Are you between 21 and 37? Please bank with us.
That's the message millennials are hearing as the battle between the big banks and fintech companies for their hearts and deposits heats up.
The newest entrant in the fray – personal finance app Empower – upped the ante this week by rolling out its mobile bank services, including a fee-free checking account with rewards and a savings account that earns significant larger yields than at the big banks. The move comes shortly after Chase began dangling 60,000 rewards points to get more well-heeled young people to sign up for a premium checking account.
Other developments are afoot from traditional banks and fintechs, which use technology to improve the delivery of financial services. As the competition intensifies, that could mean more rewards, fewer fees and higher savings rates for these younger adults – and anyone else looking for a better banking experience.
"There's an amazing opportunity to rethink what a bank is in the U.S.," said Warren Hogarth, CEO and founder of Empower. "People are still paying $300 in fees and not getting a high interest rate on savings. People are frustrated."
More rewarding banking
To deepen its relationship with holders of Sapphire Reserve credit cards – hugely popular among 20- and 30-somethings – Chase last week announced a premier checking account that features perks and rewards typically offered by premium credit cards. Among the benefits:
- Access to Sapphire lounges at concerts and events
- Access to pre-sale tickets
- 60,000 free Ultimate Rewards after 90 days
Customers must maintain a minimum balance of $75,000 to get these perks, a large hurdle for the everyday person to clear. But the goal is to please people who want to feel "rewarded for the relationship they have with a bank," said Dipti Kachru, who co-led the development of Sapphire Banking.
On the other end of the spectrum, Empower said its debit card users could earn 1 percent cash back, up to $10 each month.
And Stash, an investment app that's working on expanding into banking services, plans to provide a debit card that can earn 10 percent back at 10,000 merchants, according to its website.
Fintechs are also pressuring the bigger banks to rethink checking account fees that can be a game-changer for many millennials. A Gallup survey this year found that people in that age group are most likely to leave their primary bank because of account fees or service changes.
"Millennials are acting like their grandparents and great-grandparents, the Depression-era generation," said Michael Moebs, CEO of Moebs Services, a research firm for the financial services industry. "They are very wallet-conscious and leery of fees. They have a keen eye for value."
As a result, most of the mobile banks avoid charging maintenance, monthly and overdraft fees, and have no account-balance minimums. Some even won't charge foreign transaction fees, the 1- to 3-percent hit you may incur to place a transaction in a foreign currency.
Some of the bigger banks are taking notice.
Both Wells Fargo and Chase introduced mobile banking accounts that don't have overdraft fees, which generates $17 billion a year in revenue for the industry, according to the Consumer Financial Protection Bureau. Overdrafts are the single-largest cost for banking customers with checking accounts.
Chase's Finn banking still charges foreign transaction fees, while it's unclear if Wells Fargo's Greenhouse will charge a monthly maintenance fee after the beta version concludes. Currently, Greenhouse doesn't charge a monthly fee.
The big banks also lack meaningful returns on savings accounts. Even though the Federal Reserve has steadily increased the fed funds rate that helps to set rates on consumer and business financial products, the rate of return on savings accounts at the larger banks has remained tiny, often five-hundredths of a percentage point or less.
Many online-only banks have used that as an opportunity to win customers by offering rates between 1.5 percent and 2 percent. Some of the mobile banks also see the opening. Empower's savings rate is 1.85 percent, while Varo offers 1.5 percent on its savings accounts. There are rumblings that others may follow suit.
On the horizon
More is likely to come as fintechs try to muscle into traditional banking territory. This month, mobile bank Varo received conditional approval from the federal government to become a national bank of its own. Fintechs typically partner with existing banks to offer checking and savings account services. Varo currently partners with Green Dot Bank.
Also this month, mobile bank Chime made its first acquisition, buying Pinch, a startup that helps millennials improve their credit. In May, it announced it surpassed 1 million accounts. And Empower said its next step is to offer lines of credit without relying on traditional credit requirements used by banks.
"Fintech has come in with very focused strength and been very successful going after niches," said Paul Schaus, president and CEO of CCG Catalyst Consulting Group. "They aren't out there with shotgun. They out there with a laser."