FINTECH SNARK TANK COMMENTS
A new study from Cornerstone Advisors,1 looking at who Americans have their main checking accounts with points to the growth of digital banks and fintechs like Chime, PayPal, and Square, and the decline of megabanks like Bank of America, JPMorgan Chase, and Wells Fargo. What is happening in the checking account market?
1) The percentage of Americans whose primary checking account is with a digital bank has exploded since 2020. More than a quarter of Gen Zers (21-26) and nearly a third of Millennials (27-41) now call a digital bank their primary checking account provider. Among Gen Xers (42-56), the percentage who have their primary account in a digital bank rose from 8% to 22%. Overall, six in 10 Gen Zers and Millennials whose primary checking account is with a digital bank have that account with Chime, PayPal, or Cash App.
2) Megabanks’ core customer share is plummeting. Just two years ago, megabanks — Bank of America, JPMorgan Chase and Wells Fargo — dominated consumers’ top checking account allocations. Since the start of the pandemic, however, the percentage of Gen Zers whose primary checking account is with a megabank has fallen from 35% to 25%. Among Millennials and Generation X, the percentages have dropped by nearly half.
3) Community banks are making a comeback. Against the tide, community banks won share the main current account status on four generational segments (no, that wasn’t a typo, and yes, I double-checked the numbers).
4) Credit unions are not keeping up. The credit union story of “we have nicer people and we’re not for profit” doesn’t resonate. The percentage of Gen Z, Millennials and Gen Xers calling a credit union their primary checking account provider decreased between October 2020 and January 2022.
What does “main current account” mean?
Some bankers (and perhaps some of my own colleagues) will dispute these findings, saying they are inconsistent with their analytics, which typically look at account activity and determine whether a customer is using the bank as their primary institution. There are a few shortcomings to this approach:
1) Few banks have sufficient data on the extent of their customers’ relationships. Gen Z and Gen Y households might have 30 to 40 banking relationships. It is almost impossible to have an overview (for banks and consumers).
2) Consumers have primary account providers, but not necessarily a single primary financial institution. With many consumers having multiple checking accounts (a third of Gen Zers and Gen Xers, and 40% of Millennials, have two or more checking accounts), multiple payment accounts, multiple investment accounts, and using various tools to help them manage all their accounts and relationships, the idea of a ” Financial institutionhas become obsolete.
3) Determining primary status from data alone misses the emotional aspect of the relationship. Someone may make a lot of mobile check deposits into one of their checking accounts and use that bank’s debit card frequently, but the fact that they use another bank’s personal money management tools more frequently may give him the impression that this bank is his main checking account provider. .
What is happening here?
What does Cornerstone data say about the state of the main current account to industry?
- Digital banks are no longer “challenger” banks. They won. More Gen Zers and Millennials call a digital bank their primary checking account provider than those who consider a community bank or credit union their primary checking account provider-combined.
- Consumers are looking for a different type of account. It is inaccurate to call what digital providers offer “checking accounts”. They are more like mashups of what were traditionally separate accounts. CashApp, for example, provides in-service crypto and tax preparation functionality, features typically not found in the traditional checking account.
- Account usage verification specializes. As consumers open additional accounts, increasingly with digital banks, they view their accounts with traditional banks as their secondary and third-party accounts. These accounts remain open, but are increasingly being used for specific purposes, such as spending on specific items or sending money to other people.
- Gen Z is flocking to PayPal and Cash App. Chime is a strong neobank among millennials and growing its share of core customer base among Gen Xers. But its core status among Gen Zers has slipped since 2020, from 6.5% in October 2020 to 4.6% in January 2022. PayPal and Square have taken over, and more, with 8% of Gen Zers now calling PayPal their primary checking account provider. , and 4% applying this label to Cash App.
- Personal relationships still matter. The increase in market share of core community bank customers reflects the growing need of some consumers for a personal touch. According to Charles Potts, chief innovation officer at Independent Community Bankers of America, “many consumers need a banker, not just a bank – and the relationship banking model is at the heart of community banking.”