Having just finished a wonky panel discussion at Columbia Business School, Andrei Cherny is enjoying a slightly trashy Tex-Mex dinner at a local college dive. The topic of the B-school event was the future of fintech and banking, which are, paradoxically, intimately related and worlds apart.
Banks, beset with myriad balance sheet issues following the financial crash, were slow to innovate elsewhere. That gave rise to a fintech boom of startups that behave like banks while doing everything in their power to avoid being regulated like them. In the Q&A session following the Columbia talk, a student had asked if Cherny was worried that Big Tech would buy fintech, or even buy banks somehow.
I ask him that again: The company he founded in 2014, Aspiration, wants the brand to communicate more than online banking and investing (which just happens to be its bread and butter). It bills itself as being built on high-minded ambitions for what spending, saving, and investing can be: conscientious capitalism that’s environmental, anti-gun, fair, accessible, and transparent. Maybe too transparent. Isn’t Aspiration eminently (even imminently) copyable?
“I think about Southwest Airlines,” Cherny says. “It debuted as something totally new: no first class, no seat assignments—all the jokes and warmth and personality. Do you remember that the big airlines tried to copy it? United had Ted and Delta had Song. They failed because they went for the market without going for the mission.”
His answer is both blithe and biting. Cherny believes banks lack a mission, and that, as much as anything, will lead to their downfall.
Maybe so, but what’s freaking bank executives out these days is how to survive in a world of low interest rates. On Tuesday, Wells Fargo reported an eye-popping 11% quarterly drop in net interest income—the fees part of the business that for years had been a huge profit driver. Every time the Federal Reserve moves to lower interest rates, banks like Wells Fargo feel it.
Aspiration’s business model is far less dependent upon fees, which benefits the startup and its customers. The company’s 1.5 million users are saving, on average, $545 a year in fees—a bottom-line calculation that may speak as much to their financial acumen as it does to their altruistic instincts.
“We’re not for everyone”
But before the conversation can get swept away by Silicon Valley’s unofficial motto—Will it scale?—Cherny pivots with the practiced polish of his pedigree (a Harvard grad who became the youngest speechwriter in White House history, under President Clinton, and, later, a kind of speech whisperer among the Democratic elite) and spins a yarn of a workaday anecdote: His wife recently forgot to pay their kid’s piano teacher. Could the next payment just be doubled? No, the piano teacher insisted; like 78% of working Americans, she was living paycheck to paycheck.
Cherny paid some piano lessons forward, but sighs in his retelling: “Most Americans are forgotten Americans. Why isn’t her bank there for her when she needs it?”
He lays out an irony among banks: Their quest for ubiquity has come with a sad anonymity. By trying to serve everyone, they’ve distanced themselves from huge swaths of the public. “We’re not for everyone,” he says of Aspiration. “Some people want to fund guns. Some people want to fund coal or oil. Some people only care about cash back or rewards points or whatever. We’re not for them. We’re for people who want to ask: Can my bank do well while doing good?”
Lots of people are asking similar existential questions about banks. A recent McKinsey report found that because of low or negative interest rates, nearly 60% of banks are not generating enough returns on equity to survive a prolonged economic slowdown—in such an environment, the well-being of banks has never been so dependent on the well-being of its customers.
A coauthor of the McKinsey report calls it a “do or die” moment. The McKinsey wake-up call came on the heels of a PwC report that was more prescriptive. It urged the “Amazonization” of banking and wealth management into online platforms, aggregating products and services with fintech-style agility.
Those tensions have been further exacerbated by a presidential election in which two leading Democratic candidates—Sen. Bernie Sanders and Sen. Elizabeth Warren—have made fixing income inequality and forgiving debt on a grand scale central pillars of their campaigns.
On the campaign trail and off, banks are increasingly discussed more as a necessary evil than a necessary good. In these uncertain times, what’s a bank like Wells Fargo to do?
“About damn time”
Scandal-ridden Wells Fargo went quickly from being banking’s golden child to its piñata when it got busted for opening up millions of accounts in its customers’ names without their permission. The world’s fourth-largest bank by total assets, it came under considerable heat when Tim Sloan, its then CEO, offered Senate testimony in 2017 on the matter. Warren told him, “At best, you are incompetent. At worst, you are complicit. Either way, you should be fired. Wells Fargo needs to start over and that won’t happen until the bank rids itself of people like you.” (When he quit in March last year, Warren tweeted, “About damn time.”). In her presidential run, in a Medium post laying out her “economic patriotism” plan, she wrote, “Past a certain point, the growth of the financial sector undermines the rest of the economy by extracting from it without producing any real value.”
Yet despite calling for breaking up both big tech and big banks, Warren has been far quieter about the partnerships developing between those giant foes—or the seismic shifts in banking being led by fintech startups like Aspiration and its rivals Betterment, Chime, and Robinhood. Through a spokesperson, Warren declined Fortune’s interview requests.
“People will pay for cage-free eggs with a Wells Fargo debit card and either not put two and two together, or not feel like they have a better option,” says Cherny. “Our opportunity is in saying, actually, it doesn’t have to be this way. A bank can be a positive influence in your life and the world around you. The bank should be the most-beloved institution. It’s the avenue for living out all your hopes and dreams. It’s a Wonderful Life is about banking: a good bank and a bad bank. We have a choice between being the Baileys and being the Potters. And yet we’ve only had the Potters’ version.”
Ranking the big guys
All of it—Senate testimony, campaign speeches, wonky academic discussions—seems far removed from the everyday life of most Americans. So Cherny doesn’t mention it (much). Instead he pops open his Aspiration app and shows how it puts one’s day-to-day financial life into a new light. Take Amazon and Walmart, for example. While they feel like similarly massive corporations, they’re very different from each other by one score that’s increasingly important to young consumers: their environmental track record.
Cherny explains why this matters (at least to Aspiration’s customers). He shows me that Aspiration gives Walmart a planet score of 94 out of 100, while Amazon scores a paltry 65. Similarly, while Southwest Airlines has a person score of 85 (meaning it treats its employees well), United Airline’s person score is 64. And so on. McDonalds has a person score of 61 and a planet score of 76, compared to Burger King’s 49 and 53, respectively. Aspiration saw a surge in user sign-ups the day President Trump announced a planned withdrawal from the Paris Agreement. “More than ever,” Cherny says, “people want to align their actions with their values.”
Aspiration uses a proprietary algorithm to determine those rankings, using factors such as employee pay and commitment to health care for its person scores, or greenhouse gas emissions and energy efficiency for its planet scores. Similarly, those numbers are compiled into an overall assessment of how much Aspiration customers themselves are contributing to labor and environmental progress. (At a recent check, Cherny’s own spending had a person score of 85 and a planet score of 91.)
Big banks don’t do this kind of thing, of course. They prefer to do business with others, not judge them. But the scores are exactly what Cherny’s public service background brings to fintech: a people-first approach over a consumer-first one.
“I think of us as a service,” Cherny says. “The way to be profitable is to serve people, not screw people over. Restaurants feed you. They don’t take advantage of your hunger.”
So far, eBay alums Pierre Omidyar and Jeff Skoll agree, with both making hefty investments. In all, Aspiration has raised more than $150 million from other power players, including AGO Partners, Allen & Company, Alpha Edison, Flourish Ventures, David Bonderman, and Steve Rattner. Having invested heavily in growth and new products, Aspiration forecasts finally hitting profitability later this year.
Doing good, it turns out, can satisfy the objectives of activist-minded customers and the board. Aspiration’s Redwood Fund, for example, is an investment fund that is fossil fuel–free and firearm-free and has performed in the top 2% since it debuted in 2016 (its minimum initial investment is just $10). Some 70% of Aspiration users have no mutual fund when they sign up, but 40% of those customers open one within a year, and 60% of those make monthly investments.
In December, Aspiration debuted Planet Protection, which pairs debit card payments at gas stations with automatic carbon offsets. It’s based on gallons of gas purchased, and it tries to bring even the most gas-guzzling SUV driver somewhere nearer the range of carbon-neutral. It’s far too soon to say whether such efforts will have any meaningful impact on carbon emissions, but it’s getting its share of eco cred. “Aspiration helps people protect our planet by ensuring their deposits are fossil fuel–free and by rewarding socially conscious spending,” said Leonardo DiCaprio, the environmentalist actor, when he joined Aspiration’s board last year. While Bank of America could offer the same earth-friendly deal, Cherny bets it won’t.
Taking a flier on Elizabeth Warren
Cherny has won big on bets before. Before Aspiration, he edited Democracy, a journal whose claim to fame was publishing a proposal by Warren that would become the Consumer Finance Protection Bureau. He didn’t just edit it and publish it, but also advocated for it. “Seeing that the financial industry was so strongly resisting efforts to reform made me start thinking that a more ethical, trusted competitor could beat them at their own game,” he tells me.
His life has been full of idealism—ever since at least age 12, when Cherny volunteered for Michael Dukakis’s presidential campaign. In his twenties, when his Czech immigrant parents, who had no savings, were bequeathed several thousand dollars from a dead neighbor, Cherny watched as their small fortune was swindled by a financial adviser who gambled it all on high-risk, illiquid real estate. After Cherny’s stint in Washington, by the time of the financial crash, he was a financial fraud prosecutor in Arizona, which he calls “ground zero of the mortgage meltdown.” He says he saw its victims up close. They were lots of elderly folks or families of deployed soldiers. They were just gutted, he recalls. From that experience, the seeds of Aspiration was born—that the combined forces of banking and tech could benefit from his unlikely résumé builder built on public service. Not that he flourished as a public servant; he lost congressional bids.
Aspiration is far from alone—Robinhood is another one—in the fintech upper echelons in getting banks to drop fees for trading in stocks, funds, and options. (Similarly, Cherny is hoping to get banks to give up the $35 billion they make each year on overdraft fines—to no avail so far, despite lobbying for more regulation because, as he put it in an essay, “laissez-faire is lazy and not fair”).
Cherny recalls an early investment meeting. Beforehand, he told his cofounder, Blackstone private equity alum Joe Sanberg (who’s also a founding investor in Blue Apron), that he was worried Aspiration’s Pay What’s Fair model—in which customers are not required to pay anything, but rather what they want—might get copied by competitors. The investment meeting was short. “They’re not going to steal it,” Cherny recalls telling Sanberg. “They think we should be locked up in an insane asylum.”
Bankers, however, almost never get locked up. “We’re closer to 1910 than 2010 in economic fairness in America,” says Mehrsa Baradaran, a law professor at the University of California at Irvine who wrote How the Other Half Banks. “We have the unbanked, the underbanked, and, lemme tell you, actual banking is not much better. They’re pro-shareholder, pro-themselves. Aspiration does a lot of good, but I’m always wary of trotting out the kind slavemaster.”
The day after Cherny and I talk, Google and Citibank announce a checking account partnership—on the heels of a credit card partnership between Apple and Goldman Sachs over the summer and Santander investing heavily in Ebury. That B-school hypothetical is getting closer to reality by the day.
“I fully anticipate a world where every tech company has a bank. The Bank of Amazon, the Bank of Uber, the Bank of Facebook,” he tells me after the Google-Citi news breaks. “But this is Big Banks, which nobody likes, combining with Big Tech, which nobody likes. I’m not worried about what they’ll produce together.”
Correction, January 15, 2020: An earlier version of this story misspelled the name of Aspiration’s cofounder. He is Joe Sanberg.
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