Our financial needs change very rapidly through life and yet, on average, consumers change their bank account only once every 16 years. This means a very high proportion of people have gone through significant changes in their financial lives, while sticking with their outdated banking solution. Your current bank might have been right at the time, but it’s probably not a fit for now or for the future.
There is now more choice than ever and more people seeking alternatives to traditional banks — the problem is how to tell the difference between them.
Financial services companies are notoriously selective when it comes to the information they choose to share with consumers. So, we’ve done some research to help make it easier for you to decide.
First off, there are 3 broad categories to look at:
Traditional Big Banks (Chase, Citi, Bank of America, Wells Fargo, etc.)
Challenger Banks (Chime, Varo, Revolut, etc.)
Fintech Challengers (Wealthfront, Robinhood, SoFi, Lending Club, etc.)
(There is also a very long tail of excellent smaller banks and local credit unions, but for most people these major categories are the key ones.)
Traditional Big Banks
Big Banks are some of the most successful companies in the world and U.S. Banks are especially profitable, making a cool $403bn in after-tax profits in 2018.
These banks typically offer a full list of traditional services, but very poor value for money — their accounts’ APY is most often significantly below the average. You can check the averages whenever you want here.
The Big 4 of U.S. banking — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — have a combined $9.1 trillion in assets, or more than half the U.S. total (Forbes). Over 80% of deposits are held by only 2% of banks. Yet, Big Banks offer some of the worst returns for your deposits and little product differentiation.
Many of the traditional banks’ suite of services are slowly being carved out by Fintech challengers, like investing and international remittances. Where the Big Banks remain unchallenged is in their massive marketing spend and credit cards.
Consumers have been the target of banks enormous marketing spend for decades, convincing them of their imagined value. The Big 4 spend a combined $10bn a year (if you add Capital One and Amex, it’s over $15bn) — an incredible amount for what is a commodified utility service.
Credit cards remain the almost exclusive province of the Big Banks. The barriers to entry remain very high and legacy antiquated systems, processes and culture of conservatism have locked credit cards into the past. Ironically 80% of Millennials engagement with banks is based on credit cards — leaving a big gap in unmet needs in the market. You can read more about Big Banks and their approach here.
You have probably heard a lot about challenger banks or neo-banks— there are over 60 is the US and more being started all the time. They typically offer a very simple checking account, low or no interest, a debit card and an app. They are a suitable option for those with very simple financial lives or for those unable to get a bank account any other way.
A small but growing list of companies have started in one of the discrete vertical markets — investing is the most popular—and gradually entering other verticals to provide a portfolio of services.
To illustrate how these companies typically sell themselves we have selected some examples — Chase Sapphire, Chime, Wealthfront and SoFi. We took screenshots of website’s landing page to look at the information they use to grab new consumers’ attention. Each has quite a different approach—none, however, really provide an easily accessible way to truly understand what the features and functionality they offer are.
First, Chase Sapphire Banking — a mass-affluent account companion to the Chase Sapphire Reserve Credit Card, which is the card of choice for up-and-coming young professionals and frequent travelers.
Easy enough — No ATM fees, Perks and Investing are the leads here. For a breakdown of how Chase promotes new customers, read here.
Chime is perhaps the most well known of the Challenger Banks. It leads with salary advance which makes sense given the target audience. It makes its revenue primarily from debit-card interchange.
Wealthfront, an early Fintech leader in robo-investing, has since launched a “cash account.” It leads with ease of use — investing and saving on autopilot and low cost. Wealthfront makes most of its money from investment fees, and has created the savings account to provide more incentive for consumers to move to them; it’s a tool to cross sell to investment services.
SoFi, originally a Fintech lender to students, has amassed possibly the widest number of products under its umbrella brand. It leads with a simple list of what it does. SoFi makes the majority of its money from loans. Deposits provide a cheap source of cash with which to lend out.
What is clear is that there is precious little information here on which to make a judgement. It took us over 30 minutes per company to gather all the information below — that’s a considerable amount of lift for a consumer to make to truly understand what it is that each is actually selling.
So, below is a chart we’ve made to help you make the choice that’s best for you.
Looking at the options side-by-side, it's possible to see very substantial differences between the features and functionality offered and the terms under which they are offered.
What is surprising, perhaps, is how very different these services are.
Given that 80% of Millennials interactions with a bank are driven by credit cards according to the Wall Street Journal (article here), it leaves almost all Fintechs with a highly limited offering—very few if any offer credit cards to date.
If you are, as are most people statistically, keeping the majority of your money with a Big Bank, you are used to a rich set of features not offered by existing Fintechs that are necessary for someone with a complex financial life.
You almost certainly use 3rd parties for things like investing and international money transfers. But you are paying dearly for it in the hidden cost that comes in the form of lost deposit interest and unredeemed card rewards and benefits.
That’s why we created Unifimoney — to fill the void between highly featured but expensive Big Banks and the optimized niche services offered by Fintech neobanks. What call what we’ve created High Performance Banking.
We think technology can be used not just to provide ease of access in the form of a well-designed app, but actually help automate many of the laborious, manual, repetitive tasks that managing your money efficiently demand. All of the benefits for none of the effort. If you would like to learn more, please visit us at www.unifimoney.com