The largest purchasing power by demographic is currently ripe for the taking.
Millennials are displeased with their banking options, and it is clear in so many ways. For one, 73% of them would rather an option come from a tech company than from their own bank. This isn’t surprising, I suppose, given that one in three are planning to change banks in the next 90 days, and 71% of them would rather go to the dentist than listen to their banks. For brick and mortar banks, the truth hurts.
Banks know this. But unfortunately, they aren’t moving fast enough. Nearly every bank offers online banking, mobile banking, mobile check deposits, etc. But the websites are often poor, their apps buggy or slow, and there are restrictions on so many things that can be done online. And if that wasn’t enough, even the banks that are quick on the draw when it comes to keeping their online presence fresh simply aren’t proving the kind of interaction that Millennials are looking for.
As this article so elegantly put it, Millennials (as well as many others), are more and more aware of the value of the data they provide, the information they give to companies who they trust with their details, their trips, or their money. And because they are aware of this, they expect a return on that value. Unfortunately, banks don’t play by those rules.
Banks instead play but much more outdated ones. Banks believe that they offer security for your money and some interest on savings in exchange for you trusting them with your hard-earned cash. Banks expect that the data they keep track of, the ins and outs of what you do on a daily basis, is just a perk – something they get because there is no other option but for you to give it to them. They treat this as a rule, instead of as something that demands to be compensated for, by engaging their customers, offering suggestions, increasing interest rates, cutting fees, or offering suggestions on someone’s cell phone as to whether a purchase is wise based on their income-to-expense ratio.
To make matters worse, banks not only operate by the wrong rules, they don’t have a choice. For one, brick and mortar banks are eating up to two thirds of their revenue simply by having buildings and employees. Furthermore, they just aren’t doing well. Sure, they look good now, they seem to be on the rise as the last few quarters posted promising earnings and provided a much needed uptick for suffering banks. But the truth is, where else were they going to go? In the aftermath of Brexit and the subsequent ft.com/content/494f6250-39f7-11e6-9a05-82a9b15a8ee7">chaos across the board, there wasn’t much further down they could have gone. Banks looked good in Q2 and Q3 because they looked so bad previously, not because they actually look good. If you give me a rotten tomato that has mold growing on it, and then offer me the same rotten tomato after wiping off the mold, sure, I’ll admit it looks pretty damn good compared to the last one. But do I want to eat it?
And then there are online banks. A couple of them are somewhat appealing, particularly to those who want to simplify and cut some of their fees. But there are still so many limitations. Check writing can be problematic, large deposits or cash deposits can be difficult or impossible, and there isn’t someone you can just go to and solve a problem if you have an issue. Or is there? The truth is online banks get far higher reviews in terms of customer service. Still, it can’t be denied that the online choices available at the moment, while good for many, lack the ability to truly be ubiquitous, to be overarching, to be an ultimate solution that will stamp out the old-school bankers for good.
So again, I will ask…GoogleBank, where are you?
Well, it’s no surprise that many Fin-Tech companies are thinking about opening retail banks. Even some purely tech companies have mulled the idea over. With so many people eager to jump on the bandwagon, it seems ludicrous that it hasn’t happened yet. But of course, then we remember the big “R” word. Regulations. The ones heaped and piled on over the last handful of years that seem to be doing all sorts of things to slow the growth of banks, and very little for those who once had faith in the mighty goliaths of wealth. So much so that even as the old gods fall, the new ones have yet to stand tall for fear that once they register as a bank their entire company could fall under banking regulations, eviscerating their ability to be the powerhouses of the tech and fin-tech world that they have become.
And so for now, the most powerful demographic on the planet in terms of purchasing power, will have to wait, impatiently I suspect, for the day when something gives.
What’s your take? Would you like to see a GoogleBank, Bank of Apple, or Amazon Bank? Where do you think the banking industry is headed? I’d love to hear your opinions.
Until next time,
This is The Uncontortionist.
All I need is a bank that doesn't try to sneak in silly fees, gives me the option to deposit cash at an ATM, and has some basic online functionality. I have yet to find any bank or credit union that meets the above three criteria. If online banks like Ally could find a way to let me deposit cash somewhere, I would be golden.
Do you live anywhere close to a USAA ATM?
I keep a retail bank account open with the bank I used to do IB at. I'm grandfathered in to their best account with no fees. I only use it to deposit cash and transfer it to my main online account.
Unfortunately, no. USAA is great otherwise, though.
Sil,
I think this is a pretty valid point. What you're looking for is fairly simple, and represents the views of far more people than just the Millennial demographic, and yet it is almost impossible to find. And that isn't really even asking for something high tech or ultra advanced. It's just basic service that consumers have become comfortable with as companies have moved in different directions. Options without bullshit.
Doode, have you tried Schwab?
Sooo many reasons.
Since 2008, one--ONE--only ONE bank has become federally charted in the United States (and it was some small, crappy Amish bank). Dodd-Frank and other onerous banking regulations make it extremely uninteresting for investors to put together a new federally charted bank because of the fixed compliance costs--you need to have a truly large bank for it to make sense. You basically have to be FDIC insured to run a depository bank and obtaining and maintaining FDIC insurance is pretty difficult. In addition to regulation, interest rates have been ridiculously low, leaving less-than-historic interest rate margins, further suppressing the desirability to open a new banking institution. Finally, retail banking really isn't that profitable--crazy low return on assets.
The only real reason I see for Google to enter that market is because its executives truly want to monopolize the world's industries (and those California tech people are just arrogant enough to justify opening a low-profit business based on their ability to expand their own empire). Also, maybe they could utilize the banking platform to generate profits in some of their other businesses.
Virginia Tech 4ever,
I understand your points absolutely. I wasn't saying it is unfathomable that these companies haven't started this venture. I think you are absolutely right about the reasons they haven't, which I detailed some of at the end of my post. It's just kind of sad what choices are currently out there, I suppose I'd my point. Thanks for your comment!
Just because Millennials "believe" something doesn't mean its true. I'd bet my life that 1/3 Millennials did not change banks in 90 days - I'd go as far as to say almost none did. Changing banks is really annoying and there is basically no differentiation. As stated above there are so many regulations in banking you can't just open a bank like a company in other industries. Also, Millennials only use banking for simple things and for the most part have no money. Once they age they will probably see the value of a good banking relationship.
I think there are probably ways to incorporate tech into banking to make for a better user experience, or tech companies that do things in addition to banking - think Venmo, which is tied to a bank account. But my hunch is banks are here to stay and as Millennials age their tune will change. Anecdotally, I always see some add in my FB feed for some start up that's "revolutionizing" mortgages and making it easier blah blah blah. Interested I check out their rates and spoke the a customer service rep - the rates weren't even close to what you could get at a "normal" bank, which makes sense given the lower cost of capital, operational inefficiencies, etc.
Ke18sb thanks for your comment.
I think you're dead on in some regards here. Obviously it is far more complicated than just saying, hey guys we are opening a bank. And without any infrastructure etc it would be difficult. I also fully agree that just because many people are dissatisfied doesn't mean anything will happen.
However, I would point out that just because they aren't taking action on moving between existing banks does not mean they wouldn't take action if a major tech company they already trusted opened a truly functional alternative to banks they are currently so unsatisfied with.
Again, the reasons that has yet to happen are in writing on the wall. But just saying.
I know plenty of millennials who constantly bitch about banks, yet not a single one of them has even removed their parents as co signers from their bank accounts they had set up for them as a child. Dissatisfaction does not equal action by any stretch of the imagination.
I don't disagree with you one bit heister. Just thinking out loud. Appreciate your comment though.
I would love to see a tech company start a bank given some of the points mentioned here, but probably something like Square instead of the Googles of the world
Indeliblemonk,
Me too, believe me! I think the tech already in the works could truly revolutionize the experience, and in all honesty they have proven as safe/secure as banks from most perspectives. I think much of the security brick and mortar banks offer is an illusion anyway. You're probably right that it would come from a fin-texh company but one can always dream...
This is where Intuit steps in, starts a bank, and links together all their financial products.
You clearly don't understand the business model of a retail bank. They make almost no money when you open a checking or savings account with them. The banks use your money (reserves) to lend to others. They charge an interest rate on these loans and pay you interest for storing your money with them. The difference between the interest income and interest paid to lenders is the net interest margin (basically gross margin).
It would be very very very tough for a technology company that FOCUSES on technology, to have or develop the expertise in finance, lending, risk, etc. in order to open a successful wide scale bank. The industry is intensely regulated because many people's financial security is on the line and if it fails, then the government (FDIC) is ultimately on the hook. Do you know the success rate of startups in Silicon Valley?? Yeah extremely low, and the difference is that Joe Plumbers lifetime savings is on the line and not some high rolling Venture Capitalist.
What you and the writer of that article do not realize is that the "social contract" between you and the bank is that you entrust them with your life savings, and they guarantee that it will be safe (Up to $500,000) from natural disaster, theft, loss, or whatever else could happen by stuffing it under your mattress. The security of knowing your hard earned money is safe, more than fulfills the "social contract" that the author of the article you shared doesn't think exists.
Millenials aren't satisfied with their bank, because they A. don't realize the true "social contract" the bank offers or B. millenials are entitled as shit and expect more than they should with everything. Saying "I entrust the bank with my data, I should be getting paid for it" reeks of the entitled outlook my generation has. Do you want the bank to pay you a weekly allowance and give you a kiss on the cheek like your helicopter parents did/still do?
If this was truly an issue they would be switching banks or not using them at all, but they aren't. Do banks need to improve their technology? Yes...but you fail to see the benefits that personal contact with a banker can allow.
Example: I got a job offer across the country three weeks before college graduation with CFA has me testy at the moment.
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