Three banks that will thrive in the fourth industrial revolution

Each week, a professional investor tells us where she'd put her money. This week: Rachel Winter, senior investment manager at Killik & Co., picks three favourite financials.

There have been three industrial revolutions to date: steam power, electricity, and the internet. Each has brought dramatic change, giving birth to completely new industries and leading to the demise of others. And yet the world of retail banking has remained relatively stagnant, with little disruption since the introduction of the first cash machine back in the 1970s. Until now. The world is on the verge of a fourth industrial revolution as cloud computing and artificial intelligence become viable as mainstream technologies, and banking behemoths are finally being forced to adapt.

Why branches are closing

Banks are often vilified for closing local branches, but the fact is that millennials now account for more than 30% of the global population and the majority of them want to bank online. To stay relevant, banks need to stop paying for costly, underused branches and focus on beefing up their online offerings. Online challengers such as Monzo and Revolut have impressed customers with their slick user interfaces, and incumbent banks are now rising to meet these new challengers head on. In the US, President Donald Trump's recent corporate tax cuts have freed up a lot of cash that banks are ploughing into new digital strategies.

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The advent of cloud computing allows banks to better store and analyse their customers' data. Banks can better understand customer needs and serve them more effectively by offering relevant solutions quickly. Cloud-based CRM (customer relationship management) tools such as Salesforce (NYSE: CRM) are capitalising on this trend. Salesforce CEO Marc Benioff was recently quoted saying he has never seen such a "robust spending environment" and that "probably the number one thing those CEOs are spending on is their own digital transformations they're really trying to position their companies for the future."

Scanning social media

Citigroup (NYSE: C) is a global bank with good exposure to high-growth areas such as Asia and Latin America. Technology now accounts for 20% of Citi's expenses, with one recent investment being the launch of a new national digital bank. Citi has also invested heavily in the implementation of Salesforce, and now has a comprehensive CRM system that can even scan social media and alert the bank to noteworthy events such as births and marriages that could alter a client's financial situation.

JP Morgan (NYSE: JPM) is the largest bank in the US. It has just launched an all-mobile bank and is also actively partnering with innovators in the FinTech space. The company has budgeted an eye-watering $10bn for technology spend this year, which will largely be allocated to enhancements of web-based and mobile services. JP Morgan now employs 50,000 people in its technology division.

US Bancorp (NYSE: USB), parent to US Bank, boasts healthy growth in customer deposits and a strong position in mortgage origination. The digitalisation and automation of many internal processes account opening and payment processing, for instance has facilitated much greater staff focus on face-to-face customer service, resulting in improved rates of client satisfaction and retention.