underwriting standards have changed significantly over the last 10 years in commercial lending. They have in other lines of lending, albeit the stringency with which we stay with the rules possibly has changed. But recently, in the last few months I’ve seen a loosening up. And you look at the covenant structures and you look at the pricing, and all of those things are moving in the favor of our borrowers.
Banks are anxiously looking to deploy their capital, and you see the competitiveness returning almost to pre-2008 structures when you look at commercial deals. And out of that, leveraged cash flow deals are still tighter than normal C&I lending.
GOLDEN: Relative to commercial activity, the competitive factor has been heightened by two things. First, throughout the downturn commercial portfolios performed better than most any other portfolio. So it’s widely viewed across the industry as a desirable space to be in. Second, a lot of institutions that were more heavily geared toward real estate or other product types, now in need of diversifying, have added new competition in the market.
Today if you’re in need of a commercial loan, it’s a great environment for a customer. Rates are lower, terms are better.
HOWELL: Cash flow is still king. You’re getting paid back from the cash flow, so the standards are still the same. But it’s a very competitive market. We’re still very active in SBA lending. We’re still doing a lot of owner-occupied real estate loans.
But Dave’s point is that before banks could make easy dollars in the real estate market, and they’re not doing that anymore. And so that’s heightened the competitiveness of the commercial world.