Name: Insights: Will Brick-And-Mortar Banks Matter In The Future?
Uploaded: 2020-03-10
Duration: 6 min 34 s
Description: A discussion about fintech startups known as challenger banks and how these tech-driven, online-only upstarts will compete with big bank branches. (June 2019)

 SPEAKER 1: What segment are you going after in terms of bank mobile? LUVIEEN SIDHU: Yeah, for us, it's low and middle income Americans that covers a large proportion. But you asked about why now. And it's very obvious that consumer needs and behaviors are rapidly changing and banks are really slow to adapt to that change. We're seeing Americans living paycheck to paycheck. A third of Americans doing it, so 50% of Americans don't have enough to pay for a $400 emergency. And these same Americans are being charged $34 billion a year in just overdraft fees. That's more than what they're paying for vegetables. And so we're not only improving the consumer experience from affordability from technology innovation, more consumer-friendly products, trust, but we're also shifting the business model where acquisition is branch based historically and banks are opening one net new checking account per branch per week. That's it. And today, we're opening 10,000 accounts per week using technology and really creating consumer-centric product that they're looking for that really addresses their pain points. SPEAKER 1: One product I think, the one I talk to both you and Chris that people really like is debit cards, which surprised me a little because in order to build credit, in order to increase your credit score, debit card isn't really serving you. How do you think about that? I mean, how are people who, if they like using debit cards so much, how are they going to increase their credit? LUVIEEN SIDHU: Well, I think it's important to help them with debit and offer them an opportunity to help them grow their money, save their money. But we're not ignoring credit. I think that's one huge pain point. Our customer base is thin credit file and also lower near prime. And so we're focusing a lot on helping them build credit through products that we're offering and also from an education front to make them understand. Now, there's a lot of really savvy people they don't even understand the components of what makes up a good credit score. And so there's a strong educational and coaching experience that we involve as well to make sure people are ready to take on credit and build that credit. SPEAKER 1: One thing that I know is very important to both of your businesses is you don't charge fees, no overdraft fees, no monthly account fees, no credit card fees. If you're going to do that, I mean, how committed can you be to that business, what bank-- this has been the bread and butter of banks for so long-- how can you go up against the big banks without charging these fees and doesn't that just make you much, much less profitable than traditional banks have been? SPEAKER 2: I think we have a very strong competitive position relative to traditional big bank competitors. Do you know much the cost of a savings account at Bank of America if you have less than $500? SPEAKER 1: How much? SPEAKER 2: $8 a month. That's the current price. And it costs $12 a month for a checking account if you don't have a large direct deposit or a big balance. So that's the segment we're going after. And by the way, that's a huge portion of America. I mean, you're citing the stats of something like 40% of Americans on a $500 in a savings account. So it's a huge portion of America and there's an opportunity to service these people far more efficiently by not having a big branch infrastructure and having modern technology that isn't mainframe batch-based. Everything's real time and easy. And so we think there's a great opportunity for delivering, in a very sort of Amazonian way, figure out ways to delight the consumer and wake up every morning and try to figure out how to reduce fees. That is not the way big banks-- that's not what they think about when they come to the office each day because if you look at a Bank of America or Wells Fargo earnings call, every analyst on the call is asking about how to fee income do last quarter. And I'll tell you how it did last quarter. In Q1 of 2019, the top three banks earned between $1.2 and $1.6 billion of service fees on deposit accounts. That's our opportunity. SPEAKER 1: Can you be profitable doing that? SPEAKER 2: By not charging fees? Well, our model today is primarily-- it's almost entirely interchange. So we make money when the card gets used at the point of sale, whether that's a swipe or an Apple Pay transaction. And what's great about it is there's complete alignment with the consumer. We only make money if the consumers engage with our product and using it as an every day transaction mechanism. So we are very motivated to get them excited to use it and use it for a cup of coffee or a big purchase at Walmart or Amazon. So we're excited about being able to monetize in a way that is very much aligned with the consumer's interest. SPEAKER 1: But yes or no, do you expect to be profitable long term? SPEAKER 2: Of course. SPEAKER 1: OK. SPEAKER 2: Yeah. I mean, we could be profitable today if we weren't investing-- I mean, literally, we could be profitable this month if we weren't investing so much in brand building and customer acquisition efforts on television and a lot of the marketing channels, as well as the investments we're making into getting our consumers to refer their friends and so forth. SPEAKER 1: Good, yeah. LUVIEEN SIDHU: So we're really focused on profitability. We're actually right now part of a public company. And so banks, we're FDIC-insured, we have a charter. Banks are valued on profitability. So we have no choice but to create a model that's going to lead us to either equal to or greater than profitability of a traditional bank. And how are we doing it? We're really focused on high volume acquisition and at very low cost. And so today, we're acquiring our customers at essentially close to $0, and we're doing it at very high volumes. And the way that we're doing it at high volumes is that we've gotten into a B2B2C model or banking as a service. So historically, B2B2C could have been bank to branch to consumer. Today, we're doing it bank to through business partner to consumer. And so today, in the higher-ed space, we have relationships with 800 campuses across the country. And not in a relationship where we're paying them millions of dollars to be the sponsor in their arena or a branch on campus, et cetera, but we're solving a pain point for them to transfer payments to themselves from this from themselves to the students. And we get to then have a choice for these students to bank with us. And one in every three college bound students sees our account and has a chance to bank with us. Similarly, with T-Mobile. T-Mobile was looking to get into financial services. They want to create more touch points, more emotional connection with their customers around the mobile experience, and they're doing that today through T-Mobile Money which is in new checking account that we helped them launch. And so through our partnership, we're again, acquiring customers at relatively low cost and high volume. 

Insights: Will Brick-And-Mortar Banks Matter In The Future?

Uncategorized

A discussion about startups known as challenger banks.

Will Brick-And-Mortar Banks Matter In The Future?

A discussion about fintech startups known as challenger banks and how these tech-driven, online-only upstarts will compete with big bank branches. (June 2019)

What are you going after? In terms of bank mobile, low and middle income Americans? That covers a large proportion. But you asked about, like, why now? And it's very obvious that consumer needs and behaviors are rapidly changing, and banks are really slow to adapt to that change. You know, we're seeing Americans living paycheck to paycheck. 1/3 of Americans doing so. 50% of Americans don't have enough to pay for a $400 emergency, and these same Americans are being charged $34 billion a year in just overdraft fees. That's more than what they're paying for vegetables. And so we're not only improving the consumer experience from affordability from technology innovation, more consumer friendly products trust. But we're also shifting the business where acquisition is branch based historically and banks, they're opening one net new checking account for branch per week. That's it. And today we're opening 10,000 accounts per week using technology and really, you know, creating a consumer centric product that they're looking for their really addresses their pain points. One product. I think that when I talked to both you and Chris that people really like is debit cards which surprised me a little because, you know, in order to build credit in origin, increase your credit score. Debit card isn't really serving you. How do you think about that? I mean, how are people Who, if they like using debit cards so much, how are they going to increase their credit? Well, I think it's important to help them with debit and offer them an opportunity to help them grow Their money saved their money, But we're not ignoring credit. I think that's one a huge pain point. Our customer base is in credit file and also lower near prime. And so we're focusing a lot on helping them build credit through products that we're offering and also from an education front. Make them understand. No, there's a lot of really savvy people. They don't even understand the components of what makes up a good credit score. And so there's a strong educational and coaching experience that we involved as well to make sure people are ready to take on credit and build that credit. One thing that I know both is very important to both of your businesses is you don't charge fees, no overdraft fees. Uh, no monthly account fees. Uh, credit card. Please be if you're going to do that. I mean, how committed can you be that this is what banking is in the bread and butter of banks for so long? How can you go up against the big banks without charging the fees? And doesn't that just make you much, much less profitable than traditional banks have been? I think we have a very strong competitors position relative to traditional big bank competitors. Do you know what it costs? Have a, uh, savings account at Bank of America. If you have less than $500 how much? $8 a month. That's the current price. And it cost $12 a month for a checking account if you don't have a large direct deposit or a big balance. So that's the segment we're going after. And by the way, that's a huge portion of America. I mean, you were deciding the staff of four something like 40% of Americans, one of $500 in a savings account. So it's a huge portion of America, and there's an opportunity service these people far more efficiently by not having a big branch infrastructure and having modern technology that isn't mainframe batch based. Everything's real time and easy. And so we think there's a great opportunity for delivering in a very sort of Amazonian way, you know, figure out ways to delight the consumer and wake up every morning and try to figure out how to reduce fees. That is not the way big banks. That's not what they think about when they come to the office each day. Because if you look at, you know, a Bank of America or Wells Fargo earnings call, every analyst on the call is asking about how did she and come due last quarter. And I'll tell you how it'd last quarter in Q one of 2019 the top three banks earned between 1.2 and $1.6 billion of service fees on deposit accounts. That's our opportune. Can you be profitable doing that by not charging fees? Well, our model today is primarily it's almost entirely interchange, so we make money when the car gets used at the point of sale. Whether that's a swipe for an Apple pay transaction and what's great about it, is there complete alignment with the consumer. We only make money if the consumers engage with our product and using it as an everyday transaction mechanism. So we're very motivated to get them excited to use it and use it for a cup of coffee or a big purchase at Walmart, ER or Amazon. So we're excited about being able to monetize in a way that is very much a line with the consumer's interests, but yes or no. Can you Do you expect to be profitable long term? Of course. Okay, yeah. I mean, we could be probable today if we weren't investing. I mean, literally, what could be probable this month if we weren't investing so much in brand building and customer acquisition efforts on television? And a lot of the marketing channels, as well as the investments were making in tow, Getting our consumers to refer their friends were really focused on profitability were actually right now, you know, part of a public company. And so banks that were after, I mean, sure, we have a charter. Banks are valued on profitability, but we have no choice but to create a model that's gonna lead us to either equal to or greater than profitability of a traditional bank. And how are we doing it? We're really focused on high volume acquisition and at very low cost. And so today we're acquiring our customers that essentially close to $0 we're doing it very high volumes. And the way that we're doing it at high volume is that we've gotten into a B to B to C model or banking as a service. So historically B to B to C could have been, you know, bank to Branch consumer. Today we're doing it bank through business, partner to consumer. And today, in the higher ed space, we have relationships with 800 campuses across the country and not in a relationship where we're paying the millions of dollars to be the sponsor in their arena or a branch on campus, etcetera. But we're solving a pain point for them to transfer payments to themselves from from themselves to the student, and we get to then have a choice for the students to bank with us and one in every three college bound students. He's our account and has the chance to bank with us. Similarly, with T Mobile, T Mobile was looking to get into financial service is they want to create more touchpoints, more emotional connection with their customers around the mobile experience. And they're doing that today through T Mobile money, which is the new checking account that we helped them launch and so, through our partnership, were again acquiring customers you know, a relatively low cost in high volume.