The Future of Banking Is...You're Broke

[BeyondGeography]

Our present financial ruin is being turned into a business model.

The latest wave of tech-based financial startups have a new angle on the banking sector: They’ll assume that everyone is out of money, then try to monetize their brokeness.

So-called neo-banks, or challenger banks, have been all the rage in Europe and Australia for the past few years. Now they’re starting to get attention here in the US, with names like Chime, Varo, SoFi, Current, GoBank, and even—heaven help us—booyah!. Yes, the exclamation point is part of the name. Like Yahoo!. Cutting edge, I know.

These neo-banks have been trying to make money in the usual ways: By taking a cut of credit or debit card transactions, collecting interest on consumer deposits, and making loans. The usual banking stuff. Their come-on is that they’re super-convenient, all-digital, mobile alternatives to the big banks. Better yet, they’re focused on their customers’ “financial health,” as one neo-bank CEO told me, and easing the “pain” that people feel around their money.

What makes that pain go away? At Chime and Varo, you can get what sounds a little like a neo–payday loan—your paycheck cashed, up to two days before your actual payday. Checking accounts at these startups are often free, and the companies will let you go $50 or $100 into the red before they start charging any overdraft fees. Some have automated savings accounts that invisibly funnel a few dollars from your paycheck into savings.

These neo-banks aren’t necessarily even banks at all; some are apps that facilitate transactions, which are then carried out by partners that are banks. Others have applied for bank charters while touting their homegrown technology stacks and hyperpersonalized product offerings (based, of course, on your personal data). But all of them say, explicitly or by intimation, that they’re mission-driven. Their mission is the hot mess that is your finances.

The hot mess is very real. Seventy-eight percent of Americans live paycheck to paycheck. Student loan obligations in this country total $1.5 trillion, and researchers believe they’re cutting into millennials’ ability to buy homes, have kids, and save for retirement. More than 40 percent of households have some credit card debt: The average liability is more than $5,000, and the poorer you are, the more you’re likely to have.

So what better fix than to slap a slick veneer of tech over basic banking services, push the ouroboros paycheck cycle up by a couple of days, offer some basic budgeting tools, and call it a revolution in consumer banking?

... Whether it’s due to competition from banks, each other, or bigger tech companies, neo-bank startups will inevitably go out of business, leaving consumers stranded. That’s pretty disruptive when you’re talking about your checking account. And at some point, the neo-banks will have to make more money, which means their offerings will get less generous over time.

A second problem is more serious. Ultimately, no amount of friendly design, accessible features, and overdraft protections will solve the underlying problems that made these services necessary in the first place. No neo-bank can erase the student loan debt or the 40-year stagnation in wages or the unexpected medical expenses or the crippling reality of America’s existential brokeness. The neo-banks have promised that they’ll ease your pain, but that’s just morphine for the real condition. When it comes to the actual sickness, you’re still on your own.

https://www.wired.com/story/the-future-of-banking-is-youre-broke/

[C Moon]

1. And tonight I heard some idiot on tv praising all greatness Reagan did for us.

The Reagan years started this whole mess.
The union busting was almost immediate.
The attack on the middle-class was slower, but they eventually (SOMEHOW) convinced the middle-class that CEO's and corporations deserve more money than us lowly servants.
Ronald Reagan was no hero. He was a puppet for the rich.

And the difference between Reagan and Trump are that Reagan was a puppet to the American rich; and Trump is a puppet to the Russian rich.

[Freddie]

2. My town has a Ronald Reagan Drive

They built a new street for a new school about 15 years ago and the RWNJs on the borough council just had to name it after their hero. Still pisses me off.

[Hermit-The-Prog]

3. student debt is the GOPer answer to college educated voting Democratic

The GOP has systematically attacked education, because more education means more likelihood of voting for Democrats. Student debt is just another way to discourage people from going to college.

[dalton99a]

4. Google is planning to break into banking with new checking account offerings

https://www.businessinsider.com/google-will-begin-offering-checking-accounts-2019-11
Google is planning to break into banking with new checking account offerings

Google will begin offering checking accounts to consumers next year as part of its push into financial services, The Wall Street Journal reports. The product, currently code-named "Cache," will be run by Citigroup and small lender Stanford Federal Credit Union.

Google has made forays into financial services in the past, with mixed results: It launched Google Wallet in 2011 but shut down the associated Google Wallet card in 2016 (and has been rolling Google Wallet into Google Pay). It also ran a site to compare financial products like auto insurance and credit cards between 2015 and 2016 but shuttered it after about a year.

To launch a successful checking account, Google will need to incorporate features that stand out and encourage direct deposits. While Google has a sizeable enough addressable base — 46% of smartphones in the US run on Android, per Statcounter — and some consumers would probably be interested in a Google checking account, the mixed results of its past financial services plays suggests that an "if you build it they will come" approach won't be enough.

Instead, Google will need to drive signups either by integrating innovative features to create an exemplary customer experience or by using incentives, such as a signup bonus. And in order to get the account to contribute to its bottom line, it will need to go a step further and incentivize users to deposit their salaries in the Google checking account and make it their primary account, through offerings like early access to wages or overdraft cushions. If successful, the checking account could embolden Google to push further into financial services, for example by also debuting a savings account or credit card.