Amazon isn’t the only tech company flirting with the idea of offering a checking account.
Google announced in mid-November that it intends to offer personal checking accounts beginning in 2020. The accounts will be managed by a Stanford University credit union and Citigroup. However, they will not carry the Google brand name.
Startups like Acorns and Stash have recently rolled out banking products serving as alternatives to what’s available at traditional and online institutions. Even T-Mobile is piloting a checking account backed by a mobile bank.
There’s a reason more startups and fintech companies are planning to offer checking accounts. But should consumers sign up?
The appeal of an ordinary checking account
There’s nothing exciting about basic, run-of-the-mill checking accounts. But you might be surprised by just how valuable they are.
Ron Shevlin, director of research at Cornerstone Advisors, calls checking accounts “paycheck motels.” They’re a place where money sits temporarily before it’s moved somewhere else. Demographic and technological changes have challenged the idea that they’re the gateway to a broader relationship with a bank, he says.
Still, a bank managing your checking account has insight into how you manage your money, how much you’re spending and where it’s going. It may not be the most profitable account banks offer. But a checking account is likely the center of your financial world.
What’s in it for fintech startups?
One word: data.
“The prize at the end of the day is really going to be the data,” says Daniel Latimore, CFA, senior vice president of banking for Celent, a research and consulting firm. “Banks have all this explicit data that they have not yet exploited anywhere nearly as well as Google has. There is an immense opportunity there.”
A startup with access to your checking account data could eventually use that information to recommend other products based on your spending patterns, Latimore says, like a mortgage or a credit card. And the current economic climate makes this an interesting time to offer an interest-paying checking account.
“Some players that are in traditional banks, some non-traditional banks and some other players are now in the deposit business a bit more than they used to be because they can offer better rates,” says Raja Bose, a consulting leader at Genpact.
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What the startups say
Of course, different fintech companies have different reasons for entering the banking business. And they’re approaching it from different angles.
Amazon just wants to have easy money movement among the merchants that participate on its platform, Shevlin says. “I’m not even convinced that Amazon wants to have its own branded checking account.”
Companies, like Stash — which offers an app for low- and middle-income investors — say their goal is to offer a bank account for people who are sick of paying hefty bank fees. Others are hoping to solve problems that traditional banks have failed to address, like wonky digital experiences.
Shevlin isn’t buying into those explanations.
“The messaging is, oh, banks are doing such a horrible job on mobile banking. No, they’re not,” he says. “So the idea that, oh my gosh, all these people, so many consumers are dissatisfied with their existing bank and want to find a new banking relationship — it’s simply not true.”
Instead of going through the trouble of getting their own bank charters, startups are partnering with small regional and community banks who can offer FDIC insurance. SoFi, for example, is teaming up with six banks, including MetaBank in Sioux Falls, South Dakota, and EagleBank in Bethesda, Maryland. Balances will be swept into any of the program banks, depending on each customer’s preference.
The banks get access to deposits that they can lend out and fintech startups get to become their customers’ primary financial provider, Bose says. It’s a win-win situation.
Should you sign up?
Consumers will ultimately have to decide whether they need a checking account from a startup like Stash or a company like Google.
The accounts that fintech companies are planning to offer come with plenty of bells and whistles and could simplify your financial life if you’re already using Stash, for example, or Acorns to save for retirement and invest.
The products startups are offering could be a good fit for younger consumers with less complicated financial situations. But older folks may struggle to get all of their financial concerns addressed.
“As you become more sophisticated and have more assets and have different financial needs, I think that it’s still some ways away before a fintech can provide everything that I need, right,” Bose says.
SoFi has a solution to this issue: Customers will have access to a human financial adviser.
Pay attention to fees
You’ll also have to consider the cost of what different startups are offering. After all, it’s not hard to find free checking accounts. Acorns Spend, for example, costs $3 per month.
“I don’t think the question is fee or no fee,” Bose says. “I think the question is, am I getting something of value for the fee that I’m paying?”