How Are Tech-Forward Banks Performing?
In the year-to-date period, the KBW Nasdaq Bank Index has declined 22%, compared to a decline of 20% in the S&P 500 through October 27. Tech-forward banks have underperformed the broader banking sector, down 60% in the year-to-date period.1 This is a reversal of the trend in 2021 when tech-forward banks outperformed the broader banking sector, logging a 70% increase compared to an increase of 35% in the KBW Nasdaq Bank Index.
The tech-forward bank landscape encompasses a variety of business models but generally refers to banks utilizing technology or partnering with fintechs to deliver financial products or services. Banks that partner with fintechs are often referred to as providing “banking as a service (BaaS)”. This model involves an FDIC member bank offering bank products to fintech customers, for example, credit and debit cards or personal loans. The bank holds the deposits associated with the accounts and earns a fee based on a percentage of interchange income specified in an agreement negotiated with the fintech partner. Other models are focused on facilitating payments or providing financial services to a specific niche, such as cryptocurrency.