If you’re wondering whether startups are starting to shake up the consumer deposit business, look no further than Wells Fargo’s Greenhouse and JPMorgan Chase’s Finn.
The two banking giants are taking a page from Silicon Valley by offering mobile accounts that do not charge overdraft fees. That marks a significant shift inside an industry that rakes in roughly $15 billion in annual charges from customers who spend funds that they do not have.
Chase and Wells, like the rest of the banking industry, are wrestling with the question of how to appeal to young adults who are establishing lasting financial relationships. But they also have reason to worry that as-yet-unprofitable startups are resetting customer expectations about fees.
Over the last several years, numerous venture-capital-backed firms have begun offering transaction accounts aimed at millennials who live on their smartphones, see little value in branches and generally have less money than their parents, which makes them more susceptible to $35 overdraft charges.
These accounts typically do not allow overdrafts; when customers without sufficient funds swipe their debit cards, the transactions are denied.
Hank Israel, a director at the bank advisory firm Novantas, said that the rising popularity of payment apps such as PayPal and Venmo has made it harder for consumers to track inflows and outflows from their accounts, which has in turn made it harder for customers with low account balances to avoid overdraft fees.
That trend suggests there may be a growing consumer demand for overdraft-free products.
Israel also noted that while customers used to make decisions about where to open checking accounts based almost entirely on which banks situated branches near their homes, that is far less true in 2018.
Recent research indicates that roughly 40% of decisions about which account to open are based on which product meets customers’ specific needs, Israel said. “And that number really seems to be growing.”