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Banking Briefing: Learning the moves to the ‘gig groove’

  • Citi wants to appeal to the gig economy. Meanwhile, banks may be facing major layoffs following their hiring spree just a few months ago.
  • Plus, a quick look at the niche neobank business model dilemma and how a new digital bank for Native Americans has found a way to do things differently.

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Banking Briefing: Learning the moves to the ‘gig groove’

A couple of weeks ago, Citi announced that it is now accepting P2P payments as direct deposits that can qualify for monthly fee waivers. Until now, Citi only waived monthly fees for consumers with an average balance or a direct deposit amounting to $1500 – P2P payments did not fall into the equation here.

Citi's 'change of heart' seems to be geared directly towards gig economy workers. In the press release sent to Tearsheet, Craig Vallorano, head of U.S. retail banking at Citi, says the following:

"Citi is introducing this industry-leading enhancement of direct deposit to help remove a barrier that workers who primarily receive income via P2P transactions may face. We're proud of this big step forward in the evolution of a more inclusive financial system as we continuously develop our products and services to make them increasingly accessible."

While the gig economy may be about taking up temporary work, the move itself doesn't seem temporary at all. The gig economy has grown by 30% since the start of the pandemic, and isn't showing any signs of slowing down – it's expected to surpass the full-time workforce by 2027

Several fintechs have been popping up in response to this new growth, promising better financial services geared towards gig-based businesses, compared to what incumbents have been offering so far.

Now, though, the narrative is changing. Citi’s decision to make it easier for gig workers to transfer money could mark banks' awareness that the 'gig groove' is definitely a dance they should be learning. 

Other banks have also taken steps to show some support for the less-mainstream forms of making a living. Bank of America, for example, announced back in June the release of its digital resource center for people starting their own businesses, including access to the bank's small business experts, business plan templates, and contact details for partners for critical services.

All this to say: the look and feel of work life is changing, and banks are privy to that.

Quote of the week: "That hurricane is right out there, down the road, coming our way."

It's not that long ago that the quote of the week I chose was one from Jamie Dimon, saying, "I think wages going up is a good thing for the people who have the wages going up. CEOs shouldn't be crybabies about it. They should just deal with it."

Back then, banks were racing for talent, and that meant promising some pretty competitive salaries. Things have changed since then. Now the general consensus, according to a recent story by CNBC, may be that banks bit off more than they can chew in terms of hiring in the past two years: 

  • Morgan Stanley's headcount increased by 26% 
  • Goldman Sachs' headcount increased by 17%
  • JPMorgan's investment bank's headcount increased by 26%

"I can’t see a situation where banks don’t do RIFs in the second half of the year,” David McCormack, head of recruitment firm DMC Partners, told CNBC. RIF stands for 'reduction in force'.

Potential layoffs may be one of the many indicators that banks are facing significant bumps at the moment, and will have to do some spending cleanups going forward.

Early in June, Dimon warned investors against an "economic hurricane", and that JPMorgan is planning to be much more conservative with their balance sheet.  

"That hurricane is right out there, down the road, coming our way," he said.

That begs the question, how will banks "just deal with" an economic hurricane?

The niche neobank business model dilemma and how a new digital bank for Native Americans takes a different approach

The niche neobank dilemma – as demonstrated through Lego

Let's say there's a new neobank for Lego lovers – what perks should it include? Cashback rewards at all Lego stores? Discounted trips to Denmark? A fee-free ATM network just because?

The ideal Lego-loving consumer may appreciate these perks. She may even continue being a user in order to get those discounts at her favorite stores.

But when times are rough, there's a big chance she won’t stick around and most probably will leave her Lego-constructed FI for a brick-and-mortar one.

Meanwhile, this Lego-focused neobank may be suffering from the same problem a lot of niche neobanks are suffering from: a rickety business model. More likely than not, it's relying largely on a revenue stream based on interchange fees – and, come on, even Lego is probably sturdier than that.

How Totem, an up-and-coming neobank for Native Americans, is doing things differently 

There may be this sense that the niche neobank model is sort of a lost cause. But the new Native American neobank Totem shows that this may not be the case.

Totem, which is set to officially launch in 2023, has managed to take the pain points of its core user base and imprint them into its own business model.

One major pain point, for example, has to do with tribe members not getting the financial benefits they’re entitled to from tribe benefits programs – either for backend reasons or just because they’re hard to find.

Here’s what this digital bank is doing differently:

In addition to offering a credit-builder credit card and a debit card, the company is also planning on exploring other revenue streams. That includes working with tribes to showcase benefit programs within the app, and in that way keep users aware of what they’re qualified for. Other unique features include being able to directly deposit benefit funds into the Totem app, as well as getting assistance with tribal payments. 

The fee structure here isn't quite clear yet, as Totem is still within its first rounds of negotiations with tribes. Still, if you want to know more, definitely check out this story on The Financial Brand, which is where I got this information from.

The main takeaway may be that real pain points aren’t chased away with cashback deals, and that a digital bank that can figure out how to properly address specific problems faced by a specific segment of the population may be looking at a much stronger business model in the long run. 

I'm definitely looking forward to seeing how Totem's vision progresses.

What we're reading

Oh, no, this isn't privacy breaching – this is just, umm, automation

The CFPB is charging U.S. Bank for accessing consumers' personal information, including savings, lines of credit, and credit cards, to open new accounts without their permission. (CFPB)

Rising interest going global

Rising interest rates are being reported across the globe, including Australia, Japan, England, and the EU.

Lloyds isn’t loitering; more fintech acquisitions to come

Lloyds Bank is looking to boost its digital services – that means more fintech acquisitions coming its way (Bloomberg)

Who says shopping isn't the best medicine?

Despite a bumpy financial situation, Bank of America has managed to keep away from any serious damage to its earnings because of its customers' consistent spending habits. (FT)

Keeping things "friendly"

HSBC has become the first foreign lender to add a Chinese Communist Party committee within its subsidiary in the country – a move that is legally required by all companies in China, but hasn’t been enforced yet by foreign financial institutions. (FT)

No to crypto in India?

The Central Bank of India wants to ban cryptocurrencies from the country. (TechCrunch)

Starling's startling growth 

Despite the cloud in the air covering fintechs' growth, Starling came out with a revenue of £188 million – up over 90% compared to last year. (CNBC)

There's hope yet

The outlook for digital banks may not be as bad as people think (TechCrunch)

What we're writing

Banking on the Planet Conference 2022: All session videos

Sponsored: 'Open finance can lift all boats while creating more efficient commerce': Fiserv’s Sunil Sachdev

(Member exclusive) Can neobanks make it through a recession

From Sydney to New York: A day in the life of Joanna Lambert, president and GM of consumer at Yahoo

Weekly 10-Q: The big question — how did Wall Street banks perform this quarter?

(Member exclusive) Data Snack: In today’s bear market, younger generations are the leading investors

Where Credit’s Due Ep. 5: Crypto lending with Genesis and BlockFi

‘When you have a community that’s engaged, your job as a CMO is being an editor’: 3 questions with Vineet Mehra, Chime’s new CMO

(Member exclusive) Data Snack: Banks' Q2 earnings reports reveal losses in corporate lending 

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