Cost to Serve - The Numbers

 Taking some of the constituents of the XLF (financial services ETF) produces the following breakdown of operating expenses or "non-interest expense" in the case of banks:

Expense                                            %

Compensation                                57%

Occupancy                                       8%

Technology and Equipment            11%

Marketing                                         4%

Professional Services                       8%

Other                                            Remaining

These statistics are interesting and reveal the structure of the costs that these companies have built to deliver their services to customers. Obviously these numbers are skewed away from retail customers in some ways because they include the numbers behind commercial and investment banking. It would be reasonable to expect that the pure retail side of the a bank would not have quite as high a compensation expense and might have a much larger RE footprint to boost the occupancy expense. Some of the smaller banks bear this out, though there are few publicly traded pure-play retail banks.

Most of the more interesting fintech companies (e.g. Chime) that might show different results are still private and therefore not available for analysis. These companies specifically targeted incumbent cost structures in their strategy so it's likely that the mix is different and more heavily focused on technology and away from occupancy.