BERLIN - Scores of companies today are trying to disrupt banks’ hold on the consumer financial system. But as new players step in to move against the incumbent financial services industry, many establishment banks are closely shadowing them, ready to defend their turf.
At Chase (JPM), a bank with over 250,000 employees and over $2.5 trillion in assets, the digital department has teams that have been designed to function as a startup, mimicking the fintechs and other companies trying to usurp them.
“We spend a lot of time looking at the other major apps customers are using and how they're evolving,” Bill Wallace, head of digital at Chase, told Yahoo Finance. This isn’t just fintechs and other banks, but literally all the apps customers might use that are funneled into the process.
Chase’s newest addition to its app, the Daily Snapshot, offers consumers data and insights about their behavior with individual charges and categories broken down with a line graph. To stay startup-lean and flexible, the team that developed it used a “two-pizza” strategy, Wallace said. If two pizzas can’t feed the team, it’s probably too bureaucratic.
For many companies trying to compete with flexible startups, the startup-within-a-company is a key strategy for brainstorming and realizing new ideas, which then get tested and picked apart.
Insights, customer service, easy experience, and other features have become the selling points for leaving traditional banks. But the teams like Wallace’s at big banks are reacting fast to what people want, and learning that they have a few big advantages. They have money, they already have built-in customer bases and the workforce, and they have physical footprints from which to draw.
According to Wallace, in addition to insights, tips, habits, data, and even education, consumers want humans. And with a large network of real people on the ground and on the phone, this is something banks know how to do.
Everyone’s getting into financial services
In the U.S., fintechs that had previously stayed in the investing and retirement space have been slowly attempting to gain a foothold in more mainstream financial services, like credit or debit cards and savings and checking accounts.
One way to lure consumers has been through providing high yield savings account-like products. Wealthfront currently offers an incredible 2.32% savings account, higher than most other online banks that have cut rates with the Fed. Betterment has a similar product. Robinhood attempted to beat them all with a 3% product but failed spectacularly.
Other startups like Acorns woo customers with fancy-looking debit card and checking account and a quirky savings gimmick of using spare change. Paypal’s (PYPL) Venmo also has its own card, yet another option for a way to spend.
The mighty Apple (AAPL) has targeted banks’ business with its Card, going after the lucrative credit card business by teaming up with Goldman Sachs (GS). Even Goldman itself is another upstart in the business, though it’s an old bank new to retail operations that looked to disrupt things with Marcus, its high-yield savings product.
The potential for a better financial experience, and the fact that being a party in the middle of transactions presents opportunities to collect data and make money, has lured companies into the payments and banking spaces that maybe weren’t there before.
From Germany, Peter Thiel-backed startup N26 is attempting to capture the U.S. market with a comprehensive product that has been a major hit on the Continent and in the U.K. Similar companies like Monzo and Revolut also eye the U.S. as a land of opportunity from across the Atlantic.
Most, if not all, of these companies come with the pitch of a better experience from companies that are free to try new things and offer a better experience that is less, well, bank-like.
What can a fintech do that a bank can’t?
Being less bank-like is a good thing, but it may be a little late. While in the past banking apps have lagged behind, many banks have invested significantly in their digital and mobile experience on both a features and aesthetics front.
In terms of pure innovation, there are companies like Bank of America, which has an Alexa-like AI assistant called, Erica. Almost 8 million people use it, about a third of the bank’s mobile users.
“Digital banking is core to the high-tech, high-touch strategy BofA has been deploying the last few years,” Bank of America’s (BAC) Matthew Card told Yahoo Finance.
Discover’s VP of E-business Shaida Lynch trumpeted in-app customer service messaging to Yahoo Finance, and said that keeping up with current emerging design and user-experience trends were high priorities.
The big, national banks have incumbent structures built on top of each other as technology has changed and mergers and acquisitions have happened, which has created a framework that no one in their right mind would ever make if starting over. That’s why they’ve perhaps been slow to react, but they’re reacting now.
Now, many modern and disruptive features are available to most. Mobile check deposit, card freezing, sub accounts, spending analysis, deals and offers, mobile alerts, limits, and more. As banks catch up, the bar is set even higher.
Apple’s pitch, for example, is based as much in privacy as it is in features, though privacy is often billed simply as a part of the “Apple” experience. The company has created some strict rules with Goldman Sachs over data. But Apple will likely need to compete with companies like Chase when it comes to rewards and perks — a hugely expensive task made even more difficult by the features that help customers avoid interest, which is a key moneymaker for credit card companies.
N26 has one feature that will either be or extremely compelling or not at all, depending on who you are: paychecks two days early.
There are some companies that seem as if they can do it all, or almost. Ally (ALLY) and other online-only banks offer high-yield interest savings accounts, checking accounts, fast customer service, and a refined experience — though the card isn’t metal and you can’t walk into a branch to find a human.
The good news is that in this fight for your money, the customers will probably benefit the most as banks are pushed to add more to keep up with the new players.