PYMNTS-MonitorEdge-May-2024

High-Yield Deposit Accounts Come To Robo-Advisory Service Betterment

High-yield checking and savings are now being offered by online wealth advisor Betterment as a way to attract new customers. 

“It’s really hard for banks to follow us here,” Betterment founder and CEO Jon Stein told CNBC. “If you look at where the big banks and brokerages make most of their money, it’s in their retail savings accounts.”

The average national yield of savings accounts is 0.10%, whereas Betterment’s annual yield is 2.69%. Profits from the new offerings will come from debit card interchange fees, the article said.

Like other FinTechs, Betterment will partner with FDIC-insured institutions since it doesn’t have a bank charter. Checking accounts will be insured up to $250,000 and savings accounts up to $1 million.

Betterment has raised $275 million to date from investors like Citi Ventures and Menlo Ventures. It notched an $800 million valuation after its Series E funding round, the article said.

Although traditional financial institutions largely don’t consider FinTech firms as competition, both established and emerging FinTechs are well-positioned to capture traditional banking customers. Betterment is among several FinTech startups that have launched deposit account products. 

There continues to be much more collaboration between banks and FinTechs, which are not encumbered by legacy environments. Bigger banks were not running solutions in the public cloud, for instance, because they had a closed-loop environment — but FinTechs may be able to take a different approach. By collaborating with FinTechs, banks can bring a solution to market faster and offer it themselves.

AvidXchange, for instance, worked with Fifth Third Bank to enhance business-to-business (B2B) payments while leveraging the inherent capabilities in the RTP network from The Clearing House.

FinTechs and banks are working on a partnership model that may differ from how they historically collaborated. In this kind of model, FinTechs can provide white-label solutions to the banks. Their technology then works behind the scenes and serves as the engine powering the solution in a less costly environment, further suggesting that banks can benefit from working with FinTechs.

 

PYMNTS-MonitorEdge-May-2024