While scandals dominated 2016 banking headlines, innovation may do so in 2017

John Stumpf, CEO of Wells Fargo & Co., waits to testifies before the Senate Committee on Banking, Housing, and Urban Affairs in Washington, D.C. on Tuesday, Sept. 20, 2016.

John Stumpf, CEO of Wells Fargo & Co., waits to testifies before the Senate Committee on Banking, Housing, and Urban Affairs in Washington DC, on Tuesday, September 20, 2016. BLOOMBERG

Trends to watch

Fintechs multiply: The year ahead promises a fresh wave of startups chasing innovation in such areas as banking and investing apps targeting millennials, and other services that make money transfers easier, faster and cheaper. A key regulator, the Office of the Comptroller of the Currency, proposed granting fintechs a special purpose bank charter to give them greater flexibility in building out their services.

Giving Trump credit: Donald Trump ’s election promises to have the greatest impact on Bay Area bankers in 2017, given his talk of easing industry regulation. A post-election rally in stocks lifted banks big and small as prospects for higher interest rates and regulatory relief promised to boost the industry’s fortunes. The Bay Area’s big banks — Wells Fargo , Bank of America and JPMorgan Chase — saw their shares soar. But smaller banks might be the first to taste regulatory relief.

Bubble trouble: When you’re operating in the highly leveraged business of banking, any hint of a bubble bursting spells trouble. A December interest-rate rise by the Federal Reserve — plus its warning to expect more of the same throughout 2017 — is an attempt to let some of the air out in a measured and orderly manner. That’s always easier said than done, of course.

Company to watch

Wells Fargo: The San Francisco bank’s fake accounts scandal will continue to cast a long shadow in the year ahead. The bank’s once-vaunted cross-selling strategy lies in tatters and its business practices have been cast in a harsh light. Regulators are considering starting the year with a double-downgrade to the bank’s community lending rating. New CEO Tim Sloan and his team have their work cut out for them in repairing the bank’s tarnished reputation.

Person to watch

Denise Thomas : The founding CEO of San Francisco-based ApplePie Capital is an example of the innovation and creativity being brought to bear on financial services. ApplePie connects investors with entrepreneurs borrowing to buy or expand various franchised businesses from Wendy’s and 7-Eleven to Marco’s Pizza and Jimmy John’s Sandwiches. Thomas said she came up with the company’s unusual name over dinner with longtime industry colleagues. They happened upon the name as dessert was served. Yes, it was apple pie.

Five key events from 2016

1. Wells Fargo stumbles: Wells Fargo shocked the nation with disclosures that branch staff had opened up 2 million deposit and credit accounts without customers’ authorization to meet sales quotas. Wells was fined $185 million. By year-end, Chairman and CEO John Stumpf had been ousted, the bank had lost millions of accounts and the scandal had widened to include unauthorized insurance policies.

2. LendingClub woes: LendingClub’s founding CEO Renaud Laplanche was ousted from the San Francisco-based marketplace lender over the company’s loan practices. Laplanche quickly was hard at work building his next fintech startup, while LendingClub’s new CEO Scott Sanborn focused on repairing the damage done while looking for new avenues of growth such as refinancing auto loans.

3. Community bank combos: The long-running consolidation of the banking industry was moving at a rapid clip in 2016. In the Bay Area, Mechanics Bank’s new majority owners were eager to help drive that consolidation, picking up California Republic Bank in Orange County and promising that more deals lie ahead for the Walnut Creek bank.

4. Stripe charges ahead: Stripe, led by brothers John and Patrick Collison, almost doubled its valuation in a $150 million fund raising as investors were eager to get their share of one of the most promising players in fintech. Stripe, which creates software to allow businesses to accept digital payments online, is enjoying explosive growth with the rise of online shopping.

5. Square comes full circle: Square CEO Jack Dorsey envisioned building an ecosystem to help merchants by making commerce easier. It started with the square plastic device that allows almost anyone to accept credit cards. Square found that collecting all those card payments and data about the health of their small business clients provided an advantage in making loans. Thus, Square Capital, which by the end of 2016 had lent more than $1 billion to small businesses.

Mark Calvey, “While scandals dominated 2016 banking headlines, innovation may do so in 2017” San Francisco Business Times, December 28, 2016. Accessed via: http://www.bizjournals.com/sanfrancisco/news/2016/12/28/2017-forecast-banking-wells-fargo-applepie-capital.html