Many Millennials say they would be willing to pay their bank or credit union for a range of financial services, from negotiating bills to life advice.
Consumers who want to negotiate lower costs for their monthly bills likely would not expect their bank or credit union to help them with the process.
They might instead investigate nonbank or fintech solutions, like Billshark, and perhaps even be willing to pay for those services.
A recent study on financial behaviors and priorities found that consumers would pay to have someone negotiate money situations on their behalf, one of several financial servicers some consumers would be willing to pay for. Of these consumers, half would prefer to use their current bank or credit union for these services if they could, according to global analytics software platform provider FICO.
“Consumers’ expectations for banks and credit unions are really constrained by the products they traditionally offer,” said Anna Hamilton, vice president of portfolio marketing for customer development at FICO. “While consumers continue to express positive sentiment toward their banks, our research has really revealed a vast set of urgent financial needs that a majority of banks and credit unions are not currently solving for.”
Just as community banks and credit unions have adapted their online and mobile offerings in the face of growing competition from large banks and financial technology firms, smaller financial institutions could also find growth opportunities by looking to nontraditional services that could meet the changing needs of their customers.
‘Shadow Banking’
Most consumers do appreciate their existing financial institution, with FICO’s survey finding that 86 percent of respondents like their bank or credit union and 60 percent have received exceptional service from their institution.
“Despite what every fintech startup pitch deck might tell you, most consumers are actually really satisfied with their banks and are unlikely to fully switch banks or close their existing accounts,” Hamilton said. “But this should not be a source of complacency.”
As consumers confront financial problems that banks and credit unions don’t handle, some engage in what FICO calls “shadow banking,” having an account with a fintech, nonbank provider or merchant that banks and credit unions have no way of knowing their customers use.
FICO’s survey, which was conducted by Cornerstone Advisors and Nonfiction Research, found that 34 percent of respondents had at least one shadow account, and among millennials, that increased to 47 percent.
Hamilton said some of the top reasons consumers want nontraditional financial services include making smart decisions when considering big purchases, developing a healthier relationship between money and happiness and getting a better handle on debt, including how to use it wisely and how and when to pay it down.
While not all consumers want to pay for help with these problems, some will. FICO found that 29 percent would pay for someone to help them negotiate money on their behalf, 27 percent would pay for a self–driving budgeting and investing service, and 27 percent would pay for advice on big spending decisions.
Hamilton said fintechs, like Chime and Petal, that offer services to help consumers with their financial needs have been growing in popularity. FICO’s study found that 31 percent of Millennials expressed a strong preference for these services, along with 27 percent of Generation X and 19 percent of Generation Z.
Those engaging in shadow banking are not simply experimenting with new tools, Hamilton said, but have found value in the services. She said over the past three years, consumers who use one of the services have given a higher grade when assessing how well their money has performed for them compared to those who have not used a shadow banking service.
No bank or fintech is meeting all of its consumers’ financial needs right now, Hamilton said presenting opportunities for banks and credit unions to start exploring what else customers and members could want from them.
“I think there’s just an incredible opportunity for banks and for credit unions,” she said. “When we look at what our consumers are asking for, there’s this vast ocean of financial needs that these people have that they’re not necessarily looking for their banks to provide.”
Banks, CUs Have Advantage
One company looking to help banks and credit unions expand into nontraditional financial products is ApexEdge, the Hopkinton-based company behind Billshark, a tool that helps consumers negotiate lower bills.
ApexEdge recently launched an affiliate partner program for banks, credit unions and fintechs to offer the bill negotiation service to their customers, either through an online link or a deeper integration into the institution’s platform.
Steven McKean, ApexEdge’s president and CEO, said the average consumer saves between $600 and $700 annually using its service. Customers only pay if they save money, with a fee of 40 percent of the savings.
“Banks today sell savings accounts, but what customers want are savings,” McKean said. “Customers really want their bank, their financial institution, their credit union to really help them connect the dots, to go from doing these transactions to helping manage those transactions beyond categorizing them.”
In addition to the affiliate partner program, ApexEdge has also been integrated into Payrailz, a Connecticut-based digital payments platform used by banks and credit unions.
Diane McLaughlin
McKean said when the payment negotiation service is presented in customer-facing banking apps and websites, ApexEdge has seen the rate of users clicking to learn about the service double compared to a nonbanking environment..
Hamilton, with FICO, said if consumers cannot meet their financial needs through their bank, they will turn to other providers.
“Most consumers would prefer to stay with their current bank or credit union, but they’re not going to wait around,” Hamilton said. “There’s an increased demand and opportunity for consumers for those new financial services, and it’s imperative for financial services providers to broaden their product offerings in order to help meet those financial needs in the years to come.”
