Search and shopping giants want to become your banker, too.
In 2020, one of the most prominent digital banking trends we’ll see involve tech giants that want to learn more about your financial and shopping habits by getting into your wallet…literally. Companies like Google, Apple, and a host of start-ups are launching basic digital banking services known as neo-banks.
While some start-ups want to disrupt traditional banking with an all-digital experience, other companies are just in it for your data.
Here are highlights on a few of the most notable digital-banking options shaking things up.
Google’s new banking project, code-named Cache, is a partnership with Citigroup and the Stanford Federal Credit Union that will launch in 2020, offering “smart checking” accounts.
Envisioned as an extension of the Google Pay digital payments system, their objective is to help banks’ customers benefit from useful insights and budgeting tools while they gain an intimate view of consumer purchase behavior. Ultimately, their move is about competing with Amazon, Apple, and Samsung.
And, since some banks, like HSBC, store their data on Google Cloud, there is the potential to develop front-end banking tools that interest customers where Google could expand ads.
- Apple’s Apple Card
Apple Card, issued through a partnership with Goldman Sachs, is under investigation by New York State regulators after customers complained about gender bias in spending limits.
- Facebook’s Libra
After Facebook’s Libra cryptocurrency project launched to little acclaim, they lost key banking partners Mastercard and Visa.
- Amazon’s Rumored Product
In early 2018, rumors circulated that Amazon was looking to partner with big banks, like Chase, to offer checking accounts for younger customers and those without banking accounts.
- Square’s Cash App
Known for merchant payment processing, Square created a bank-like account with its Square Cash app and debit card. Now, customers can deposit paychecks.
Traditional Big Banks:
Even traditional banks are creating digital banking products to compete with the tech giants and re-imagine their images and offerings.
- JPMorgan Chase’s Finn
Finn, a no-fee digital bank account with limited branch access aimed at younger customers, was recently closed.
- Wells Fargo’s Greenhouse
Traditional banks, like Wells Fargo, are testing app-based banking products. Their product, Greenhouse, has eliminated overdraft and service fees.
- Goldman Sachs’ Marcus
Goldman launched an online lending product that combined with an online savings account, offering customers 2.05 percent for deposits with an eye to expanding into full-service online banking.
In addition to tech giants and the big banks, new start-ups are trying to disrupt traditional banking through their own digital banking solutions. Most of these new companies have kept their money and run transactions through partner banks that don’t have the funds or capabilities to create all-digital services.
- Simple: Set out to upend the banking industry with tech innovations and customer-friendly terms, but was bought by a big bank, BBVA.
- Chime: Launched by offering two million customers fee-free checking.
- Aspiration: Has attracted nearly a million customers.
- Varo: Offers fee-free checking accounts without any minimum balances.
- Acorn: Attracted four million customers to its investing app and is slated to start offering a debit card.
- SoFi: Started as an online lender and now offers an online bank account option.
Most Neo-Banks Aren’t Regulated
While previous attempts to create digitally-focused services as alternatives to traditional banking have mostly been successful with niche markets or failed, regulatory acceptance of neo-banks could legitimize the space for consumers.
Most neo-banks are not regulated (or insured), yet, banking regulators are in the process of giving their first banking charter to Varo. The Office of the Comptroller of the Currency says that it plans to begin offering special fintech charters to new companies that want to handle money as well.
From a cybersecurity perspective, these digital-native banking services are more focused on capturing consumer and behavioral data than earning fees. This highlights the increasing value of consumer data and what companies will do to acquire it. No matter the size or type of banking service – traditional or digital – it’s imperative that customers understand how their data is stored, used, and shared.