Empire Strikes Back

Digital Banking.pngWhen Mike Crawford began to work on a new consumer app for Fifth Third Bancorp, he drew upon a diverse professional background that includes economics, marketing, innovation methodology, machine learning and strategy. But he probably didn’t expect that he would also work as a demographer and, on at least one occasion, a counselor.

One of the tasks I had was to figure out how we could become relevant and valuable to the millennial generation, which is no small feat when you’re talking about how [to] make a bank meaningful in the lives of 80 million people,” says Crawford, a senior digital product manager at Fifth Third. “We spent quite a bit of time, first studying the generation, and we went into people’s homes, and we engaged with them, and we asked about their lives and really tried to ascertain why people are doing what they’re doing, how they’re doing it, and trying to determine whether it’s different than how other generations have approached money in the past when they were at similar life stages.”

As the research and development team went deeper into the interview process, it started to pick up on the fact that there is a “profound emotional anxiety around student loan debt that was different than other types of debt,” Crawford says. Millennials are not necessarily in more debt than earlier generations at the same point in their lives, but a particular kind of debt many of them have-student loans-limits their ability to finance other meaningful purchases, like a car or a home, well into their 30s. For some, it has become a huge emotional burden.

“I remember sitting in a room in Louisville, Kentucky, across from a guy that was roughly my age, early 30s, and we were asking about his life-does he have a house, does he have a significant other?-and he broke down in front of us,” Crawford says. “He started to tear up, and he said, ‘I don’t believe that I’m worth marrying, and how could anybody trust me with their lives and their finances and their future when my student loans make it appear that I can’t even handle my own?’”

Looking around at what other banks and fintech companies were doing, Crawford and his team saw a void when it came to this issue. “No one was solving the student loan problem,” he says. “We thought, ‘well, let’s give it a shot.’”

From this R&D process was born Momentum, a standalone app that helps Fifth Third customers accelerate the repayment of their student loan debt by rounding up every debit card transaction and putting the money into a special account. “People clearly take to round ups,” Crawford explains. “They like that they don’t have to change their habits. They like that it makes them feel more in control, that it’s almost like found money in their budgets. It doesn’t make a big impact on their day-to-day finances.”

Large U.S. banks (with $141 billion in assets, Cincinnati, Ohio-based Fifth Third is the country’s 15th largest bank) have been building out their digital capabilities-including mobile-for years and in some instances, decades.

But this is an incredibly fertile time, as a number of big U.S. banks are experimenting with a variety of digital strategies. Recently, a growing number of them-including Wells Fargo & Co., JPMorgan Chase & Co., Citizens Financial Group and Fifth Third-have brought to market mobile banking apps or websites that are separate from their generic, one-size-fits-all digital offerings.

Since 2016, Goldman Sachs has been making personal loans up to $40,000 and offering high-yield savings accounts through a separately branded website, Marcus by Goldman Sachs. Citigroup announced earlier this year that it was developing a nationwide mobile bank, and PNC Financial Services Group plans to expand its digital banking platform, Virtual Wallet, which includes a mobile banking app, nationwide. (Both Citigroup and PNC declined an interview request to discuss their plans.) While some of the new initiatives are targeted at younger customers, a cohort that large banks have struggled to connect with, they all zero in on a distinct set of customers with a functionality designed to appeal to their specific needs or interests.

Niching the banking market has been the core strategy of the fintech insurgency from the very beginning. And this competitive threat, whether it is coming from small technology companies with a single app, or from giant digitally-focused companies like Google, Amazon and Apple, is driving banks to keep pace. “They’re creating this expectation that customers have around what a mobile experience should look like, what it feels like, what their pricing is,” says Peggy Mangot, who heads up the development of Greenhouse by Wells Fargo, a new mobile banking app that is scheduled to roll out later this year. “And those expectations carry over into what they expect in other areas of their life. They expect to download an app, and be up and running in minutes. They expect to have a digital, mobile-first experience if that’s what they prefer. They expect a modern look and feel.”

San Francisco-based Wells Fargo, the country’s third largest bank with $1.95 trillion in assets, is a good example of how large institutions are beginning to fight back against the fintech challenge. Wells Fargo has the greatest number of branches in the industry, at nearly 6,000, and yet it has been pouring hundreds of millions of dollars annually into the research and development of new digital initiatives, including Greenhouse, which is currently in beta with a select number of customers and team members. The next step, according to Mangot, will be a pilot program in several states later this year, followed by a national rollout at some point in the future.

Why build a separate mobile app rather than simply incorporate its functionality into the existing mobile banking platform? Peter Wannamacher, a senior analyst at the consulting and research firm Forrester, says it makes sense for banks to build a separate mobile app when the strategy behind it is a departure from what the bank has done in the past. Many of these apps-including Greenhouse-are designed for specific audiences, and a separate app enables the bank to target that group more effectively. It can also shorten and simplify the development process, which is critical when slow-moving banks are competing with fast-moving fintech companies. “Building a digital subsidiary can often give a chance to short circuit some of the internal politics and some of the internal barriers that you would face if you tried to upgrade your existing digital service,” he says.

Mangot describes Greenhouse as a “mobile bank with money management tools that are core to the experience.” It uses a two-account structure, beginning with a “spending account” that is designed for recurring bills and other money that the user wants to set aside, and is tied to a debit card. There is also a “set-aside” account, where the user can deposit money to be used later for paying bills and other upcoming expenditures. The user can even set up individual “envelopes” within the set-aside account for things like rent, car payments and utility bills. Mangot says the app was designed to help with “the most important and pressing need that customers have, which is paying their bills on time.” Separating the app into spending and savings accounts gives users the assurance that they won’t accidentally spend their rent money during, say, a night on the town.

The app also has an artificial intelligence feature that studies the user’s behavior and, as it gets to know the user better, can provide useful feedback. “It may be as basic as your bill is trending much higher, or it could be a little more advanced surrounding spending insights and predictors,” Mangot says. For example, the app allows the user to set a weekly spending limit. Once the app learns about the user, based on their activity, it might suggest a different spending limit that would give them more money at the end of the month.

The target audience for Greenhouse are individuals who are new to banking, such as students and workers in the gig economy. Many if not most of these people are younger consumers who might not have a relationship with a bank and are prime prospects for the many fintech competitors that are targeting these same prospects. As the bank’s research and development team began to evolve the app’s concept, including its design, look and feel, it made sense to give Greenhouse “its own endorsed brand, because it’s really different from the Wells Fargo mobile [app],” Mangot says. “It also gives us the opportunity to do things really differently, to try new things, to pivot quickly without impacting our 20-plus million mobile customers. We’re committed to this separate, iterative, evolving app.”

Having a separately branded mobile app with its own look and feel should make it easier for Wells Fargo to market Greenhouse to younger customers who may be turned off by traditional banks. “It was a very intentional decision that we are delivering a mobile-first experience,” says Mangot. “We anticipate that … the early adopters of Greenhouse are those [who] prefer mobile.” However, that doesn’t mean Greenhouse users are cut off from the core bank. “Mobile first” means that the user experience is intended to occur in a mobile environment. Greenhouse users will still have access to their account information through the bank’s generic mobile and online platforms, and they can even visit a branch if they need help. “We really think that’s a strength, because at the end of the day, if a customer has a concern about their money, they ought to be able to walk into a branch and talk to someone, right?”

Like Greenhouse, Finn by Chase is a mobile-first consumer banking app released last June by JPMorgan, the country’s largest bank with $2.5 trillion in assets. Melissa Feldsher, a managing director who heads up the app’s development, says her team’s extensive research identified a demographic group that was looking for something different than what JPMorgan and other large banks were currently offering. “There was a smaller, growing portion of the country that was truly looking for an end-to-end mobile banking experience,” says Feldsher. “We set out on the journey to understand those consumers and what their pain points are.”

And what they created is an app, which JPMorgan describes as a “mobile bank,” that combines both transaction and savings accounts with functionality that allows users to track their spending and rate their purchases. It is targeted at “digitally-savvy” consumers who are looking for a robust mobile banking experience. “We do know that those people will tend to skew younger, but at the same time we know there’s no age restriction in terms of what [consumers] are looking for,” she says. “We’re happy to get consumers of all ages.” The app is currently available on Apple’s IOS operating system, although an Android version is scheduled for release by the end of the year.

Feldsher and her team chose to brand the app Finn by Chase because potential customers told them during the R&D process that being identified as a JPMorgan Chase product made them feel more secure about using the app. At the same time, the team also wanted to signal that this was something new. “We wanted to convey that this was absolutely a Chase product, but a new Chase product,” says Feldsher. “This is Chase, but it’s not your parent’s Chase. We were very deliberate in terms of thinking about how we were going to talk to consumers in a way that felt fresh and unique.”

Finn is also a mobile-first product, and while users can access their account through JPMorgan’s standard digital channels, Finn’s unique functionality, like its autosave and track spending features, is available solely through its mobile app. This seems to have been the result of a deliberate decision to emphasize that Finn’s functionality is intended to be experienced in a mobile context and is not just another distribution channel for the bank. “We have Finn.com, but that’s really a marketing website,” Feldsher says. Consumers can download the app from the website, but that’s pretty much it. “There’s no functionality there, and that was incredibly intentional.”

The team that developed Finn works from a location in Hudson Yards, on the west side of Manhattan, that is far from JPMorgan’s corporate headquarters at 277 Park Avenue. Indeed, the distance can be measured both in terms of city blocks and, more importantly, environment. Feldsher says she tried to create a culture that “makes people feel comfortable [about] throwing out wild ideas and doing things differently, and then supporting them on that journey to actually create something different.” The neighborhood is clearly supportive of that, with a number of technology firms having located to the Hudson Yards site, including Amazon, which is moving into the same building. And then there is the Finn work space, which based on Feldsher’s description would be indistinguishable from most other tech companies. “The open floor plan, casual dressing, the pool table, the foosball table, et cetera,” she says. “It’s really meant to create innovative thinking [and] collaboration across teams. Frankly, it’s a great way for us to attract talent from other tech companies, because it’s a way that they’re used to working.”

The Fifth Third app, Momentum, is available to anyone with a Fifth Third debit card. The bank created Momentum as a standalone app because that will enable Crawford and his R&D team to bring new releases to market more quickly than if it was just another feature in the core mobile app, where it would be competing for development time with enhancements to that platform. “If we divert that team to work on Momentum, it’s taking away the opportunity to create all the value there, so it’s freeing up that sandbox for us to plan as well,” Crawford says.

There is also the very real fact that Momentum was intentionally created to be different from Fifth Third’s core mobile banking product, with a segmented audience. “It is tailored toward a millennial audience, so there are rap lyrics and cultural references and a lot of congratulatory messaging, because we’re trying to inspire people who are at a specific point in time, with specific emotional needs,” he says. “The reason it’s separate has more to do with being able to experiment and less to do with feeling like we have to make the entirety of the bank relevant to the largest population in terms of consumers in the U.S. today.”

Momentum might eventually evolve to include a personal financial management feature, which would seem to make sense given that its users are using the app to pay down their school debt. But Crawford says his team isn’t ready to take that step. “The first step for our users is to start feeling in control of their financial situation, and we can’t jump to helping them manage before they feel in control.”

A different digital strategy was deployed last year by Citizens Financial, the country’s 12th largest commercial bank with $153 billion in assets. Called Citizens Access, it is a standalone website-Citizens describes it as a direct bank, although it operates as a division of Citizens Financial-that offers consumers highly competitive interest rates on a savings account and CDs, and also allows customers to create a CD ladder, where they can divide their money among a series of CDs with different maturity dates. According to Citizens Access President John Rosenfeld, the bank decided that an independent, separately branded vehicle would give it greater visibility among consumers looking to maximize their rates than if it tried to attract them to its core online platform.

Headquartered in Providence, Rhode Island, Citizens Financial has 1,150 branches in 11 New England, mid-Atlantic and Midwest states, but consumers who use its branches are a different group than those that use Citizens Access, says Rosenfeld. Consumers who shop for the highest rates on deposits often rely on aggregators like Bankrate, NerdWallet or even Google to find the best deals on deposits. “The customers [who] are shopping on the aggregators today are not the same customers [who] are walking down the street popping their heads into different branches asking what each of them offer,” he says.

The real value of Citizens Access may be that it extends the bank’s digital presence to every state in the union. “Clearly, it’s an opportunity to extend our footprint,” says Rosenfeld. “We have reached all 50 states, where we couldn’t do that before with our branch-based web product. We didn’t have the capability to open accounts outside the states we were in. Now we do.”

Even a pioneer of digital banking, $10 billion asset Bank of the Internet USA, has been forced to keep pace with an evolving environment. Founded in 1999 (eight years before the introduction of the iPhone), Bank of the Internet USA-which changed its name to Axos Bank in October, a decision that was driven by the increasing popularity of mobile-has released a mobile banking app that provides the same functionality as its online platform. The bank’s mobile app has been designed so that its functionality can be scaled up to match the website’s capabilities if the customer so desires, or not if they don’t. Chief Executive Officer Greg Garrabrants believes that “mobile platforms can’t be skinnied down. We have to have the ability to do things that people normally couldn’t do on mobile. What we’ve tried to do is create flexibility. For somebody who wants a simpler environment, they don’t have to pull in all those services. For those who want those services, they can pull them in. The platform is customized to do that.”

That most of these new initiatives are standalone apps or websites creates an interesting branding dilemma for the banks that have taken that step. Does the parent company’s brand help or hurt when marketing to a specific demographic group? Most of the banks have tried to have it both ways-to wit, Marcus by Goldman Sachs, Greenhouse by Wells Fargo, Citizens Access. “Building a new brand from scratch enables you to break away from any of the traditional associations that a bank brings to mind,” says Leo Rinaldi, the retail banking practice leader at the consulting firm Novantas. “It also can make it easier for you to untether the product from the branch network, which you may want to do. It depends on your objective. The downside is that it can be very expensive in terms of building awareness, and there can be a credibility gap with new brands where customers want to be careful about trusting them with their money. That’s the dilemma.”

One large bank that is tilting against the trend toward segmentation and building a separate brand is Bank of America Corp. Seventy-five percent of the bank’s deposits are made on mobile devices or at ATMs, and a quarter of its sales occur through digital channels today. Bank of America, which is the country’s second largest bank, has made huge investments in building out a multi-functional digital platform, and Dean Athanasia, the co-head of consumer banking, says that a strategy of segmentation would undermine all that hard work. “That is completely against our strategy,” he says. “We have one app designed for the user, and the user can do multiple things on that.” Apply for a business loan or mortgage through the app? Check. Send a payment through Zelle? Check.

Nor does the creation of a separate brand appeal to Athanasia, who points out that Bank of America opens up more student accounts than any other bank in the country-evidence that its brand isn’t a deterrent to attracting younger customers. “The Bank of America brand is, we think, a great brand,” he says. “Clients love it. They know they’re going to get great technology and great service. To use another brand, why would I do that?”


Jack Milligan


Jack Milligan is editor-at-large of Bank Director magazine, a position to which he brings over 40 years of experience in financial journalism organizations. Mr. Milligan directs Bank Director’s editorial coverage and leads its director training efforts. He has a master’s degree in Journalism from The Ohio State University.

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