Adds Dave McLeod, EVP and CTO of Jackson, Miss.-based BankPlus, "There are literally hundreds of [nonbank competitors]. Google could be huge. We're all dealing in the payments world, and the infrastructure that banks have spent tons of money to build is being challenged now."
Of course PayPal is among those nontraditional competitors. But McLeod also notes others. "The Intuits of the world and CheckFrees have potential," he says. "Intuit is dealing in the online banking arena now as much as we are. They're offering a product for $2.99 a month — a low-end version of Quicken. It's online and interacts with your banking account."
An End-to-End Value Chain
Even with all the competition today, it is very unlikely that any one company will steal away the entire financial services value chain due to its complexity, Union Bank's Yee points out. "We have a lot of product areas that can be chipped at by different entities," he says. "They can't compete with all aspects of a commercial bank — just pieces. Banks have to be careful that they don't lose their fee-generating revenue opportunities."
Like Yee, Deutsche Bank's Mary Campbell, global head of personal and corporate banking cash and trade operations, group technology and operations, for the Frankfurt-based financial institution, notes that when disintermediation does occur, it happens in bits and pieces. "Irrespective of whether it comes from banks or new competitors/nonbanks, the real competition is around market segments, and, therefore, some of these initiatives have a bigger or smaller impact, dependent on the segment," comments Campbell.
Therefore, banks should be mindful of where their core strengths lie. "Disintermediation tends to occur by business line, not whole bank activities," Campbell explains. "Every player in the market should be clear about their core competencies and business lines."
She does, however, acknowledge that the new market entrants are becoming more organized. As an example, she cites the International Association of Money Transfer Networks, an international trade association that represents the money transfer industry. Although the IAMTN includes some banks among its member ranks, other prominent founding members include companies such as Western Union and Travelex.
While Camarillo, Calif.-based First California Bank faces an array of established and nontraditional competition — from global banks to discount retailers — Sara Pelaez, the bank's SVP and CIO, is confident about its ability to confront that competition mainly due to its technology infrastructure, including a flexible core system. "There are a lot of nontraditional banks that are offering the same services as banks now -- from brokers, to insurance agencies, even big chain stores [such as] Wal-Mart that offer credit cards," she acknowledges. "The bank does face that threat from nontraditional banks," but those competitors can't match the breadth of banks' infrastructure, she suggests.
Ed Mulligan, EVP and the president of the Technology Services Group at New York-based The Bank of New York Mellon, takes an optimist's view of disintermediation: "Sometimes [disintermediation] goes the other way," he says. For instance, brokerages, once banks' competitors, are often now part of a bank, such as with The Bank of New York Mellon's 2003 acquisition of discount brokerage Pershing.
In addition, Mulligan notes, disintermediation won't occur overnight. "People talk a lot about Wal-Mart opening a bank, but they haven't," he adds. At least, not yet.
Orla O'Sullivan and Kathy Burger contributed to this article.