The Customer Effect
Finance apps are now getting into mobile banking
- Third-party finance apps are increasingly offering customers bank accounts -- a way to "portalize" customer experiences and mirror moves taken by banks.
- Motivations vary by line of business; for lenders, turning to deposit accounts is a cheaper way to fund loans, and for PFM and investment platforms, it's a way to keep customers in their ecosystems.
People don’t want to download more apps. Banks like TD, RBC, JPMorgan Chase and Wells Fargo have heard this loudly and clearly, bundling an ever-increasing number of services into their mobile banking apps. Now, third-party apps for personal finance, investing and lending want to become more like service portals, too, by getting into mobile bank accounts -- a way to better serve customers and a necessity to grow their reach. Last week, SoFi announced that it plans to offer mobile banking accounts to its loan customers in the new year by partnering with a bank. "We have been preparing on a parallel track a partner-based approach for our banking products that is no less valuable for members and still offers us attractive economics," wrote interim CEO Tom Hutton in a letter to investors. Among investment platforms, Stash Invest recently announced it will offer its customers mobile banking services through a partnership with a bank. It's a way to put one's financial life into one place. "The rationale behind Stash has always been to provide our customers with one ecosystem to better manage their financial life and provide real, actionable guidance to help them save and invest more for their futures," said Brandon Krieg, Stash Invest co-founder and CEO. He added that rolling mobile banking into an investment and microsaving platform is a way to ensure his customers can achieve their potential through Stash products and not through other ones. It's about more than options: Offering bank accounts for customers becomes a necessity as these platforms strive to stay competitive -- although the motivations are different, depending on core line of business. "For SoFi, it's about funding loans, and for others, it could be about business model realignment," said Ron Shevlin, director of research at Cornerstone Advisors. Shevlin explained that for SoFi to compete head-to-head with bank lenders, it needs to lower the cost of capital by getting into deposit products. "They needed to figure out other sources of funding for these loans; that's what SoFi's strategy is," he said. "It's not just a smart thing, but a necessary thing if they’re going to grow their lending business -- it's a hell of a lot more expensive to go to equity markets than deposits." For other third-party apps, it's a way to grow product offerings to keep customers within their apps to engage and potentially grow their customer base. "Third-party apps that came to market with personal finance management services are struggling to find a market," said Shevlin. "People don't want to pay for those types of things apart from what they pay their banks -- companies like Moven and Prosper have thrived by becoming business-to-business companies, but as a direct-to-consumer offering, they have struggled." And as the "platformification of banking" gains steam among the incumbents, with banks offering personal finance management services within their respective apps, it ups the game for third-party providers. That's why Varo Money, a third-party app that offers banking and personal finance services through a partnership with The Bancorp, wants to take on banks by becoming one. This past summer, Varo Money applied for a national bank charter. (SoFi applied for an industrial loan company charter this past summer but later withdrew its application, and Square applied for one in September.) "Through a national bank charter, Varo can build an even better integrated, seamless and trustworthy banking platform nationwide," said Varo Money founder Colin Walsh. "For Varo, we are making competitive moves to take share from the big banks. That said, for other third-party apps, they may be looking for partnerships to expand their business model."