The biggest U.S. banks are feeling the crunch of higher technology costs as they try to compete with rising FinTechs, the Financial Times (FT) reported.
J.P. Morgan Chase and Bank of America are among the banks that have raised their outlooks for expenses multiple times so far this year, according to the report. Costs have become “a great wild card” for the industry.
Analysts expect bank earnings to be helped along by fees from wealth management and a record amount of deal making, along with credit card fees coming back that had been postponed due to the pandemic, the report stated. But even so, analysts say revenues will be on the decline.
That will come at numerous big banks, with the small increase in loans not likely to be able to mitigate the blow from record-low interest rates, according to the report.
Some banks, including J.P. Morgan, have reacted to revenue headwinds by shuttering branches and letting go of staff, the report stated. However, the savings have primarily been used to fund higher pay and tech spending, bolstering banks against FinTech rivals. As a result, banks are likely to see their costs rise more over the past year than their revenues.
Banks have thus far been able to get record profits compared to last year — even with the economic woes, the near-zero interest rates and fewer loans. That’s because of a large amount of trading revenue and a reversal of loan loss provisions, which resulted in billions of dollars to their bottom lines, according to the report.
However, as those positives start to abate, analysts have been apprehensive about the banking sector’s long-term ability to increase profits, the report stated.
In other Wall Street news, Goldman Sachs has been ramping up its buy now, pay later (BNPL) efforts, including buying GreenSky, a specialty lender.
GreenSky offers loans that let consumers spread out purchases over several installments. Goldman will be able to tap into over 10,000 businesses in the company’s merchant network.