Some fintech companies are making hay with digital platforms that tout their differences from banks, even though they are often offering virtually the same products.
In the latest Street Talk podcast, we discuss how fintech companies have moved onto banks' turf, joining a group of players offering digital-only deposit offerings that have lured many customers with attractive rates, easy-to-use interfaces and, more recently, through clever marketing.
These fintechs, and even some longer-standing digital providers, have worked to create a brand that paints them as distinct from banks and have often taken shots directly at traditional brick-and-mortar players in their marketing efforts.
At least four traditional banks — Citizens Financial Group Inc., PNC Financial Services Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co. — launched digital products in 2018, joining a growing field of institutions vying for depositors through digital products with above-market rates. Those institutions are no doubt looking to replicate the success of Goldman Sachs Group Inc.'s Marcus platform, which has raised nearly $35 billion in just a few years.
Some former specialty lenders such as Ally Financial Inc. began building their deposit base early in the recovery from the credit crisis. Since then, Ally has built a $100 billion-plus deposit franchise without a traditional branch network, in part by touting the above average rates they offer on their products.
Ally has taken aim at traditional banks more recently, arguing they charge customers excess fees and have kept billions of dollars of their interest.
"They've been treating you like you're lucky to have them," Ally says in its "Better Is Out There" commercial. "Show them who's the boss of your money. You."
Fintech players have taken a similar approach in their own pitches. Both parties seem to be capitalizing on the damage the banking industry's brand sustained in the aftermath of the Great Recession. Some newer fintech entrants in particular have used language that originated with the Occupy Wall Street movement, trying to appeal to customers who might have lost faith in traditional banks or those that believe the financial system is set up for the top 1%.
Aspiration, for example, offers customers banking and investing services that put "you and your conscience first" and allows customers to pay monthly fees they believe are fair in exchange for a 2% cash management account. The company donates 10% of customer fees to charities helping "struggling Americans build a better life."
Aspiration and many other "challenger banks" claim they differ from traditional institutions because they do not want to make money off customers, but only help them. Chime, which has over 1 million accounts and was recently valued at $1.5 billion, has even touted that it only makes money when customers spend money through interchange income.
The marketing is fairly clever since Chime is using interchange income, a revenue stream that banks tend to avoid discussing with their customers, to play offense.
The pitch reminds us of the pilot episode of "Mad Men." In the episode, Don Draper — a talented creative director at an advertising agency in the 1960s — needs to sell his client, cigarette maker Lucky Strike, on a new campaign. At the time, Lucky Strike and other cigarette companies are in a bind, faced with new rules preventing them from saying their product is safe.
After a failed pitch, Don asks how Lucky Strike makes their cigarettes. The company's owner says, "We breed insect-resistant tobacco seeds, plant 'em in the North Carolina sunshine, grow it, cut it, cure it, toast it, treat it."
Don cuts in: "There you go." He writes "It's toasted" on a blackboard and tells the client the pitch isn't about the product, but about selling customers on happiness and telling them "whatever you're doing is OK."
The newer deposit players are taking a similar path to their customers' wallets, presenting a typical behind-the-scenes revenue source as a differentiating factor. And whether or not the strategy is profitable, it does seem to be gaining traction with consumers.
The companies with the longest-standing digital accounts like Discover Financial Services say they have not seen much change in the competitive landscape, despite more entrants moving into the space. However, Discover and other incumbent digital players have posted stronger deposit growth than their more traditional brick and mortar counterparts.
Other companies, including some more traditional banks, likely will follow and could roll out digital-only products under new brands as they target younger customers. Digital offerings are what many of those customers want, and even if the deposits carry a high cost, the platforms are very cost effective when compared to a large traditional branch network. And customers may not link those platforms with their traditional bank origins — after all, only the digital offering is toasted.