But that value may not necessarily accrue to Wells Fargo. That is because what one app can do, another can do. Wells' competitors can create similar apps, and over the long run make its extensive branch network a liability. Banking employment goes down, and those jobs don't come back. Barriers to entry fall, they don't rise as you might expect with the bank's rising asset base.
The value goes to the users, but not all users collect it. Tech-savvy users get all of it. People who write checks or who don't understand their credit scores may find their costs rise, and choices disappear, while those who know how to use the apps get more choices and can shop around for money.
As a result, bank stocks have become like electric utilities, only utilities without pricing power. Utilities actually have it better in the current environment.
If your electricity comes from a unit of American Electric Power (NYSE:AEP), for instance, you are giving that company "intravenous permission" to sell you electricity, just as if you were buying blood from a surgeon after a car accident. Your only choice is to build your own infrastructure, perhaps with solar panels, but even in that case reliability demands you maintain a connection to the grid, meaning they're still going to get you. The utility's only competitor is going to be a government regulator, and regulators can be controlled, with lobbyists and political donations. It's only when regulators come under fire for being too cozy with those they're regulating that you should worry, as an investor.
The light bulb on this came with the start of the year. Since January AEP is up 8%, WFC is down 12%. So long as electric utilities maintain some control over the loss of infrastructure to consumers - and they're doing it - their dividends look pretty safe. AEP, for instance, pays a dividend of 53 cents per share, an effective rate of 3.37%, which it covers 1.5 times with net income most years.
The dividends of Wells, on the other hand, are not nearly so secure because they face a host of competitors - not just other big banks like JP Morgan Chase (NYSE:JPM), but regional banks and start-ups as well. As noted, bank branches can become a liability as consumers - especially savvy ones - switch their banking to apps. Wells' 3.16% yield, 38 cents per share, is still covered by $1/share in quarterly income, but what you're buying as a stock investor is the future, not the past. How much assurance is there that the Wells earnings stream will continue, and that the dividend will remain safe?
Enough for me. But maybe not as much as with AEP. And that's the kind of bet stock buyers are making right now. That's why banks, even big banks, are not getting the bids they once did. The apps are coming for them.
Disclosure: I am/we are long WFC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.