SCOTTSDALE, Ariz.–There is a “wake-up call” for credit unions in the findings of a new study on where many Americans are increasingly doing their banking business and in why they have made the switch.
That alarm bell can be found in a new study from Cornerstone Advisors and StrategyCorps, which estimates that 12 million U.S. consumers have become customers of the online bank Chime, and the number of younger people using so-called “challenger” banks has now grown to 15%.
If that number holds, it reflects substantial growth for Chime, which a year ago announced it had approximately eight-million customers, according to Ron Shevlin, director of research with Cornerstone Advisors.
“Fifty percent growth on eight-million customers is a whole lot more new customers than growing 50% from a base of one-million or 500,000 customers…Chime is now dominating the challenger bank space by a wide margin,” wrote Shevlin in a post on Forbes.com.
The numbers deserve attention from credit unions.
‘Alarmingly Large’
“Not all challenger bank customers consider the fintechs they do business with their primary provider, but an alarmingly large—and increasing—number of people do,” observed Shevlin.
Shevlin pointed to research in January 2020 that showed just 4% of Gen Zers and Millennials considered a checking account from a challenger bank their primary account. By December 2020, that percentage had grown to 15%, he said.
“Across all U.S. consumers, 11% consider a digital bank their primary institution. The digital banks have, in the aggregate, 17% share of secondary accounts and 30% of consumers’ third accounts,” Shevlin said.
The Big Losers
Which institutions are those customers leaving? According to Shevlin and the Cornerstone research, the “big losers” of 2020 in terms of share of consumers who consider them their primary institutions—were the megabanks, Bank of America, JPMorgan Chase, Wells Fargo. Their share of primary bank customers dropped nearly seven percentage points between January and December of 2020, Cornerstone reported.
“With roughly two-thirds of its customers considering the company their primary bank, Chime’s nearly eight-million primary customers effectively makes the challenger bank the fifth largest bank in the country (in terms of primary customers, that is—certainly not in terms of assets, deposits, or revenue),” wrote Shevlin.
Shevlin observed that conventional wisdom—and even some of the challenger banks’ own advertising—holds that fintechs win customers because they provide a superior customer experience and have better mobile banking tools. “It’s more than that,” he said.
Featurization Strategy
Shevlin pointed to how Chime competes with a “featurization” strategy in addition to its good user experience lack of fees. In particular, Chime touts three features, Shevlin said:
* Early access to money. Nearly a quarter of Chime customers said they chose the fintech as their primary bank because it offers two-day early access to their direct-deposited paychecks, as well as to government stimulus and tax refund checks.
* Spot Me. This product feature lets Chime customers make debit card purchases that overdraw on their accounts with no overdraft fees.
* Credit-builder credit card. Shevlin noted Chime’s predominantly low- to middle-income consumers aren’t in the crosshairs of the big credit card issuers’ marketing efforts. According to Cornerstone, 15% of Chime’s primary banking customers either have the card or are on its wait list. To get the card, a customer must have a Chime Spending Account and have set up their direct deposit with Chime, Shevlin said.
Power of Perception
What all those features do is add up to “something important,” Shevlin said: Perceptions of financial impact.
Shevlin noted the Cornerstone studied asked consumers the extent to which their primary bank helps improve the performance and health of their financial life. There was a virtual tie at the top between four providers: USAA, Capital One, Chime, and Bank of America.
“There are a certainly a number of reasons why other challenger banks aren’t keeping up with Chime (e.g., marketing). One big factor, though, is that other challenger banks’ customers don’t perceive that those firms have the impact on their financial health and performance to the extent that Chime customers do,” Shevlin stated. “This should be a wake-up call not just for challenger banks but for a lot of banks and credit unions. It’s not that consumers say their primary bank detracts from financial performance and health. It’s that the biggest chunk of consumers says their primary provider has no impact on their financial health and performance. This is not good news for the banking industry.”
For Shevlin’s full analysis, go here.