Digital-First Banking

What Banking’s 'Wave Three' Might Look Like

There is a long-running debate in the world of traditional banking when it comes to how to consider the recent rise of challenger banks.

There are those who view the coming rise of FinTech and Big Tech challengers as an existential threat to traditional banks. Others see them as little more than a persistent (an occasionally annoying) reminder about the need to raise the level of their digital financial services game.

In a recent conversation with Karen Webster, Green Dot’s Executive Vice President and Chief Product, Strategy and Development Officer Daniel Eckert noted that the debate tends to obscure a few things. The first is that there is more than enough room for both traditional and challenger banks to co-exist, provided they consistently add value to the customer segments they have chosen to serve.

Second, he noted, good versus bad framework also ignores how financial services has evolved over the last decade. The innovations that challenger banks have introduced over the last several years are quite different than the first iteration of “challenger bank” launched by Green Dot and Netspend more than a decade ago. Then, the invention of the general-purpose reloadable card created a feature set and new business model that provided access to banking services to those crowded out of the traditional banking system.

“Wave two [of banking] became the challenger banks or the neo banks — the movement toward building a great user experience, powered by pre-paid capabilities connected to those experiences,” Eckert told Webster. “I tend to believe ‘wave three’ of financial services will be embedding them inside the customer's day-to-day journey.”

What Contextual Banking Looks Like

Even five or six years ago, that concept of unbundling banking services and having them accessible in context by a consumer was difficult. The technical architecture wasn't built yet, and traditional financial services providers were constrained by legacy tech. Modern programming protocols like advanced programming interface (API) and the abstraction of those services to then be configured as a customer would want them configured is what now makes the reinvention of financial services — and how they are delivered — possible.

That’s why today, when a consumer goes shopping — online or off — there are a series of steps and apps that they must navigate to gather the information they need to plan their spend. They have to check their mobile banking apps for how much is available to spend in their checking account, issuer sites for available credit on their cards, how much they have in savings to spend if that spend is for a high-value item, merchant sites for any store credits and sales or reward perks. Only then can they execute their shopping journey with confidence.

Contextual banking, Eckert said, connects all of those endpoints so that it is easier for consumers to track their spending.

“Putting financial services in the context of the experiences that triggers a financial services need feels entirely relevant to the consumer,” he explained, adding that it helps the brands that consumers have relationships with to solve real customer problems and complements their chances of making a sale.

Making Move For The Mass Market Customer

Eckert said Green Dot is convinced that even before the pandemic created new economic pressures on consumers, there was an opportunity to reinvent the banking experience for a whole category of consumers that the company believes are “underserved” by mainstream financial services providers. It’s a whole segment that Eckert said also isn’t necessarily defined by income.

“What ‘underserved’ really means is there's a problem that the existing solution or capability set or products aren’t solving for,” Eckert said.

It’s also much broader than socioeconomic definitions can capture — and best understood by how well a customer can access, engage and tap into financial services, where, when and how they want to engage with them.

What Eckert said Green Dot hopes to do, through its two-pronged approach of giving consumers an alternative financial services option and expanding its banking-as-a-service offerings, is to fill in those solutions and capabilities that don’t exist yet to boost the consumers’ daily transactional experience.

That might mean, he noted, allowing consumers to easily monitor all of their accounts so that they have an “always-on” view into how much they are spending, or authenticating and synching necessary payments credentials with any other account they have.

In an on-demand world, it only makes sense that consumers should have on-demand access to the collective view of their payments, spending and banking services options — without having to toggle between the 40 separate apps that live today on their mobile phone home screens.

“The third wave of banking is about building the most relevant and accessible set of banking services so that consumers can tap into them without having to think about it at all,” Eckert told Webster.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.