In my career I’ve had the good fortune of getting to know people at many of the best FinTech startups in the United States. Our paths crossed while I was starting my company, or we ended up meeting when I was building and selling products they consumed. One of the most common things I hear from founders of consumer FinTech companies is “we can acquire a ton of users, but it’s really hard to get them to fully engage.”
The businesses I’ve started — and joined — have helped solve that engagement gap. Following are a few lessons I’ve learned that I’m confident will help FinTechs be more relevant to their consumers, and the broader market. While I believe FinTechs can benefit most from this, I also believe traditional financial institutions can learn from and apply the principles these FinTechs have used to find success.
Note: Since our professional experiences shape the way we view the world, you’re likely to see hints of my past startups or current role in the suggestions I share.
To start, we’re seeing a consolidation of services in the FinTech world. Many of todays most successful consumer FinTechs began by taking one portion of financial services and becoming very good at it. Acorns leveraged behavioral psychology to make investing for the future something we don’t even have to think about. Robinhood made trading stocks free. MoneyLion provided frictionless access to small dollar loans without the cost of going through a payday lender. Paypal, SoFi, Affirm, Prosper, Square, and all of the others that are slipping my mind just now, started this way. They fixed one problem in financial services and customers flocked to them.
Now these FinTechs are filling in the rest the gaps of the banking relationship. They’re offering checking and savings accounts. They’re lending. They’re moving money. They’re managing money. But, in order to have their customers really engage in the full ecosystem, they need to become the primary financial institution for their customers. Meaning, when their customers are asked who they bank with, their response needs to be the name of their FinTech.
Many consumers have dipped their toe into the FinTech world by opening up an account, transferring over a few hundred dollars, or setting up recurring transfers for a goal, but have not moved their entire banking relationship over to that FinTech. So, what can FinTechs do to ensure they become the primary financial institution of their customers?
Build on a solid foundation
Everyone has heard about Robinhood’s recent slip up while announcing their new checking and savings account — or was it really just a publicity stunt? Regardless, FinTechs need to be able to present consumers with the same protections they have come to expect from a bank. The account Robinhood teased out made it look like a normal bank account, but as soon as we took a magnifying glass to it, it fell apart. Just what is SIPC insurance? How does it differ from FDIC? Could this account actually work in practice the way Robinhood described? Was it too good to be true? The case remains open, and I’m hopeful Robinhood can figure out a way to bring a variant of that incredible product to market.
If you look at the FinTechs that have rolled out great checking and savings products thus far, most have done so in concert with a financial institution. Financial institutions may struggle to innovate, but they know how to run a checking and savings account and they have the charter needed to do so. By partnering with a financial institution, FinTechs can offer FDIC insurance, as well as feel confident they’re following the necessary compliance and regulatory hurdles, while being able to focus most of their time and energy on innovation and creating incredible financial experiences.
Warning: Partnering with a financial institution is a deep partnership. The bank you partner with will have a fair amount of control over products your company rolls out. Those products will need to fit their risk and compliance models. I’d recommend you partner with a bank that has already dealt with FinTechs and is prepared for what you’d like to accomplish. A few banks that come to mind as being great to work with and having lots of experience working with FinTechs are Lincoln Savings Bank, Cross River, Web Bank, and Sunrise Bank.
As an aside, I hear lots of people worried about security with FinTechs. In some cases, they’re likely correct to worry, but I’m convinced the security of these FinTechs is light years ahead of many traditional FI’s, given the fact that their team is full of techies, rather than at a big bank where less than 7% of key decision makers have any technical professional experience (Source), and security is more and more a technical game.
2. Make switching over an account easy
With 59% of consumers thinking switching financial institutions is “too much of a hassle,” (Source: Consumers Union, 2012) it’s no wonder that many FinTechs get tons of signups, but fall short when it comes to switching the broader banking relationship over. Whether you develop your own internal switch kit, or leverage one from a provider like my company — ClickSWITCH — you need something to make the transition much more simple than it has been in the past.
Here are a few things to focus on as you consider how to get customers to switch their relationship over to you:
Direct deposit — if you get their paycheck you are at the hub of their financial life. From what I’ve seen, it isn’t enough to offer a reward to a consumer if they move over their direct deposit. They need a tool to help them.
Payments — updating all the places you’ve stored your debit or credit card is a huge hassle. Consider investing in technology to simplify this process for your customers. There are several good options on the market if you don’t want to build your own.
Cross-sell or up-sell — The best example I can think of for this is WealthFront. I began using them a few years ago because I was intrigued by their investment philosophy. Now I use them to track my net worth, including real estate properties I own, investments I’ve made in startups, 401k’s, IRA’s, and more. When they roll out a checking account I’ll be amongst the first to sign up!
Once you’re capturing your customers direct deposit, and they begin making payments from that account, you’re far more likely to be considered that customers primary financial institution. As the customer adopts additional products or services they become more entrenched in your ecosystem, incentivizing them to adopt more services from you, but also making it harder for them to leave.
Opinion: I also believe the simplicity of switching — if you actually simplify it — should be built into the message of a FinTech startup from the ground up. If that’s part of the message customers are buying into, I believe they’re more likely to see this FinTech startup as a competitor to their bank.
3. Experiment with different ways to engage your customers
Noah Kerner — the CEO of Acorns — recently shared one of the key findings that has helped them grow. They found that customers were 4x more likely to invest via Acorns when encouraged to invest $5 a day versus $150 per month (Source). The result in both cases is $150 invested over a given month, but by experimenting with different invitations they were able to find a scenario that could boost their conversions by 4x!
FinTechs have the advantage of speed and also mindset over traditional FI’s. The great FinTech founders I’ve met are not afraid of failures. They’re willing to take small bets on ideas like the one Noah Kerner mentioned above. As you craft your FinTech vision, find ways to experiment and learn. Consider researching behavioral psychology, decision making theory, or other similar topics and see if some of the concepts you learn can help you make more informed bets based on things we already know about human behavior.
I highly recommend Nudge: Improving Decisions about Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein as a good start for learning how you can influence your customers in simple, yet effective ways. I find that when reading a book like Nudge, thoughts come to mind about the problems I’m confronting at work and I develop more creative experiments and ideas.
I believe deeply that we’re really just scratching the surface in terms of the FinTech innovation that’s possible. My hats off to all the entrepreneurs that have given their blood, sweat, and tears to get us to where we are today and I’m excited to see what the future holds for this industry.
Please feel free to share your thoughts on what can help make FinTechs successful in the comments. I’ve found the FinTech crowd to be exceptional, but there’s also a lot of siloed information. You never know when your perspicacity could be just the thing another person in the industry needs to move their idea forward.