Say Hello to the New ‘Customer Centric’ Bank

Financial services, as an industry, has a bit of ham in the pan problem.

Prepping Sunday dinner, it may have been that your great-grandmother snipped the ends off the ham, before placing it in the pan. So did Grandma. And Dad. And so, of course, do you. Turns out the pan was just smaller in generations past, and really, in 2022, there’s been no need to trim dinner to fit the space.

Financial services is a bit like that. For generations, banking has been the way it has been because of tradition, legacy infrastructure and processes. But there remains a fair amount of untapped design space within financial service to address customers’ problems.

LendingClub CEO Scott Sanborn and Cornerstone Director of Fintech Research Alex Johnson told Karen PYMNTS’ Webster that forward-thinking firms have a huge opportunity to better serve their end users in the digital age —especially in the paycheck-to-paycheck economy.

As Sanborn told Webster, the FinTechs are starting off with a blank sheet when developing new technologies — as opposed to a product-siloed mindset that has been the hallmark of banking. Those advanced technologies can prod consumers to examine, for example, subscription services they may not be using anymore or can prescreen mortgage refinancing and extend preapproved offerings.

“One click and you are done,” Sanborn told Webster. “This is the future of banking.”

To get there, said Sanborn, for providers, managing the experience is easy, but creating the data infrastructure and the financial wellness campaigns is complicated to say the least.

Because they have less debt of the technical sort to contend with, digital-only firms might have a bit of an edge — for now. But forward thinking doesn’t have to be the exclusive purview of the FinTechs Sanborn said. The data that providers need to help consumers achieve better financial outcomes, and wellness overall, are available to all providers, including traditional banks.

The Dating Game

The evolution of the financial services landscape may look a lot like the dating industry’s own transformation. Earlier in the millennium, there were just a few online dating platforms, and now one can search for dating sites focused on different religions, sexual identities and hobbies.

Extend that model to financial services, and we’re seeing the emergence of banking for freelancers and startups. In LendingClub’s case, there is banking geared toward helping heavy debt users manage that debt and lower the cost, noted Sanborn.

The banks will have to break their silos, moving beyond what Sanborn said is a mentality that focuses on growing consumer counts and the numbers of products and services that each consumer buys.

As FinTech companies and digital challengers lean into those new opportunities, said Johnson, they have to dedicate more time on product design and how to bundle complex operations together — all while educating consumers.

Financial Health

It isn’t surprising that financial health is top of mind. PYMNTS data show that 62% of the population continues to live paycheck to paycheck — down from previous readings, albeit only slightly. And 17% struggle to pay their bills, according to the latest readings.

Those measures were taken before 8% inflation, before gas prices doubled at the pump and before rising interest rates started reshaping the landscape of credit card debt.

Before the pandemic-driven recession kicked off, he noted, household balance sheets were in reasonable shape, as a whole — and then they got really healthy, because interest rates were low, and government stimulus padded savings enough to offset a lot of expenses, Sanborn noted. But now those stimulus payments have run dry, and forbearance programs have ended. Real wage growth is actually negative, when accounting for inflation.

“All of this is inevitably putting pressure on monthly expenses,” he said.

No surprise, then, that delinquencies are trending up, no matter where you look on the FICO spectrum.

The paycheck-to-paycheck designation is hitting people with lower income demographics especially hard. Seventy-nine percent those earning less than $50,000 a year are living paycheck to paycheck. More than a third struggle to pay their bills. But even among the affluent earners, at $100,000 and above, 47% live paycheck to paycheck — and 10% of them struggle to pay their bills. Almost all groups have a tough time meeting an unforeseen $400 expense.

No two cohorts of consumers have exactly the same financial problems that are served by exactly the same offerings. Consider the fact that about 70% of millennials live paycheck to paycheck, up from 63% at the end of December. But the ranks of senior paycheck-to-paycheck seniors are growing, too.

The pressures are markedly different: millennials can earn more income over time. Seniors, by contrast, are living on fixed incomes.

Against that backdrop, the propensity of millennials to embrace buy now, pay later (BNPL) is increasing, said Sanborn, while eschewing credit cards. Seniors must guard against the rapidly escalating costs of healthcare.

As Johnson told Webster, “Providers will need to design solutions and tools that are specifically geared toward helping those generations with their specific ‘generational challenges.’”

Financial solutions, he said, need to help consumers build in more resilience, giving them options to cover short-term liquidity needs — and if they do need to turn to credit, to make sure the options are both affordable and transparent, without impacting financial trajectories in a negative way.

Super Apps on the Horizon

The stage is increasingly being set for the emergence of a super app. PYMNTS data show that roughly 30% of consumers want such an app-driven ecosystem, as it can help them manage their money flows “in” and their money flows “out” over the short and longer terms.

Companies want to enable a broad range of commerce activities, provide a slew of loan options and enable payments through it all. Consumers, meanwhile, want apps that help them improve financial health. Payments can be a bridge for all of this, with a bit of aggregated data on hand — after all, you can’t spend unless you know what you can spend.

Thankfully, we’re a long way from the early days of aggregators, said Sanborn, where early FinTechs connected bank accounts and investment accounts and savings accounts. Consumers could see all of their activities in one place — but nothing was really actionable without insight.

As Sanborn noted, insight is what gives the service provider (LendingClub, for example) the power to help consumers gain better knowledge of discretionary vs. non-discretionary spend, to see what consumers can buy every month without overleveraging themselves.

“Not in a way that stresses you out,” he said, “but in a way that makes your choices deliberate.”