Fintech disruption in the banking industry

For Immad Akhund, CEO of Mercury, a startup-focused neobank, March 9 started with rumors about Silicon Valley Bank not faring well and more customers signing up with Mercury to secure their deposits.

Akhund did not want to feed into the rumors about SVB and felt that they would be fine. But when the Federal Deposit Insurance Corp. took over SVB the following day, his fears turned real, and concerns about what it all meant for the startup ecosystem started sinking in.

Akhund’s inbox was soon flooded with direct messages and emails from distressed customers who could not withdraw their funds from SVB. 

“Understandably, everyone was worried about how they're going to make payroll,” Akhund told Banking Dive.

SVB customers started setting up accounts with Mercury so that they could meet payroll, as getting money out of the shuttered bank seemed like an impossible idea. Akhund said he and his team worked over the weekend to onboard customers to Mercury and extend support hours to answer customer queries.

SVB was trusted

There was one question on everyone’s mind — if SVB was not safe, was Mercury safe?

“SVB is a 40-year-old institution and trusted by everyone in the ecosystem,” said Akhund. “So, we really felt that the best way to approach it was with what we launched — the Mercury Vault. Instead of just saying, ‘We're safe and profitable,’ we wanted to have a product that spoke to people's concerns.”

Mercury Vault was created over the weekend of the SVB collapse. During its launch March 13, Vault offered up to $3 million in FDIC insurance but has since expanded to $5 million. Customers have their money set up with Treasury accounts, which gives them access to the U.S. government short-term T-bills by Vanguard.

The net inflows in the week following SVB’s collapse were around $2 billion, Akhund said. 

But the questions did not stop pouring in.

VCs reach out

More venture capitalists wanted to know if they could use Mercury’s platform for their business, though the San Francisco-based fintech already had around 2,500 such investors in their database. 

Prior to the collapse of SVB, Akhund did not think he needed to focus on the VC space.

“[I]t wasn't something we were heavily focused on. Investors tend to be more conservative, in terms of their choices in banking, than startups are,” Akhund said. “But we're seeing this demand.”

SVB was the main bank for VCs, said Akhund. “We had a ton reach out and a ton sign up,” he added.

While Mercury already had features that could cater to VC needs, the offerings needed more clarity, Akhund pointed out. 

He noticed that VCs preferred to go through the Cayman Islands when engaged in Latin American investments and the United Arab Emirates when making Asian investments, which prompted Akhund to work with the legal teams, both internal and external, and develop the latest offering. 

"There's a reasonable number of VCs that invest outside the U.S., and it can be problematic if you have [limited partners] outside the U.S. Or [if] you invest outside the U.S. to use a U.S. entity, you can get double taxed," Akhund said. 

Mercury launched an expanded feature for VCs about a week later. That included extending the VC footprint to the British Virgin Islands, the Cayman Islands and the United Arab Emirates.

Mercury also offers personalized relationship management support for every VC account. Many of the relationship managers are founders themselves, Akhund said.

“I would say this product probably targets a little more of the emerging VC category,” Akhund said. “If you're already scaled up, with a billion-dollar fund, you probably have more debt-specific needs that we don't cover. But if you're an emerging fund, and you have less than $100 million, I think it's probably a pretty good choice for you.”

Akhund worked with Mercury’s bank partners, Choice Financial Group and Evolve Bank & Trust, to come up with the new product.

“I think it's really important to have a direct relationship with your bank partners,” he said.

SVB’s collapse has led people to rethink their banking ways, Akhund noted.

“[R]ight now, most people's feeling is they don't want all their eggs in one basket, which is understandable,” he said. “From our perspective, we really want to be the main operational bank account for people.” 

Apple’s financial ecosystem could act as a building block for banks and fintechs as they try to modernize their offerings, grow their customers, and maintain a competitive edge in an ever-changing digital financial landscape, Richard Crone, CEO of independent payment advisory firm Crone Consulting, told Banking Dive.

Apple announced in October that its card holders would soon be able to deposit cash into a high-yield savings account by Goldman Sachs. As a follow-up, Apple launched its savings account in April, offering an annual yield of 4.15%, with no fees attached, no minimum deposit and no balance requirement. Though users can set up an account through the Wallet app on their iPhones, they cannot spend the money directly from the savings account. It must first be transferred either to a checking account or Apple Cash.

With the launch of Apple Wallet — which integrates Apple Pay, Apple Card, Apple Cash, Apple Savings, Apple Pay Later and Apple Tap to Pay — the tech giant launched more than just a payment platform: It launched a platform for financial management, Crone said. 

“So, what they've created is an all-in-one account structure with complete accessibility to your money through Apple Pay — a credit account, a prepaid account, a demand deposit account, and a savings or cash management account with a high yield rate. And that is truly unique in the marketplace,” Crone said. “There isn't anybody else across the globe that's offering this kind of thing.”

This is made possible through Apple Wallet and the fact that the tech firm knows who the customer is through multifactor authentication and biometrics to reduce fraud associated with digital banking, he added.

While Morgan Stanley estimates Apple’s services revenue to hit $100 billion in 2023, Crone Consulting’s independent study estimates the combined revenue from all Apple Wallet related services to account for nearly $6 billion. 

The total addressable market for Apple Wallet falls between $136 billion and $375 billion with 510 million monetizable daily active users, Crone said. 

“While Apple's expansion into financial services could be seen as a threat due to increased competition and potential revenue losses, it also represents a significant opportunity,” Crone said.

The San Carlos, California-based independent advisory firm estimated that in the month after the launch of Apple’s savings account, the tech giant gained over $1.2 billion in deposits, more in deposits than 92% of all the banks and credit unions in the U.S.

The thing that will eventually move the needle for Apple is adding offers and promotions that can be attributed to their platform, Crone said.

Learning from Apple

Apple’s financial services are integrated and interconnected, which can help foster user retention, Crone said.

Fintechs can learn from Apple’s simplified digital account opening and its accessibility to use and open new accounts from anywhere, he said.

Ron Shevlin, chief research officer at Cornerstone Advisors, said that though fintechs cannot replicate Apple’s strategy or compete with the tech giant since they don’t have the products that Apple has, like the iPhone, the fintechs can focus on the areas that Apple isn’t satisfying.

Apple’s closed ecosystem is its distinctive feature, which should get the fintechs thinking about using a more open strategy.

“Apple is just not going to become everything for everybody. It can become everything for a relatively small percentage of customers. The fintechs just need to really understand and stick to their strategy, their approach, their differentiation and their market,” Shevlin said. “Every fintech just needs to understand what their value proposition is, how it relates, how they are going to compete with an Apple ... But they also are competing with the Squares, they are competing with the big banks that are competing with small banks, they're competing with that — everybody is competing with everybody.”

A threat to established fintechs?

Apple’s huge user base, a general shift toward digital and mobile banking, and trust in the tech companies act in favor of Apple, Crone said.

A 2021 study by Statista revealed more than 2.1 billion consumers worldwide embraced mobile wallets for payments and money transfers, he said.

With the launch of platforms like Apple’s, it becomes necessary for traditional banks to collaborate with Apple, he said. The associated cost of 15 basis points per credit transaction and half a cent per debit transaction should be seen as a strategic investment — analogous to the operational expenses incurred for maintaining physical branches or installing ATMs, he said.

“If you don't have a digital-first mindset in delivering your services, it's hard to rejuvenate your customer base with younger cohorts because they demand the services,” Crone noted. “And if you're on iOS, if you own an iPhone, you are one of the 2 billion users of an iPhone who demand to be able to do Apple Pay. So yes, it's a threat to the financial institutions that choose not to participate.”

Ffintechs like challenger banks should feel threatened not only by Apple but by PayPal, Square and large banks, Shevlin said.

“Take Chime for example, which gets held out as being this great example, even Chime has a niche market, which tends to be low- to middle-income consumers,” Shevlin said.

“It's not a good base of consumers upon which to make a lot of money off of because they obviously don't spend as much because they don't have as much to spend and are not great lending prospects because their credit scores and creditworthiness is not as high as higher-income consumers. Without a broader strategy for monetizing those relationships, Chime and a lot of other fintechs are hurting,” he added.

The market is demonstrating these challenges right now — with the closing of Daylight, layoffs at Aspiration, and the sale of Kinly to Greenwood.

“The neobank/challenger banks are hitting a wall on growth, and obviously the funding to keep them alive is hard so, they should feel threatened by not just Apple, anybody out there with some presence in the market and strong financials,” Shevlin said.

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Early Warning Services, the operator of the bank-owned peer-to-peer payments platform Zelle, has big ambitions for a new digital wallet it says will make e-commerce payments easier for consumers and merchants. 

Like Zelle, the new product, called Paze, will be owned and operated by seven of the nation’s largest banks. The digital wallet is set to go live with merchants and member banks in June before a wider rollout in the fall, EWS said.

“This program has been designed from day one to be something that is available to all financial institutions in the U.S., large or small,” said Paze Managing Director James Anderson, a former Mastercard executive who joined EWS in August 2022 to head up the bank wallet program. “Our ultimate objective is ubiquity of access to Paze, both on the consumer side and on the merchant side.”

But launching a novel wallet, even with the backing of the nation’s largest banks, will be no easy feat, according to some industry experts, who say Paze will have its fair share of adoption and security hurdles to overcome to grab a slice of the digital wallet market.

The network effect

EWS, which launched Zelle in 2017, is betting Paze can mirror and ultimately surpass that P2P payments platform’s consumer adoption rate.

“You want to be more than just present,” said Anderson, on EWS’s initiatives to bring payment services back into the banking system. “You want to be in front of the queue, top of the consumer’s mind and perceived as the solution provider. I think that's what Zelle enabled in P2P. And that's what Paze is going to enable in merchant payments.”

More than 1,800 financial institutions are part of the Zelle network, according to figures EWS released in February.

The platform’s network of banks increased by 40% in 2022, EWS said, adding that 97% of the institutions that joined last year have under $10 billion in assets.

Consumers and businesses sent 2.3 billion payments totaling $629 billion through Zelle in 2022, EWS said.

Seven of the nation’s largest banks, including JPMorgan Chase, Bank of America and Wells Fargo, make up the consortium of institutions that owns EWS. That means Paze will automatically be loaded onto 150 million Visa and Mastercard accounts on day one, Anderson said.

But simply placing Paze at consumers’ fingertips doesn’t mean banks will automatically overcome the adoption hurdle, said Charlotte Principato, a financial services analyst at Morning Consult. 

“It’s a flawed premise that banks have or are holding on to being the primary provider for their consumer relationships. I think that that is a bank-centric notion,” she said. “Folks don't have monogamous financial services relationships. Everyone uses multiple apps to cobble together the type of financial providers that work for them.”

Paze is launching amid a crowded and competitive marketplace, one in which users of one digital wallet are likely to use others as well, according to data from Morning Consult. 

Close to 90% of Apple Pay users say they also use PayPal, and nearly every user of any competitor digital wallet also uses PayPal, according to a study the research company released in February. 

Meanwhile, 65% of Google Pay users said they also use the Block-owned Cash App, and more than half of Cash App users also use PayPal-owned Venmo, the study found.

It’s imperative that EWS’s digital wallet has a top-of-the-line customer experience if it wants to differentiate from other players and become the primary digital wallet provider for consumers, Principato said.

That will be a tough hurdle for Paze, given the stiff competition from well-entrenched players Apple and Samsung, said Seth Ruden, director of global advisory at fraud prevention fintech BioCatch.

“It certainly is going to be hard,” he said. “They've got an amazing user experience already. That’s Apple's bread and butter. Their design philosophy and their user experience is likely one of their strongest value articulations.”

Paze gives banks an opportunity to participate in the digital wallet race and stay relevant, Principato said.

“But I don't think it's a way for them to rise, in the minds of consumers, as beating out Apple Pay or PayPal,” she added. 

Winning over merchants

Consumers are disloyal with digital wallets because not every merchant or retailer accepts every wallet, Principato said.

“While this is great news for banks in the sense that customers don’t seem to have a limit to the number of digital wallets they’ll sign up for, it doesn’t guarantee they’ll actually use a new wallet with any frequency,” she said.

That’s why winning over merchants is key, Principato said.

Anderson touted Paze’s immediate reach, saying the more than 150 million accounts that will have access to Paze, after launch, give the platform “a more than relevant starting point,” which will incentivize merchants to adopt the digital wallet.

“And we have the opportunity to expand beyond that,” Anderson said. 

While that's enticing from a merchant standpoint, Principato said banks will need to show that Paze is capturing a new set of consumers.

“The banks will have to show some hard numbers of who those people are,” she said. “Why would a merchant add this other way to pay if the other digital wallets are already capturing anyone who would be interested in purchasing from them?” 

But Anderson said EWS is confident merchants are recognizing the value of Paze.

“They really like the idea that this is something that comes from the banks and is endorsed by the bank, and therefore comes with credibility and reassurance at the bank,” he said.

Ron de Bos, director of payments at e-commerce, payments and marketing services firm Digital River, said he expects merchants to respond positively to Paze, so long as banks prove that they can hold up their end of the bargain with regard to express checkout. 

“Existing brand reputation should go a long way in fostering trust, and that may lower some barriers to quick adoption, but banks need to make sure they can process transactions as quickly as competitors can to make their offerings amenable to merchants and consumers alike,” he said.

Will banks have an edge?

Like Zelle, a clear differentiator between Paze and its digital wallet competitors is its connection to regulated financial institutions. But whether consumers believe that connection boosts the platform’s trustworthiness over other digital wallets remains to be seen.

De Bos said banks will have an advantage here.

“Consumers go to banks for peace of mind. If they apply the same security principles to digital wallets as they already do to online banking operations, the appeal should be widespread,” he said. “Client adoption could be an issue, but the secure and reputable profile, combined with the fact that these may be consumers’ home banks, provides an additional advantage that makes this pursuit worthwhile.”

Principato, however, isn’t convinced banks’ reputations will give them a competitive edge in the digital wallet race.

“I don't think it's a fair assumption on the part of banks to say that consumers are going to use [Paze] because they're going to assume it’s safer,” she said. “If anything, Apple has been much more privacy- and safety-focused in their marketing efforts than banks have been.” 

Meanwhile, EWS’s digital wallet could be a prime target for bad actors looking to exploit any unidentified weaknesses on the platform, Ruden said.

“[EWS] might have some brilliant ways to secure this channel,” he said. “But the reality is, any new channel that gets created has the opportunity for exploitation, especially in the early days when adoption is starting to ramp up.”

Anderson said EWS is adding multiple layers to Paze aimed at ensuring the security of the platform.

“The consumer has the right to dispute a transaction, to perform a chargeback and ultimately to get their money back,” he said, adding, all transactions performed through Paze will be card transactions. “Those rights and benefits will be the same if a transaction is conducted through Paze as if it was conducted any other way. That's a sort of foundational layer.”

EWS said it has also designed protections around Paze’s wallet claim process. Users can claim their wallets by logging into the digital property of a participating financial institution, Anderson said. 

Consumers also have the option to claim their wallet when checking out at a participating merchant’s site, Anderson added.

And for every transaction performed through Paze, consumers receive a one-time passcode to the consumers’ phone via SMS, he added. 

“That's a layer of protection on every single usage,” he said. “We're ensuring that it's the consumer every time the wallet’s used.”

EWS’s member banks have a significant amount of resources to devote to Paze’s rollout, as well as initiatives focused on encouraging consumers to use it, Ruden said.

“This is going to require a lot of effort on their part to make sure that retailers and consumers are all going to be on an adoption pathway,” he said. “[But] that begins the problem of fraud. The more you open up adoption, the greater the likelihood that fraud starts to aggregate.”

Data opportunity?

It’s not yet clear how much of a consumer data opportunity Paze presents for participating banks, Principato said.

“It seems like they're still using the same payment rails as other digital wallets, in terms of really working with Visa and Mastercard,” she said. “I don't think there is a ton more to be gained in terms of the individual interaction, or sales data that they'll have.”

Paze could give banks a better understanding of consumers’ cash flow and day-to-day purchases, but as long as consumers continue to use multiple digital wallets, banks won’t be getting a complete picture, Principato said.

While the opportunity for data collection offers strong appeal in the adoption of any new digital channel, interested banks will likely be joining Paze for other reasons.

“The opportunity for data collection … is likely a consideration here,” De Bos said. “More likely, though, is that banks recognize the need to keep pace in the fast-evolving payments world, as super apps, digital wallets and the like all threaten to supplant traditional cards.”

Patrick Sells is launching a new venture that aims to bridge two sectors he knows well. 

Sells, who has held chief innovation officer roles at crypto firm NYDIG and New York City-based Quontic Bank, is launching True Digital Group, an online platform designed to help financial institutions innovate and more easily identify and implement new fintech partners.

Banks or credit unions pay a fee to join and can access seminars focused on topics such as compliance, crypto and lending.

A major goal of the platform, which Sells plans to roll out in the coming weeks, is to speed up the time it takes for banks to find a fintech whose services match their needs. 

“There's a tremendous amount of time that's wasted and frustration that comes from the process of just trying to find the right fintech partner and actually get to the finish line with them,” said Sells, who spent two years at Quontic before joining NYDIG in 2020.

The reason for this, Sells said, is a “missing translation layer” between banks and fintechs. 

True Digital helps to bridge that gap by presenting fintech data and services in a way that is actionable for financial institutions, he said.

“A bank can log in and say, ‘Our objective this year is to grow our non-interest income, or to grow our loans,’ using banker terms. And what they would see on the other side are the fintechs that specifically help do that,” he said.

Sells said he wants True Digital to be a neutral platform. Only banks and credit unions can join as members, and only fintechs with working relationships with a bank or credit union that is an existing member are able to show up on the platform, he said.

This prevents a fintech from inflating its bank partnership numbers, a frustrating practice that a bank may not uncover until months of discussion and due diligence have passed, Sells said. 

The policy also assures financial institutions have another bank or credit union who can vouch for the fintech. 

“A fintech can’t just show up on the platform without that financial institution being willing to speak as a reference,” he said. “We have to be very thoughtful about how to deal with different entity types. Many have tried something in this space, but if a fintech could pay to show up higher on the list, all of a sudden you've compromised the trust of the platform.”

True Digital has around 50 to 70 members, Sells said. 

Vantage Bank CEO Jeff Sinnott, whose $3.3 billion-asset institution has signed on as a True Digital partner, said he plans to use the platform to view technology stacks across different banks and credit unions. 

That insight will help accelerate the San Antonio, Texas-based bank’s innovation goals by enabling it to more quickly determine which fintechs would work best with Vantage’s systems, he said.

“It’s a really interesting time for community banks and credit unions, in terms of the technology. In many ways, the barriers of technology are lower than they ever have been for the industry. But in other ways, it takes an incredible amount of effort and time to qualify potential partners,” he said.

Finding the right fintech candidate can take his bank seven to nine months, Sinnott said. 

“We cast a very wide net because the fintech partners and players are changing so rapidly. Who they interface with, in terms of legacy technologies, is difficult to determine,” he said. 

Getting them to talk

While the platform is meant to speed up what can be a long process, the aim isn’t for banks to outsource their due diligence, Sells said. 

“We're just trying to expedite the, ‘Who should I be talking to?’’ part. That's where I think the most time is lost,” Sells said. “Then more time can actually be freed up to spend on deeper due diligence, which hopefully helps the bank avoid issues.”

Anecdotally, Sells said he is aware of banks and credit unions sharing knowledge and advice on fintech partnerships, but the process, he added, is still very analog.

“Our observation is that that’s all happening and it's very effective in theory, because you can really trust the other banker that you're talking to, but it's just not easy to find the right banks to talk to.”

True Digital aims to broaden financial institutions’ networks, particularly when it comes to securing the right fintech partner, Sells said.

“We want to be very thoughtful about what banks or credit unions need. We really want to be their advocate, and we want to be a trusted partner,” he said.

BNY Mellon and financial empowerment fintech MoCaFi have partnered to bring payment options and banking services to unbanked and underbanked Americans, communities that make up 5.9 million and 18.7 million U.S. households, respectively.

The treasury services arm of the nation’s oldest bank will now provide federal, state and local governments, and corporate clients with a digital disbursement payment service, through its Vaia platform, which will allow the entities to distribute payments to unbanked individuals, or those without bank accounts.

This means governments will be able to pay out disaster relief payments digitally, in real time, to unbanked residents. BNY Mellon’s corporate clients will be able to pay their unbanked employees in real time, too.

For example, if a government agency needs to distribute payments to residents, that agency would provide residents’ information to BNY Mellon’s Vaia platform, which would direct the agency to the solutions offered by MoCaFi. MoCaFi would then send each resident a text or email with an enrollment code informing them that an account has been created for them and instructing them to download the MoCaFi app. The resident would enter the enrollment code into the app and be presented with immediate access to their money in the form of a digital payment card — complete with a 16-digit account number, CVC code, and expiry date. An identical physical card would be sent to them in the mail, but the digital card would be available immediately.

“Once you have that pipe, [the agency] can put recurring payments in the account,” said Wole Coaxum, who founded MoCaFi in 2015 to bring the nation’s unbanked and underbanked into the folds of the financial system.

While unbanked means someone doesn’t have a checking or savings account, underbanked means they don’t have sufficient access to financial services, such as loans, beyond having an account.

For BNY Mellon’s corporate clients, Treasury Services CEO Jennifer Barker told Yahoo! News that a large grocery store, for example, might have a portion of unbanked workers — workers more likely to cash their checks at predatory check cashers, who charge a fee for each check cashed. These people would also be brought into the financial fold through the BNY Mellon-MoCaFi partnership.

Coaxum started the company as Mobility Capital Finance in 2015 to address the racial wealth gap, following the 2014 social uprising tied to the death of Ferguson, Missouri, resident Michael Brown, who was Black.

Black and Hispanic householders were significantly more likely to be unbanked than white households, the Federal Deposit Insurance Corp. found, with 11.3% and 9.3% of Black and Hispanic households, respectively, not having a bank account compared to 2.1% of white households.

When Brown died, Coaxum was the head of sales and segment for JPMorgan’s business banking arm.

“The death of Michael Brown reminded me of the footage I saw in the civil rights documentary ‘Eyes on the Prize,’ which really captured the uprising around 1967-68. I thought to myself, ‘It’s 2014 and the Black community is fighting the same battles as in 1967-68. I felt like I was very fortunate to have the training to address these issues, and that I wanted to get into the game,” he said.

“The social justice framework from the death of Michael Brown — it needed an economic agenda to go with the social justice agenda. I felt I could really use my time and resources to lean into the economic justice agenda,” he said. “I’d much rather in my life try to tackle a problem and fail than to look back and to have not even tried.”

Income and education also correlate to whether a household is unbanked, the FDIC report shows.

Households with an annual income of less than $15,000 are the most likely to be unbanked, at 19.8%, and the percentage of those unbanked changes drastically as household income goes up. For households making between $15,000 and $30,000 annually, 9.2% are unbanked. For households making $75,000 or more, just 0.6% are unbanked.

And while 6.8% of households with a high school diploma are unbanked, 19.2% of households with no high school diploma are – and for households with a college degree, that number goes down to 0.9%.

A potential BNY Mellon-MoCaFi partnership had been in the works since 2022. Engaging the unbanked and underbanked has long been a challenge for the government and business entities BNY Mellon serves, Carl Slabicki, the bank’s co-head of global payments, told Banking Dive via email.

“Given MoCaFi’s focus is to engage, enroll, facilitate payments and offer incremental financial services to those individuals, it was a ‘win-win’ for all collective stakeholders to pair BNY Mellon’s industry scale disbursements offering for government entities and businesses to pay and drive traffic to MoCaFi’s platform, to help further accelerate adoption and the ability for those individuals to safely receive their funds and bring them into the financial services eco-system through registration with MoCaFi,” Slabicki said.

The BNY partnership allows MoCaFi to play in a larger space and have a positive financial effect on more people — particularly, communities of color. But it isn’t the fintech’s breakthrough with one of the nation’s largest banks. MoCaFi inked a deal with Wells Fargo that allows users to access the bank’s ATMs for free. The fintech has also disbursed at least $100 million in guaranteed income, emergency rental assistance and other cash assistance programs.

MoCaFi made Forbes Fintech 50 and Fortune’s Impact 20 in 2021, and the company recently raised a $23.5 million Series B round. Coaxum said MoCaFi will use the funds to further its mission of helping underserved communities create wealth through better access to public, private and social capital. 

As the Consumer Financial Protection Bureau crafts rules around consumers’ rights to access and share their financial information, fintech Pinwheel is pushing for payroll data to be included in the agency’s definition of consumer financial data.

Pinwheel, which provides a tool for banks and fintechs to allow consumers to connect their payroll accounts to any app, has built its platform around the notion that consumers can improve their credit scores by leveraging their income data.

Like checking account or lending data, a consumer’s payroll data provides insight into their financial life, and should be included in upcoming CFPB regulations aimed at protecting consumers’ rights to access information about themselves, said Kurtis Lin, Pinwheel’s co-founder and CEO.

“It really pushes for this idea of account portability, which has kind of been a holy grail in the industry for a long time,” said Lin on the CFPB’s effort to codify financial data rights policies, an authority Congress granted the bureau under Section 1033 of the Dodd-Frank Act in 2010. “We're finally starting to see the CFPB move with some urgency on this, and we're really excited to play a strong role in this.”

Income data can help extend credit to consumers who lack robust credit scores, but would otherwise be good borrowers, Lin said. 

“A good number of folks who work in the country today may not have large credit profiles, and so they're barred from access to affordable credit products, even though they may actually be really responsible borrowers,” he said.

In December, the New York City-based fintech tapped Raj Date, who served as deputy director of the CFPB from 2010 to 2013, to be an adviser to the firm ahead of the bureau’s upcoming rulemaking. 

Date is also an investor in Pinwheel.

Excluding payroll data from Section 1033 would be antithetical to the premise of implementing a rule around open banking, Date said.

“Data about your money and how you get it and what you do with it belongs to you. And you ought to be able to decide the circumstances by which it is shared, if at all,” he said. “And you ought to therefore be able to extract some value from its existence. That’s just as true for payroll data as it is for checking account transaction data. I would be surprised and disappointed if the policy judgments were to land elsewhere.”

Payroll data is something most consumers want to leverage to their advantage and are comfortable sharing with financial apps, according to Lin, who said a survey Pinwheel commissioned last year backs up this claim. 

The online survey of more than 2,000 participants found that 80% of consumers were comfortable sharing their income and payroll data if it meant having access to better financial products, he said.

Including payroll data in the CFPB’s open banking rulemaking should be an obvious move, Lin said.

“How could you possibly argue that how much you make isn’t your data?” he said. “From where we sit, it feels like a no-brainer.”

But implementing new policies takes time, Lin said. The CFPB is expected to issue a proposal on the data privacy rule this year, with finalization and implementation planned for 2024.

In the meantime, Pinwheel is focusing on cultivating its open banking-like structure by furthering its partnerships with payroll providers, Lin said.

“This is something we’re hyper-focused on this year, which will help more broadly unlock consumer-permissioned income data,” he said. “This has two benefits. It will give consumers more control over their financial info and enable banks and fintechs to use this data to build more robust offerings.” 

Atlanta-based Greenlight is making its kid-focused banking services available to traditional financial institutions, the fintech announced in March.

The program, called Greenlight for Banks, allows banks and credit unions to offer the fintech’s suite of banking and education products to their customers through a co-branded landing page and app.

Over half a dozen firms, including Morgan Stanley, WaFd Bank and Community Financial Credit Union have partnered with Greenlight to offer the fintech’s services to their customers, said Matt Wolf, Greenlight’s senior vice president of business development.

Greenlight is actively involved in discussions with over 100 financial institutions, he added.

“In those conversations with financial institutions, we found that many don't have the expertise or resources to create a compelling digital banking experience for the next generation,” Wolf said. “We've designed something that really helps financial institutions, seamlessly integrate family banking into their own ecosystems.”

Greenlight, which was co-founded by Tim Sheehan and Johnson Cook, launched a debit card for kids in 2017.

The fintech has since expanded its offerings to include savings and investing for children, while allowing parents to automate allowances and supervise their dependents’ money management.  

In January, Greenlight launched a financial literacy game called Level Up, which banks and credit unions will also be able to make available to their own customers through Greenlight for Banks.

Lenders who partner with Greenlight have the option to hold the deposits gathered by the fintech, or allow them to be held by Greenlight’s partner bank, Community Federal Savings Bank, which issues the Greenlight debit card.

While banks are eager to launch products that reach the next generation of customers, bank accounts geared toward children typically don’t have high balances, meaning, they won’t be large deposit generators for banks, Wolf said.

“A couple transactions a month is probably not going to really rise to the top of their technology roadmap and prioritization,” Wolf said.

But offering services targeted toward kids and their parents allows a bank or credit union to create deep and potentially long-lasting relationships, Wolf added.

“As it pertains to the child, they're getting exposed to the financial institution’s brand very early on. And for the parent, they're recognizing that this is a great service they're getting for free because they have that banking relationship with their credit union or bank,” he said.

The service is free for customers, Wolf said. Institutions that partner with Greenlight pay the fintech a monthly fee, based on the size of the firm, he added.

“Neobanks are coming after Gen Z really aggressively. This gives banks and credit unions of all sizes the ability to have relationships with that next generation before they start getting bombarded by neobanks and others that have a young adult banking relationship,” he said.

Greenlight’s effort to offer its youth and family tailored services to traditional firms follows a tie-up it launched with JPMorgan Chase in 2020. 

JPMorgan partnered with the fintech in October 2020 to offer an account designed for kids called Chase First Banking.

The account reached 1 million users by April 2022, the bank said during its investor day last year.

Amid Greenlight’s new business-to-business focus, it still plans to grow its direct-to-consumer model, where users pay the fintech a monthly subscription to use its services directly.

But the fintech recognizes the reach traditional banks have to offer, Wolf said. 

“We think that can really help us reach the most families,” said Wolf, on partnering with traditional institutions. “It's too big an opportunity to ignore.”

Greenlight, which is not yet profitable, has raised over $556 million in funding, according to Crunchbase. The fintech’s most recent investors include venture capital firms Andreessen Horowitz and Canapi Ventures.

The fintech said Greenlight for Banks is expected aid its efforts to reach profitability. 

“Our multiple paths to market, across our direct-to-consumer and partner programs, represent a distinct advantage and allow us to meet the evolving needs of our families where they are through a combination of new products and diverse distribution channels,” Greenlight said in a statement.

Greenwood, a fintech that provides banking services to Black and Latinx communities, acquired fellow affinity neobank Kinly for an undisclosed amount, Greenwood announced in May.

The acquisition merges two neobanks that share a similar mission. Both fintechs launched in 2020 with the goal to help underserved communities build generational wealth. 

“Kinly has always shared in our commitment to building a more transparent banking experience for Black Americans,” Greenwood Chair Ryan Glover, an Atlanta-based entrepreneur and founder of Bounce TV, said in a statement. 

Glover said the deal represents a massive milestone for Greenwood, which he co-founded alongside civil rights leader Andrew Young, tech entrepreneur and investor Paul Judge and rapper and activist Michael “Killer Mike” Render. 

“In partnership with the Kinly team, we plan to grow our footprint and expand our services to provide best-in-class experiences for Black and brown families and businesses,” Glover said.

Greenwood said the deal adds 300,000 Kinly community members to the Atlanta-based firm’s platform. Greenwood, which in April ended its waitlist for the first time since its launch three years ago, has 150,000 banking customers, Glover told The Atlanta Journal-Constitution.

The fintech, however, claims it has a larger community of 1 million members that encompass the entertainment and career network it has built over the past year. 

As part of the acquisition, Donald Hawkins, founder and CEO of Kinly, will join Greenwood’s executive management team as vice president. All Kinly accounts will transition to Greenwood and its banking partner, Coastal Community Bank, Greenwood said.

“Kinly’s mission of financial empowerment and wealth-building stems from lessons learned from Black America’s history,” Hawkins said in a statement. “The needs of our communities are many and I couldn’t be more excited to combine efforts with Greenwood to create lasting generational change.”

Kinly, formerly known as First Boulevard, has secured $20 million in investment since its launch.

Buying spree

The deal marks the third purchase for Greenwood in the past year, and the fourth since its launch in 2020.

Since its inception, the neobank has acquired several companies that have expanded the platform’s offerings beyond financial services to include entertainment and career development geared toward Black and Brown communities.

The neobank in 2022 acquired networking hub and workspace The Gathering Spot, music festival A3C and professional networking platform Valence.

“Those partnerships create the largest combined fintech and community platform for Blacks and minorities, serving a community of over a million people,” Glover told Banking Dive.

Fresh off of closing a $45 million investment round led by Pendulum, Greenwood launched its Elevate membership subscription offering in December. 

The $200-a-month plan combines the neobank’s digital banking platform with access to private clubs, entertainment and professional networking sites.

Greenwood, which has raised over $80 million, has secured funding from the venture arms of some of the nation’s largest banks, including Bank of America, Citi, PNC, Truist and Wells Fargo.

Bunq, an Amsterdam-based neobank, is seeking a U.S. banking license, the company announced in April.

The firm had been in informal talks with the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Federal Reserve, Bunq told Banking Dive. 

“We’re going stateside with a simple proposition, offering a banking product that enables US consumers and businesses to bypass banking bureaucracy by opening a fully fledged international bank account in just 5 minutes,” Bunq CEO Ali Niknam wrote in a blog post.

Niknam said the neobank, which launched in 2012, is expanding to the U.S. to serve European expatriates “with strong ties to both sides of the Atlantic.” 

“The US is home to a community of nearly 5 million digital nomads,” he said. “We will introduce this large group of location-independent people to our proven, transparent and value-based banking model, one that gives them the freedom to live life on their own terms.”

The neobank reported its first quarterly profit of $2.5 million in the fourth quarter of 2022, according to Reuters. 

Bunq is hardly the only European neobank to eye the U.S. in recent years. The crowded market, however, has presented challenges for new players, which face stiff competition from traditional banks as well as other U.S.-based challenger banks.

Bunq’s pursuit of a banking license could also prove costly. Varo Bank, the first neobank to be granted a U.S. banking charter in 2020, spent nearly $100 million on the endeavor. 

Revolut, a U.K.-based neobank that launched in the U.S. in 2020, submitted a draft application with the FDIC and the California Department of Financial Protection and Innovation in March 2021 to obtain a banking license.

The company chose to apply for a charter in California because of the state’s close ties with the fintech industry, the firm’s former U.S. CEO, Ron Oliveira, told Banking Dive in 2021.

Meanwhile, some European neobanks have scaled back efforts to tackle the U.S. market.

Berlin-based N26 announced in November 2021 it would abandon efforts to expand in the U.S., ending a 2½-year stateside push that began when it launched its app to a 100,000-customer U.S. waitlist in July 2019. 

Monzo, another foreign challenger, has also pulled back efforts to capture the American market.

The U.K. neobank withdrew its application for a banking charter with the OCC in October 2021 after it became clear the regulator likely would not approve it, the fintech told the Financial Times.

Niknam, however, appears confident Bunq’s success in securing an EU-wide banking license through the Dutch regulator will help it win over regulatory counterparts in the U.S.

"The Dutch regulator is particularly difficult. They're globally known for being difficult and this raises some respect from the American authorities," Niknam told Business Insider.

ONE, a fintech owned by Walmart, is offering users a 5% annual percentage yield on savings accounts of up to $100,000, a source close to the company told Banking Dive in June.

The launch of the savings rate, which was first reported by Reuters, is more than 12 times the national average of 0.4%, according to Federal Deposit Insurance Corp. data, and comes as other digital platforms have boosted interest rates on savings accounts to lure new customers. 

To qualify for the 5% savings rate, which is available for new and existing customers, an account must receive a direct deposit of at least $500 the previous month, or have a total daily balance of $5,000, the source said.

Customers can also earn 5% on up to $100,000 when they automatically save part of their paycheck using the platform’s autosave feature, the source said. All other savings balances will continue to receive 1%.

Since acquiring ONE Finance in January 2022, Walmart has been quietly building out its own financial services “superapp.” 

Other features associated with the platform include 3% cash back at Walmart, overdraft protection, cash deposits and withdrawals and early access to paychecks.  

As ONE looks to grow in a competitive field, it plans to leverage Walmart’s distribution channels, and is rapidly expanding its presence in Walmart stores, the source said.

Walmart’s brand recognition and nationwide physical presence will likely give an edge on other fintechs which boast similar offerings, David Donovan, executive vice president of financial services for the Americas at digital consulting company Publicis Sapient, told Banking Dive in 2022.

The retailer has more than 4,700 locations in the U.S. and 90% of the U.S. population is within 10 minutes of a store, according to Forbes.

“They don’t need to go acquire customers, they already have them,” said Donovan, whose company worked to build Goldman Sachs’ consumer bank, Marcus. “They just have to roll that service out and make it really easy and simple. It’s like, build it, and they’ll come.”

Meanwhile, one of the competitors Walmart’s ONE will be up against is Apple, another well-established brand that is investing heavily in its own financial services products.

The tech giant in April launched a savings account with a 4.15% APY through its partnership with Goldman Sachs.