Why fintechs outperform FIs in offering a meaningful mobile experience

Last week, I wrote a feature exploring what more financial institutions can do for consumers when it comes to mobile banking.

That story really only scratched the surface of what's missing from today's mobile banking experience.

Both of my sources for the story agreed that banks need to find a way to create and maintain meaningful and useful relationships with existing and prospective customers.

While that might sound like something out of the cliché handbook, it's a real problem banks continue to tackle without resounding success.

Another real problem for banks: They no longer control, or even have, the meaningful and useful financial relationships that consumers seek daily.

Over the past few years, the so-called fintech companies of the world have captured many of the consumers that banks crave. And I can speak from experience.

What I want to do in this space is share with our readers some of these experiences. Because right now, banks are paying attention to a lot of nonsense and not focusing on what's in front of them — their current customers.

Investing in blockchain and AI is beneficial, but those are longer-term projects. Meantime, it seems banks are missing out on the proverbial low-hanging fruit.

Digit

Studies show time and time again that Americans do not put away enough money for a rainy day, retirement, or an unforeseen emergency.

While most consumers turn to their respective banks to provide savings tools, some nontraditional financial companies are providing alternative methods.

Digit debuted in late 2014 and offered consumers a savings tool without much hassle. First, the user links a checking account to the online service. Digit then analyzes income and spending patterns and sets aside small amounts of money in an FDIC-insured, noninterest-bearing savings account.

Digit does provide what it calls "savings bonuses."

"When you save with Digit for three consecutive months, Digit will automatically reward you with a 1 percent annualized savings bonus," the company says on its website.

Digit debits your checking account every two or three days once it determines your money flow. The idea is that Digit socks away money you don't necessarily need — $3 here, $2.50 there.

I've had months where Digit put away almost $100 without my even thinking about it.

The service keeps you updated with checking account balances and notifies you when it moves money into your Digit account. You can withdraw money from Digit at any time without a fee.

Digit did not have a mobile app when it started; users communicated with the service via SMS text. The mobile app came later, but functions in much the same way as the SMS text communication.

Digit was once completely free but recently added a $2.99-per-month fee for its service after a 100-day trial. Personally, I didn't blink when they added the fee. It's money you don't miss while the service can easily put away $100 a month.

Acorns

Acorns debuted in 2014 as well, and is an investment app that does all of the thinking for you. It follows a similar savings model to the Keep The Change program offered by Bank of America.

After you sign up for Acorns and link to a checking account, credit card or both, the app rounds up every purchase and deposits the difference into an investment portfolio. As a user, you can choose among five different investment approaches and can monitor how your portfolio performs over time.

In addition to the roundups, Acorns lets you invest additional amounts at any time.

One of the things I found so attractive about Acorns is its simplicity.

Outside of my 401k, I don't do a lot of hardcore investing, despite my best intentions. But Acorns strips away the complexity of market investments.

Coinbase

Speaking of investments, what about bitcoin?

I've always had mixed feelings about the popular cryptocurrency.

I understand why it was created as an alternative to fiat currency. But because merchant acceptance has stalled, I never owned bitcoin to buy goods and services. And I believe holding bitcoin as a pure investment play defeats its original purpose.

But, I couldn't help myself in the past couple of months and bought a small amount of bitcoin through Coinbase.

Again, simplicity was key here because the Coinbase app makes it easy for a novice to buy bitcoin, Ethereum or Litecoin. All you have to do is link a funding source, enter the amount you want to buy in U.S. dollars and hit the buy button. Done.

Going forward

The mobile apps I've presented here are just a small sampling of what's available in the market for alternative financial services.

Another service I use is Lemonade, which offers renter's insurance for as little as $7 a month. Again, another simple yet meaningful and useful financial relationship that I'm not getting from my primary bank.

So, what can banks learn from these examples?

Financial institutions are investing in blockchain, but are not giving their customers the option to buy cryptocurrencies. I'm sure there's an excellent reason for that, likely regulatory, but is it an option FIs should explore?

As far as what Acorns and Digit do, there are some similar bank offerings on the market, but I don't believe they go far enough.

BofA's Keep the Change program has been around for years, but it doesn't compare to Digit, which has much more meat and usefulness to it.

One quote in my story last week that really stood out was something that Richard Steggall of Urban FT said about the current state of innovation in banking:

The banks have taken on innovation. A couple of companies found their niche and have provided genuine value in the industry but a lot of those people that came out and demonstrated innovation are not around anymore. Banks learned from that, they watched what happened, they took what they liked, and their in-house teams took those products to market. That's the cycle you go through in any industry.

When I compare my three examples to what I'm seeing at some banks, it's clear that gaps remain in terms of features and innovation. And what passes for true innovation these days is always up for debate.

Perhaps in the end, large FIs will gobble up services like Acorns or Digit. But it would be better for banks to truly innovate in order to secure and then nurture meaningful and useful relationships with their customers.

Join us Sept. 18–20 in Chicago at the annualBank Customer Experience Summitas we discuss how trending technologies can enhance the customer experience, how banks and fintech companies can play nice and more.Register by Aug. 18 and take advantage of early bird rates.