A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors
Green Dot recently launched a new type of FDIC insured DDA that is opened and fully serviced on a mobile app.
The app includes a savings vault that allows customers to move money into a savings account without gaining access through the debit card, bill pay which includes P2P payment capability, and an ability to easily load funds through direct deposit, RDC or cash at Walmart locations. The Fortune Teller budgeting tool provides point-of-sale advice on the impact of a purchase on the customer’s budget.
The account will charge $2.50 per ATM transaction for out of network ATMs, a 3% foreign transaction fee with the debit card, and $9 to customize the card design. Overall, Green Dot expects four revenue streams from the product: 1) Debit interchange income (the firm has less than $10b in assets, so no rate cap); 2) Service fees; 3) Float on deposits; and 4) A voluntary monthly fee of up to $9 (no, I’m not joking).
GoBank will target consumers with less than $100k income, does not plan to add a credit product, and does not think the new offering will cannibalize its GPR business.
My take: GoBank represents a new type of product in the market, which, for lack of a better name, I’ll call NeoChecking Accounts.
Back in August 2011, I published a post here titled The Imaginary War Between Movenbank and Banksimple. A bank exec had tweeted “Just wait til the MovenBank / BankSimple wars….” which I took issue with. At the time, my perspective was:
“One day Movenbank and Banksimple may very well be rivals at war. But for now, the two firms are better off collaborating than fighting. The two firms have to educate consumers on what a new type of bank is, will be, or could be. They have to build demand for the new type of bank they’re building. Which is, of course, no easy feat.”
I wasn’t thinking clearly (no smart-aleck remarks).
It isn’t just the new type of “bank” that the firms have to educate consumers on, it’s a new type of product.
When my generation — Baby Boomers — went into the working world, (among those of us whose brains weren’t fried from LSD and marijuana) we opened up a checking account. Actually, many of us opened a 2nd account, because we had one in college, from a bank that we vowed to never do business with again.
When the next generation — Gen Xers — went into the working world, (of those whose septums weren’t deviated from too much cocaine) they opened up a checking account. Didn’t think twice about it.
But today, it’s different. It’s not an automatic thing for Gen Yers to open up a checking account (the fact that many struggle to enter the working world is part of it, but not all of it). They don’t write checks (they actually don’t know how). They want alternatives.
But other than prepaid card accounts, there are few real alternatives. That’s what’s changing with accounts like those announced by GoBank and Movenbank. They’re not just alternatives to banks — they’re creating alternatives to checking accounts.
I told Movenbank founder Brett King that I was going to write a post titled NeoChecking Accounts. He said:
“Don’t use ‘check’ because one of the key behaviors of the new account type is the anti-check behavior.”
The intention is spot on, even if the wording wasn’t. Accounts don’t have behaviors, consumers do. But Brett’s premise — that a key driver behind consumers’ use of GPR cards is that they don’t need checks, but need a card — is dead on.
But I don’t have a better name for this new account. “Spend account” or “Transaction account” doesn’t seem new or sexy enough. So I’m going with NeoChecking Account. If nothing else, Keanu Reeves will like it.
There are two other things related to the emergence of this new account that bears mention:
1. Mobile-centricity is a big duh. GoBank’s and Movenbank’s emphasis on mobile-first, branchless (and maybe cardless) is not a big deal. Every bank and their mother has mobile banking or will. Well-established FIs like USAA could probably wipe the floor with GoBank and Movenbank when it comes to mobile capabilities. I’ve seen critical reviews of the mobile apps from some large banks. That’s easily fixed. It’s no big news that the startups focus on mobile. They’re not going to build a branch network, and they’re going to focus on the group of consumers who are not entrenched in their financial relationships, and who represent the disproportionate share of demand for financial accounts — Gen Yers. This segment relies so heavily on their mobile device for everything, they’re sleeping with the damn thing, and taking it places I’d rather not talk about.
2. Interest in the startups isn’t about the desire for a new kind of bank. Startups and non-mainstream FIs (e.g., Ally) love to tout how they’re a “new” kind of bank, and love to cite the low consumer trust numbers that research has reported over the past few years. Who cares? As I demonstrated in Bank Vs. Credit Union Realities, the top 50 banks grew deposits by 8.5% for the 12 months ending June 2012 while credit unions’ share balances increased 6.0% (from October 2011 through September 2012). Big banks like WF, JPMC, US Bank, and PNC each had deposit growth about double the credit union total. People want a new type of bank? Nonsense. They want a new type of account.
Bottom line: GoBank is a sign of things to come. Gonna be interesting.