ABA Shifts Focus from Old Threats to New Ones

LOS ANGELES — The American Bankers Association is switching targets, deemphasizing the crisis-era fight over regulation and refocusing on the rising competitive threat posed by technology companies.

That was the takeaway from the ABA's annual convention here where outgoing President Frank Keating formally handed the reins to successor Rob Nichols. Based on their comments, the leadership change appears likely to mark a substantial shift in the trade group's lobbying efforts.

Keating regaled bankers in the audience with tales of his face-to-face confrontations with reform advocates Sheila Bair and Sen. Elizabeth Warren. It was a familiar message, and also a backward-looking one. "I think the most important thing when you're dealing with a regulator is speak truth to power," Keating said.

But Nichols seemed far less interested in re-litigating past battles. He described an "unlevel playing field" when it comes to the regulation of financing technology firms that are chipping away at the banks' profits in lending, payments, wealth management, and elsewhere.

"We absolutely need to focus on the ABA of tomorrow, and this issue is the first among equals," said Nichols, who joined the trade group in August after serving as leader of the Financial Services Forum.

In a follow-up interview, Nichols estimated that venture capitalists will pour $20 billion to $40 billion into fintech companies this year.

"What will the regulatory landscape look like is really an important first question," he told American Banker. "If you have a bank and a nonbank offering very similar/near identical products, and one's heavily regulated, and one's not, what will that mean for the marketplace going forward?"

Nichols' comments were the clearest sign yet that the industry's most visible lobbying group is heeding the famous warning from JPMorgan Chase Chief Executive Officer Jamie Dimon that "Silicon Valley is coming."

The ABA has yet to establish a detailed policy agenda with respect to the convergence of banking and technology products, but the trade group plans to spend much of the next year doing that.

Over the next month, it will be pushing for the passage of a legislative package — championed by Senate Banking Committee Chairman Richard Shelby — that would roll back certain financial regulations.

But Nichols said that the ABA will focus in 2016 on developing a more forward-looking agenda, which will address the threat posed by technology companies, among other issues.

"That will be the year for us to flesh out more fully how we need to prepare, what we need to do, what workstreams do we need to put in motion, how do I address resource allocation, in terms of budgets and personnel?" Nichols said. "All of that will be done in '16."

One specific area where Nichols suggested that banks are operating at a disadvantage against nonbank upstarts is information security. Both banks and nonbanks have seen their systems breached by hackers, but Nichols questioned whether less regulated startups are protecting their customer data with the same degree of diligence that banks do.

Asked to respond to the argument that banks are seeking to use regulation to protect their status as incumbents, Nichols noted that many banks see opportunities to collaborate with the new breed of fintech companies. "I talk to a lot of bank CEOs whose interest is in partnerships," Nichols said.

Elsewhere at the conference, much of the conversation focused on whether banks should be partnering with so-called marketplace lenders. Many of those tech-focused firms have built customer-friendly online application processes, and they see banks, which often do not offer the same loan products, as a channel for attracting more borrowers.

Frank Sorrentino, the CEO of ConnectOne Bank, a $3.7 billion institution in Englewood Cliffs, N.J., said that he views the fast-growing online lenders as both competitors and potential partners.

"Clearly all banks, starting with the largest institutions, right down to the banks like ours, are looking at how we can streamline our processes and be more reactive to the clients and the way that they want to be served," he said during an interview. "We don't want to be caught sleeping."

At the same time, Sorrentino indicated that he would be reluctant to refer his bank's customers to another lender. "In our case at this moment, for ConnectOne Bank, our client relationship is paramount," he said.

Another option for banks is to work with vendors that will provide them with online lending systems; this means that the banks do not have to refer their customers to potential competitors.

One of those vendors is LendKey, whose CEO, Vince Passione, told the audience of bankers that it would be a mistake to partner with marketplace lenders that want to take their customers.

"Well, then you might as well just go home," he said. "You've just given up your relationship."

But a community banker who has chosen to partner with Lending Club, the largest U.S. marketplace lender, offered a different perspective.

Leslie Andersen, CEO of Bank of Bennington in Nebraska, said during a panel discussion that working with a vendor to make online loans in-house would not have made economic sense for her $84 million-asset institution, which would have had to hire additional personnel.

She said that Bank of Bennington does not make unsecured consumer loans, but a nearby credit union does, and the partnership with Lending Club will allow her bank to stay relevant to its customers.

Under the partnership, Bank of Bennington will refer customers to Lending Club, and the bank will buy loans from the online platform that meet its credit standards. Andersen indicated that she is not worried that the partnership with a marketplace lender will erode her bank's relationships with its customers.

"I actually think they support our own customer relationships, because our customers are out there in the marketplace, looking for things like this, anyway," she said.