The checking account is changing—and so are users’ expectations

Increasingly, consumers demand integrations with apps and recurring payments that are seamless and safe. That represents an opportunity for providers.

Reed McGinley-Stempel works on the Growth team at Plaid, where he helps start-ups and enterprises adopt and scale new financial technology solutions. Prior to Plaid, he was a consultant at Bain & Company.

Core depository accounts have long been the entry point into the traditional financial system.

For decades, checking and savings accounts established lifelong relationships between banks and consumers, who would return for credit cards, mortgages, small business loans, and more. But thanks to a surge of new fintech apps, the role of core depository accounts is changing.

Today, consumers rely on these accounts for far more than simply saving money and paying bills. Instead, they increasingly function as a routing hub, allowing users to connect and customize a suite of financial apps that serve their individual needs. (article continues below)

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Americans have, on average, nearly 16 apps and recurring payments connected to their checking account. Personally, I can think of at least 20 apps that I’ve linked to my core accounts and use on a regular basis, including tools that help with investing, saving, and budgeting. But as the use of core accounts has evolved, so have expectations.

Increasingly, consumers demand an integration with apps and recurring payments that is convenient, seamless, and safe. Banks and fintechs have a responsibility to give it to them—but it also represents a business opportunity. Instead of competing on individual product offerings, these financial services providers can now compete on the quality of financial outcomes their users experience. By growing their customers’ financial health, they simultaneously grow their assets under management.

It all rests on the core depository account and its integration with the rest of the financial ecosystem. Here are six ways these accounts are changing in 2019.

1. Consumers are opening core accounts with companies that aren’t traditional banks.

There’s been a significant increase in the number of online-only banks: banks like Varo, Ally, Simple, and Chime, that don’t have branches or ATMs.

Core depository accounts increasingly function as a routing hub, allowing users to connect and customize a suite of financial apps that serve their individual needs.

The rise of these new banks is part of a broader movement toward more digital and mobile banking. For example, a 2017 survey from PwC revealed an increase in consumers who prefer to interact with their bank digitally rather than in-person. In 2018, this trend continued, as 15% of consumers noted that they prefer mobile banking above all other digital forms—up from 10% the previous year.

Perhaps most eye-opening is a 2018 Oracle report, which found that 30% of consumers who haven’t tried a fintech option or challenger bank product are open to trying them. This supports the principle that prioritizing your customers’ needs and clearly articulating the value of your product will be key to winning and keeping the next generation of customers.

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2. Branches and ATMs are not as centrally important as they used to be.

There’s been a lot of back-and-forth regarding whether consumers truly want access to a physical location of their bank.

The aforementioned PwC research shows that 65% of consumers still say that when choosing a bank, it’s important for the company to have at least one local branch. But when asked the same question in reverse, only 25% report that they wouldn’t open an account with a bank that didn’t have a local branch. In other words, three-quarters of consumers would consider keeping their core depository account at a bank without branches.

Consumers demand an integration with apps and recurring payments that is convenient, seamless, and safe. Banks and fintechs have a responsibility to give it to them—but it also represents a business opportunity.

When I opened my first checking and savings accounts at age 18, access to a local ATM was a primary deciding factor. Today it wouldn’t enter my calculus as online-only banks have done a great job of expanding the ATM networks accessible to their customers for free. More recently, I moved my savings to a high-yield account with an online-only bank; visiting them in person was never part of my thinking.

Instead, I—along with many millennials—am making decisions based on which providers offer the most competitive rates and the lowest fees.

3. Customers are choosing apps with a better user experience.

The fintechs that gain users and AUM are those that understand that, beyond a solid value proposition and good design, their products need to provide a great user experience. In fact, 41% of consumers today would consider using an online or nonbank financial application if it offered better online experience and functionality.

To that end, many fintechs are digging into user habits and helping customers improve their financial health. For example, Digit analyzes your spending habits, determines how much you can afford to save every day, and automatically saves that amount. Robinhood makes it easy for first-time investors to buy stocks, make trades, and build a portfolio. These apps are designed to be intuitive so that you can learn about investing or saving while doing it yourself.

These apps go well beyond the experience you’d expect from a traditional core depository account. But they emphasize the importance of prioritizing UX while highlighting the competitive, feature-rich landscape that banks must enter as they seek to retain customers. (article continues below)

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4. Increasingly, consumers prefer to put their finances on autopilot.

Americans routinely cite money as their number one cause of stress. Perhaps it’s no surprise, then, that many consumers would prefer to “set it and forget it.” For example, a survey by Charles Schwab found that 25% of consumers would prefer to automate their daily finances over automating food delivery or driving.

While some traditional depository account providers offer automated features, fintechs have elevated the concept. For example, Betterment does smart sweeps, which automatically move idle cash into high-yield savings or investment accounts to earn even more money. Acorns rounds up your credit card purchases and puts the spare change into an investment account, a forcing function that makes investing easier.

Rather than replacing core depository accounts, these apps exist alongside them, effectively making checking and savings accounts “smarter.”

5. Customers want more control over their financial data.

Even as consumers are ever more willing to try new fintech apps and products, they still want control over their financial data. Fifty-six percent of fintech users say they’d like to control which of their financial accounts are accessed by third-party applications, according to a survey by The Clearing House.

Three quarters of consumers would consider keeping their core depository account at a bank without branches.

This consumer demand for greater control over one’s financial data speaks to the increasing portability of such information. Once upon a time, banks built their revenue models on the idea that moving your core account to another financial institution was difficult, and that most people wouldn’t do it. Instead, they would go on to purchase additional financial products—loans, business accounts, mortgages—from the same bank where they had their checking account.

By connecting depository accounts to multiple apps, consumers now have the ability to choose the products and services best suited to their individual needs. But they remain keen to control when and how their financial information is used. To that end, security and transparency are critical for fintech apps looking to succeed in the new financial services ecosystem.

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6. Customers want the best financial products—whether they’re yours or someone else’s.

Today’s financial services consumers have more choices: they can easily switch products, and what was once a relationship-based business has become more transactional. In other words, you don’t have to know a banker to get a great deal.

In this new world, honesty becomes the differentiator. Increasingly, banks and other service providers are asking themselves: are our products truly better for consumers? Do we make it easy to compare other products? Even to switch?

Rather than replacing core depository accounts, these apps exist alongside them, effectively making checking and savings accounts “smarter.”

That may sound counterintuitive to legacy firms, but platforms like CreditKarma and NerdWallet show how it can work. Rather than peddling their own products, they operate on an affiliate revenue model: help consumers select the products and services best suited to them, then collect a fee from financial service providers for the recommendation.

For example, I recently used Betterment to do an audit of the fees I was paying on my existing brokerage accounts at other investment firms. I expected that Betterment would suggest I move my money into their own accounts, but the audit revealed that I was already paying the lowest possible fees for asset management. They recommended I keep my money where it was.

I was delighted—and in the future, when Betterment recommends a course of action, I’ll know that I can trust them.

Toward a new financial services ecosystem.

For banks and fintech apps, the evolution of the core depository account will bring significant change.

At the most basic level, banks will need to enable their core accounts to serve customers by safely and seamlessly connecting to new apps and services. Meanwhile, fintechs will continue to find business opportunities by paying special attention to areas where banks fall short of customer expectations.

In this new world, honesty becomes the differentiator. Increasingly, banks and other service providers are asking themselves: are our products truly better for consumers? Do we make it easy to compare other products? Even to switch?

What’s more exciting is the shift to a financial services ecosystem in which the incentives of financial services providers are more closely aligned with the customers they serve. A world in which companies compete on outcomes rather than individual product offerings, in which consumer financial health is built into business models.

The result is a rebundling of financial service products with a focus on what best serves the user.

Reed McGinley-Stempel works on the Growth team at Plaid, where he helps start-ups and enterprises adopt and scale new financial technology solutions. Prior to Plaid, he was a consultant at Bain & Company.

Reed McGinley-Stempel works on the Growth team at Plaid, where he helps start-ups and enterprises adopt and scale new financial technology solutions. Prior to Plaid, he was a consultant at Bain & Company.

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