State of Banking

Fintech is key to banks’ abilities to successfully help businesses through economic storms

Los Angeles has had a remarkable recovery since the last recession. Some say that we’re experiencing the best economy in more than 30 years. With one of the lowest unemployment rates on record and slowed but ongoing job creation, forecasts from the USC Marshall School of Business predict continued economic expansion, albeit at a slightly slower pace.

[To read more of Ash Patel’s thought leadership click here]

All of this sounds positive. However, the local banking industry may have a storm on the horizon for 2020. We know that short-term interest rates are rising, the yield curve is flattening, and many banks reported slowed year-over-year growth at the close of 2018. We look down one path to see the next 18 months as a time of caution, in which banks will not reach for extra risk just to close another deal. Down the other, we see the need to temper our confidence with prudence, to remind ourselves that we’re entrepreneurs, and to continue developing new revenue streams with products to support our clients’ holistic business needs. After all, Los Angeles has blossomed into a technology powerhouse in and around Silicon Beach, and it’s time we used that to help businesses reach their full potential.

A key growth opportunity for many banks is the development and deployment of fintech products. Thus far, this has typically taken the form of acquisition of payment processors by banks, or of banks partnering with fintech companies—and this movement is creating a void. While these organizations are consolidating their operations, innovation is temporarily stifled. Yet, demand is growing for streamlined financial capabilities from local business owners who are struggling to find the products and platforms to get the job done. For those entities, like Commercial Bank of California, that have already completed their fintech acquisitions or finalized their partnerships, there is great opportunity to support these businesses.

Demand is growing for streamlined financial capabilities from local business owners who are struggling to find the products and platforms to get the job done.

We believe that, to win in the next few years, banks must maintain their financial strength rather than over-leveraging their capital base, successfully diversify in business industries, and launch fintech products, platforms, and other tools that help businesses succeed. According to the Los Angeles Economic Development Corporation, more than 190,000 businesses in Los Angeles

have fewer than 25 employees, and many of them struggle to access capital. In 2019, our goal is to remain active in funding these small businesses through the use of various fintech solutions that aim to lower the cost of managing financial operations while removing barriers to entry for lending solutions through the use of automated technology.

[For more on Commercial Bank of California’s approach to Commercial Banking click here]

Last year was one of increasing volatility in the economic environment, and with that volatility came both challenges and opportunities. Fortunately, Commercial Bank of California’s financial strength and flexibility enable us to act decisively to address those challenges and capitalize on opportunities. We believe that our current performance and the aforementioned trends justify our confidence in the future of our bank.