Pandemic Leveling Playing Field Between Banks And FinTechs?

The battle between traditional financial institutions (FIs) and tech-nimble FinTech challengers has been a pitched one.

As marquee names like Morgan Stanley, Citi and others have competed with the likes of Robinhood for share of mind and share of wallet, the battle lines have been drawn around delivering services digitally, sometimes in an automated fashion. Online-only companies have promised higher fees on accounts, zero commissions on investment trades and app-based ecosystems to deliver those offerings.

But according to at least some observers, the pendulum has been swinging toward the traditional behemoths of banking – those with physical branches and call centers – as the coronavirus and the recession have spurred individuals, families and enterprises to seek safe haven with big, time-tested firms.

As reported by Bloomberg, Morgan Stanley CEO James Gorman said at his company’s U.S. Financials Conference on Tuesday (June 9) that “there were some major outages with some of the new online robo players. That doesn’t work. You can’t not access your account for several days.”

That statement seems to be a nod to outages seen with online brokerage Robinhood over the past several months. In the latest such event, earlier this month, on June 3, the app was down, and at least some options orders could not be executed. In other examples, back in March, the company logged three outages in a single week.

In some evidence from that Morgan Stanley conference that larger, traditional players have been gaining ground, Dean Athanasia, who helms consumer and small business operations at Bank of America, said customers had opened as many as 300,000 new investment accounts on the Merrill Edge platform. And separately, Citizens Financial Group said through remarks by Brendan Coughlin, head of consumer banking, that in the mortgage industry, “a lot of the non-banks are having some real challenges at the moment.”

Draw a line to connect those comments and it seems that consumers gravitate toward the comforts of business models that have been tested by recessions.

As we noted earlier this year in the AskPYMNTS series report, “What is a Bank: What U.S. Consumers Think About the Key Issues Driving the Connected Economy,” some old-school definitions of banking hold sway when individuals are asked what banking is all about.

The roughly 1,300 consumers we surveyed said that 36.8 percent see banks as institutions that store money securely, roughly 35 percent state that banks are institutions for saving and earning interest on deposits, and another 27 percent state that banks are institutions that provide loans and make investments.

And, as the Federal Reserve reported last week, deposits at U.S. commercial banks were up 5.3 percent through the middle of March, and the 25 largest banks in the U.S. have gained $500 billion in deposits since the end of 2019.