Why Consumers Need Digital Banks To Be Better, Not Just Cheaper

Not having enough money can be a very expensive — a genuine problem for the more than two-thirds of all American workers who report living paycheck to paycheck.

Having a simple bank checking account costs an average a monthly maintenance fee of $13.58 or $163 a year.  ATM fees, on the other hand, average around $4.66. Average overdraft fees are at $32.53, a slight decline year-on-year between 2017 and 2018, but still objectively high — and, statistically, more likely to affect low-income earners than higher-income earners.

In the general U.S. population, 18 percent report having an overdraft at least once in the last year, according to a Pew study. Consumers making less than $30,000 a year are twice as likely to incur an overdraft penalty fee than those who make more. Low-income households are also more likely to be “high frequency overdrafters” who run to a negative balance 14 or more times in a year, according to a different Pew study. High frequency overdrafters not only pay overdraft fees more often, they also pay more per overdraft event, an average of $95 when they have a negative balance, as opposed to the $51 faced by low frequency overdrafters.

And one can count all the ways this system is failing the majority of Americans living paycheck to paycheck. There is the $100 billion in banks fees being paid out by customer annually, or the 12 million Americans who are taking out payday loans because they have run out of options.

High fees and high costs of access in trade for basic services isn’t a setup that works for the majority of Americans. That is why, MoneyLion Founder and CEO Dee Choubey said, his firm has set out to build a bank that isn’t a bank.

In the sense that it is a bank, MoneyLion takes deposits and makes sure those deposits are FDIC insured through a backend partnership with a traditional  bank, Choubey said. But the vision for Money Lion isn’t to be a bank in the best understood version of the term, he said, because “the last thing anyone needs is another traditional bank.”

And what consumers really don’t need are mobile banks that are designed to be digitized version of traditional banks, with perhaps low fees or no fees. That is a good start, from MoneyLion’s point of view, because it allows customers to take a big first step away from paying money to have use their money, but it’s not enough.

What consumers actually need isn’t just to pay less, but to actually get more and get more that is relevant.

What MoneyLion is designed to do is offer a mobile financial services platform that combines deposit accounts with low dollar lending, investing and wealth management services. The platform also allows users to connect all their bank accounts and credit cards and receive personalized advice on how to better spend their money.

“Said simply, we are bundling together, investing, credit, financial literacy and lifestyle together in one packet,” Choubey said, noting that what MoneyLion hears over and over again from consumers is that they most want, and find most lacking in their financial services products, the ability to centrally manage them all. There are a lot of disparate tools taking a bite of one of these pieces in a mobile context, he said, but the simple fact of having to manage three to five apps will rapidly discourage consumers from doing anything at all.

Consumers also need transparency in their services — since the most frequently reported complaints about banking fees aren’t that they are high, but that they are base unpredictable. In MoneyLion’s case the pricing comes in two tiers, free or $19.99 per month.

Consumers can get free checking and savings accounts, free access to a network of 55,000 ATMS, zero percent APR credit-check-free loans of $250 or less (with direct deposit) and free zero-fee managed investing. Members who pay have higher amount loans available (for 6 percent APR), credit-building tools and the ability to offset the month fee through engaging with the app.

Consumers, Choubey said, are motivated first by lowering their costs, but not only by that. Customers who find that a product actually makes their financial life easier to manage in ways that are concrete and instantly observable to them, he said, will use that product.

The goal now for the firm is getting the product into more consumers’ hands. MoneyLion has recently completed a $100 million Series C funding round which the firm has publicly confirmed will go largely toward building additional scale in the U.S.