Signals: Where do fintech people bank?

As a long-time member of the fintech builders crowd, I have felt ashamed of my 20-year banking relationship with one of the least fintech-y financial institutions: Bank of America.

I wondered: “Am I alone?” 

We surveyed the TWIF community via email, social, and Slack to determine where fintech folks bank in the fintech world. Unfortunately, the unsurprising answer is that most of us do not use the products we are all creating. We’ll dive into the data and the implications for this miss.

We received more than 100 responses to our survey. The respondents, on average, are high-earning technology workers. The majority are 25-34 years old, earn an annual salary greater than $200,000, and have between two and five years of experience in the industry. The findings are as follows.

Bank accounts: 79% have used a fintech checking or savings account; 15% currently use a fintech for their primary banking needs.

Investment accounts: 86% have used a fintech investment account; 25% use fintech as a primary investment account.

Loan accounts: 29% have taken a loan (auto, student, personal…) from a fintech; 64% have taken a loan from a traditional lender.

Overall, 95% of respondents have adopted fintech in some way. While the adoption of fintech for primary accounts is relatively low, a surprising 20% of people have never used a fintech deposit account, and 5% have never used a fintech solution of any kind. 

Our survey found that fintech investment accounts had the highest penetration (69%), followed by deposit accounts (59.3%), with the fewest respondents having a fintech mortgage (3.5%). Despite the high penetration of some usage of fintech deposit accounts, only 16.8% of respondents use a fintech for their primary banking needs, compared to 26.5% of users reporting using a fintech investment account for their primary service.

Income and age are large factors that determine whether or not respondents use fintech products as a primary banking service. Folks with an annual income of more than $200,000 are using fintech for their primary banking system more than those with a lower annual income. Those aged 35-44 are the largest group using a fintech for primary banking at a 7% adoption rate. Those aged 25-34 are the next largest group at 6% using a fintech for their primary banking needs.

The traditional banks respondents use mirror the large national institutions: Chase, Bank of America, and Capital One occupy the top three spots. Even among those who also use a fintech product, 91% of people use both a traditional bank and a fintech for deposit accounts, indicating a lack of willingness to dive completely into fintech.

When asked why people don’t switch to fintech, the number one reason given was “Convenience” (35%), – driven by factors like ATM networks and branches, “Trust and security” (23%), and “Missing features” (18%) rounded out the top three. As we all know, the inertia against switching is high, and we conclude that the biggest reason why fintech workers don’t use fintech for everyday banking is more due to convenience than trust issues.

What will it take to overcome this inertia and get the fintech community to embrace fintech?

I started my career in payments (as it was called) at Green Dot in 2006. The company was a Series B-funded startup creating reloadable prepaid debit cards for un- and underbanked consumers (e.g., people without a traditional banking relationship). The Green Dot employees were highly compensated, well-educated workers. We had bank accounts, and most (if not all) of us received our paycheck via a direct deposit to a traditional bank account. We were not, by any means, the target demographic of our product.

Did any of us use our Green Dot card as our primary bank account? No, I don’t think so. When I joined, we didn’t have bill pay, you couldn’t write a check, and depositing cash was expensive ($4.95 per instance) and limited ($500 per deposit). Green Dot was not a replacement for a traditional checking account for the demographic of workers building Green Dot.

Yet most of us, myself included, carried a Green Dot card and used it frequently. It was the best way to understand the banking experience we were providing and see what our consumers saw. Our primary retail channels were drugstores and Walmart. Up to that point in my life, I hardly ever went into a pharmacy or a Walmart. Working at Green Dot, I went weekly and developed a habit of visiting these stores in cities all over the country on travel, both for business and pleasure. The experience provided me with deep empathy for my users and a reality check on the way our decisions affected people.

What would have gotten employees to adopt Green Dot as their primary bank account? Let’s break down the 3 biggest factors identified in our survey.

Most people stick with the bank their parents opened their first accounts at and remain with that bank for 17 years, - suggesting that our expectations are anchored to feature-rich, ubiquitous banking experiences that early fintechs couldn’t offer.? While switching is much easier today than 5 years ago because of deposit switching (Argyle, Pinwheel, Atomic), data aggregation, and ACATS transfer technologies, the features of a fintech must still drive enough interest to push folks past their inertia.

Since that time, fintech products have been launched to drive adoption by a higher-income demographic. Simple, often dubbed “The original neobank,” was one such product aimed at winning an already-banked consumer base (I could never pass KYC at Simple, so I didn’t have the pleasure of opening an account). 

Many fintechs, such as SoFi, Wealthfront, Betterment, Robinhood, and Public, have caught up to the feature richness of traditional banks by offering a variety of products aimed at people across the wealth spectrum, but most still lack support for the needs of older users with more sophisticated financial pictures. While many people under the age of 30 have never written a check, many people over 45 still have to do so. I found that parenthood and home ownership drove up my need for traditional banking services, with more bills to pay to many more providers and many fewer of them accepting electronic payments. Although Zelle, PayPal, and Venmo have made tremendous inroads into replacing checks for smaller transactions, I still get asked for checks by service providers.

I also have a theory, not explored in the survey data, that life stages affect feature requirements heavily. A full 70% of respondents who earn less than $100,000 per user use a fintech for their primary banking relationship, and all of those respondents are younger than 44. In contrast, less than 5% of respondents over 45 reported using a fintech as their primary bank.

Although trust and security don’t rise to the top concern of non-fintech users, many of us in the space also understand the inherent messiness and risk of working with a fintech. Several of the fintechs whose credit cards were in my own wallet have come and gone in the past five years (including my own company’s!). The past year, in particular, has highlighted how fragile these businesses can be. Shut-downs are a frustrating experience for a user, who sometimes loses rewards or experiences long delays in receiving funds. Those of us who build these products may be additionally frightened by the messes we perceive our companies to be– although I guarantee you that major financial institutions have similar processing errors at times.

It’s disappointing how few people have tried fintech products and how even fewer have shifted to fintechs as their primary providers. There are a host of factors that can make it too hard to shift, from basic inertia to missing features to cross-product incentives provided by large banks (i.e., enhanced rewards or reduced loan fees for multi-product users) that make a switch to a fintech solution economically disadvantageous. Many of us want to believe that our beautiful interface will be the primary reason people switch. If that doesn’t work, we throw free trading or very high yield at people, but evidently, these incentives still aren’t sticky enough to yield long-term changes.

If we, as a community, want to make better fintech products, we need to use those products ourselves. Having a deep understanding of the real-life experience and empathy for our users is key to growing our user bases and ensuring that the next time we run this survey, the majority of respondents do use fintech products as their primary providers.