FinXTech’s Need to Know: Direct Deposits

For many banks, direct deposit information is the key that turns a new account into a long-term successful primary relationship.

Direct deposit is a conduit to a customer’s life — and their information. Customers tend to use the account that receives their income; accounts without these recurring deposits risk sitting idly.

However, most customers don’t actively think about their direct deposit account. It’s not table stakes after they open the account; it doesn’t make or break their banking experience. But for banks, it’s crucial they get customers to switch. Research from Harland Clarke and Javelin Strategy & Research in 2017 found that 81% of bank customers who received a paycheck used direct deposit; of those customers, 91% used only one financial institution for it.

Banks with technology that makes it easier for customers to switch their direct deposit over when opening a new account have an edge in the fight for primacy.

Some of the financial technology companies that offer this type of solution — Atomic FI, Argyle, Pinwheel and ClickSWITCH, among others — can embed it directly into a bank’s digital banking interface. Customers have a self-servicing option, and bankers can use the tool on the back end. And, when opening a new bank account, it can automatically prompt customers to switch over their direct deposit as part of the account setup.

There is room for banks to improve in this area. Harland Clarke and Javelin also noted that out of those that opened a checking account between 2016 and 2017, only 70% recalled being asked to switch over their direct deposit enrollment.

Application programming interfaces (APIs) facilitate the actual switching of accounts. The APIs, which function as passageways between software systems that enable data exchanges, can also be used to verify income and employment data, which can help the bank identify other products the customer might qualify for.

In addition, some fintechs also offer a service called “paycheck linked lending,” which allows bank customers to pay their loans directly from their paycheck before it’s deposited into their account.

Newer digital startup banks — or neobanks — may have these types of tools built into their infrastructure. But for many smaller or community banks, the act of switching direct deposits is still a highly manual task that falls primarily on the customers, which could deter them from making the switch.

Here are five benefits a bank could experience by implementing a direct deposit switching tool:

  1. Capture more customer data. As customers switch their direct deposit, banks have an opportunity to collect more income and employment data to use in marketing campaigns and fraud detection.
  2. Automate manual tasks for both the customer and bank. APIs handle the account switch once the customer gives them permission to do so.
  3. Cater to customers in the gig economy workforce. Customers can switch one or multiple direct deposits to your bank, or split their paychecks to go to multiple accounts.
  4. Cut the time it takes to switch direct deposit accounts. APIs can conduct changes and verify data in real time — no paper forms involved. Atomic FI claims that its switches can take effect within a customer’s current or next pay cycle.
  5. Create stickier relationships with new and existing customers. Capturing direct deposits jumpstarts account activity and longevity with customers. If a customer considers your bank their primary financial institution, they may be more likely to turn to the bank for other services.

Q2 Software, the digital banking provider that acquired ClickSWITCH in April 2021, has an online ROI calculator to demonstrate the potential growth banks could see in adding a direct deposit switching tool.

It’s never been easier to open a new bank account. But newly opened accounts don’t promise a source of activity and recurring deposits. If your bank has never incorporated direct deposit as a key step in the customer acquisition process, now may be the time to reconsider.

Argyle and ClickSWITCH are included in FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email finxtech@bankdirector.com.

Designing an Experience that Empowers Businesses to Succeed

With more businesses choosing fintechs and neo-banks to address their financial needs, banks must innovate quickly and stay up-to-date with the latest business banking trends to get ahead of the competition.

In fact, 62% of businesses say that their business banking accounts offer no more features or benefits than their personal accounts. Fintechs have seized on this opportunity. Banks are struggling to keep up with the more than 140 firms competing to help business customers like yours manage their finances.

Narmi interviewed businesses to identify what their current business banking experience is like, and what additional features they would like to have. To help banks better understand what makes a great business banking experience, we’ve put together Designing a Banking Experience that Empowers Businesses to Succeed, a free online resource free for bank executives.

A banking platform built with business owners in mind will help them focus on what matters most — running a successful company. In turn, banks will be able to grow accounts, drive business deposits and get ahead of fintech competitors encroaching on their market share.

Understanding How Businesses Bank
No business is the same. Each has different financial needs and a way of operating. Narmi chose to talk with a range of business owners via video chat, including an early-stage startup, a dog-walking service, a bakery, a design agency and a CPA firm.

Each business used a variety of banks, including Wells Fargo & Co., JPMorgan Chase & Co., SVB Financial Group, Bank of America Corp. and more.

A few of the questions we asked:

  1. How is your current business banking experience?
  2. Which tools do you most frequently use to help your business run smoothly?
  3. How often do you log in?
  4. What are the permissions like on your business banking platform?
  5. What features do you wish your business banking platform could provide?

We conducted more than 20 hour-long interviews with the goal of better understanding how business owners use their bank: what they liked and disliked about their banking experience, how they would want to assign access to other employees, and explore possible new features.

We learned that businesses tended to choose a financial institution on three factors: familiarity and ease, an understanding of what they do and competitive loan offers. Business owners shared with us how their experience with the Small Business Administration’s Paycheck Protection Program factored into their decision about where they currently bank.

They tended to log into their accounts between once a day and once a week and oscillated between their phone and computers; the more transactions they had, the more frequently they checked their accounts. They appreciated when their institution offered a clean and intuitive user experience.

We also uncovered:

  • How do businesses handle their payments.
  • What do businesses think of their current banking features.
  • How do business owners want to manage permissions.

Want to read more? Download a free copy of Designing a Banking Experience that Empowers Businesses to Succeed.