When Banking Frustration Closes A Door, An App Opens A Window

With a new year on the horizon, it’s out with the old and in with the new. For the banking industry, this could be an ideal time to consider if the traditional rules of business are still working or if the industry could benefit from a fresh approach.

According to Chris Britt, CEO of mobile-first banking platform Chime, consumers are getting frustrated with larger, traditional financial institutions. And this frustration has created an opening for digital banking newcomers like Chime to swoop in and address these consumers’ concerns.

PYMNTS.com spoke with Britt in June about how digital banking is appealing to millennial customers. As 2016 wraps up, PYMNTS reconnected with Britt to reflect on the year in banking and look ahead to what 2017 could have in store.

Doing what the big banks won’t?

Britt pointed to the recent Wells Fargo scandal in which bank employees enrolled customers in bank accounts, credit cards and insurance policies without their permission as evidence of what infuriates consumers about bigger banking players.

“Some of that scandal is symbolic of the broader trend that’s happened around the huge frustration that exists among consumers with their traditional banks,” said Britt.

Sensing this frustration, new players like Chime believe there exists an opportunity to entice customers with a mobile-first alternative.

Looking back at 2016, Britt said Chime had an “amazing” year in which the company’s transaction volume increased tenfold, its member base doubled and its staff roster expanded by more than 50 percent.

“We think the current state of traditional banking creates a great opportunity for new entrants like Chime, and I think we’ve seen that over the course of 2016,” said Britt.

Chime offers several banking solutions for consumers, including an automatic savings account, a debit card and cash-back rewards. The company also awards a 10 percent weekly bonus for automatic savings deposits.

“At our heart, we want people to lead healthier financial lives,” he said.

Forcing traditional banks to rethink business as usual

Britt said many banks have taken an “adversarial” approach to customer relations that has fueled this level of frustration.

“The pricing structure is, ‘If you don’t do this, you get a fee. If you overdraft, you get a fee,’” said Britt. “We believe banks don’t do anything to help people get into a healthy rhythm around savings.”

These regulations and rules are not only off-putting for consumers, they can be obstacles for getting consumers to save money, he said. He pointed to a recent report from the Federal Reserve that found 46 percent of Americans could not come up with $400 in case of an emergency.

“Even just opening up a savings account in one of these big banks, they charge $3 to $5 a month for the privilege to have a savings account if the balance is less than around $500,” he said.

But Britt believes that larger financial institutions are catching on that their traditional business models are not working as well for today’s customers. Britt believes mobile-first digital banking platforms, like what Chime offers, may pressure larger banks to reconsider their traditional playbook.

“We believe we’re bringing a fresh approach to banking and consumer banking in particular,” he said. “I think you’ll see some of these bigger banks probably try to take more of a consumer orientation and try to deliver products that create more highly satisfied consumers.”

The millennial advantage

The appeal of mobile-first banking platforms like Chime to millennials is also a warning sign to bigger banks to shift gears for a growing audience, said Britt. Because millennials are more tech-savvy and willing to try new technological ideas than previous generations, bigger banks could miss out by not offering solutions that work for them.

“They’re the folks that are easiest to convert to a new service like ours because they’re so mobile-oriented, so digitally oriented, and they’re just not as set in their ways as someone who might be in their mid-40s or 50s,” said Britt.

Larger banking institutions’ traditional business model doesn’t offer much appeal to younger consumers, he said. Chime attempts to make up the difference by reaching millennial consumers where they shop.

“For these younger folks in particular, the notion of going into a bank branch and sitting down with a banker — it’s kind of a foreign concept, and there isn’t a whole lot of value for them,” said Britt. “They’d rather go to an app store and look at the reviews and see what people are saying about them and use products that are highly rated and loved by consumers.”

Britt also points out millennials aren’t the only demographic drawn to using Chime. Just as Facebook was once largely dominated by younger users, Chime is now seeing greater interest among older customers.

“We’re seeing a broader group than just millennials use our product, and we think that some of the slightly older folks will be coming around en masse as well,” he said.

Coming soon … more connectivity

Looking ahead to 2017, Britt said he wants to continue Chime’s growth and add new products to its lineup that appeal to consumers and help them save money. He hopes more consumers and institutions can learn from the lessons of mobile-first banking.

As more financial services become available in mobile banking, Britt intends Chime to be in the middle of it all. He wants Chime to provide a gateway for users who have relationships with investors, insurance providers, lenders, stock traders or other financial service partners.

“We think of it as your bank account should essentially be a hub, and through the use of technology and APIs, your bank account hub should allow you to seamlessly connect to a wide range of valuable services and apps that you’ll be using,” said Britt.

Britt said he thinks traditional financial institutions are too focused on getting consumers to use their own products instead of making it easier to work with and interact with third-party services and apps.

“We want to be that central hub that connects the consumer to the wide range of new service providers out there,” he said. “I think that’s a very different approach from traditional institutions, which tend to operate more like walled gardens and only want to cross-sell their own products.”

Chime intends to further distinguish itself from larger banks by embracing these services and embracing connectivity.

“We think that the future will be more open and connected,” he said. “I think you’ll see some partnerships that create some competition for the big guys.”

Click here to download the December 2016 PYMNTS Digital Banking Tracker .

About The Tracker

The PYMNTS Digital Banking Tracker brings you the latest news, research and expert commentary from the FinTech and consumer banking space, along with the rankings of 266 companies serving or powering the digital banking sector.