Chime up, the current is coming strong

FINTECH SNARK TANK COMMENTS

A recent study by Cornerstone Advisors highlighted the growth of digital banks and fintechs such as Chime, PayPal and Square, as well as the decline of megabanks such as Bank of America, JPMorgan Chase and Wells Fargo, as the choice of consumers for major chequing account providers.

Since 2020, the percentage of Americans whose primary checking account is with a digital bank has exploded. More than a quarter of Gen Zers (21-26) and nearly a third of Millennials (27-41) now call a digital bank their primary checking account provider. Among Generation X (42 to 56), this percentage rose from 8% to 22%.

What does the Cornerstone data on the status of the main current account tell the industry?

  • Digital banks are no longer “challenger” banks. They won. More Gen Zers and Millennials call a digital bank their primary checking account provider than those who consider a community bank or credit union their primary checking account provider-combined.
  • Consumers are looking for a different type of account. It is inaccurate to call what digital providers offer “checking accounts”. They are more like mashups of what were traditionally separate accounts. CashApp, for example, provides in-service crypto and tax preparation functionality, features typically not found in the traditional checking account.

Of the top 13 challenger banks tracked by Cornerstone, the number of active fintech accounts grew 43% throughout 2021, from 27.3 million to 39.1 million. Together, Chime and Current accounted for almost half (45%) of the total increase.

Chime is still the main challenger bank…

When Cornerstone scaled the online banking market in early 2021, Chime was the leader – by far – with more than 12 million customers. Move the clock forward a year and Chime still leads the way with over 14.5 million customers, a 21% year-over-year increase.

Chime is a strong neobank among millennials and growing its share of core customer base among Gen Xers. But its core status among Gen Zers has slipped since 2020, from 6.5% in October 2020 to 4.6% in January 2022.

…But currently a big winner in 2021

Although Chime gained 2.5 million new customers in 2021, Current more than doubled its customer base from 2.2 million to 5 million customers throughout the year.

What does Current do correctly? Initially focused on the teen market, Current has tapped into Chime’s target market with product features that include early payroll access, no-fee overdrafts up to $200, and cash back on purchases.

While Current’s product features are similar to Chime’s (suggesting a similar target market), there are differences in the customer bases of the two fintechs, including:

  • Demography. Something works for Current with Gen Zers that doesn’t happen for Chime. A quarter of Current’s customers are Gen Zers, compared to 17% of Chime’s customers. Additionally, the average income of Current customers is 33% higher than that of Chime customers.
  • Number of checking accounts held. Nearly half (45%) of Chime customers only have one checking account, their Chime account. Among Current customers, only one in four have only one Current account, suggesting that Chime has a more captive set of customers than Current.
  • Use of credit card. About six in 10 Chime customers have a credit card, compared to 75% of current customers. On a monthly basis, current customers with a credit card put about half of their monthly spend on a credit card, while Chime customers only put 35% on a credit card. Implication: Current has a tougher battle to drive spending on its debit card.
  • Ownership of cryptocurrency. Three in 10 Chime customers have invested in crypto, with 24% planning to do so in 2022. Among current customers, however, 25% have already invested and 54% plan to do so (full disclosure: Cornerstone’s survey was conducted before the recent crypto crash).

Current has plans in place to address these challenges and seize these opportunities. According to company CEO Stuart Sopp:

“We launched our 4% APY (savings account) in January [with] no spending or direct deposit requirements to access the 4% rate available to everyone on Current. Next, we will launch crypto investing and credit creation and continue to focus on getting people money when they need it.

The more things change, the less things change

There is no doubt that the world of digital banking is much different today than it was 10 years ago.

From a consumer attitude perspective, a big difference is the percentage of consumers who say digital banking capabilities are an important criteria for choosing a checking account provider. In study after study, more and more consumers are now saying that digital banking is a bigger factor than branch location.

What these studies miss, however, is that the product still matters. There is a popular belief in the industry that “customer experience is king”.

Absurdity. A great “customer experience” on top of an inferior product is pointless.

With early access to paychecks and no-fee overdrafts becoming standard checking (or payment) account features, banks and fintechs looking to differentiate their offerings must continually raise the bar on other features. .

Why did Current grow faster than other challenger banks in 2021?

Chime’s matching product features, such as early access and no-fee overdrafts, leveled the playing field. What tipped the scales were cashback.

Today’s consumers are sharp. They know where they spend their money. And if they can get cash back at places where they shop regularly with a particular vendor’s debit card, they’ll open an account with that vendor and use that debit card for purchases they make at traders where they can get rewards.

A futurist friend of mine likes to say that “products are dead”. I couldn’t disagree more.

Traditional product features, such as rewards, are still important to consumers. As younger consumers look to invest in crypto and build their credit ratings, creating products that offer these features is key to acquiring them as customers.

While Robinhood isn’t anyone’s darling these days (and made my Fintech Loser of the Year list twice), digital brokerage is jumping on the awards bandwagon. In March he announcement only with his new Cash Card, which will replace his debit card:

“Robinhood users will be able to “round up” their purchases to the nearest dollar, with the excess going toward equity or crypto investments. Those who choose to do so will receive a weekly bonus from Robinhood, up to $10.

It’s not rocket science. The challenge is not to imagine a new product feature that no one else offers. The challenge is to integrate new features that appeal to certain segments of the population.

If it’s “customer experience”, then I agree that “customer experience is king”.


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David A. Albanese