Legacy Banks and Digital Startups See a Big Opportunity to Move Beyond Simply Storing Money

Change can be hard for the financial industry, which is dominated by decades of processes and internal systems. But with a slew of upstarts making their way into the trillion-dollar industry, the old guard is finding innovative ways to beat these challenger brands at their own game. “A lot of these companies have what we call ‘technical debt’—very expensive mainframe systems that are very difficult to change, run [and are] expensive and obviously that limits their ability to innovate,” said Oliwia Berdak, principal analyst at Forrester Research. “The biggest challenge is often culture … In banks the attitude has always been to perfect [products] before it’s unleashed on customers and [technology] is a big change where you’re working with a certain degree of uncertainty and risk.” Take, for example, TD Ameritrade’s new Twitter chatbot, which pulls up news articles, deposits money, finds a local branch and includes more than 160 short videos about investing. The tool was built by the brand’s 12-person emerging tech team that is focused on finding new platforms for TD Ameritrade's offerings. In the past four months, the brokerage firm has rolled out chatbots for Facebook Messenger and Twitter and a voice-activated skill for Amazon’s Alexa. The turnaround time for Facebook Messenger was 60 days while the Twitter chatbot took 45 days. “It’s incumbent on us to be leaning into the future, understanding the shifts in technology and consumer behavior,” said Sunayna Tuteja, director of emerging tech and innovation at TD Ameritrade. “We’re grounded by using [technology] to solve problems and deliver a utility—this is not about science experiments.” According to data collected by Accenture, 90 percent of banking executives said that their companies needed to “innovate at an increasingly rapid pace just to remain competitive,” but only 47.8 percent say that they are actually “investing comprehensively” in digital. Another challenge: For all the talk about slick mobile banking apps and services, consumers—gasp—still like going to physical banks to manage financial decisions. Eighty-seven percent of customers enjoy going to a physical bank and prefer to interact with a human while there, per Accenture. After all, the role of a bank for many consumers is to secure their savings, meaning that they’re more interested in playing it safe than trying something new that may put them at risk. In fact, the average U.S. adult holds on to the same primary checking account for 16 years, according to research from Bankrate. [kickout id="1"] Digital finances But along with more hands-on customer experience comes a slower ability to change—exactly why hundreds of fintech entrepreneurs and startups want to flip the script with digital-only businesses focused on eliminating inefficiencies. Investors poured $31 billion globally into fintech companies in 2017, according to KPMG. Luvleen Sidhu, co-founder, president and chief strategy officer at BankMobile, said she started the mobile-only brand as a solution to the massive costs that physical banks devote to customer acquisition. The average bank branch opens one net new checking account per week, equivalent to 52 new accounts every year, said Sidhu. “That’s a very costly customer-acquisition strategy and it’s subsidized by fees, especially overdraft fees,” she noted. “We’re going after working-class Americans [and] millennials—those living paycheck to paycheck—to give them very affordable banking that leverages technology to make the banking experience as seamless as possible.” For example, artificial intelligence is built into the BankMobile app to speed up the sign-up process so that customers answer a handful of questions before they’re approved for an account within a few minutes. From there, they can use the app’s camera feature to snap a picture of a bill to pay or apply for a line of credit. The strategy appears to be working: In three years, BankMobile said it has amassed 1.8 million customers with an average age of 27. Becoming more than a bank As financial institutions try to connect with consumers in ways beyond giving advice and storing money, 7-year-old SoFi’s services have grown from refinancing student loans to wealth management and mortgage loans. To differentiate itself, SoFi now offers career coaches, counselors and programs that teach clients how to get a raise. A Facebook group has more than 40,000 members who discuss money, careers and relationships. SoFi even organizes about 400 events (like happy hours) every year for members to chat IRL. What's more, SoFi churns insights from these events into future products and services. “I don’t really worry about big financial institutions,” said Joanne Bradford, CMO of SoFi. “Some of them have tried to do the things that we have done, and it’s a little bit laughable in how it’s executed because they don’t really understand what the consumer wants or how they want it.” For its part, big banks' rebuttal to challengers would be: Bring it. "Finance often gets tagged as, ‘You’re too big, you move slowly,'" TD Ameritrade's Tuteja said. "We want to challenge that rhetoric and say we can disrupt and move as fast as any startup can—it’s just about organizing ourselves in a certain way."