“Hi Ben,

Thank you. I went over the deck and will Pass on this opportunity. I think there is plenty of Digital banks out there offering very similar services.” [sic]

With over 60 neobanks in the US alone — and more launching every month — some people wonder if we really need another digital banking service.

So, why do I have such conviction that I will one day be able to paste that email on my bathroom wall and laugh about it?

Because we’re doing something different.

So if we don’t need more banks, what do we need? Better banks

First off, let me say: I agree with the sentiment that we don’t need more banks — digital or otherwise. But though there are almost 5,000 FDIC member banks in the US today, that’s down from 24,000 in 1966.

At the same time bank numbers have been falling, deposits have become increasingly concentrated at the top. Over 80% of deposits are held at the top 2% of banks. The Big Banks are making money like Croesus himself:

“2019 was a great year to be a banker,” says Frederick Cannon, director of research at Keefe, Bruyette & Woods, an investment bank focused on the financial sector. “The profitability of the banking industry is very strong and it’s strong in a good way. The return on assets is near peak levels.”

Banks are indiscriminate and make money from rich and poor alike — from the rich, they pay almost no interest on their deposits, while lending that money out at exorbitant rates; from the poor, they charge fees and high rates of interest on loans.

So, what about Fintech and neobanks? Aren’t they better than traditional banks and offering an alternative?

Yes and no — it depends on who you are.

We can date the emergence of neobanks in the US to the launch of Simple in 2009, followed by Moven in 2011. Their primary innovation was that they offered a digital UI; basically, they made it easier than ever to find out your bank balance.

In 2015, there was a sudden rush of new neobanks offering much the same thing. These challenger banks offered “free” banking, but zero or close-to-zero interest on deposits and a mobile app. In parallel, we saw the rapid emergence of a wide variety of FinTech companies carving out a specific feature or functionality and digitizing it: Sofi and Lending Club with loans, Lemonade with insurance, Robinhood with investing, etc.

There are over 60 neobanks in the US today; almost all are focused on lower-income consumers (sub-$25–50K). In general, these neobanks’ offerings consist of a simple bank account (generally a virtual checking account held at a small regional bank), a debit card, an app and a salary-advance service. Of the six companies that focus on higher income users, Robinhood, Wealthfront, Betterment, M1, and Personal Capital all focus mainly on investing and simply add on a savings accounts; most recently, HM Bradley has offered both a savings account and a debit card.

The majority of neobanks’ income is largely based on non-regulated debit interchange (the Durbin amendment gave smaller banks of less than $10bn in assets the ability to charge much higher interchange on debit than bigger banks) — they get around 1% of the spend on the card to keep or give back to consumers as rewards and benefits. The mass-affluent focused brands make money on investment fees and, in some cases, on deposit interest (although recent precipitous fall in the Fed rate has reduced these significantly).

The emergence of FinTech brands has certainly increased the choice, efficiency, usability, access and, in some cases, the value of money for many in financial services. But almost exclusively, these services have been aimed at sub-prime customers — low income, those with damaged credit history, immigrants (no FICO score regardless of income), and youth. But neobanks have not yet fixed banking for the vast majority of people: the banking experience for the middle market and mass affluent (prime and super prime) remain nearly unchanged.

So if it’s not the traditional banks or neo-banks, what is it?

The opportunity we see is not to simply digitize banking — instead, we want to change it and create something new and better. We think tech can do more than just to reduce costs and increase the ways to access and manage your account — we think it can actually change the underlying product and value proposition.

Amazon didn’t transform the global retail market by replicating a physical store online. Airbnb didn’t just replicate hotels. They created something new, using technology as the launchpad to change the industry entirely while putting consumers’ interests first.

We have seen this happen in investing, starting with Vanguard and spurred on by Robinhood and Wealthfront. These companies have taken what was an expensive, elitist, analog and slow process and made it the opposite: accessible, affordable, digital, and instantaneous. By doing that, they’ve completely changed the face of the investment market. But we have not seen this happen in retail banking — not even close.

How can we change banking for the better?

Consumers have been trained by almost 50 years of marketing and experience to accept poor value for money (“Banking is free” is a fallacy; you’re paying each month with your deposits) and undifferentiated products and services. We believe technology and society can do better increasing financial security and resilience. There is an estimated $300bn lost each year in interest alone ($12 trillion in deposits earning on average less than 0.1% APY over the last decade vs the average Fed effective rate). At a time when Big Banks are making record profits, that’s just an unacceptable figure.

These are the underlying beliefs and design principles of our approach at Unifimoney — they are maybe unconventional and don’t conform to the narrative we often see in the market and we might be wrong! Maybe consumers are entirely satisfied with the status quo. The only way to test this is to try.

1. Consumers want outcomes — not features and functionality. Better app design is not the primary need in banking.
2. Banking-services platforms can be run at ultra-low-cost which allows you to give more back to consumers and still be profitable.
3. Customer-acquisition costs are a tax on poor product design and a poor value proposition. They’re an avoidable waste of money if you are offering a differentiated customer experience and genuine value for money.

We also hold 2 core beliefs about the future of Fintech as a whole:

1. We will see a re-bundling of financial services (it’s not uncommon for consumers to have a personal financial stack of 10–15 separate finance apps and managing them all has become impossibly hard work), which will bring simplicity to the project of personal finance.
2. We will see more segment-specific money management services emerge both in SMB and consumer — e.g. a banking service for mobile-app businesses or a bank for young professionals, children, or retirees (some of these already exist or are in progress).

How have we used these design principles in execution?

1. TRANSPARENCY

Consumers want outcomes. We all want value for money and financial security; it’s very near the bottom of the hierarchy of needs.

Rather than making better apps with richer products and features (at the top of the hierarchy of needs), a really radical approach would be to give consumers more value for money. Vanguard took this approach, charging less than 0.05% for many of their funds at a time when others were charging up to 3%.

Banking has done a horrible job on value for money. Transparency has not been in the economic interest of most financial services companies — “free banking,” interest rates hidden deep in the weeds of website terms and conditions, acquisition offers that seem to be too good to be true (hint: they are), and even downright deception (a significant number of big banks have been fined hundreds of millions of dollars for deceptive advertising or downright fraud).

Try looking up the costs and benefits associated with your checking, savings, credit/debit card and investment accounts. We did a bit of research with some willing subjects — after several hours, no one had successfully completed the task. With Unifimoney, you will know exactly how much your money is making for you and how much it is costing you immediately and on-demand.

1. AUTOMATION

Most of the sins of poor money management for the middle market are sins of omission not commission. It’s the decisions and actions that people don’t make that hurt them. Not maximizing deposit interest (the average person earning more than $160K a year has $42K sitting in a checking account paying almost no interest). Not maximizing rewards and benefits from debit and credit spend. Not dollar-cost averaging into a low-cost, highly diversified fund. We automate these functions so that our users get all of the benefits with none of the effort.

We believe that consumers don’t want to interact more with their banks — if anything, they want to engage less (JFDI and fix my problems when they arise). We’re not designing an app for anything other than utility and providing information on demand. We’re not using app engagement as a KPI; we’re not trying to compete with Tiktok, Fortnite or Partytime — banking is not a proxy for entertainment. Our users don’t need to use the app ever again after opening the account; they’ll still get all the benefits without the effort, because we have automated the hard, manual, repetitive, and boring tasks required to manage money effectively.

1. VALUE FOR MONEY

We aim to give consumers back over 90% of what we make on their money — from the interchange, deposit interest, and affiliate fees. A typical bank retains over 90% of what they make from people’s money.

We can afford to do this because we run on an ultra-low-cost basis. The majority of Big Banks’ costs are in employees, physical offices, running old tech, and marketing. JP Morgan Chase spends more on marketing in the US than Apple does globally. They can afford to do this and make record profits, because they prioritize value for their shareholders over value for their consumers.

But why do Big Banks spend so much on marketing? When you have an undifferentiated product and offer poor value for money, there’s not much else with which to compete; instead, they attempt to outspend each other and entice new consumers with tantalizing acquisition offers. Nevertheless, this results in a very inefficient acquisition funnel — with a lot of people in the initial hopper and very few active consumers coming out the bottom.

Most consumer-facing neobanks have adopted very similar marketing tactics. We reject this convention. We believe that by offering a differentiated value proposition and genuine value for money, enough consumers will learn about us and decide to take the alternative. We will use atypical low-cost tactics to reach our potential consumer base. We hope that our customers will also be an active part of this process. Is this going to impact the larger market quickly at scale? No. But it’s a start. We believe in consumer choice and want to provide a genuine alternative, not just to the Big Banks but to Big Banking.

John Bogle launched Vanguard in 1975 counter to every convention in the market at the time — there is much to admire and learn from his story.

Bogle started the First Index Investment Trust on December 31, 1975. At the time, it was heavily derided by competitors as being “un-American” and the fund itself was seen as “Bogle’s folly”.[7] In the first five years of Bogle’s company, it made 17 million dollars.[8] Fidelity Investments Chairman Edward Johnson was quoted as saying that he “[couldn’t] believe that the great mass of investors are going to be satisfied with receiving just average returns”.[9] Bogle’s fund was later renamed the Vanguard 500 Index Fund, which tracks the Standard and Poor’s 500 Index. It started with comparatively meagre assets of $11 million but crossed the $100 billion milestone in November 1999; this astonishing increase was funded by the market’s increasing willingness to invest in such a product. Bogle predicted in January 1992 that it would very likely surpass the Magellan Fund before 2001, which it did in 2000. (Source: Wikipedia).

Vanguard had nothing to do with technology, FinTech, UI or smartphones and everything to do with giving consumers the basics: better financial outcomes, value for money and ease of use. We aspire to bring the same to everyday money management as a whole — saving, spending and investing, effortlessly.

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