Two non-banks released offerings last week that bankers should know about as both are poised to take market share from community banks. Venmo and Acorn both released debit cards with cutting-edge features that will now have banks scrambling to keep up. Both of these Fintech firms have partnered with community banks and applied both creative marketing and product creation to allow digital customers nationwide to leap from the digital world to physical stores. In this article, we explore the ins and outs of the products in hopes of helping banks better compete.
Venmo now has 197 million active accounts and process more than $2B in payments together with their partner, The Bancorp Bank ($4.4B, DE). Their large and installed customer base means that a high percentage of community bank customers are also Venmo customers. Up to this point, Venmo was the number one app for person-to-person (P2P) payments. Now, Venmo is issuing debit cards which allow customers to transact in almost every store or e-commerce site in America.
In addition to coming in different colors, the debit card allows users to check real-time activity, pull up history, split money between friends and enable/disable their credit card with a swipe of the finger. These features put more control in the user's hands and have been a hit with users of all ages.
Up to this point, Venmo hasn’t made much money since most of the P2P transfers are without fees and the float was limited. Now, however, the company can leverage its installed customer base and participate in interchange fees with its debit card. Also, Venmo has the most active social payment feed of any product in the market, allowing it to monetize with retailers through ads and data.
Acorn is an even more sophisticated example of a non-bank controlling banking relationships. Acorn, in partnership with Lincoln Savings Bank ($1.1B, IA), is a startup that will officially launch their product in November but it already has pre-orders for 10,000 accounts.
Their debit card, uniquely made from tungsten, is much heavier than other metal cards on the market. It has a micro-investing component that rounds your purchases up and then moves that difference into an investment account. This is similar to Bank of America’s Keep the Change program but with more of an emphasis on investing.
Acorn is targeting their product to 25 – 35-year-olds who are looking for a mobile account with an eye towards savings and retirement. Their value proposition is that they will hold your hand and help you secure your future a little at a time in a simple, yet sophisticated manner.
As a side note, for any bank looking for or who already has a demographically-targeted blog, Acorn’s blog comes close to nailing it. It’s a good example with respect to the blog’s design, content, and voice (HERE).
In addition to a sleek debit card, the account also comes with a checking account, mobile banking and fee-free ATM access for either $1, $2 or $3 per month (below) depending on the number of options needed.
Disruption to Banks
The payment transfers occur through bank accounts, so the money isn’t leaving the banking system. However, it is disintermediating community bank customers to some extent as whoever controls the card controls the data and part of the relationship as well as interchange fees.
Acorn has a more aspirational approach as they have products through their partner bank to allow full-service banking. The payment part of both relationships remains on card rails, so Zelle remains a suitable counter from banks to retain the customer.
Further, this is also another reminder that community banks need to keep marketing their debit card as consumers are increasingly using cards that are tied to their mobile wallet through Apple, Android or other devices.
Other than that, banks need to get more sophisticated in their marketing and product design in order to compete. There is nothing these Fintech companies are doing that banks can’t do. All a bank has to do is have the will to get creative and invest in your future.
Submitted by Chris Nichols on July 30, 2018