In this article, we question if fintech apps like Acorns and Stash are changing the game or if it’s just hype. Then, offer 4 Ways Community Banking and Credit Unions can Win Against Fintech Apps.
In 2018, about 61 percent of Americans used digital banking, which is set to rise to 65.3 percent by 2022. In today’s digital world, banking customers want a quick, easy, and instant solution to pay off debt, invest their money, and save for their future. For example, If members want an app that acts as a financial advisor, they can use Stash. If members want round-up and investing capabilities, they can use Acorns.
While working in the community bank and credit union industry, I noticed some leader’s lack of concern regarding these apps. It makes sense based on the research in Cornerstone Advisor’s Fintech Adoption in the U.S. The Opportunity for Banks and Credit Unions Whitepaper:
What the data tells us
Percentage of Americans that have never heard of ACORNS:
- 65% of 21-29-year old’s
- 49% of 30-38-year old’s
- 55% of 39-53-year old’s
Percentage of Americans that have never heard of STASH:
- 71% of 21-29-year old’s
- 55% of 30-38-year old’s
- 62% of 39-53-year old’s
Percentage of Americans that would consider using ACORNS:
- 14% of 21-29-year old’s
- 29% of 30-38-year old’s
- 27% of 39-53-year old’s
Percentage of Americans that would consider using STASH:
- 8% of 21-29-year old’s
- 14% of 30-38-year old’s
- 12% of 39-53-year old’s
With numbers like that, no wonder banking leaders don’t see this as a real threat. Today’s technology makes predicting a hurricane easy, we know when and where they will come ashore and how much damage we should expect. Communities can prepare the windows, store their belongings in safe places, gather the essentials and map their exit strategy. Therefore, it’s much easier today to react and create a plan to survive a hurricane. We have the details and we can see it coming. But, when things are far away, as human beings, we have a much harder time preparing. We see this with climate change. We don’t exactly know when the oceans will rise or where it will occur first.
However, the glaciers are slowly melting, little by little. Eventually, the oceans will encroach on the land. Unfortunately, because it’s so far in the future we are reluctant to do something about it today. We can’t visualize how this will happen, we don’t actually see it in our day-to-day lives so, we tend to put off doing anything about it. For that reason, I suspect that these Apps are like climate change and not like a hurricane.
In 2013, the average person had 26 apps on their phone by 2018 that number was 80. As a result, we are seeing more micro-investing apps being downloaded and used. Consequently, the micro-investing and micro-savings apps are pulling money off the traditional banking platforms penny by penny. This may be more like death by a thousand cuts. The standalone fintech apps are following the typical technology startup strategy, attract customers with one small feature, often a free feature, and build out more and more supportive features to create customer lock-in. For example, Acorns started with just investing small change, check out their services now.
In September, I had an opportunity to speak at CUNA’s Technology Conference in Chicago about the impact of saving and investing apps on Credit Unions and Community Banks. The micro-investing and micro-savings apps remind me of the glaciers melting. It seems, like drip by drip isn’t like a lot, just like with micro-savings, penny by penny doesn’t seem like a lot but, over time it will amount to millions and millions of dollars. Additionally, these micro-investing apps are expanding their service offerings quickly while creating a great customer experience.
Why Customers Are Using Fintech Apps
Just like with climate change, we see trends and we have data that tell us behaviors of consumers are changing and now is the time to respond. So, why are consumers using these apps?
- Easy setup and convenient
- Micro-investing options
- Easy to understand language
- Easy to see progress
- Peers are doing it and are having success
How Can Community Banks and Credit Unions Fight Back Against the Apps?
Help improve your customer’s financial health
Whether it’s a national organization like CUNA, big banks like Chase, or a small consulting firm like ours, when we survey customers on what they want from their bank the top answer is always the same. “Help me succeed financially.” Micro-investing or micro-savings apps make customers feel like they are in control of their financial future without knowing a lot about investing or saving, and they can do with little to no work. It’s time for banks to truly step up the plate and go beyond checking, savings, and loans to really help customers improve their financial health. Therefore, this requires re-imagining service offerings, upskilling every employee to be a financial health expert, and bridging the technology to customer desired outcomes. Finally, customers want and need to see their progress.
Tell the right kind of story
Seems like banks are often great at telling the story of how customers achieved more debt. For example, banks share how customers got a car loan, financed a new home, or borrowed from their home equity loan to take a grand vacation. Yes, it does feel good to buy a home but, it feels really good to save money to help aging parents or be the first generation to have a savings at all. Flip the script, tell the story of how customers succeeded in improving their financial health. Furthermore, tell the story of how your bank’s technology coupled with your educated employees improved the lives of their customers.
Drop the jargon and meaningless names
I love to use the Fidelity to Stash comparison to illustrate this point.
Every day people do not know what companies make up investing account 45TBIEX. In contrast, they have a great idea of what types of companies are in Stash’s Defending America. Therefore, having a Money Market account named Blue Beaver does not tell customers WHY they want their money in that account. However, Earn Then Do** Account or something similar, can help customers envision why they may want that account and what that account can do for them. The idea being they can earn interest that enables them to do whatever they desire. **Most Noteworthy: 🙂 I can only be so creative on a Friday at 4:31p…. catch me at 6:30 a.m. on a Tuesday and that account name goes from “I get it, Earn Then Do” to “WOW, Lauralee! That’s an awesome Money Market Account name!” The bottom line is to use customer-friendly language.
Reduce Customer Friction
Above all, take a page out of Amazon’s playbook – reduce or remove all customer friction. This requires mapping out the customer’s experience, breaking down every single point of friction and reducing or better yet, removing it. This is where our organization, Stratavize, LOVES to play. If you want the rubber to meet the road and make real changes occur – include Reduce Customer Friction in your 2020 Strategy. Removing all friction is not easy but, it’s a real difference-maker. Remember, it requires the leadership team to look completely different at the organization. It’s not about assuming what frustrates the customer, it’s about truly understanding what frustrates the customer from the customer’s point of view and it’s more than surveys or focus groups.
Now is the time
Keep in mind, there are many ways community banks and credit unions can win against the fintech apps from being more community involved, telling more stories or connecting in more meaningful ways. However, to sustain a competitive advantage the best way to win is a combination of improving the customer’s financial health, making it TRULY easier to bank with you and bridging the gap between technology and real customer outcomes.
In conclusion, the future of banking is somewhat uncertain, but there are a few things we know for sure; Ant Financial in China is changing how a billion people bank. Also, there is some real fear of Amazon jumping into the financial services industry. Lastly, the continued rise of standalone apps taking small amounts of money off traditional banking platforms. We may not be able to respond like it’s a hurricane coming ashore but, we can plan like its climate change. We know it’s coming – lets not kick the can or wait another year – now is the time to take a holistic approach to how to attract more customers, build deeper relationships with those customers, and connect in meaningful transformative ways.
Finally, do you think Amazon is jumping into the financial services industry?
If your community bank is ready to take on fintech and win – lets talk. Email me at firstname.lastname@example.org or contact me here.