The 3 Best Stocks to Invest in the Future of Banking

The banking industry may not seem exciting and innovative at first glance, but in reality it's evolving rapidly, especially since the financial crisis. The banking industry is becoming more efficient, more secure, and more user-friendly in many different ways. There are several companies that could transform banking as we know it. Here are three of them that can help you profit from it.

Who needs branches?With the advances in mobile and online banking, people don't need to go to the bank as much as they used to. Many of the big banks are gradually trimming the size of their branch networks in order to save on expenses and increase the efficiency of their operations.

One bank that takes this concept to the extreme is B of I Holding , which stands for Bank of Internet. This bank has absolutely no branches and operates completely online. In fact, all of B of I's physical operations are in a single office in California.

This allows the bank to operate more efficiently than most of its peers. B of I operates at an efficiency ratio of 31%, while the average for banks of comparable size is 69% (lower is better). The bank outperforms its competitors in other key areas of profitability, as you can see in the chart below.

Source: Company presentation.

It appears that the online-only banking business model is really starting to catch on. Over the past year, B of I has grown its loan portfolio by 55%, its deposits by 67%, and its net income by 47%. With this kind of performance, B of I is definitely looking like the bank of the future, and now may still be a good time to get in on the ground floor.

Is this what banks are going to look like? Diebold is one of the oldest companies in the financial sector. Diebold began manufacturing safes in 1859, and it has been innovating the banking industry ever since. One of its more recent innovations is its Responsive Banking Concept, which is about the size of a small bedroom and is designed to take the place of an entire banking branch.

Diebold's Responsive Banking Concept. Source: Diebold.

Essentially a self-contained banking branch, Diebold's concept is completely unmanned (low payroll expenses). There is an ATM-like feature on the outside of the "bank," and there are two small interior rooms. One is a "virtual teller," where customers can make fund transfers and conduct more complex transactions than an ATM can perform. The other side allows customers to have a consultation with a live banker (via video).

Now, whether or not Diebold's concept catches on remains to be seen, but it's refreshing to see a company that is more than 150 years old can still innovate. As far as investability goes, now may be a good time to get in, with shares down about 10% over the past year and earnings expected to grow by 35% between now and the end of 2016. Furthermore, for income seekers, Diebold has a longer history of consecutive dividend increases (61 years) than any other publicly traded U.S. stock.

Cash won't be king foreverThere is a clear trend toward cashless societies all over the world, and one of the best ways to profit from this trend is with the companies that make "cashless" solutions, such as American Express .

American Express has had a rough couple of months, losing its exclusivity agreements with Costco and JetBlue and also losing a legal battle preventing it from limiting retailers' ability to encourage the use of rival cards.

However, AmEx's long-term strategy is alive and well. As my colleague Jason Hall recently pointed out, about 1 billion people are expected to join the middle class over the next few decades, and improvements in mobile technology will lead the transition away from cash transactions.

American Express is still the best company in the world at what it does -- creating exclusive "clubs" of cardholders that love their American Express cards. With a billion more potential customers over the coming decades, CEO Ken Chenault's goal of 12%-15% annual growth could prove to be a modest projection. Because of the recent turmoil, American Express trades at a good price, so it's definitely worth a look.

ConclusionThe possibility for growth and innovation in the banking industry is virtually limitless. These are three of the most innovative companies in the banking industry, and I believe all of them are trading for great prices right now. Any of these three names could be a great addition to your portfolio for the years and decades to come.

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Matthew Frankel owns shares of American Express. The Motley Fool recommends American Express, BofI Holding, and Costco Wholesale. The Motley Fool owns shares of BofI Holding and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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