Banks struggling to gain new accountholders have begun to explore new business models. Indeed, according to Open Mobile Media, 83 percent of financial institutions surveyed expect mobile to be their main channel focus this year. But will this help banks retain market share? And will they be able to reach the many households that cannot afford, or do not want to maintain, the high daily account balances and/or minimum monthly deposits financial institutions typically require, in addition to the $10 to $20 monthly account fees some banks charge?
Typically, individuals priced out of mainstream financial services join the ranks of the unbanked or underbanked. Also, traditional alternatives to banks like payday lenders or check cashing services can charge fees that vary widely and trap consumers in continual cycles of indebtedness. The millennial and underbanked segments often pay the highest fees.
"I think you've got an industry, which is one of the last to be disrupted, which hasn't innovated, which has a high fee environment," said Ash Shilkin, founder and Chief Executive Officer of ChimpChange, a company that offers digital banking. "It really is ripe for disruption by people like us, and some of our peers in the space, to come in and offer a lower cost and better performing product."
With advancing technology, companies like ChimpChange can deliver the same features and functionality of a bank account, global use of a debit card, ability to make direct deposits, fees clearly stated and no account minimums, he said. "If you look at a traditional bank's transactional account product offering, it looks pretty similar to how it looked in the early 1990s; really there hasn't been a lot of innovation."
Shilkin said there is a trend toward digital banking at the macro level. "This is not an overnight process, but in three to 10 years we believe that we're going to see some meaningful movement from what we would refer to as traditional banks towards digital banking," he said.
Less entrenched nonbank players could facilitate digital channels must faster than banks. The concept itself is not new. In fact, as a young child, Shilkin said to his father, "One day we're going to have all of our cash and cards on our wristwatches, and we're going to zap each other money from our wristwatches." Years later, he pilot tested the ChimpChange app using a Pebble smartwatch from the comfort of his living room. Currently, the app runs on smartphones.
Shilkin also pointed out that his company is not trying to reinvent the banking network system. "We are working within the current regulation and framework of banking, so we've partnered with a sponsor bank, who has invested in their back-end systems to focus on supporting partners like us," he said. "Our product is FDIC insured, and our cards are covered by the Mastercard zero-fraud liability protection policy."
Four months after launch in August 2015, ChimpChange had approximately 80,000 accountholders using its platform. "What we have been doing is building out the basics of the bank account so that customers can check account history, deposit their pay, load checks and send money to friends, which is just a starting point for us."
The company's technical team of 20 is now focused on how to better serve its growing customer base comprising millennials, at 67 percent, and the remainder underbanked, which are both markets Shilkin intended to directly target.
"I don't think the banking industry is going to disappear, but you can see the power that innovation can have on growth," Shilkin said. "I don't think status quo will do. The value in partnering with somebody like us is that accelerated growth in customer numbers." This is where forward-thinking banks can retain a competitive edge moving forward.
He said his company will continue to manage customer communications and build software to simplify money management. But to win over new customers, he believes, fintech innovators must consider the convenience of opening an account digitally, sending money with a video or text explanation for recipients, tracking how money is spent across all accounts for budgeting purposes and other customer-centric features.
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