In the disruptive digital age, the question isn’t whether consumers will try new banking methods, but when and where. More than half of consumers are open to non-bank alternatives, and the numbers are higher for Millennials and Gen Z. This isn’t to say that consumers are ready to leave their banks altogether.

In 2018, debit cards were the most popular payment type, accounting for 28% of all payments1. According to research, nearly half (44%) of Americans use debit cards for everyday purchases, including groceries and gas2. This preference is keeping up with the times, too — more than one-fourth of 18 – 24 year olds have a debit card on their mobile wallets2i.  But consumers’ expectations around money management are evolving, and many are willing to try banking services from other consumer brands they trust and digital-first tech companies that provide more engaging and easier-to-use experiences.3

To meet those shifting consumer expectations, there has been a growth in challenger banks which are tech companies that are offering digital-only banking experiences. Now, many fintech companies and challenger banks see an opportunity to increase customer stickiness by offering modern digital banking services – delivered contextually within their existing platforms and apps. Debit offerings in particular are rising in popularity and interest among fintech companies, likely because debit continues to be the preferred payment method for an overwhelming majority of consumers and creates daily opportunities for engagement.4

Could debit provide a path for your business to deepen engagement and grow in the future? Consider these three use cases for leveraging consumers’ favorite payment method. 

1. IMPROVE THE EXPERIENCES TIED TO EARNING INCOME

The way that the average American worker earns their income is radically changing. Forbes reported that “more than one-third (36%) of U.S. workers are in the gig economy”4 earning money from gig-related jobs usually sourced through a technology platform/app. Workers no longer get one paycheck from one employer at one regular pay period, but rather are demanding to be paid for their work from multiple sources as they earn it. Consumers are open to managing their earned wages through multiple accounts to help manage employer earned funds and self-employed freelance business funds separately.

Tech companies that drive the gig economy like Lyft and Uber for instance, have layered in debit products as a way to help their drivers manage the business of being a driver more effectively. The debit accounts deliver seamless driver benefits to increase loyalty and ultimately help the driver stay engaged with their earnings. Putting that money in the driver’s pocket after every ride via an immediate payment to a debit card provides instant cashflow that gig workers value. Product features like cash-back on gas, and no minimum balance fees makes it attractive enough for drivers to keep their earned money with the company that fuels their side-gig.

It’s not uncommon to have drivers that drive for both Lyft and Uber, and adding a debit product for drivers (or any gig-worker) adds one more way for the company to compete and increase retention. Traditional employers are taking notice of these innovations and may adjust their payment practices to compete for employee retention in the marketplace.

Even fintech companies like Square have shown interest in a solution like this for small business owners. Merchants using Square’s credit card processing software can instantly access all business earnings via their Square business debit card, allowing for improved cash flow and access to money they use to run their business.

Tech companies interested in offering debit products lean on fintechs and banking partners to power their solutions for easier integration.

2. DEEPEN ENGAGEMENT IN PLACES CONSUMERS ARE ALREADY THINKING ABOUT MONEY MANAGEMENT

Many challenger bank brands are doing this through the convergence of a debit card product with other financial services they already offer. For example, a challenger bank’s fee-free investing platform or early access to earned wages wins customers to create their initial relationship by helping them achieve their financial goals, while an integrated debit product keeps them engaged on a daily basis with the platform. The challenger banks are evolving multi-pronged solutions that help consumers spend, save, invest and access extra funds instantly when they need them. Challenger banks offer a debit product to keep customers who are already in their financial services ecosystem there, and they create additional stickiness with more perks layered on top of a debit product like financial health advice, cashback rewards or bill payment tools.

Adding a debit product allows money management companies to reduce the amount of effort their users need to use the products and services they offer. Their unique personal financial management tools win customers by helping them live within their means, save for the future or possibly access unique discounts, and an integrated debit product keeps them engaged everyday.

The idea of consumers earning and keeping money in multiple bank accounts with different tech companies and challenger banking solutions may seem farfetched to some. But fintech apps, such as Mint and Personal Capital, that allow users to view all their financial accounts, are popular for allowing users to view all of their financial relationships in one ecosystem. The implication: 
  • Consumers are more attracted to doing business and managing their money contextually than they are opposed to having multiple accounts.
  • Consumers open and use several debit cards because digital innovation will make it seamless and natural.
  • Consumers will gravitate to debit products that connect with their personal lifestyle and values.

3. BRINGING DISRUPTIVE GLOBAL CHALLENGER BANK CONCEPTS TO THE U.S.

Experienced global challenger banks are increasingly coming to the US. Their goal is to replicate this success in the US and capture market share with compelling product benefits that are typically only available with high-end US credit cards, like no fees when spending abroad. They also support the global citizen by enabling easy-to-use money transfer features in numerous currencies.

Challenger banks like Monzo in the UK and N26 in Germany plan to launch in the US, claim to have a large waitlist and designs on signing up 10,000 new customers every day5. Both of these challenger banks offer unique debit accounts that allow for flexible money movement and management via user experience not often found in traditional US banks.

These challenger banks are well funded, have proven they can scale and offer products originally designed for Europeans that they believe Americans will also want.
The idea of consumers earning and keeping money in multiple bank accounts with different tech companies and challenger banking solutions may seem farfetched to some. But fintech apps, such as Mint and Personal Capital, that allow users to view all their financial accounts, are popular for allowing users to view all of their financial relationships in one ecosystem. The implication: 

  • Consumers are more attracted to doing business and managing their money contextually than they are opposed to having multiple accounts.
  • Consumers open and use several debit cards because digital innovation will make it seamless and natural.
  • Consumers will gravitate to debit products that connect with their personal lifestyle and values.

 

1 Cash Product Office Federal Reserve System, “2019 Findings from the Diary of Consumer Payment Choice”
https://www.frbsf.org/cash/files/2019-Findings-from-the-Diary-of-Consumer-Payment-Choice-June2019.pdf
2 NerdWallet, “Americans favor debit over credit for their go-to card” https://www.nerdwallet.com/blog/credit-cards/credit-debit-survey-2017/
3 “Where Will We Bank Next? Consumer Choice and Banking Services in The Digital Age” PYMNTS.com, April 2019. https://www.pymnts.com/wp-content/uploads/2019/04/WhereWillWeBankNext-April-2019.pdf
4 “57 Million U.S. Workers Are Part of The Gig Economy” Forbes.com. https://www.forbes.com/sites/tjmccue/2018/08/31/57-million-u-s-workers-are-part-of-the-gig-economy/#479cec087118
5“European Challenger Banks Launch U.S. Invasion – Is America Ready?” TheFinancialBrand.com. https://thefinancialbrand.com/85668/digital-banking-us-competition-monzo-n26/

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