A 'false narrative'? Banks strike back against claims of fintech advantage

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SAN FRANCISCO — It's become a truism among fintechs that banks are ripe for disruption because their customers don't like or trust them.

“Everyone hates their cable guy and everyone hates their banks,” Wealthfront CEO Andy Rachleff told an audience at In|Vest West this week.

The robo adviser chief argued that major bank apps are poorly designed whereas many fintechs are offering a better customer experience.

But many bankers and others are pushing back against such arguments, noting the progress that traditional institutions have made over the past few years.

Suggesting banks are losing ground because they are failing customers is a “false narrative,” Acorns Chief Operating Officer Manning Field said in an interview at the event. He said that nearly all financial institutions have embraced digital platforms and offer similar banking products at a basic level.

Where firms can gain an edge is in improving the customer experience, Field said: “Can you actually understand the passions of a customer and solve a problem for them?”

Field, a former JPMorgan Chase executive who launched products such as Chase Sapphire, said he was not worried about the survival of big incumbents in the face of tech challengers. “These banks are going to be OK. They are building really good digital apps.”

That's in part why Google chose to partner with Citigroup for its checking account project, said Tony Berman, vice president of technology products at Pershing.

“Bank of America, Citi, JPMorgan Chase, are powerful brands that will be difficult to disintermediate,” he said. “Wealthfront is growing, but they have a long way to go before becoming a brand like Citi.”

Finn, the failed digital-only banking brand from JPMorgan Chase, was cited during discussions at the conference as an example of big banks’ inability to innovate like Silicon Valley. Berman said that was a shortsighted critique. “It’s not the end of their experimentation,” he said.

Field agreed. “There are good banks and there are bad banks, just as there are good fintechs and bad fintechs.”

Coming away from Rachleff’s presentation, Berman said that the robo-adviser CEO was overstating his advantage.

“Look at Capital One. They offer comparative savings account rates. Look at Marcus. That’s a new brand out of an existing brand. He has a lot more competition than he acknowledges," Berman said.

But Jon Stevenson, head of wealth management and banking at MoneyLion, said changes in the market will benefit firms that get to customers early. That gives fintechs an edge.

“I don’t think customers who are digitally native are going to graduate to a traditional financial services relationship,” Stevenson said.

In his firm’s research, Stevenson said, the rate of digital account opening versus traditional account opening was 89% to 4% among the top banking providers.

“The lifeblood of traditional banking has been bringing in new clients,” he said. “And they all know that lifeblood has been flowing away from traditional accounts.”

Stevenson said there were standouts among incumbent efforts to adapt to digital challenges, singling out Marcus. “But that’s Goldman Sachs. They can compete with the Googles. The top two or three banks can get it right. How about the rest of the bank charters?”

One banking executive, who asked for anonymity because he wasn’t authorized to speak publicly without approval, said Wealthfront did make fair points regarding trust issues facing banks. But while that issue might apply to institutions that have been hobbled by scandal, the executive said, it would be of little concern to a bank that had a solid track record with customers and regulators.

One reason incumbent banks haven’t been as fast to innovate despite the recent spate of digital wealth and banking mashups is that same concern about reputation and regulatory approval.

“Many of these fintechs have been willing to push the envelope and go out there, and get their wrist slapped,” the executive said, referring to regulatory issues that have arisen against SoFi and Robinhood. “Large institutions are conservative and don’t want to push up against regulation.”

A solid brand will also be a factor in an uncertain market, the executive said, noting that fintechs such as robo advisers have evolved during a healthy economy in the last decade. “What happens to them when the economy goes into a downturn?”

Market observers were similarly split.

Will Trout, senior analyst at Celent, said there was little new in what fintechs were offering.

“There’s great user experience, a lot better than a big bank,” Trout said. “But is it really that different from what you can get at a bank now? You can get a digital mortgage and you can get a mobile banking account. They are improving the interface, but I don’t see a big moat here.”

Gavin Spitzner, president of Wealth Consulting Partners, said fintechs such as Wealthfront were growing because of their dedication to specific niches and digital delivery.

“They have a purity of purpose,” he said.

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