A Neobank that Aims to Protect Millennials from Themselves
A new partnership between Toronto-Dominion Bank and tech firm Moven underscores how banks are beginning to embrace the idea of personal financial management services for their mobile apps.
It is the season for added expenses and, for many, worrying about cash flows. Financial service providers report holiday products are popular with customers, though not a money-maker. Next-generation financial management software could let people segment their money into goals through one account.
Customers of Simple, a unit of BBVA, have complained in recent weeks about delays and failures in scheduled payments, highlighting digital-only banks' dependence on third-party providers and antiquated legacy systems.
A Canadian upstart is determined to improve the way consumers bank.
"We think that with great customer service and an excellent product, we can become the standard in Canadian banking," said Daniel Eberhard, a cofounder and the chief executive of Koho.
Like Simple, Moven, PaySound and other neobanks offering services in the U.S., Vancouver startup Koho wants to offer service features that make sense to millennials, including low or no fees. And in keeping with other neobanks, Koho buddied up with a financial institution (an unnamed credit union) to process its transactions.
All told, Koho has about 25 features in the pipeline it believes will suit 18 to 34 year olds. Among them are three that have also been surfacing in the U.S.: a short-term cash flow forecast to show people an estimate of their available funds; automated deposits to help users reach savings goals; and arguably most interesting, the ability for consumers to set card restrictions to protect them from, say, buying a round of tequila shots at 2 a.m.
The playful approach is meant to resonate with an audience Koho feels is desperately in need of attention. Indeed, Eberhard, 28, said his company aims to "identify with our generation, which has been largely ignored by banks."
The startup is sure to be watched by banks in the U.S. and Canada, as they try remodel their offerings for a younger generation.
Consumers who sign up for Koho's web and mobile services will receive what the tech company is calling a Koho card. Consumers will need to load funds before using the card. Payments will run on traditional card networks (the company did not specify which) and Koho will make money from interchange. Down the road, Koho plans to let users access credit as well.
The nine-member Koho team is working to open its services to a national test group by the second quarter. People will apply for accounts online. In the pitch on its website, Koho directly targets a young crowd, for instance, touting features designed to "prevent unnecessary, late-night ATM withdrawals."
Jacob Jegher, a research director at Celent and who studies the Canadian market, views the entrance of Koho as positive news that could benefit financial services in a country where fees are common and tech is often built in-house.
"Banks need a competitive push from new entrants to shake things up [and] move a little faster and spend a little bit more money on things like user experience and pleasing the customer," Jegher said.
Like any new financial technology company, Koho will face challenges, of course.
The company announced its existence in early December, shortly after Toronto-Dominion Bank announced a partnership with Moven that will incorporate the latter's money management features into TD's mobile app.
Beyond such competition, Koho will face the hurdles of acquiring customers, dealing with service issues and making sure the systems stay up.
"Those can be tough things," Jegher said. "You can end up having a lot of problems that are similar to bank problems."
Then there is the challenge of how to make money.
Ronald Mazursky, director of debit advisory services at Mercator Advisory Group, said any neo-bank needs to think about ways to monetize its services beyond interchange fees. Simple and Moven ran into this issue. Simple got bought by BBVA, while Moven is licensing its tech to banks in other countries (including Westpac New Zealand as well as TD in Canada).
"Distribution can be wildly difficult," Mazursky said. "The next generation has to merge other revenue sources to make them relevant and investor-worthy."
But for banks, the entrance of companies like Koho is a reminder to stay tuned to consumers' preferences for simple and personalized banking that can "protect them from themselves almost," said Mary Monahan, an executive vice president and research director of mobile for Javelin Strategy & Research.
Certainly, Eberhard hopes to create a brand where users become ambassadors for its mission of more transparent banking. And, he does not expect that kind of creativity from big banks.
"People are looking for innovation to come from tech companies," he said.