NeoChecking Accounts

Green Dot recently launched a new type of FDIC insured DDA that is opened and fully serviced on a mobile app.

The app includes a savings vault that allows customers to move money into a savings account without gaining access through the debit card, bill pay which includes P2P payment capability, and an ability to easily load funds through direct deposit, RDC or cash at Walmart locations. The Fortune Teller budgeting tool provides point-of-sale advice on the impact of a purchase on the customer’s budget.

The account will charge $2.50 per ATM transaction for out of network ATMs, a 3% foreign transaction fee with the debit card, and $9 to customize the card design. Overall, Green Dot expects four revenue streams from the product: 1) Debit interchange income (the firm has less than $10b in assets, so no rate cap); 2) Service fees; 3) Float on deposits; and 4) A voluntary monthly fee of up to $9 (no, I’m not joking).

GoBank will target consumers with less than $100k income, does not plan to add a credit product, and does not think the new offering will cannibalize its GPR business.

My take: GoBank represents a new type of product in the market, which, for lack of a better name, I’ll call NeoChecking Accounts.

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Back in August 2011, I published a post here titled The Imaginary War Between Movenbank and Banksimple. A bank exec had tweeted “Just wait til the MovenBank / BankSimple wars….” which I took issue with. At the time, my perspective was:

“One day Movenbank and Banksimple may very well be rivals at war. But for now, the two firms are better off collaborating than fighting. The two firms have to educate consumers on what a new type of bank is, will be, or could be. They have to build demand for the new type of bank they’re building. Which is, of course, no easy feat.”

I wasn’t thinking clearly (no smart-aleck remarks).

It isn’t just the new type of “bank” that the firms have to educate consumers on, it’s a new type of product.

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When my generation — Baby Boomers — went into the working world, (among those of us whose brains weren’t fried from LSD and marijuana) we opened up a checking account. Actually, many of us opened a 2nd account, because we had one in college, from a bank that we vowed to never do business with again.

When the next generation — Gen Xers — went into the working world, (of those whose septums weren’t deviated from too much cocaine) they opened up a checking account. Didn’t think twice about it.

But today, it’s different. It’s not an automatic thing for Gen Yers to open up a checking account (the fact that many struggle to enter the working world is part of it, but not all of it). They don’t write checks (they actually don’t know how). They want alternatives.

But other than prepaid card accounts, there are few real alternatives. That’s what’s changing with accounts like those announced by GoBank and Movenbank. They’re not just alternatives to banks — they’re creating alternatives to checking accounts.

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I told Movenbank founder Brett King that I was going to write a post titled NeoChecking Accounts. He said:

“Don’t use ‘check’ because one of the key behaviors of the new account type is the anti-check behavior.”

The intention is spot on, even if the wording wasn’t. Accounts don’t have behaviors, consumers do. But Brett’s premise —  that a key driver behind consumers’ use of GPR cards is that they don’t need checks, but need a card — is dead on.

But I don’t have a better name for this new account. “Spend account” or “Transaction account” doesn’t seem new or sexy enough.  So I’m going with NeoChecking Account. If nothing else, Keanu Reeves will like it.

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There are two other things related to the emergence of this new account that bears mention:

1. Mobile-centricity is a big duh. GoBank’s and Movenbank’s emphasis on mobile-first, branchless (and maybe cardless) is not a big deal. Every bank and their mother has mobile banking or will. Well-established FIs like USAA could probably wipe the floor with GoBank and Movenbank when it comes to mobile capabilities. I’ve seen critical reviews of the mobile apps from some large banks. That’s easily fixed. It’s no big news that the startups focus on mobile. They’re not going to build a branch network, and they’re going to focus on the group of consumers who are not entrenched in their financial relationships, and who represent the disproportionate share of demand for financial accounts — Gen Yers. This segment relies so heavily on their mobile device for everything, they’re sleeping with the damn thing, and taking it places I’d rather not talk about.

2. Interest in the startups isn’t about the desire for a new kind of bank. Startups and non-mainstream FIs (e.g., Ally) love to tout how they’re a “new” kind of bank, and love to cite the low consumer trust numbers that research has reported over the past few years.  Who cares? As I demonstrated in Bank Vs. Credit Union Realities, the top 50 banks grew deposits by 8.5% for the 12 months ending June 2012 while credit unions’ share balances increased 6.0% (from October 2011 through September 2012). Big banks like WF, JPMC, US Bank, and PNC each had deposit growth about double the credit union total. People want a new type of bank? Nonsense. They want a new type of account.

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Bottom line: GoBank is a sign of things to come. Gonna be interesting. 

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12 thoughts on “NeoChecking Accounts

  1. Three things I’m really happy you referenced:

    1) Keanu Reeves, because that’s the first thing I thought of when I saw the post title.

    2) USAA, because yes, they would wipe the floor with either competitor (or any of us, for that matter) in the mobile space. I have an account (no, numerous accounts) with them, and they don’t miss… on anything. This is coming from a quintessential Gen Y’er.

    3) Gen Y carrying their devices into unmentionable locations. It seems I can’t ‘go’ without it now. That’s a physiological and psychological problem on many levels.

    Bottom line: these folks will be successful, under their own definition of success. Those of us in banks/credit unions/thrifts/mutuals/etc are crazy if we actually believe there will not be any credit/loan products extended once the deposit products gain traction. These providers are realizing something that it’s taken our credit union 50 years to realize: everything follows the checking account, for better or worse. Get it, and do well with it, and you’ll get the rest of the business.

  2. goBank, Simple, Ally, BlueBird and other similar providers all understand that economies of scale are essential to generate bottom line results with a highly commoditized product. By definition, Community Banks and Credit Unions lack the benefit of scale economies and thus, they will find that copying strategies deployed by the ‘big boys’ will be extremely expensive and highly disappointing.

    Unlike the above mentioned organizations that are largely looking to amortize their mostly fixed costs across as large a customer base as possible, Community Banks and Credit Unions have (self-selected) limited customer base and thus, their results of like strategies will differ significantly.

    Community Banks and Credit Unions have already proven beyond any doubt that ‘spray and pray’ tactics are ineffective. Marketing blindly to Gen Y in hopes that a Bank or Credit Union catches enough of the successful types is an expensive strategy that will almost certainly fail..

    A few posts for your consideration:
    Checking accounts are a utility that will continue to fail to generate loyalty and necessary cross-sell opportunities for Banks and Credit Unions. This is not material to some large providers but critical deficiency for Community Banks and Credit Unions.
    Most GenY do not want / need anything other than revenue-free banking products – aka Checking Accounts. Similarly, not an issue to Ally but a huge concern to a Community Bank or Credit Union attempting to generate incremental revenue & ROE from a limited customer base that is unlikely to grow meaningfully.
    Primary Financial Institutions have failed to win wallet-share with the exception of unprofitable checking & savings account. Simple, BlueBird and others are able to reduce their operating costs substantially given absence of branches (which account for 70%+ of total bank costs) but Community Banks and Credit Union do not enjoy this advantage.
    The average customer relationship lasts just over 6 years so a typical Gen Y will have moved onto his/her 2nd or 3rd Bank or Credit Union by the time (s)he is likely to be to engage in a meaningful banking relationship

    Strategy matters! Imitation is the sincerest form of flattery… but just make sure that you don’t kill yourself in the process…

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