While banks might have initially been slow to act when it came to embracing digital strategies they are now able to offer a comparable product to their fintech competitors. Through building their own technology, partnering with or acquiring emerging fintech companies, banks have received the message that they need to fully embrace the digital age.
The digital strategy at banks is now considered a core part of their business and essential to future growth. We wanted to explore how some of the biggest banks have been integrating digital strategies and making strategic acquisitions to enhance the customer experience or replace falling revenue in other areas of their business.
JPMorgan was the first major US bank to partner with a fintech company when they launched their small business lending partnership with OnDeck in early 2016. That partnership was renewed earlier this year and has helped the bank to offer a seamless small business lending experience and reach customers it might not have otherwise. In recent months they have struck a new partnership with Mosaic Smart Data to help the slumping fixed income trading revenues and they have also completed an acquisition of WePay, a Silicon Valley company that offers payment capabilities to business platforms using APIs. Finally, just this week they launched Finn by Chase, an app aimed at millennials that allows people to use a phone to open a bank account, make deposits, issue checks, track spending and set up savings plans.
Bank of America saw more than 1 million users added to their digital channels and active digital banking users go from 32.8 million to 34.5 million in the last year. The main driver of this growth was through their mobile app. Customers are using the mobile deposit feature more than any other, mobile deposits now account for 21 percent of total bank deposits. The cost efficiency of mobile allows for the bank to cut locations around the country, so they are now taking deposits for less money and cutting overhead costs.
Wells Fargo’s digital growth was not nearly as significant as Bank of America but still showed good progress in the last year. The bank saw primary consumer checking customers and consumer general purpose credit card active accounts decline slightly or stay flat. Meanwhile their digital growth, which includes web based and mobile users, saw a 2 percent increase from 2016. Branch and ATM interactions were down 6 percent while digital sessions through the web and mobile app increased 6 percent. More people are banking on the go as opposed to taking the time to drive to the branch.
Citi has a new initiative to focus on the speedy implementation of new technology called Citi FinTech. The group, initially created in 2015, is now seen as the main driver of their mobile app growth and greater efficiency within the bank. It opened a global API Developer Hub that allows the bank to quickly connect with developers via APIs. They also reduced the number of fields required to open a brokerage account by 55%, and they have seen a 75% reduction in approval time for opening a brokerage account. Citi is the first global bank to integrate banking, money movement and wealth management on mobile.
Perhaps the biggest move into digital has come from Goldman Sachs as they launched their own consumer lending platform Marcus in late 2016. In less than a year Marcus surpassed $1bn in originations, faster than any online lending platform to date. Goldman has a clear advantage when it comes to cost of capital and the success of Marcus has led the bank to predict revenue from lending could surpass that of trading in the next few years. In the last few weeks they also made an acquisition of private mortgage lender Genesis Capital LLC, a company that provides financing for real estate developers looking to buy, renovate and sell single-family homes. With the success of Marcus and now moving into new areas of fintech Goldman clearly sees the potential that digital provides to their business.
Banks have clearly started to move into the new age of financial services, though they still have a fair amount of work to do when it comes to partnering with fintechs. In a recent piece by American Banker we learned that fintech companies have found it increasingly hard to work with tier one banks. The most common frustrations fintechs discuss are that banks still feel a sense of entitlement, they always have questions related to intellectual property rights, many do not pay in a timely fashion and projects need extremely long lead times.
The good news is banks and fintechs now see each other more as partners and not competitors, which is a good sign for the customer. Banks are now fully aware of the changing needs of their customers and they are positioning their businesses to embrace digital in new and interesting ways.
Todd is the host of PitchIt: the fintech startups podcast, a weekly interview show featuring emerging fintech founders and leading venture capitalists. He is responsible for leading the content team which covers fintech through daily & weekly email newsletters, editorial, virtual events, and in-person conferences. He has been covering fintech, banking, and venture capital for more than 15 years, including speaking regularly at industry events.