By Ray Birch
ST. PETERSBURG, Fla.—New financial services companies that have been adding as many as 20,000 new customers per week are creating a new, upside-down landscape in which those providers that offer the greatest transparency will be those that grab the most market share in coming years, asserts one analyst.
Brian Scott, SVP of sales and solutions consulting at PSCU, also insists that the era of free checking is over, even for credit unions.
“I think we are just beginning to head into period in which the banking model will be turned upside down, on its head,” said Scott. “I believe we are moving toward a time when consumers will expect financial institutions to be much more up front about how they are making money. I think the banks and credit unions that begin to make this shift now will be the ones that gain the biggest advantages by setting themselves apart in their markets.”
What’s driving consumers’ demands for greater FI transparency—such as explaining why certain fees are charged and how the institution generates its income and why pricing is set—is from new fintechs in Europe that are emerging thanks to the PSD2 (Payment Services Directive) rules, according to Scott.
PSD2, sometimes known as “open banking,” is a new banking regulation in Europe that essentially allows non-financial institutions to conduct banking services. That has led to startups such as Monzo, which calls itself “the bank of the future.” Similar open banking rules are expected to be introduced in the U.S. some point.
“Everyone is watching for that,” said Scott.
And they should, he insisted, using Monzo as the primary example of the threat that open banking presents to U.S. institutions that don’t follow some of the leads of the upstarts. What Scott sees as the most powerful and consumer-appealing aspect of Monzo is the company is very open to its account holders and the public with how it works and prices.
“Monzo is adding about 20,000 customers a week, which is pretty crazy growth,” Scott said.
Scott said rapid growth is occurring because Monzo is very transparent about its fee structure and more.
“They are extremely clear about what all their charges are, where their fees go, their interest rates, how they pay for losses and their overhead. They even come right out and say when they make a business mistake,” said Scott.
CEO Upfront About All Issues
That transparency, insisted Scott, is very appealing to younger consumers.
“Each week Monzo’s CEO blogs and points out what the company is doing, good and bad,” Scott said. “This is a really interesting concept for banking.”
Why this is so powerful, added Scott, is that people simply feel good about banking with Monzo.
It’s a business model that more fintechs are following and one that U.S. consumers will expect when open banking comes to the U.S., said Scott.
This shift in consumer expectations is occurring at the same time consumers are changing their attitudes about what they get from their banking products, particularly checking, said Scott. He said that consumers are now looking most for value from their FI, and are willing to pay a fair price for that.
An Evolution in Checking?
Scott believes the era of the free checking account as a primary draw has passed, and that consumers are willing to pay a small monthly fee, such as $4.95, for a bundled account that includes services such as identity theft protection and discounts. Scott’s opinion aligns with previous CUToday.info reports that share that consumers like a bundled checking account.
Scott said consumers’ willingness to pay a fair price for value is reflected in how Amazon customers gladly pay for their Prime accounts.
“And there is talk of Amazon creating a bank, and speculation is that they will charge for that,” noted Scott. “But to the whole marketplace, the idea of Amazon charging for banking makes sense—why wouldn’t they charge for Amazon banking?”
Willing to Pay, If…
This shift is consumer thinking and expectation of financial institutions should garner the close attention of U.S. banks and credit unions, said Scott.
“I go back to the Monzo example,” Scott said. “People are willing to pay fees when they know what they are paying the fees for and what the company is all about and they feel like they are getting value. They feel better about their decision to work with a financial institution. It’s like working with an investment manager who says he will charge me $100 to invest my money wisely, versus an advisor who says he will take a cut of what we make. You feel better about paying someone that $100, opposed to a charge that you can’t really understand. Banks, and even credit unions need to get to that point, where consumers pay them a fee and they are happy about what they get in return and feel good—as opposed to getting charged for things and not understanding what the charge is really for or what they get in return.”