Inside MoneyLion’s evolution from PFM to challenger bank

MoneyLion, a 5-year-old startup that began as a personal finance and lending platform, is completing the financial services circle by becoming a full challenger bank with checking accounts for its paying members. The New-York based company said Tuesday that it's expanding the reach of subscription service MoneyLion Plus to include checking and savings account capabilities, debit cards and cash advances. It builds on the launch of MoneyLion Plus in November, which included personalized savings advice, an investment account, cashback bonuses and access to lower-cost loans for $29 per month. The banking products will be rolled out in the next few months. MoneyLion joins a growing group of financial startups like SoFi, Varo Money and Stash Invest that are making forays into banking. CEO Diwakar Choubey acknowledged that it's a crowded space, but he said MoneyLion's differentiator is its data-driven approach to financial advice, rewards and product recommendations. By adding bank accounts, it grows customers' interactions with the platform as the one-stop shop for their financial lives, and offers a rich source of financial information for personalized advice and recommendations. "Our position in the market as lenders has given us a very unique view of consumption patterns of customers, and because of that data advantage, we can build lifetime value for customers," he said. Though checking accounts generate revenue through interchange fees, they're also an important source of customer data. MoneyLion incentivizes its subscribers through rewards based on their interactions with the app, which, in turn, provide a source of data for product recommendations and financial advice. If customers log into the app at least once a day, they'll get $1 cash back toward their investment account. Customers also gain points for repaying loans in full, connecting their bank accounts to track saving and spending, enrolling for credit monitoring and writing credit card product reviews. By keeping customers engaged, the company can push targeted product offers, from which it earns referral fees once customers sign up. A customer's financial data is also the basis for loan recommendations, whether from MoneyLion or partner companies. Choubey added that an engaged customer base is paying off, as MoneyLion acquires more customers through referrals than paid advertising. The platform has 2 million members, according to the company. As more financial startups move into banking, maintaining a distinct offer for the customer will be key. MoneyLion's incentives based on interaction can set it apart from banks and startups that market themselves solely on low fees. "MoneyLion has tried to attack the gamification on use, and that's an important part of it," said Mark Atherton, group vp of Oracle's financial services business unit. "If you log in and push the square, there's going to be a notification," he said, highlighting that each interaction is a source of data for advice and recommendations -- an important revenue driver. The company will roll out its banking product with a yet-unnamed partner institution that will hold deposits. While becoming a bank isn't on its short-term roadmap, MoneyLion doesn't rule out that possibility in the future. In January, the company raised $42 million in Series B funding led by Edison Partners. Startups like Varo and Square are already aiming to become banks, a path that even more banking startups will pursue to lower the costs of lending, said Atherton. "They're all going to head in that direction," he said. "By being a bank, the biggest benefit is the cost of the funds that you're using, since venture capital or private equity money is expensive -- you want to be able to hold deposits and lend on those deposits to generate revenue."