A lot of monoline financial firms look a lot like banks nowadays. Rebundling, as we like to call it in the industry, is happening. You don’t need to look further than Betterment, a fintech firm whose roots were as a robo-adviser. The firm has been rolling out more banking functionality and the firm’s president of retail, Mike Reust joins us on the podcast to discuss Betterment’s move into banking.
Mike was previously the firm’s CTO so his perspective on Betterment’s product roadmap gives some insight into where the firm is headed. He discusses the demand side and what customers are looking for. We also chat about the firm’s overall vision and how that impacts product development during the COVID-19 era.
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The following excerpts were edited for clarity.
CTO becomes President
My background as CTO helps shape what’s possible according to timelines. There are a million things I’d like to build for customers. My background in technology gives me a baseline and helps me think about what to build. It helps me orient around the platform we’re building. Sometimes, you just have to build great plumbing, so you can build great stuff in the future.
The move into banking
Like a lot of companies, Betterment is a customer-driven organization. We don’t like to work backwards from a business model or other motives. We talk to customers, to understand their needs and problems. We also like to observe their behavior — to see what they do and what they don’t do. Then, it helps us to think about the right products to build.
Customers ask us to build lots of things. Banking was one of many things. But when we look at outcomes, it was the area we found the most leverage. Not only are customers being poorly served by existing banking products, but we could make investments in our products to help them achieve results more rapidly than we could do in other areas of fintech right now. That union led us into banking — everyday cashflow problems lead naturally into investing. You can only invest if you have money saved.
Cashflow is king
A while back, we launched Cash Flow Analysis and Two-Way Sweep. These monitor the spending behavior in external checking accounts. We make sure that you have enough money in that account to pay bills, but also sweep out as much money as possible to get a higher rate. It was a simple, but powerful product. We saw how much more powerful it could be if we brought it in-house — if we controlled the checking account.
What customers want
When you talk to customers, they typically don’t come at you with a grandiose vision of a self-driving wallet. They are generally grumpy with their existing financial provider. It isn’t personalized, and sometimes, they feel they’re being taken advantage of. It’s this feedback that went into building our checking account and Cash Reserve, our high yield savings product. It’s about nailing the basics and building something people can count on and trust — and actually, it might go further and help take care of them.
There are lots of surveys out there about the level of trust customers have. Incumbent financial institutions don’t have tremendous levels of trust. I believe JPMorgan Chase, for example, won’t lose the dollars I put in it. But at the same time, I’m pretty sure it will find ways to raise fees on me.
Vision for banking
Our move into banking is about pulling all the pieces together, starting with customers and their problems. People would like to have more peace of mind. It’s ridiculous how much work it is to manage one’s finances in the United States. There is so much noise — so many different types of accounts. Giving people peace of mind, so they know they are on track and don’t have to do tons of work to manage their finances.
Our vision is to blur the lines between checking, savings and investing. We want to pull all these facets together so you can ask people human questions and automate the rest. It’s really powerful. You don’t want to ask a person what type of account they want, but it’s the question most incumbent financial institutions ask. Instead, you tell them, here is where you save for the medium term. I want a customer to come to Betterment, set up an account, tell us what he wants to achieve and it’s mostly taken care of.
The COVID-19 era
Betterment has been in the market for about a decade now. Along the years, one thing we’re always asked was how our platform would perform in a market correction. COVID was a stress test to see how people would respond in double digit declines in their accounts. It’s been a different level of scary for folks.
There was a modest increase (2%) of people withdrawing during peak COVID days. We actually saw a large increase of deposit activity — 26% more people were ad hoc depositing. We saw very little of people freaking out and more of people leaning in to what they saw was a correcting market.
At the beginning of the pandemic, we did a lot of work we hadn’t planned — refreshing our content, positioning a buy and hold strategy for what’s going on right now. We created a lot of content and videos, which was tricky to do because we were now a fully-distributed company. We were shipping around video equipment and trying to do all these things.