Consumers today are awash in choices when it comes to financial service. There are megabanks, community banks, credit unions and a slew of fintech services and digital-only neobanks.
With so many options for consumers to choose from, digital marketing and branding are key to differentiating in the marketplace. To find out how a leading, innovative neobank approaches its digital marketing strategy, The Financial Brand interviewed Michael Goodbody, Chief Marketing Officer of Dave, who previously worked in marketing at Wise (formerly Transferwise) and Credit Karma.
There are inherent advantages to not being a legacy financial institution, but also some drawbacks that must be overcome as well, Goodbody acknowledges.
“Being a digital bank or a neobank has huge advantages from a cost and scaling perspective but that, conversely, creates challenges in other areas,” he says. Among them physical location and trust.
Pros and Cons of Being a Disruptor:
Neobanks have the advantage of not being saddled with legacy technology and costs, but must work to gain trust as new market entrants.
For hundreds of years, the CMO points out, the primary differentiator for banks and credit unions when it came to customer acquisition and customer engagement has been the convenience of having physical branch locations nearby.
Neobanks, of course, do not have that built-in channel, but Goodbody notes that the pandemic accelerated a shift that was already happening away from physical branches and into digital channels. That gave digital-savvy fintechs like Dave an advantage.
“Given that shift, the landscape has now moved away from location and brand as key differentiators — which made financial services incredibly inert as customers generally only shifted their banking when they moved location — to one where utility and relevance to the customer is much more important,” Goodbody asserts. “That allows new players to take advantage of newer tech stacks and an innovation mindset to really solve huge pain points for sets of users in a major way”
Still a Formidable Hurdle: Trust in Banks
The flip side to that is some consumers may still be leery of newer entrants to the market. Traditional banks and credit unions still retain high levels of trust among consumers.
“Established banking brands with a brick-and-mortar operation have an advantage in terms of trust, which is really important to consumers when it comes to where they are going to put their money,” Goodbody observes.
“So one of the biggest challenges for neobanks like Dave is establishing that trust with our users and giving them the level of comfort they need to move their banking to us.”
Neobank Solution: Serve Niche Markets
A key for neobanks to stand out is to create products for previously underserved niche markets, Goodbody maintains.
“I’ve been at three major fintech disruptors,” he says, “and they all focused on different parts of the consumer financial system because there was a ton of demand and need in that space that was poorly served by full-service banks for whom niche segments and products are rarely a priority.”
One of those fintechs was Wise, formerly known as Transferwise, a money transfer business launched in 2011. The niche segment Wise focuses on is international payments which Goodbody says “were incredibly slow and expensive for everyone, so making them cheaper and faster became a great way of acquiring and engaging users for whom that was an important banking need.”
Filling Unmet Needs:
A key to success for new fintech entrants has been to focus on creating products for underserved markets.
At Dave one of the prime niches it serves is those in need of short-term liquidity. Goodbody states that studies show around two-thirds of Americans live paycheck to paycheck.
“For those 50 million Americans, one of their biggest needs is the ability to close the gap between their income and their outgoings, something that banks traditionally have solved with high-friction and expensive overdrafts,” he states. “Our ability to solve that problem for our users with no mandatory fees, no interest, and no late fees is game changing for that large segment of the population and a great example of where finance is going.”
Personalization Provides an Edge
Another key to Dave’s marketing strategy is engaging in real-time personalized communications with customers.
A survey of marketers found that 95% agreed that personalization is important to customers, while only 37% said they were confident in having a solid personalization strategy.
“Real time personalization is at the very core of what differentiates Dave,” says Goodbody. “Users connect us to their primary bank accounts to allow us to run machine learning models on their income and transactional data to allow us to immediately advance them up to $500 that they can access and spend instantly on a Dave checking account or disperse to their existing bank account.”
The CMO adds that Dave does not use credit report data and does not run a credit check before advancing this money, instead relying on its own internal models and algorithms.
As one may imagine, much of Dave’s user base is made up of Millennials and Gen Z customers.
“There’s definitely an expectation from this ‘Zillennial’ cohort that there are better solutions than exist currently in the traditional financial ecosystem to address their needs,” says Goodbody. “That audience is far more likely to live paycheck to paycheck, and far more likely to have a limited credit history, which can stop them from leveraging alternative credit products like credit cards or loans.”
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Need for ‘Irrational Marketing’
When it comes to successful financial services marketing, it’s not about being aspirational. Rather, says Goodbody, financial marketers need to realize that for most Americans, managing their finances is something that’s stressful and often something they want to push off.
“Given that, you need to look at both messaging and assets through both a rational and non-rational lens,” he adds. “You’re trying to build a rational argument with the consumer of why your product, brand, or service is differentiated and meaningful for them to achieve their financial goals, but you also have to contend with the fact that most consumers don’t want to deal with this when they see your marketing.”
Many consumers are incentivized to put off decision making or change if their finances are stressful, because change is stressful, “so think about how you activate the irrational part of the brain,” Goodbody relates.
He gives an example from his time with Credit Karma. Rather than sending customers a prompt to start working on their taxes — which for most is a stressful ordeal — they instead sent messaging asking users to come and “estimate their refund.”
The response rate to that messaging was five times greater “because we were appealing to the irrational brain that just wanted to know what the refund could be because that was the reward they would get for all the hard work.”