More than a few bankers may have flinched when the news broke in late July of Amazon's market capitalization surpassing Walmart's for the first time.1 Walmart's revenues continue to dwarf Amazon's by a factor of five. But the fact that investors now value Amazon higher than the world's largest retailer reflects a belief that the online upstart's formidable digital business acumen offers greater growth opportunity.
Can you imagine a time when investors believe the same about banking industry disruptors, such as Lending Club, PennyMac and Prosper, vis‑a‑vis Bank of America, Chase and Citi? Far‑fetched, perhaps. But Walmart leaders surely sensed the tilting of the playing field in 1998 when the retail giant pursued a lawsuit (ultimately settled) alleging that Amazon had stolen trade secrets.
Banks recognize the need to engage disruptive competitors, of course and many are developing digital, mobile and other strategies to do so. But heavy compliance requirements, rising cybersecurity risks and anemic revenue growth are among the constraining realities at banks' high‑margin businesses with innovative customer experience models.
What are banks to do in the face of these threats to their profitability and prospects?