LAKE FOREST, Ill.—A new study reveals where credit unions’ biggest threat to checking is clearly coming from—fintechs.
The report from Moebs $ervices shows while fintechs may be small in numbers and locations—claiming one basis point percentage in total number of depositories—they have almost 25% share of the national checking market.
Fintechs have half as many checking accounts as banks and twice as many as credit unions.
“Depositories need to exploit fintech weaknesses to stop losing market share in local and national markets. The key is achieving profitable checking,” said J.V. Proesel, president of Moebs $ervices. “Moebs $ervices has helped FIs of all types and sizes to rule the checking in their market due to one key component: the checking service bottom line is profitable. Fintechs understand this and dominate the nationwide market (see bar graph)."
The key is market share dominance, said Elizabeth Hamlin, who oversees Moebs $ervices surveys.
“This must be measured correctly. Some measure by number of institutions and others measure by assets or deposits. All are incorrect measurements,” she said. “If you want true market position, then measure by the number of checking accounts.”
“But there is more to consider with fintechs,” pointed out Proesel. “What are their strengths and weaknesses?”
Fintech Strengths
Financial technology firms started about 1991. They now number over 10,000 in the U.S. and 26,000 worldwide. About 60% of credit unions and 49% of banks per trade association studies believe fintech partnerships are crucial to their bottom line, Proesel said.
The focus of fintechs is heavily on loans. There are fewer than 100 that do deposits and even less that have checking.
“Yet, one fintech dominates the entire checking business,” said Proesel. “Walmart has over 116 million checking accounts. This is 19% of the national market. Closest competitors are Chase at 11% and Bank of America 10%.”
Walmart dominates by having over 4,000 stores equally scattered across the U.S., open from 7 a.m. to 10 p.m., 364 days a year.
J.V. Proesel
“They actually close on Christmas,” Proesel noted.
Checking costs, coupled with substantial reductions in interchange and much less overhead expenses, make checking profitable for Walmart, Proesel explained.
Fintech Weaknesses
But fintechs can be beaten, said Proesel.
“Chime and SoFi are fintechs that advertise on national TV and have millions of consumer checking accounts. However, this comes from low or no fees for overdraft checking—thus, reducing revenue. Add to this very low OD limits of $200 or less, and the fintech focus shifts to people with higher credit scores who do not overdraw. The direction is to get auto loans or mortgages and at best break even on checking,” Proesel said. “Credit unions that can target these weaknesses to offer a product that better targets mainstream checking users, and they make the account profitable, will begin to steal share from fintechs.”