Overview from Fintech Snark Tank
Senator Sherrod Brown (D-OH) recently took some potshots at Chime, digital banks, and fintech in general. As BusinessInsider reported:
“Brown cautioned that fintechs—often called neo-banks—that provide online banking services are potentially dangerous, and leave users vulnerable to losing their money. Brown also noted that privacy Breach, fraud and hidden fees are also at risk of being careful when using these services.
The article quotes Brown as saying:
“Fintech companies that want to act like banks – but without the consumer protections and safeguards that real banks must follow – put people’s hard-earned money at risk. Consumers shouldn’t be locked out of their accounts.”
Brown Out in Argument
The senator’s comments are clearly wrong, and I’m sure he knows they are.
Chime- and other digital bank-customers are not “vulnerable” to losing their money compared to customers of licensed, chartered banks.
In the event of a bank failure, through its associate banks, Stride Bank and The Bancorp Bank, all Chime accounts are insured up to a standard maximum of $250,000 per depositor, for each ownership category.
To Brown’s comment about the dangers of data breaches related to Neobank, the senator should not have a Capital One credit card. If he did, he might remember the March 2019 hack of data on 100 million credit card applications that affected card issuers in 2005.
And I guess they don’t remember the October 2014 cyberattack on JPMorgan Chase, which affected data on 83 million accounts.
This lapse of memory is strange because the senator is not a fan of big banks.
About Brown’s comment that “consumers shouldn’t be locked out of their accounts,” I couldn’t agree more.
But of course senators are aware that banks — you know, “real” ones — lock customers out of their accounts all the time. According to Investopedia:
“Banks may freeze bank accounts if they suspect illegal activity such as money laundering, terrorist financing, or bad check writing.”
i got a complaint
The BusinessInsider article also mentioned that:
“The Consumer Financial Protection Bureau has received more than 2,267 complaints about Chime since 2020, with many users complaining about frozen accounts and fraudulent transactions that Chime refused to reverse.”
Let’s do a little math here.
According to the CFPB complaints database, between April 16, 2021 and April 16, 2022, consumers filed 1,500 non-mortgage complaints against Chime and 10,182 non-mortgage complaints against Bank of America.
According to research by Cornerstone Advisors, Chime has 14.6 million customers. According to its website, Bank of America serves approximately 67 million consumer and small business customers.
Result: Non-mortgage complaints per customer are 0.000103 and 0.000152 for Chime for Bank of America. Put another way, for every million customers, Chime receives 103 non-mortgage complaints and Bank of America gets 152. Who is the bigger problem?
Who is hiding what from whom?
“There is also a danger of being wary of hidden fees when using these services,” Brown said. Hidden fees are always a threat, but consumers have a different view than Brown on what to beware of.
According to consumer research from Cornerstone Advisors, nearly nine out of 10 Chime customers believe that challenging banks adequately disclose their fees. That percentage drops to eight out of 10 for Chase and Wells Fargo.
brown-nosing the banks
A lot of banks (especially mid-sized ones) are not happy with well-capitalized (and overvalued, IMHO) challenger banks like Chime and Aspiration. They question and challenge the efforts of digital banks to refer to themselves as banks, but ignore the fact that the services that digital banks provide are within regulatory guidelines, as they were originally are provided by the banks.
Complainers—and this includes Senator Brown—and stick their heads in the sand and ignore two big trends:
1) The percentage of Americans whose primary checking account is with a digital bank has skyrocketed since 2020. More than a quarter of Gen Zers (21 to 26 years old) and almost a third of Millennials (27 to 41) now call a digital bank their primary checking account provider. In Gen Xers (42 to 56), the percentage of those holding their primary account in a digital bank increased from 8% to 22%. Overall, six out of 10 Gen Xers and Millennials who have their primary checking account with a digital bank have that account with Chime, PayPal or the Cash app.
2) There is a $25 billion opportunity for Neobank—and other fintech—banks. According to research by Cornerstone Advisors, banking as a service — a strategy where a bank partners with a fintech or other non-financial institution brand to provide financial services to a partner’s customer base — costs up to $25 for banks. billion is expected to be generated per year.