Millennials are children of their time. Born between 1982 and 2002, they came of age during the 2008 financial crisis and the severe recession that followed. As they entered adulthood, they had a tough time finding decent jobs. They are wary of the big banks that contributed to the difficult working world they entered, yet they are more trusting of technology than their elders.
Now, fintech apps are stepping in to give millennials ways to bank and save while bypassing the corner bank branch. Chime and Simple, both FDIC-insured mobile-only banking apps, let users save and manage money and set financial goals using a smartphone.
The big banks have mobile apps these days, too, and a seemingly bottomless well of money to promote those apps. Mobile-only apps are flaunting their ease of use, low fees and no-name status to differentiate themselves from traditional banks.
The impact of banking apps may go well beyond their basic functions. The apps must collaborate with the big conventional banks to survive. This interdependence is significant, and the relationship between financial apps and big banks is still evolving. Yet, as the apps gain traction with tech-savvy users, bank-based financial advisors may suffer a loss of younger customers.
Here's what users can expect with these new platforms. (For related reading, see: Why Robo-Advisor Account Minimums Are Dropping.)
Chime Banks on Low Fees
San Francisco-based Chime puts security front and center but lures new users with its low-fee policies. Deposits are FDIC-insured by Bankcorp for up to $250,000. The Visa Zero Liability policy protects the Chime Debit Visa.
A Chime account includes a debit card, spending and savings accounts. The benefits compete with and in some cases surpass those of a brick-and-mortar bank and traditional debit card. These include:
- Cash back on spending and bill payment
- No fees
- Electronic bill payment with Chime Checkbook
Chime's automatic savings feature rounds up every purchase to the nearest dollar and moves the excess cash to your savings account. As a bonus, Chime adds an extra 10% of weekly round-ups to your savings account. That's free money combined with automatic saving.
Simple Focuses on Goals
Launched in 2012, the Simple app promotes its goal-based approach with opportunities to set savings targets for small items such as a new tablet or big goals like a home down payment. Simple is affiliated with Compass and The Bancorp Bank. As with Chime accounts, deposits are covered by FDIC insurance.
Simple’s safe-to-spend feature is intended to keep you on track and within budget. It takes your account balance and subtracts the amount you entered for goals and scheduled spending for the next 30 days. (For related reading, see: What If Tech Giants Launch Robo-Advisors?)
What About Human Advisors?
Wells Fargo, Citigroup, Bank of America, PNC, Capital One and HSBC are just a few of the major banks that offer financial advisors for their clientele. Small regional banks and credit unions also provide financial advisory services. So, what happens as fewer people see any need to set foot in a branch bank?
The impact could resonate across the industry, with negative consequences for upselling and ultimately, revenue generation.
This loss for traditional banks might grow as app banking opportunities expand. Add in the regulatory changes of the new fiduciary rule pitting some bank-based financial advisors against robo-advisors and apps, and big banks are in for challenges. Technology-enhanced digital robo-advisors may benefit as customers adopt online and mobile investing on top of phone-based banking.
The Bottom Line
Consumer technology is leaving its stamp on a variety of businesses. Banking is especially hard-hit by new technologies. As banking apps grow and consumers become more comfortable conducting sensitive transactions via mobile devices consumers may benefit. But brick-and-mortar banks and financial advisors will have to adapt to survive. (For related reading, see: How Technology Creates Value for Advisors.)