Leading with merchant services can help a bank acquire new customers, according to a recent Accenture study commissioned by Fiserv. On average, these accounts are more profitable: Compared to other business accounts, merchant account holders generate 2.6 times more revenue. In this video, Michael Rogers of Fiserv explains how these accounts help banks grow and offers considerations for how bank leaders can enrich this valuable product.
Leading With Payments
Strengthening Your Offering
To access Fiserv’s study, “From Revenue to Retention: Growing Your Deposits With Merchant Services,” click HERE.
Despite net zero outflows, banks should closely watch the impact that micro-savings firms have on their financial statements.
There are a number of fintech firms chasing bank customers with innovative features, all aiming to disintermediate customers from their financial institution. Scores of new and established companies in the savings and wealth fintech sectors offer services across three areas: micro-savings, micro-investing and macro-investing. The leading players in these three areas combined are responsible for net annual outflows of about 5% from retail banking accounts.
Micro-savings firms, like Digit and Qapital, use algorithms to automatically transfer small amounts of money out of banks and into goal-based savings accounts. Micro-investing firms, like Robinhood, Stash, and Acorns, also move small amounts from bank accounts into low cost, self-directed or automated brokerage accounts. The final group, macro-investing, includes mature robo-advisory firms like Betterment and Wealthfront, as well as more established firms like Vanguard, Fidelity, and Charles Schwab, whose efforts in technical automation allow them to offer services with zero-dollar starting balances.
The lion’s share of net outflows from bank accounts — about 75%, by our calculations — go to the macro-investment firms; the remaining 25% is directed to micro-investing firms. Given that these are net outflows from the bank, one can assume that the money isn’t coming back anytime soon.
What about the micro-savings firms? If the micro and macro-investment companies consume 100% of net outflows, why do the net outflows for micro-savings total zero? The same amount that is going out is evidentially coming back. If that’s the case, are these companies even worth worrying about?
Net outflows to the microsavings firms are zero almost by design: when people finish saving for whatever it was that they were saving for, the micro-savings fintechs don’t have an easy way to fulfill the actual goal.
Most bank customers already hold a debit card from their existing bank, and most micro-savings firms don’t offer a debit or prepaid card as a vehicle to spend the saved sum. Even if it is offered by the fintech, there’s no guarantee that consumers will opt-in for yet another new card product.
It’s also incredibly easy for customers to transfer the amount out of their micro-savings account back to their bank. If it wasn’t extremely simple for customers to transfer money back to their bank, micro-savings firms could find it very difficult to attract new customers.
But banks should still worry about these companies, even if there is ultimately zero net outflow.
Consider the typical distribution of funds for a micro-savings customer. Say a bank customer named Jen opens a micro-savings account to save for a $1,000 bike. Every month, she moves $100 from her traditional checking account to the micro-savings account outside of her bank. At the end of 10 months — after she has transferred a total of $1,000 from her bank — Jen moves the money back to her bank in order to buy the bike.
Over those 10 months, the micro-savings firm held the slowly building $1,000, earning whatever interest and fees they could. The bank earned nothing. If Jen kept the returned $1,000 in her bank account for a month before she purchased the bike, the bank would have earned only about 15% of the potential net interest margin they could have earned if they held the total deposits for the entire eleven months.
Even though there were zero net outflows for the bank — since $1,000 did a roundtrip from the bank to the fintech and then back again — the impact to its net interest margin was significant. This is the key threat banks face from direct-to-consumer micro-savings firms.
It’s not enough for your bank to only think about the tools you’ll use to combat the micro and macro-investing fintechs as you craft its digital savings and wealth strategies — such as your robo-advice offerings. Those offerings are important, given the large outflows to competitive fintechs.
However, goals-based micro-savings companies are growing as a direct-to-consumer offering. Even with today’s zero net outflows — which could change in the future — their impact on bank net interest margins is significant and worth your attention.
When Capital One Financial Corp. launched its integration with Amazon’s Echo device in early 2016, it was the first bank to give customers the ability to ask Alexa about their finances. Just like she’s able to tell users about the daily news and weather, Alexa can immediately answer customers’ questions about their checking, savings, credit card, and home and auto loan accounts.
“Conversational interfaces are the future of how people will engage with technology,” said Jim Kresge, head of mobile payments technology at Capital One, in a blog post for Amazon. “The Capital One skill for Alexa has enabled us to serve our customers through a differentiated experience and most importantly, making it even easier to manage their money whenever and wherever they are. Using the new skill for Alexa, Capital One customers can manage their money easily (hands free) and intuitively (conversational UX).”
Capital One customers can also ask Alexa about transactions at more than 2,000 merchants, including Starbucks, Whole Foods and Amazon. Customers can ask about their spending on a specific date or through a select time period, using natural language.
American Express Co. launched its integration with Alexa in May 2017, allowing the company’s card holders to check their account information and pay bills, and also access Amex Offers, which are exclusive discounts available to customers through their American Express card. U.S. Bancorp launched its Alexa skill in September 2017, giving their customers a new way to check account balances and transaction history.
Bank of America Corp. will launch its own digital assistant, Erica, which customers can interact with inside the bank’s mobile app via voice or text message.
The era of the digital assistant Work, communication, education and finances have evolved from being managed on paper, to the computer, to now on our mobile devices. And the evolution continues as we enter the era of the digital assistant. In addition to the Amazon Echo, key players include Google Home and the Apple Homepod. Even Walmart is making the shift. The retailer partnered with Google to offer their products to shoppers using the Google Express digital shopping mall, so Walmart customers can place orders by speaking to Google Home or using the Google Assistant on Android.
Like these leading banks and retailers, the best companies are finding ways to get rid of complicated menus in their apps and create a more convenient experience for customers. According to the J.D. Power U.S. Retail Banking Satisfaction Study, JPMorgan Chase & Co. leads U.S. retail banks in customer satisfaction levels, followed by midsized banks, big banks and lastly, regional banks.
While it’s common to believe that a big bank will never be able to provide the personal customer service that a community bank can, big banks are soaring ahead with advances in technology—a leg up that is making the big banks more convenient and therefore more desired by customers.
It takes about 10 minutes to open a Capital One account online—already a score in convenience. Integration with Alexa is just as easy: Download the Amazon Alexa app and enable the Capital One skill. (“Skills” are Amazon’s name for Alexa apps.) Enter your Capital One account login information, and you’re ready to talk to Alexa about your account.
Of course, privacy concerns come into play when your bank account information is being accessed through a digital device like Alexa. In the setup process, customers can add a pin number that they’re required to tell Alexa before she shares any account information.
“Security is first and foremost in our mind as we develop any new product,” said Ken Dodelin, Capital One’s vice president of digital product management, in an interview with Mashable. The Capital One account information is encrypted, so even Amazon cannot access it, according to Dodelin.
“Our goal in developing the Alexa skill is to design for real-life conversations about money,” said Stephen Hay, head of content strategy and AI design at Capital One. “We want customers to speak naturally and feel confident we’ve got their back every time, wherever they are in life.”
Many banks aren’t meeting customers’ digital expectations, and could be losing accounts as a result. Kimberlee Mineo of Bottomline Technologies explains why consumers abandon the account opening process and how financial institutions can improve the experience.
Why Customers Abandon Digital Account Applications