What I Learned From the Chicken Smell in My Hometown Bank

Growing up, my dad ran the Peoples National Bank of Shelbyville, Tennessee. So at age 15, I got my first job as a bank teller.

I quickly learned that Fridays were the busiest time of the week…

That’s when most people in Shelbyville got their weekly paycheck. And it felt like half the town came through our doors to get some cash for the weekend.

Just after 2 p.m. every Friday, things got particularly colorful…

The local Tyson Foods chicken plant would let out. And the workers would start streaming in.

I had no idea that processing chickens was such a dirty business. But several decades later, I can still remember the plant’s signature scent.

Some workers even had pieces of chicken skin or gizzards on their clothes.

Serving these folks showed me how hard some people work. I also learned to respect others, no matter what they do to scrape out a living.

But I’m not just sharing a “feel good” story about hardworking people in Middle Tennessee. This job is also how I learned about the way that financial institutions make money. And today, I have my eye on the stocks of these companies…

Payment Processing Is a Big Business

You see, like any business, a bank has different departments. And in that job, I got to see how each department worked.

The biggest business at most banks is the loan department. But the loan business depends on what’s happening with interest rates…

When rates go up, banks’ margins go up as well. The banks can reprice the loan rates faster than what they pay out on deposits. So they can maximize the gap between the two rates.

But when rates go down, the opposite happens. Banks need to lower their loan rates faster than they can reprice their deposit rates. As a result, their margins get squeezed.

So for any bank, the loan department is typically either thriving or struggling. It’s a cyclical business.

On the other hand, payment processing is the “steady Eddie” business inside most banks. This department includes the infrastructure and services that allow the movement of money.

For many banks, payment processing is usually the most profitable. Think about it…

People need money to pay for stuff. That’s true no matter what’s happening in the economy. Rain or shine, they rely on the banks to process their paychecks and help pay their bills.

That makes payment processing a stable part of any bank’s business.

Of course, payment processing has changed a lot since I cashed all those checks for the chicken-plant workers decades ago…

For one, we all now have credit and debit cards. But even that is outdated technology today.

I bet you’ve either used or seen someone else use “tap to pay” to buy something. That’s when you tap the chip on your debit card against a special reader instead of swiping it.

A lot of you have likely used “mobile payments” as well. The two big mobile-payment services in the U.S. are Apple Pay and Google Pay. And they’re tied to your smartphone.

Tap to pay and mobile payments both use near-field communication (“NFC”).

NFC is a short-range wireless technology. It lets your phone talk to point-of-sale terminals.

You might’ve noticed restaurants and retailers with Square or Clover point-of-sale terminals. They’re two of the biggest names in this relatively new part of the financial industry.

These companies take a cut of the transaction every time you tap your phone or card. That cut ranges from 1.5% to 3.5% of the transaction’s value.

These point-of-sale terminals – and the processing they do – is big business. The global payments market is expected to reach a value of about $3.2 trillion by the end of this year.

But that’s just the beginning…

The Financial-Services Industry Is Strong Right Now

According to one market-research firm, the global payments market could see close to 67% growth over the next five years. That would put its value at around $5.3 trillion in 2030.

So it’s no wonder that companies are racing to gain as much market share as possible. And that’s good news for the financial-services industry…

Today, this industry group earns a “strong” rating from the Power Gauge. And when we look at the breakdown, it’s easy to see why…

Out of the 87 rated stocks in the financial-services industry group, 33 earn a “bullish” or better rating from the Power Gauge. And none of them get a “bearish” or worse rating.

Overall, 37% of the stocks in the group are in “bullish” territory. That’s a great sign.

So if you’re not paying attention to the financial-services space already, you should be.

Good investing,

Joe Austin