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Have Banks Capitulated on Payments?
When it comes to transferring money or making a purchase, nearly half of bank customers don’t choose their bank.
For the first time, the Federal Deposit Insurance Corp. included questions about households’ use of nonbank online payment services in its 2021 National Survey of Unbanked and Underbanked Households. Examples of these services, which offer consumers a way to send, receive and store money, include PayPal Holdings, its subsidiary Venmo and Block’s Cash App; households were instructed to exclude Zelle, since it is a service provided by banks. The data gathered includes banked and under- or unbanked households, along with other demographic information.
The FDIC found that 47.7% of households with a bank account used one of these services during the survey period. Banked households, in fact, were the mostly likely to use them, and users are some of the most desirable for banks. They earn the highest incomes, are college-educated and young. They use these payment services as a complement to their bank accounts, primarily to send and receive money, or make online purchases.
Almost three-quarters of these households linked their retail bank account to the payment service, indicating consumers’ increasing comfort and adaptation. There can be little doubt why: Fintechs arguably were the first address the modern problem of paying someone back by eliminating a number of pain points and minimizing others. Customers no longer need to mess around with checks, ACH transfers or bill pay. They sometimes don’t even need their debit or credit card.
These services could make funds less sticky if they’re easier to move around, a potential scenario furthered by the fact that Venmo and Cash App now offer branded debit cards and can accept direct deposits. And this holiday season, Venmo’s 90 million customers will be able to pay for purchases on Amazon.com using the service — no debit or credit card required — in addition to Walmart.
Community banks may underappreciate the implications of numerous nonbank payment services and apps connected to their customers’ accounts. Less than a third of bank senior executives and board members believe that payments providers like PayPal or Square pose a significant competitive threat to their institution, according to Bank Director’s 2022 Technology Survey. But it is clear that when it comes to payments, consumers are perfectly fine not relying on their bank to move their money.
• Kiah Lau Haslett, managing editor for Bank Director
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